AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v John David RICH & Ors

Admissibility (a) To be admissible under s79 of the Evidence Act, it is not necessary that expert evidence disclose the true factual basis upon which it was first formed. Expert evidence is admissible if it discloses the facts and reasoning process that the expert asserts justify the opinions expressed. [135] Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 explained. HG v The Queen (1999) 197 CLR 414 followed. Davie v Lord Provost, Magistrates and Councillors of the City of Edinburgh 1953 SC 34; R v Gilfoyle [2001] 2 Cr App R 57 at 67; Ramsay v Watson (1961) 108 CLR 642; Steffen v Ruban (1966) 84 WN (Pt 1) NSW 264; [1966] 2 NSWR 622; R v Turner [1975] QB 834; R v Fowler (1985) 39 SASR 440; Holtman v Sampson [1985] 2 Qd R 472; Bell v F S & U Industrial Benefit Society Ltd (Unreported, Supreme Court of New South Wales, McLelland J, 9 September 1987); Lewis v The Queen (1987) 88 FLR 104; Trade Practices Commission v Arnotts Ltd (No 5) (1990) 21 FCR 324; Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313; National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The 'Ikarian Reefer' ) [1993] 2 Lloyds Rep 68; Clough v Tameside and Glossop Health Authority [1998] 1 WLR 1478; Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370; Pollock v Wellington (1996) 15 WAR 1 considered. (b) The finding of the trial judge that the Carter Report set out the facts asserted by Mr Carter to support his opinion, by a process of reasoning also set out in the Report, should have lead to the conclusion that the Report was admissible. [136]

Discretion (a) The balancing exercise required in the exercise of s135 discretion requires the Court to evaluate the probative value of the Carter Report. [164] (b) The trial judge did not conduct an analysis of the probative value of the opinions expressed in the Report. Rather, his Honour proceeded on the basis that because of the risk that the use of extraneous material was pervasive, and that this was sufficient to limit the Report’s probative value. [161], [165] (c) The trial judge’s failure to conduct any systematic analysis of the Report’s probative value was a fundamental error, such as to require the Court to intervene. [163] (d) The history of the manner in which Mr Carter formed his opinions is a relevant consideration going to weight. However, the degree to which it affects the weight of an opinion must depend on the force of the evidence which the expert has given to the effect that, by applying a certain process of reasoning to certain specific facts, a particular conclusion should be drawn. This requires an assessment of the strength of the asserted opinions. [167]–[169] (e) His Honour erred in proceeding on the assumption that access to excluded material would itself be of major, indeed, determinative significance in assessing the probative value of Mr Carter’s evidence. [170] Elliott v Ivey (Unreported, Supreme Court of New South Wales, Sperling J, 23 April 1998) considered. (f) Where the documents speak for themselves, or their meaning and significance is established by other evidence, the historical use of excluded material may be of little, if any, significance. Where such appears to be the case, unfair prejudice, confusion and waste of time can, and should, be minimised by refusing to allow extensive cross-examination. [179] (g) Generally, Mr Carter could not give evidence about what documents were, only about what documents mean. Where the nature of a document is not proven, the opinion based upon it is entitled to very little, if any, weight. [51], [153]–[155] Orders 1 Leave to appeal granted. 2 Direct the Appellant to file a Notice of Appeal within 7 days. 3 Appeal allowed. 4 Set aside Austin J’s ruling that the Carter Report is inadmissible or should be excluded. 5 Opponents/Respondents to pay Claimants/Appellant’s costs of the Appeal. 6 Remit the issue of costs at first instance to Austin J. - 71 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40193/05 SPIGELMAN CJ GILES JA IPP JA Friday 20 May 2005 AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v John David RICH & Ors Judgment 1 SPIGELMAN CJ: The Australian Securities and Investment Commission (“ASIC”) has instituted proceedings in the Court seeking declarations of contravention of s180 of the Corporations Act 2001 (Cth) which requires directors and other officers of a corporation to act with a reasonable degree of care and diligence. It seeks orders prohibiting the defendants Mr Rich, who was one of the joint managing directors of One.Tel Limited, and Mr Silbermann, who was the finance director of that company, from managing corporations. It also seeks an order that they pay compensation in an amount which ASIC asserts is approximately $92 million. 2 The case has been proceeding for some months before Justice Austin, and his Honour has been called upon to make a number of interlocutory rulings. Before this Court is an application for leave to appeal and an appeal (if leave is granted) against a judgment which his Honour delivered on 7 March 2005 holding that certain expert accounting and financial evidence (“the Carter Report”) was inadmissible as a whole or, in the alternative, should be excluded as a whole pursuant to s135 of the Evidence Act 1995. The Carter Report was concerned to identify the true financial position of the One.Tel group of companies (“the Group”) at relevant times, to identify information which ought to have been supplied to directors and to quantify the compensation which ASIC seeks the Respondents to pay.

As will appear, the issues raised are of considerable significance for the proceedings and involve questions of law that this Court should determine. Leave to appeal should be granted to ASIC (“the Appellant”).

Mr Carter is a partner of PricewaterhouseCoopers (“PwC”). The Carter Report was dated 31 May 2002. His Honour dealt with the admissibility of the Carter Report as a whole. His Honour indicated that, if it had been admitted, it would have been necessary to undertake a detailed review of objections to particular parts of the Report on a “paragraph by paragraph” basis. In the event his Honour did not need to undertake that task.

The Carter Report comprised 402 paragraphs on 155 pages, together with 15 appendices and 12 volumes of supporting documentation. It dealt with the Group’s financial position under the headings Cash and Creditors, Debtors, and Earnings. It identified the cash deficiency of the Group, the reasons for the Group’s financial position, the nature of management reporting to the Board, and the reduction in net worth of the Group between 28 February 2001 and the appointment of administrators on 29 May 2001, the last matter being relevant to the quantification of the compensation claim.

His Honour outlined the general nature of the Carter Report and ASIC’s reliance upon it in the following passage: “[42] … ASIC wishes to make out, in very considerable detail, a case which compares the financial position of the company and the Group, as presented by One.Tel management including the defendants to the One.Tel board, with the true financial position, month by month during the January-May period – with particular emphasis on earnings, cashflow, overdue creditors and debtors/billings. If admissible, Mr Carter’s evidence as the actual financial position of the company and the Group, dealing in detail with these matters, would be a very important part of ASIC’s case. ASIC wishes to rely not only on Mr Carter’s overall opinions as to the financial position at specified points, but also on various intermediate stages in his reasoning, in which he asserts specific and detailed propositions about the company’s position at particular times, which are not merely extracts from or summaries of the documents to which he had regard, but are purportedly based on calculations and inferences made by him. ASIC wishes to say that, because the documents upon which Mr Carter bases his views were available to the defendants, they knew or had the means of knowing, and ought to have known, the true position. [43] Other components of the case relate to whether, in various ways, the board of directors was provided with sufficient information during the relevant period, and whether adequate systems were in place to produce the information needed to make proper assessments. Mr Carter expresses opinions about these matters, and once again there is a large body of intermediate reasoning in which he asserts specific and detailed propositions, purportedly based on calculations and inferences from documents.”

With respect to the propositions of an intermediate kind his Honour also said: “[53] The bulk of the Report is the presentation of Mr Carter’s analysis and reasoning proffered to support his answers to ASIC’s questions. As previously indicated, much of the reasoning involves the development of intermediate propositions of a very specific kind about aspects of the financial position at stated points. These propositions are ‘intermediate’ in the sense that they purport to provide a bridge, or more accurately a series of connecting bridges, between the documentary evidence and the ultimate conclusions expressed in answer to ASIC’s questions. The intermediate propositions often have the appearance of propositions of fact, but a full reading of the Report (including footnotes) shows that those propositions purport to be derived from the documents, through processes of reasoning, such as by inference or through calculations.”

I will set out below his Honour’s findings of primary fact which are of significance for the issues which arise on appeal. These issues relate primarily to the circumstance that Mr Carter, and other persons from PwC who worked with him, were closely involved in the process of investigation of the circumstances which eventually led to these proceedings. They were also involved in the determination of what proceedings would be brought. During this period Mr Carter became privy to a substantial body of information. Subsequently a decision was taken that he would become the expert to give opinion evidence in the proceedings. Thereafter he played no further role in the preparation of the case, although others who had worked with him until that time continued to play such a role, as well as assisting him in the preparation of his Report.

Draft documents were brought into existence covering the subject matter of what became the Carter Report. These drafts were based on a broad range of information including examinations pursuant to s19 of the Australian Securities and Investments Commission Act 2001 (Cth) of persons associated with One.Tel and various statements taken from employees of One.Tel. Many of the opinions that Mr Carter was called upon to express in the final Carter Report had also been expressed at an earlier stage, when he was able to and did draw on the full body of information that had been accumulated or generated for purposes of the investigation and the proceedings.

At a certain point, however, Mr Carter was asked to exclude much of this material from the information base upon which he would give evidence in the case itself. Accordingly, he was required to go through a process of redetermining the opinions, including the intermediate propositions identified by Austin J to which I have referred above, on the basis of a narrower range of information, primarily business records of One.Tel. Whether he had, or indeed was able to, put out of his mind the broad range of information that he had once had available to him, on the basis of which he had originally formed the opinions which he ultimately expressed, was the central consideration in the issues that fell to be determined by Austin J. His Honour’s findings in this respect were the basis of his rejection of the Carter Report. Mr Carter’s Access to Information

His Honour’s findings of fact about Mr Carter’s access to information and the use to which he put it refer to a number of persons who should be identified: Ashley, Elizabeth – Former One.Tel billing analyst. Basman, Mark – Former One.Tel Collections and Credit Manager. Croft, Stephanie – ASIC accountant; author of a report regarding One.Tel provided to Mr Carter on about 19 October 2001. Greaves, John – Former Chairman of directors of One.Tel. Green, Martin – Publishing and Broadcasting Ltd (“PBL”) employee. Hall, Chris – PwC staff member. Holmes, Timothy – Former One.Tel Group Financial Controller. Joukhadar, Emily – Former One.Tel employee. Keeling, Bradley – Former One.Tel joint managing director. Miller, Darren – PBL employee. Nassif, Natasha – Former One.Tel management accountant. Packer, James – Former One.Tel non-executive director. Randall, Samantha – Former One.Tel Treasury Manager. Redfern, Jan – ASIC Deputy Director of Enforcement and solicitor on the record. Reynolds, Cassandra – Senior employee of PwC, working with Mr Carter. Rock, Gennessee – PwC staff member. Thomas, Nicola – Former One.Tel Accounts Payable manager for Australian operations. Walford, Julie – PwC staff member. Werner, Christian – Former One.Tel Financial Controller for European Operations.

The relevant chronology of events can be summarised from his Honour’s findings. (Paragraph references are to his Honour’s judgment): 31.5.01 - PwC (Mr Carter supervising) was retained by ASIC to provide “investigative assistance” in connection with the execution of search warrants. [62]-[63] 19.10.01 - At least six folders of documents were provided to Mr Carter for review, including a copy of a document called the “Consolidation Report” dated 3 October 2001 which summarised the results of the investigation to that time (including expressions of opinion, statements of concern and commentaries on evidence); together with substantial attachments, including s19 examination transcripts of Mr Packer, Mr Kleeman, Mr Rich and Mr Keeling, and draft statements of former finance staff of One.Tel including Mr Holmes, Ms Randall, Ms Thomas, Ms Nassif and Ms Ashley, and reports prepared by Mr Kleeman and by Ms Croft. [74] 19.10.01-21.11.01 - During this period: (a) Mr Carter and his team were extensively involved in the investigation process because of their forensic accounting work [69]; (b) Mr Carter and his staff (Ms Reynolds, Mr Hall and Ms Rock) were substantially treated as an integral part of the ASIC investigation team, with a room allocated to them at ASIC’s offices which they attended frequently [75]; (c) Mr Carter and his staff met daily and were permitted to select documents they thought relevant from the electronic and hard copy documents that ASIC had, including documents received from One.Tel, PBL and News Ltd, s19 examinations, witness statements and draft witness statements prepared by ASIC [75]; (d) Mr Carter attended a number of conferences with ASIC’s solicitors and Counsel and was provided with advices of Counsel which he read. He also participated in discussions with ASIC and Counsel about the relevant issues in bringing proceedings and the type of approach that might be taken in civil penalty proceedings against directors [77]; (e) Mr Carter and other members of the PwC team were involved in planning-sessions as to who would be the subject of s19 examinations, and Mr Carter and Ms Reynolds helped formulate the questions to be put in those examinations [84]; (f) members of the PwC team spoke with former employees of One.Tel including Mr Holmes [86]; (g) Mr Carter and his staff discussed with each other what had happened at the s19 examinations and the interviews that they had attended [86]. His Honour held that reliance on s19 examinations was “specially significant” because answers made under a claim to privilege would not be admissible under s68 of the Australian Securities and Investments Commission Act 2001 (Cth) [92]; (h) there was an interplay between examining documents and obtaining explanations from former One.Tel staff about the meaning of documents, their context and their internal use at One.Tel, either in interviews or s19 examinations [87]; and (i) Mr Carter (125.5 hours) and his staff (Ms Reynolds (240.5 hours) and others) were occupied for just over a month in an extensive review of the information that had been made available to them by ASIC [88]; and (j) Mr Carter had a substantial [87] and deep [92] degree of involvement in the ASIC investigation, and access to information about ASIC’s evolving ideas as well as access to documents, interviews and examinations relevant to the investigations. [92] 24.10.01 - Mr Carter met with Mr Pembroke SC, Ms Redfern and other ASIC personnel. There was a discussion at the meeting about the nature of the case that ASIC would pursue, which of two ways the case should be put (the approach adopted being the one said to be favoured by Mr Carter, as well as Mr Pembroke SC and Ms Rees), and the work to be undertaken by PwC to assist in bringing such a proceeding. Mr Carter’s view was that PwC had been engaged following the meeting to assist ASIC in its deliberations whether or not to proceed with the civil penalty proceedings. [78] 29.10.01 - Meeting between PwC and ASIC at which PwC was given a number of tasks and in relation to which Mr Carter and Ms Reynolds prepared a checklist of issues. The checklist (which Mr Carter agreed accurately reflected what PwC was doing at that time) began: “The key forensic accounting issues relating to the One.Tel investigation are set out below. We wish to gather as much evidence as possible in relation to these and especially Messrs Rich and Keeling’s knowledge and the timing of that knowledge.” [79] 31.10.01 - Advice of Mr Pembroke SC describing causes of action and evidence that PwC should gather. Mr Carter read this and agreed in cross-examination that it may have influenced his approach as to the collection of evidence on which he had been asked to express opinions. [81] 31.10.01 - Meeting between ASIC, PwC and Counsel to ensure that PwC was “on track” with what ASIC needed done; followed by ASIC letter to PwC setting out the questions to be addressed by PwC. [80] 5.11.01 - A draft report of Mr Carter was circulated to ASIC, and Mr Carter gave a PowerPoint presentation to ASIC officers and to Counsel. Mr Pembroke SC asked Mr Carter to identify, inter alia, whether there was an obvious connection between negligence of the directors, the consequences that may flow to the company, and what happened to debtors. [82] 5.11.01 - Ms Reynolds attended the s19 examination for Mr Keeling. [84] 7.11.01 - Ms Reynolds attended the s19 examination of Mr Rich. [84] 9.11.01 - Ms Reynolds attended the s19 examination of Mr Kleeman. [84] 12.11.01 - Ms Reynolds attended the s19 examination of Mr Green. [84] 15.11.01 - Mr Carter made a further PowerPoint presentation to ASIC and Counsel. Ms Reynolds attended. [83] 15.11.01 - Mr Carter attended the s19 examination of Mr Miller. [84] 15.11.01 - Ms Rock of PwC interviewed Ms Joukhadar formerly of One.Tel. [86] 20.11.01 - Mr Carter interviewed Mr Basman and was active in asking questions, including questions about the collection profile summary documents. Those documents were at least in some respects not self-explanatory. Topics covered included credit checks and credit limits of customers, the process by which One.Tel checked adherence to credit limits, the percentage of collection of debts more than 90 days old and Mr Basman’s belief as to the percentage of debtors that was collectable. There was a lot about the documents which Mr Carter could understand without talking to Mr Basman. [85] This is one of the topics considered below under the heading: “The Four Examples”. The 21 November Report

On 21 November 2001 Mr Carter presented a Report to ASIC and Counsel with a PowerPoint presentation [89]. Ms Reynolds was also present [90]. The Report: (i) stated the results of the forensic accounting work that PwC had been retained to perform in circumstances where Mr Carter knew that it would likely to be used by ASIC in deciding whether to bring a proceeding, the nature of any proceeding and the identity of defendants [93]; (ii) comprised 90 pages and dealt with matters including the utility and adequacy of information provided to the board, and the knowledge of each director regarding One.Tel’s financial position from time to time (particularly with respect to the timing and content of market announcements), and reached a number of conclusions including those set out at [94] ([93] and [94]); (iii) included references to evidence not to be adduced in this proceeding, including transcripts of various s19 examinations [91]; (iv) noted that investigations were continuing and one area of further investigation was “refining findings in the light of further information arising from additional section 19 interviews with relevant parties” [91]; and (v) dealt with subject matter substantially the same as the Carter Report over a fairly wide field (which did not include matters going to actual knowledge of the directors and quantification of damages) [95].

For the period after the delivery of the 21 November Report, his Honour made the following findings: 22.11.01 - Mr Carter attended the s19 examination of Mr Miller. [84] 29.11.01 - Ms Reynolds attended the s19 examination of Mr Greaves. [84] 3.12.01 – ASIC National Enforcement Co-ordination Committee (“NECC”) meeting at which a decision was made to commence the present proceeding. The meeting was attended by Mr Carter, Ms Reynolds and Counsel. Mr Carter expressed opinions at the meeting on substantially the same subject matter as was ultimately addressed in the 31 May 2002 Carter Report. Mr Carter also made a PowerPoint presentation entitled “ Analysis of Damages” in which he made calculations based on an assumption that the non-executive directors had been misled. There was discussion about who should be joined as defendants [104], [106]. 4.12.01-12.12.01 - Mr Carter and his staff assisted in the preparation of the Statement of Claim. Mr Carter participated in several conferences with ASIC’s Counsel (4, 5, 6, 7, 11 and 12 December 2001). [107]-[109] 12.12.01 - Proceeding No. 5934 of 2001 commenced. [110] 13.12.01-1.2.02 - During this period: (a) Mr Carter continued to assist ASIC and his work contributed to the preparation of ASIC’s case. He and Ms Reynolds continued to use the office which ASIC provided to them until late December 2001. There was no restriction on the flow of information between Ms Reynolds and Mr Carter [110]; (b) PwC’s work included reviewing documentation, gathering further evidence (including interviewing various witnesses) and cross referencing all of the s19 examinations [111]; (c) Ms Reynolds had discussions with Mr Holmes about different accounts within the management accounts [111]; (d) Mr Carter and Ms Reynolds continued to have unrestricted access to, and used, information available to ASIC, and assisted ASIC to gather additional information [112].

At this point Mr Carter’s status was transmogrified to that of an expert witness. From 1 February 2002 Mr Carter’s role was confined to preparation of his expert’s report with the help from his assistants. [124] This was the date of the Letter of Engagement retaining Mr Carter for “preparation of a report providing independent expert opinions in relation to various matters relating to the activities and financial position of One.Tel, and the actions of certain of its directors”, and presentation of expert evidence to the Court in relation to those matters. [116]

His Honour found that Mr Carter’s staff continued to play a dual role. Those who assisted Mr Carter to draft his report (Ms Reynolds, Ms Rock, Ms Walford and other PwC personnel) were contemporaneously working for ASIC on other assignments in the preparation of the case and had close involvement with material they were later told to exclude. ([60], [127], [173](c) 6th dot point.)

In particular, Ms Reynolds’ assistance to ASIC in the preparation of its case was extensive. [129] Ms Reynolds gave evidence that on 22 February 2002 she was instructed by ASIC to keep her role separate from Mr Carter and not discuss details of the work she was doing for ASIC with him. Mr Carter’s evidence was that a mutual constraint to that effect commenced to operate from the beginning of February. [127] Mr Carter gave evidence that, to the extent that information was gained from Ms Reynolds’ work, he did not believe it had any impact on the contents of his report. [128]

His Honour made a number of findings about the overlap in the roles in the period between 1 February 2002 and 9 April 2002: (a) Mr Carter and his assistants continued to use the office that had been allocated to PwC at ASIC’s premises [137]; (b) Mr Carter had meetings with his staff who were assisting him to prepare the report including Ms Reynolds, Ms Rock and Ms Walford, although they were working on other assignments for ASIC as well [137]; (c) the involvement of Ms Reynolds, and to a lesser extent Ms Rock and Ms Walford, in the drafting of the report was extensive - they did the vast bulk of the initial drafting [125]; (d) Mr Carter recorded 35 hours and his assistants approximately 1,200 hours [125]; (e) Mr Carter had access to at least some of the material that Ms Reynolds and other members of the team had obtained in the course of their assignments for ASIC and which were kept among 43 volumes of working papers comprising, in an undifferentiated state, documents relating to Mr Carter’s reports and documents relating to other work being done by PwC personnel for ASIC [138]; (f) Ms Reynolds interviewed a number of former One.Tel finance staff, including Mr Holmes, Mr Werner and Ms Randall [129]. However, she did say that nothing Mr Holmes told her was of use [130]; (g) Ms Reynolds called Mr Holmes on occasions in order to ask him questions when she came across an issue she did not understand and spoke with him to obtain background information, such as general ledger information, and to discuss accounting issues in relation to the digital and fixed wire business [130]; (h) Ms Reynolds reviewed and commented upon draft affidavits of Mr Holmes, Ms Randall and Ms Ashley and of several major overseas creditors. She also reviewed United Kingdom documents and identified documents to be provided in a draft tender bundle in respect of the quantification of damages, prepared a table identifying what information each director had and what the significance of that information was, and reviewed the documents available to ASIC for relevance to the proceeding [131]; (i) Ms Reynolds discussed with Mr Carter information contained in the draft affidavits of some of One.Tel’s overseas creditors and Ms Ashley [137]; (j) Mr Carter was aware that Ms Reynolds was meeting with Mr Holmes and was interviewing Mr Werner [137]; (k) Mr Carter reviewed particular documents that he relied on for the purposes of his report with Ms Reynolds or other PwC personnel and could not remember what they told him about the documents [137]. He accepted that his assistants may have given him explanations of those documents that may have helped him but he added the qualification that he did not know that the explanations went beyond the face of the documents themselves [137]; (l) Mr Carter and his team had access to ASIC’s electronic and documentary material without restriction, except as to certain material relevant to a criminal investigation of Mr Silbermann in respect of a specific matter which did not lead to charges being laid [144]; and (m) Ms Reynolds was assisted in her understanding of some of the documents by her discussions with former One.Tel staff [141].

His Honour’s findings about the penultimate draft of the Report were: 5.4.02 - A well-advanced draft report, numbering 141 pages and dated 4 April 2002, was sent to Mr Carter at home for review over the weekend. Like the final report, it contained four sections and appendices [143]. Appendix B listed the following sources of information: (1) Documents contained in the One.Tel directory of ASIC’s Litigation Support System (2) Hard copy documents provided to ASIC by various parties in response to orders to produce (3) Reports prepared by staff of ASIC with respect to One.Tel, in particular, reports prepared by Ms Stephanie Croft and Mr Peter Connor (4) Transcripts of interviews conducted pursuant to s19 of Australian Securities and Investments Commissions Act, 1989 (“ASIC Act”), and (5) documents recovered through computer forensic processes. 9.4.02 - Draft of the Carter Report. [143], [161], [167]. Appendix B was “to be completed”. [145] 10.4.02 - The first three sections of the draft report were sent to ASIC and its legal advisers for review. [143] 22.4.02 - The fourth section of the draft report was sent to ASIC for review. [143]

The basis on which Mr Carter had proceeded was then changed. His Honour found: After the 9 April 2002 draft was delivered to ASIC Mr Carter was instructed by ASIC not to rely upon the contents of s19 examinations for the purposes of the report. [60],[159]-[160] Mid May 2002 - Mr Carter was instructed by ASIC to place no reliance, for the purposes of the report, upon information in affidavits, witness statements or drafts of them. [60], [160] Until that time Mr Carter considered himself free to use all information available to himself and his assistants. [164]

His Honour found that the information to be disregarded included information : (a) obtained personally by Mr Carter and Ms Reynolds during interviews and s19 examinations; ([173] (c), 1st dot point) (b) directed to assisting Mr Carter and his team to understand the meaning of documents, the methodology underpinning them and the use made of them internally at One.Tel; ([173] (c), 2nd dot point) (c) important to Mr Carter's general understanding of the financial position of One.Tel and information flow within it as well as the significance of particular documents. [103]

After ASIC’s instructions, the draft was revised to remove references to s19 examinations or information in affidavits, witness statements and drafts of them. Mr Carter "revisited" his opinions in the light of the instructions - the opinions expressed did not substantially change. However, the process of revision required, in one case, the removal of a portion of the Report because it was no longer possible for him to express the relevant opinion. [162], [163], [166]

Thereafter, the following occurred: 15.5.02-31.5.02 - During this period: (a) Ms Reynolds was involved in the finalisation of the report; and (b) there were daily team meetings between Mr Carter and his assistants. [176] shortly before 31.5.02 – Appendix B was collated. [178] 31.5.02 – the date of the Carter Report, the subject of his Honour’s ruling. [3], [44] The Four Examples

Mr Carter was subject to lengthy cross-examination on the voir dire with respect to four specific matters in his Report, which were said by the Respondent to be illustrative. Mr Carter did not have notice that he would be cross-examined on these particular matters of detail. After the conclusion of his evidence ASIC sought to read a further affidavit by Mr Carter explaining matters raised with respect to these matters. His Honour reserved on this application until his judgment. In the event His Honour held that he could determine the case without making any adverse findings with respect to the matters which Mr Carter sought to explain. Accordingly, his Honour did not admit the further evidence. His Honour said he did not rely on the four examples to reach his conclusion that Mr Carter must have had regard to excluded material. ([183] and [414])

His Honour said that without giving Mr Carter the opportunity to give further evidence, he would not “make findings as to the source of extraneous material” which, his Honour was able to conclude, he “must have taken into account”. [183] However, his Honour also said “… the four examples still need to be considered because they exhibit some features of the Report of general significance” [183]. The matters were of relevance to his Honour’s decision under s135 of the Evidence Act 1995.

The four examples were: (i) Dates on which management accounts were finalised. (ii) Shortfalls against budget. (iii) Deferred payments lists. (iv) Profile Summaries.

As to (i) the Carter Report made an assertion at par 388(b) that management accounts for digital and fixed wire business units were not produced on a timely basis. The Report gives a number of examples in support of this proposition.

The Respondents’ attack on this assertion was stated by Austin J in the following terms: “[190] … The defendants plead in their Defences that the management accounts in question were ‘drafts’ which were not ‘finalised’.”

His Honour noted that: “[191] … [T]he facts concerning the alleged untimeliness of the management accounts are an important part of Mr Carter’s reasoning process, because they contribute to his opinion that the board was not provided with timely, accurate and reliable information on earnings.”

His Honour noted at [192] that par 388(b) of the Report did not articulate the source for the assertion that it makes. Mr Carter was cross-examined on the voir dire about what the source of this assertion might be. After a lengthy process, summarised at [193] of the judgment, Mr Carter was unable to do so.

The Respondents submitted that the true source for this inference was information gleaned from former One.Tel employees.

His Honour concluded: “[196] … [O]n the evidence that is before me now, that the inference [that the true source was information gleaned from One.Tel employees] is made out, in the absence of further explanation by Mr Carter . The Report, as it stands without further supplementation, is defective because it does not identify the factual basis for paragraph 388(b) or the reasoning process by which a documentary source is provided for the statements in that paragraph. And it is significant, in terms of the exercise of discretion under s 135, that the defendants, in an effort to get to the bottom of what appeared to be a single, unexceptional statement of fact in the Report, engaged in a process of lengthy and detailed cross-examination over more than a day, and found it necessary to put before the court information (Mr Holmes' file note) which would not otherwise be evidence in the proceeding.” [Austin J’s emphasis.]

As to (ii), in section 3.3 of the Carter Report, Mr Carter identified a number of issues relating to the deterioration in the financial position of One.Tel in the period January to May 2001. His Honour said: “[198] … There, Mr Carter expresses the opinion that lower than budgeted revenue for the digital and fixed wire business during 2001 resulted from ‘a significantly lower than budgeted ARPU [Average Revenue Per User] per month’ (para 242), and that a major cause of the deterioration in the gross margin percentage for the digital and fixed wire business ‘was the change in sales composition for the digital and fixed wire business where a greater proportion of revenue was derived from low margin, even negative margin, sales such as local calls, compared to higher margin products such as long distance and international calls (para 247).”

His Honour noted that these findings were “an integral part of the reasoning process for explaining why One.Tel did not perform in 2001 according to its business plan” ([199]). The assertions to which his Honour makes reference in [198] are referenced to a document which his Honour refers to as “comparison.xls”. The document is undated, its author is not identified expressly, and it has neither heading nor title. His Honour refers to the document as “a deeply mysterious document to the uninitiated” (at [201]).

His Honour summarised the defendants’ submissions that Mr Carter must have made assumptions in drawing the inferences that he did from the document in the following terms: “[204] …Mr Carter must have assumed the following: (a) notwithstanding its appearance, comparison.xls was a final document on which it was appropriate to place reliance, rather than incomplete draft; (b) the figures in the document relate to the digital and fixed wire business unit; (c) the column ‘May’ is May 2000 and the columns ‘Jan’ and ‘Feb’ are January and February 2001; (d) the figures under the heading ‘Liz’ are actual figures for January and February 2001; (e) the correct figures for actual ARPU for January and February 2001 are those appearing under the column ‘Liz’ on page 4 0056 rather than the different figures appearing under the same column heading on page 4 0055; and (f) other figures in the document are irrelevant for the purposes of the opinions he has expressed.” [I note, parenthetically, that these are all assumptions about what the document is , rather than what it means .]

As his Honour noted at [205], “The Report does not articulate any of these matters as assumptions, and does not offer any explanation or justification for relying on comparison.xls without having addressed these matters.” The Respondents submitted that the Court should infer that the assumptions were made in reliance on Ms Ashley’s affidavit, or from information supplied by Mr Holmes.

His Honour found at [206] that Mr Carter had not been able to explain why comparison.xls should be regarded as a final and authoritative document. Nor did his Honour consider that it was clear that the document was, as the Report asserted, “an analysis of the digital and fixed wire business units earnings”. Similarly, the Respondents questioned how Mr Carter determined that Ms Ashley was the author of the document, where the only indication was the word “Liz” in the text of the document. However, his Honour found at [207]: “[207] … [I]t is not inconceivable that a reader of the document knew that Ms Ashley was the only potentially relevant person who might be called ‘Liz’ might have inferred from the document itself that she was its author.”

His Honour did not consider that he had been given a convincing explanation for Mr Carter’s treatment of the document as containing final figures (at [208]). However, his Honour noted that such knowledge could have come from a reading of Ms Ashley’s affidavit.

His Honour’s ultimate conclusions regarding the document called comparison.xls were: “[211] It seems to me appropriate to conclude, from an examination of the evidence and the document itself, without further supplementation, that Mr Carter's reliance on its propositions stated in the Report involved the conscious or unconscious acceptance by Mr Carter of facts about the nature and status of the document, and perhaps its authorship, not self-evident in the document itself. It is more likely than not, subject to any further evidence that Mr Carter might have given if he had been permitted to do so , that the source of these unstated facts was the evidence of Ms Ashley or Mr Holmes, or Ms Reynolds' discussions with one or both of them. Once again, it is noteworthy that the process leading to these conclusions has been a very lengthy one, which has involved the defendants running the forensic risk of putting before the court on the voir dire affidavit material from Ms Ashley which would otherwise [not?] (sic) be evidence in the proceeding.” [Emphasis added.]

As to (iii), the Carter Report made use of “deferred payments listings”, said to be documents in which Ms Randall recorded the company’s creditors that she had been instructed to exclude from her cash flow forecasts (see [212]).

His Honour described the conclusions that Mr Carter drew from these documents: “[213] Mr Carter expressed the opinion in his Report that there was within One.Tel ‘a systematic process of managing cash and creditors’ (para 127), which resulted in an ‘end of month [cash] balance that [had] been artificially maintained by deferring payments to creditors’ (para 130). He saw Ms Randall's deferred payments listings as an ‘indicator’ of this process (paras 140 and 141). [214] The importance of the deferred payments listings is evident from ASIC's opening, summarised in section 2. Mr Carter agreed in cross-examination that the opinion he expressed in reliance on those documents was ‘a significant point’ on a ‘serious matter’ (T 2513.20-42).”

His Honour described the Respondents’ submissions regarding the assumptions they said Mr Carter made in the following terms: “[217] … Mr Carter had implicitly assumed that: (a) the deferred payments listings related to March and April 2001; (b) the documents are not drafts; (c) they record historical facts, as distinct from something someone was thinking about doing; (d) they record payments that were actually ‘due and payable’, as distinct from payments which had been budgeted but had not fallen due, and invoices that were the subject of dispute; and (e) they were prepared by someone who knew the facts, and was therefore likely to be reliable.” [Again, these assumptions all relate to what the document is .]

The Respondents asserted that the true foundation for these assumptions was Ms Randall’s affidavit. His Honour agreed, concluding: “[222] … Mr Carter's reliance on its propositions stated in the Report (absence further supplementation)` [sic] involved apparently unconscious acceptance by him of facts, as enumerated in paragraphs (c) to (e) above, not self-evident in the document itself. It is more likely than not, subject to any further evidence that Mr Carter might have given if he had been permitted to do so , that the source of these unstated facts was the evidence of Ms Randall or Ms Reynolds' discussions with her. Once again, it is noteworthy that the process leading to these conclusions has been a very lengthy one, although in this case it does not seem to have involved the defendants taking a forensic risk by putting before the court evidence it would not otherwise have adduced.” [Emphasis added.]

There was a further criticism of Mr Carter based on the fact that par [141] of his Report, which asserts that the “majority” of the “deferred” payments were not paid prior to the group being placed in administration, was not sourced (see [223]). However, his Honour found at [226] that this statement “was not completely lacking in foundation”. I should also note that ASIC does propose to call Mrs Randall as a witness.

As to (iv), Mr Carter found in his Report that there was “inadequate provisioning made for doubtful debts during 2000 - 2001” (at [227] of Austin J’s judgment). The documents which Mr Carter used to form this conclusion are of two kinds, namely “profile summaries” and “collection profile summaries”. Austin J said the following about these documents: “[229] They appear ex facie to be analyses which classify unpaid debts according to how overdue that [sic] are (eg 30 days, 150 days, 300 days), and according to other matters such as whether a final demand has been made, whether there is a payment plan or promise of payments, whether the debtor is a slow player [sic, payer?], whether a judgment has been entered, and so on (although the categories are not uniform).”

His Honour described the Respondents’ attack on these assertions in the following terms: “[231] … Mr Carter had made the following assumptions about the documents, which were not disclosed in the Report: (a) that the summaries recorded the totality of the Australian trade debtors of One.Tel at the relevant dates; and (b) that documents entitled ‘profile summaries’ were prepared on the same basis as, and were directly comparable to, documents entitled ‘collection profile summaries’.”

It emerged during cross-examination that there existed various versions of these documents, incorporating different sets of figures. Mr Carter was unable to explain this (see [234]). [I note that this controversy also centres on what the documents are .]

His Honour found at [236] that Mr Carter appeared to have made the assumptions that the Respondents asserted he had made.

His Honour noted (at [237]) the further criticism by the Respondents that the footnote for an assertion that one of the primary causes of the deteriorating position with respect to debtors was the failure to enforce call restrictions for defaulting customers does not appear to support this statement. His Honour concluded at [238] that it is a “plausible inference” to draw that the true basis for this view might have been things told to Mr Carter by Mr Basman.

I have indicated above, with respect to each of the four matters, that many assumptions said to have been made by Mr Carter turn on what a document is rather than on what it means . Mr Carter could not give evidence of that character other than normally unhelpful evidence of what a document purports to be on its face. Unless the Appellant establishes what a document is - whether by means of the inferences available from the tender of a business record, by evidence of a system, by evidence relating to a specific document or otherwise - then the factual basis of Mr Carter’s opinions will not be established and, accordingly, his opinions in relevant respects will be entitled to little, if any, weight.

This was not the task undertaken by Austin J. Nor do I suggest that it was a task appropriate to be undertaken on a voir dire. His Honour’s decision turned on admissibility or, alternatively, on discretionary exclusion. Justice Austin’s Conclusions

His Honour held that Mr Carter was fully qualified to give evidence on the issues the subject of the Report. [389] His Honour rejected the suggestion that Mr Carter manifested bias of a character which could justify the rejection of the Report. His Honour held that the mere fact that he had been engaged in another capacity before becoming an expert witness would not justify rejection. [411]

It is of significance that his Honour found that the Carter Report did set out the statements, or assumptions, of fact on which the opinions purported to be based, together with the process of reasoning by which Mr Carter said he had reached the various opinions expressed in the Report.

This conclusion was expressed in a number of different ways by his Honour: “[387] The Report discloses a process of reasoning in which inferences are directly or indirectly made from the primary documents, so as to produce the intermediate propositions. The reasoning process includes inferences as to the meaning and interpretation of documents and inferences as to the significance of documents. …”

The intermediate propositions, to which his Honour referred, are statements which his Honour had characterised as expert opinions ([385]-[386]) and which were steps along the way to answering the general questions posed for him by ASIC. He said, in this regard: “[389] … By and large, it is a reasoned report, with propositions frequently supported by footnotes referring to documents or making explanatory comments. Inferences are explained, and the Report addresses matters within Mr Carter's field of specialised knowledge as delineated in his curriculum vitae. I can see no valid basis for a general objection to intermediate propositions simply on the ground that they are expressed as assertions of fact, since in my view the disclosed reasoning process exposes the matters of inference, and the court is presented with the means of properly categorising the propositions.” and “[402] My opinion is that, considered overall, the Carter Report presents a chain of reasoning leading to the ultimate opinions expressed in answer to ASIC's questions, and the steps in the reasoning process are related to Mr Carter's specialised knowledge as an accounting and financial expert (I put to one side the background and chronology in Part 2 of the Report). I agree with ASIC that, while it is up to management to make decisions from time to time as to provisions for doubtful debts, it is within the field of expertise of an accounting and financial expert to express his opinion, considering all relevant documentation, as to the adequacy of the provision for doubtful debts, along the way to forming a conclusion as to the financial health of the business enterprise. The same reasoning applies to the expression of opinions, from a financial point of view, as to management's dealings with creditors and arrangements for the deferral of payment of debts, and as to the adequacy of financial information provided by management to the board of directors.”

His Honour went on to explain the reference that he made in par [389] to “By and large”: “[390] … Viewing the Report as a whole there is an element of judgment or inference in what is said, rather than pure observation/calculation. There are, however, some intermediate propositions in the Report which do not fall within the general description of the Report in the last paragraph.”

His Honour went on in par [391] to identify the particular “intermediate propositions”, which he said were not properly supported and indicated that, if he had not rejected the Report as a whole, he would have rejected these specific parts of it. These matters were identified as falling within the four examples on which detailed cross-examination occurred. He left open the possibility that other matters could be found inadmissible on the same basis.

The term “By and large” also appears in pars [409] and [410] in, I believe, the same sense: “[409] The defendants submitted that Mr Carter's presentation of the intermediate propositions in the form of assertions of fact rather than as expressions of opinion led him to fail to disclose, or to disclose adequately, the factual basis and the reasoning process for his opinions. I do not agree that the formal structure of the Report or the presentation of intermediate opinions as if they were opinions of fact has led to any general failure to disclose the factual basis of the expert opinions. By and large, the nature of the intermediate propositions is adequately exposed by the place that they occupy in the reasoning process, and so the mischief that arises when an expert's report does not set out to distinguish between facts, assumptions and opinions and consequently fails to disclose adequately the factual basis and reasoning process, does not arise here.

His Honour concluded: [410] In my opinion there is no general formal or structural flaw in the Report that would prevent the court, reading the Report as a whole, to identify the factual basis and general reasoning process, including the intermediate inferences, that have led to Mr Carter's concluding opinions in answer to ASIC's questions.”

His Honour’s general findings that led to the rejection of the Carter Report are that the Report: (a) was completed after very substantial work by Mr Carter and his assistants over the period from October 2001 to May 2002 [176]; (b) included opinions on many matters that were substantially the same as opinions in the 21 November 2001 report [95]-[96], [173](c), 5th dot point), although a substantial component of the factual basis for the opinions expressed in the 21 November 2001 report was information later excluded from the Carter Report [101]; (c) took into account information not identified in Appendix B or elsewhere in the report, obtained by Mr Carter and his assistants in the course of other work for ASIC (alternatively, there was a substantial risk that this had occurred) [365], [378], [413]; and (d) does not adequately identify the true factual basis for the opinions expressed, or the true reasoning process by which those opinions were formed. The use of excluded material was probably unconscious [378], [407], [412], [415] and [416].

There are paragraphs in his Honour’s judgment where he refers only to a failure to identify underlying facts and other paragraphs in which he refers to both underlying facts and the true reasoning process. However expressed, I do not understand his Honour to suggest there was any material distinction between the two elements in terms of his Honour’s conclusion that there was a failure to disclose.

The findings of primary fact which I have outlined above formed the basis of these conclusions. Some of the critical stepping-stones should be set out at greater length.

His Honour referred to the relationship between the 21 November Report and the final Carter Report on a number of occasions. He said: “[95] The later Carter Report was prepared as an expert witness report for the purposes of the proceeding, but the subject matter is substantially the same as the 21 November report over a fairly wide field (excluding matters going to the actual knowledge of the directors and the quantification of damages) … [96] … Overall, there is a high degree of similarity in the approach, analysis and views expressed in the two documents.”

As noted above the 21 November Report was prepared by staff that had full access to the entire range of material, including that which Mr Carter was subsequently asked to set aside. His Honour made a clear finding that the 21 November Report was influential in the final Report.

His Honour found: “[126] I regard it as likely that the 21 November report was a significant influence on Ms Reynolds and the others in their preparation of the initial draft, for the following reasons. They had done a great deal of the work in preparation for the 21 November report and the investigation surrounding it. The 21 November report encapsulated the PwC team's views on a substantial range of matters that were also to be addressed in the Carter Report. It is plausible that they would have had regard to what was said in the 21 November report, and how it was said, in preparing the first draft of the new report. While Mr Carter did not agree that the 21 November report was used as the ‘starting point’ for the Carter Report (T 2457.11-36), and Ms Reynolds said it was easy to put the 21 November report out of her mind for the purpose of preparing the Carter Report (T 1289.40-46), some paragraphs of the 9 April draft, and indeed of the Carter Report itself, appear to be substantially identical with the corresponding sections of the 21 November report. In cross-examination, seven paragraphs were specifically put to Mr Carter, and he agreed that it appeared, in each case, that the paragraph in the Carter Report was derived from the paragraph in the 21 November report (T 2458.9, T 2469.41, T 2471.14, T 2472.5). Therefore it is clear from the evidence that seven paragraphs were expressly derived from the 21 November report. There may have been other express derivations, although Mr Carter said he did not believe they were substantial (T 2458.24). But at the very least, the opinions and reasoning processes contained in the 21 November report must have been at the forefront of the minds of those who prepared those parts of the initial draft that were dealing with substantially the same subject matter as the equivalent parts of the 21 November report, which the drafters had themselves assisted to prepare.”

His Honour found that by April 2002 Mr Carter and his staff (especially the latter) had received considerable assistance from former One.Tel employees including Ms Randall, Ms Ashley, Mr Basman and Mr Holmes. That assistance contributed to the PwC team’s understanding of how the One.Tel business and its accounting system worked, who the people referred to in relevant documents were and what were the positions they held, which documents were significant for the purpose of the forensic issues under investigation, what particular documents (such as complex electronic spreadsheets) meant and how they were used internally at One.Tel, and what methodologies were used for the financial analyses reflected in documents. [158]

One of the matters which was not complete when Mr Carter was asked to exclude material was Appendix B which listed the sources of information on which the Report was made. His Honour found that because the draft in existence immediately before the new instruction did not list this material, it was impossible to know to what extent sources of information other than those which ultimately came to be listed in Appendix B were actually used in the preparation of the draft [145].

With respect to the influence of this draft his Honour found: “[151] More often, however, a close review of the evidence leaves one with the impression that the excluded materials created an opinion about the significance of documents going beyond what could legitimately be inferred from the documents themselves. The best examples of this emerge from the defendants' exploration, in cross-examination, of the true sources of certain parts of the final Report. I shall consider these later. Three other examples arise directly from the list of matters in the 9 April draft sourced in excluded materials, especially when considered in the light of ASIC's submissions.”

His Honour went on to outline the three additional examples which covered matters of significance in the computation of the financial position of One.Tel. His Honour also said: “[155] There are three grounds for concern that significantly more of the 9 April draft than the 26 examples identified above, might have come from sources other than Appendix B in its final form. First, it is plain from the draft chronology, the draft list of sources of information, and the draft list of ‘key people’, that excluded materials were a significant part of the pool of information upon which the drafters of the 9 April document drew as sources for the draft opinions, regardless of whether particular opinions were specifically sourced in them. It is clear from a reading of the 9 April draft, as it is from a reading of the final Report, that the drafters did not set out to provide specific footnoted sources for every proposition, being content from time to time to rely on the general assertion that the Report was based on the documents in Appendix B. In the 9 April draft, those general sources were to be wider. [156] Secondly, Mr Carter gave evidence that in April 2002 he believed that he was permitted to look at witness statements for the purpose of preparing the Report, but he said he was ‘nervous about it, given the delineation between Ms Reynolds' work and my work’ (T 2596.7-9), and was ‘keen to minimise’ references to witness statements in the draft (T 2596.26-29). This creates a ground for reasonable apprehension that the PwC staff who prepared the initial draft might have been, or have felt, discouraged from referring to witness statements as the source of propositions in the draft, even though they were in fact the sources. [157] Thirdly, the history of PwC's involvement in ASIC's investigation, and the fact that the draft of 9 April was prepared at a time when there was no restriction on PwC's ability to rely on information, make it probable that a wide range of information, including information not listed in the final Appendix B, was influential in the drafting process. Specifically, I refer to my findings, above, as to the influence that the 21 November Report, and the work of PwC personnel on other assignments after 1 February 2002, had on the drafting of the 9 April draft. [158] This is not just a matter of the influence of particular documents such as s 19 transcripts or draft witness statements, which can be (at least theoretically) identified and put to one side. By April 2002 Mr Carter and his staff (especially the latter) had received considerable assistance from former One.Tel employees including Ms Randall, Ms Ashley, Mr Basman and Mr Holmes. It seems likely that (and if that were putting it too highly, there would at least be a substantial risk that) their assistance contributed to the PwC team's understanding of how the One.Tel business and its accounting systems worked, who were the people referred to in relevant documents and what were the positions they held, what documents were significant for the purpose of the forensic issues under investigation, what particular documents (such as complex electronic spreadsheets) meant and how they were used internally at One.Tel, and what methodologies were used for the financial analyses reflected in documents.”

After the instruction came from ASIC, Mr Carter said he proceeded to form again the opinions he had earlier formed. His Honour noted: “[163] Although the draft was extensively reviewed … the opinions expressed in it did not substantially change.”

Of critical significance for his Honour’s ultimate decision was the finding that Mr Carter did make use of the information that had been available to him and his team, but which he was asked to exclude when writing the final version of his Report. Mr Carter gave evidence that he had excluded all of this information and that the opinions finally expressed were based on the information-base that he had identified in his Report. His Honour accepted that Mr Carter had that belief but did not accept that that was in fact the case. This conclusion was expressed a number of times.

First, his Honour said: “[172] …This is not a case of occasional inadvertent disclosure of matters which the expert must then disregard. It is a case of an expert working in another capacity, having unrestrained access to a vast array of information and forming opinions on the basis of it, and then being told that a substantial part of the information, including information going to the understanding of the documentary remainder, must be excluded. [173] I accept that Mr Carter genuinely believed, when giving this evidence, that he had not relied on information other than information in Appendix B, in forming the opinions stated in the Carter Report. I have no reason to question his competence or expertise as a forensic accountant. I make no adverse finding as to his credit. However, I have come to the conclusion that his belief was wrong. …”

His Honour rejected the Respondents’ submission that what had occurred was a process of reverse-engineering by which Mr Carter and his assistants, having formed certain opinions, simply went through “permissible sources in order to justify maintaining the opinion originally reached”. His Honour rejected any suggestion of “bad faith or a deliberate intention to mislead” [175].

Mr Carter gave evidence that none of the information he had been told to disregard formed the basis of any of his opinions in the final Report. Ms Reynolds gave evidence to the same effect [165]. Mr Carter gave evidence explaining how he had carried out the process. It amounted to saying that he put to one side the information he had obtained from s19 examinations and witness statements and focussed his attention solely on information contained in the documents which were eventually listed in Appendix B [166]. Mr Carter said his belief was that, to the extent a document was not self-explanatory, he and his assistants did not use it [167].

However, his Honour found: “[175] … It is more likely than not, in my view, that Mr Carter made a genuine effort in good faith to exclude the material he was instructed to exclude, to revisit his opinions and to re-form them without any reliance on or influence from those materials; but, for the reasons I have set out, it is more likely than not that his attempt to do so was unsuccessful, and he used and relied on excluded information for the purpose of expressing his opinions in the Report without consciously recognising that he was doing so. If that is wrong, then at least there is ground for reasonable apprehension that Mr Carter relied on or was influenced by materials he was required to exclude in the presentation of his opinions in the Carter Report.”

His Honour had earlier expressed a similar view with respect to the material prepared by the PwC personnel who continued to be involved in the preparation of the ASIC case and who were also assisting Mr Carter with the preparation of his Report, of whom the most significant was Ms Reynolds.

His Honour found: “[139] … it is more likely than not that the information obtained by Ms Reynolds and other PwC personnel in carrying out their continuing assignments for ASIC influenced the drafts that they prepared of Mr Carter's Report, and that their discussions with him are likely to have influenced the formation of his opinions for the purposes of the Report without any communication of information contrary to ASIC's instructions. Even if that were not so, the evidence would at least establish a significant risk that information gained by his assistants contemporaneously with the preparation of his Report influenced the formation of the opinions expressed in the Report.”

His Honour also expressed this conclusion in the following passages: “[365] In the ultimate analysis, the principal question for me has been one of fact, namely whether to accept or reject Mr Carter's evidence, corroborated by Ms Reynolds, to the effect that he put the excluded materials out of his mind and re-formed his opinions without them. My finding, on the facts and inferences from the facts, that it is more likely than not that Mr Carter took into account information, not identified in Appendix B or otherwise in his Report, gleaned in the course of his other work for ASIC, means that the Carter Report does not comply with the requirements for admissibility set out in Makita [ (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705]. But an alternative conclusion, if the evidence were thought to be not strong enough to warrant that finding of fact, is that the risk of use of excluded material, in a manner and to an extent that cannot now be ascertained, was sufficiently high that the evidence should be excluded on discretionary grounds under s 135. …” and “[367] … The problem here is not whether Mr Carter has, or is able to, exclude particular, identified information, or consider only particular, identified information. The problem arises because Mr Carter was exposed to and absorbed an enormous quantity of information over a period of months, relating to his understanding of the meaning and significance of documents, and then he was instructed to disregard substantially everything except the documents themselves. But by that time his understanding of the documents had been moulded by the material he was then required to disregard. …”

His Honour concluded: “[134] … Accepting all of the evidence of Ms Reynolds and Mr Carter about ASIC's instructions, it seems to me unlikely that matters in the emerging drafts of the Report would have been allowed by Ms Reynolds to remain inconsistent with information she obtained in the course of her other assignments for ASIC. Indeed, if Mr Carter were party to arrangements that might prevent him from having access to facts which, were they known to him, would cause him to change his opinions, he might arguably be in breach of his duty: see Schedule K to the Supreme Court Rules, para 8. [135] The documentary evidence does not shed much light on the question of communication of information to Mr Carter from his assistants in this period. Some of the drafts of the Report had been destroyed, as PwC had a policy of destroying drafts of completed documents. The working papers prepared in respect of One.Tel are extensive in volume and have been kept without differentiation between work for the preparation of the Report and work undertaken for other purposes. Further, no minutes were taken of the meetings between Mr Carter and his assistants, and the timesheets that were kept by PwC personnel do not record details of the actual work performed, and it is not even possible to discern from PwC's billing records whether particular recorded time related to the drafting of the Report or other ASIC assignments. The court is left with the oral evidence of Mr Carter and Ms Reynolds, which is not convincing on this point, especially because Mr Carter's recollection was poor in relevant respects (see, for example, at T 2351). [136] In the circumstances, I regard as significant the evidence before me as to how Mr Carter and his assistants carried out their respective tasks, and as to the degree of contact and interaction between them. [137] The arrangements made by ASIC and within PwC to separate the role of Mr Carter in preparation of his Report from the roles of his assistants in performing assignments to assist ASIC to prepare its case were limited, ad hoc arrangements falling well short of the ‘Chinese wall’ arrangements adopted by investment banks, accounting firms and firms of solicitors, and even those strict arrangements are not always effective. … [138] There are 43 volumes of working papers retained by PwC in relation to One.Tel. But the working papers prepared by PwC personnel in the course of their assignments for ASIC are not separated in those files from papers prepared in the course of drafting Mr Carter's Report. Mr Carter said that he had access to the vast majority of the working papers prepared by his assistants in relation to One.Tel (affidavit dated 10 August 2004, para 4). This suggests that, during the period of preparation of the Report, he had access to at least some of the material that Ms Reynolds and other members of the team had obtained in the course of their assignments for ASIC. It is not clear whether he actually took advantage of that access to obtain information relating to those assignments (T 2607.10-2609.33). [139] It seems to me correct to infer from the evidence, summarised above, of the continuing close relationship between Mr Carter and his assistants, notwithstanding the evidence of Mr Carter and Ms Reynolds about the separation of their functions, that it is more likely than not that the information obtained by Ms Reynolds and other PwC personnel in carrying out their continuing assignments for ASIC influenced the drafts that they prepared of Mr Carter's Report, and that their discussions with him are likely to have influenced the formation of his opinions for the purposes of the Report without any communication of information contrary to ASIC's instructions. Even if that were not so, the evidence would least establish a significant risk that information gained by his assistants contemporaneously with the preparation of his Report influenced the formation of the opinions expressed in the Report. … [141] I have taken into account the evidence of Ms Reynolds as to the way discussions with former One.Tel staff assisted her to understand some of the documents. For example, she said that Mr Boaden ‘gave us his explanation for certain issues, but we still had to try and substantiate those issues back to the records, the underlying records of One.Tel, and often we were not able to do that’ (T 826.25). Mr Carter said that when what a witness said could not be ‘substantiated’ by reference to the records, the information was not used (T 2348.39-2349.24). But it seems to me that such evidence illustrates the problem, rather than answering it. The explanations given by One.Tel staff would, in all probability, have provided the framework of knowledge within which the ’substantiation’ took place. Ms Reynolds may have found it ‘quite easy’ to put specific pieces of information gained from potential witnesses out of her mind (T 1289.30-38, 1290.25), but her evidence did not convince me that she identified and excluded the explanatory foundations for documents that it appears she obtained from witnesses. [142] … In the case of the multitude of financial documents of One.Tel … the problem seems to be … that some of the documents do not speak for themselves, and so the explanation is not simply a shortening of the process of gaining an understanding of the documents, but an irreplaceable component of it.”

His Honour expressed the grounds for each of the two bases upon which he excluded the Report in the following passage: “[378] …[The Carter Report] is fatally flawed in the following ways: it is more likely than not that Mr Carter has not excluded from consideration, for the purpose of forming his opinions, information acquired during the investigation phase and by his assistants during performance of their assignments for ASIC concurrently with the drafting of the Report; consequently, the Carter Report does not identify adequately the factual basis for the opinions he has expressed, as required for admissibility by Makita; even if it had not been established on the evidence that Mr Carter took into account excluded information, there would be a substantial risk that this may have occurred, creating a danger that the evidence in the Carter Report might be unfairly prejudicial to the defendants or misleading and confusing, outweighing its probative value, with the result that the court's discretion to exclude the evidence under s 135 is enlivened; in the exercise of that discretion, taking into account all relevant matters, the Carter Report should be excluded from evidence as a whole.”

His Honour reiterated his findings in the following passages: “[412] It seems to me that there are problems arising out of the history of the relationship between Mr Carter and PwC and ASIC that lead to difficulties of four kinds, namely: failure fully to articulate the factual basis of the opinions, because of undisclosed assumed or accepted facts about the meaning, significance and status of documents; failure to disclose the true reasoning process by which the opinions were formed; a substantial risk that the reliance has been placed, in factual assumptions and reasoning, on information not before the court and (to a degree) not capable of being placed before the court; a process of involvement in ASIC's investigation as a result of which it is humanly not possible for Mr Carter to exclude extraneous influences. [413] These difficulties arise in consequence of my cumulative findings of fact that, in summary: it is likely that the 21 November report influenced the preparation of the initial draft of the Carter Report (at 5.12 above); it is likely that information obtained by Ms Reynolds and other PwC personnel in carrying out their continuing assignments for ASIC while they were assisting with the drafting of the Report influenced the drafts (at 5.12 above); and it is likely that Mr Carter, directly or through his assistants, took into account and relied upon information other than the information in Appendix B, arising from his and their other connections with ASIC (at 5.15 above). [414] These findings of fact are general findings as to the likelihood of excluded information leaking into the opinion-forming process. They do not depend upon identifying a particular fact that has crossed the barrier. There are evidentiary indications, in the four areas explored by the defendants in cross-examination that, subject to such further evidence that Mr Carter may have given had he been permitted to do so, specific facts were used to support the opinions in the Report. My conclusion does not depend on those particular subject areas, but rather on facts which create such an implausibility that excluded materials can be kept out of the opinion-forming process, as to lead to the conclusion that it was humanly impossible to maintain the exclusion, or in other words the use of excluded information was inevitable. The absence of contemporaneous or other satisfactory records leaves the court uncertain as to how extensive the use of excluded materials has been. But factors that lead to the conclusion that usage was inevitable also make it likely that usage was significant. In particular, usage of information explaining the meaning and significance of particular documents and the way they were used within One.Tel, once learned, could not be forgotten and in my opinion, must have been extensively used, probably unconsciously, both by those who drafted the Report and Mr Carter when he settled the draft. [415] It follows from these findings of fact that the Carter Report has failed to comply with the Makita requirements as to identification of the factual basis of the opinions and reasoning process that were used, and it has failed to do so in a significant manner. The statements of principle in Makita , which, I have held, should be followed at first instance in New South Wales, and are in any case good law, produce the consequence that the Report is inadmissible as a whole. It is inadmissible as a whole because the failure to comply with the Makita principles is pervasive. This is not a case where particular propositions can be identified and excised with surgical precision. The problem has arisen because of a serious defect in the process, arising when it was decided that Mr Carter would be used as the expert witness notwithstanding involvement in the investigation, and it has affected the entire process of formation of the opinions ultimately expressed in the Report. [416] This is not a case, in my view, where the expert has failed to disclose a reasoning process that should have been disclosed, that has lead to the discounting or disregard of a document or documents apparently relevant to the opinions. Rather, the problem is a probably unconscious use of excluded material and a consequent failure to state the full and real factual basis and reasoning process.”

His Honour also applied these findings to the exercise of the discretion under s135. His Honour said: “[419] My conclusion as to admissibility makes it strictly unnecessary for me to consider the discretionary question under s 135. However, if I am wrong in my view that the evidence justifies a positive finding of reliance on excluded material, then in my opinion the same evidence supports, at the very least, the conclusion that there was substantial risk … that the excluded material may have unconsciously affected Mr Carter's opinions, such that I should intervene by the exercise of my discretion under s 135.”

At the time the instruction to re-form the opinions was given, Mr Carter had formed preliminary opinions that he was finalising and had done so without seeking to exclude the information he had then been instructed to disregard ([161], [173](c), 3rd dot point), and after "having unrestrained access to a vast array of information" [172] or, as his Honour subsequently said, "extensive and longstanding … access to a wider range of documents" [243]. He had been "exposed to and absorbed an enormous quantity of information over a period of months, relating to his understanding of the meaning and significance of documents … by that time his understanding of the documents had been moulded by the material he was then required to disregard" [367].

His Honour found that notwithstanding Mr Carter’s genuine attempt to form the opinions again without relying on the extraneous material it was not “humanly possible” to do so. (See at [412] and [414].) Admissibility

His Honour applied the reasoning of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 on the admissibility of expert evidence. On the basis of his Honour’s finding of fact that Mr Carter did make actual use of excluded information, his Honour rejected the whole Report on the basis of his interpretation of the reasoning of Heydon JA in Makita . I have set out pars [415] and [416] of his Honour’s judgment above where he expressed his conclusion on admissibility. His Honour identified the relevant error in terms of a “failure to state the full and real factual basis and reasoning process”. (Emphasis added.)

I reiterate the passage that I have quoted above from par [378], where Austin J was referring to fact that Mr Carter had not excluded the materials. His Honour said: “[378] … The Carter Report does not identify adequately the factual basis for the opinions that he has expressed, as required for admissibility by Makita .”

His Honour also said: “[407] … Mr Carter has failed to disclose the true factual basis and reasoning processes supporting his opinions. That means, in turn (as Heydon JA explained in Makita at [85]), that the court could not be sure whether the opinions are based wholly or substantially on the expert's specialised knowledge.” [Emphasis added.]

Austin J also used the formulation of the Court being “sure” with respect to this matter earlier in his judgment when he said: [349] … Where, however, the expert has obtained extraneous information in the course of another relationship with the client prior to reaching his or her opinions, and the information is relevant to the opinions, a question would seem to arise as to whether the expert has failed to set out the factual basis that [sic] the opinions and has therefore made it impossible for the court to be sure whether the opinions are based wholly or substantially on the expert knowledge.”

The word “sure” had earlier been deployed by his Honour at [303] where his Honour was quoting Heydon JA’s judgment in Makita at [85] which I will set out below.

Austin J was concerned with the application of s79 of the Evidence Act 1995, which provides: “79 If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.”

His Honour’s reasoning is to the effect that unless the opinions, as a matter of historical fact, were based on the matters identified, it could not be said, or at least the court could not be “sure”, that the evidence was “wholly or substantially based on” the specialised knowledge.

Austin J proceeded on the basis that expert opinion evidence is not admissible unless it is true, as a matter of historical fact, that the opinion so expressed was based on the facts set out in the report (and no other facts) and arrived at by the process of reasoning set out in the report (and no other process). I will refer to this as “the true factual basis approach”. One way of stating an alternative approach is a requirement that the expert identify the facts and reasoning process which the expert asserts to be an adequate basis for his or her opinions. I will refer to this as “the asserted factual basis approach”.

The Appellant submitted that Makita is not authority for the true factual basis approach. Mr R Macfarlan QC, who appeared for the Appellant, accepted that how in fact an expert came to hold the opinions may be relevant to the weight of the evidence and, therefore, may be relevant to the exercise of the discretion under s135 of the Evidence Act . However, the Makita principles were fully satisfied, he submitted, by his Honour’s findings in pars [387], [389], [402], [409] and [410], which I have quoted above, to the effect that there was no general or structural flaw in the Report. It did set out underlying facts and the process of reasoning by which Mr Carter said he formed the opinions expressed, including the intermediate propositions.

His Honour’s conclusion was that the Carter Report adequately set out the factual basis and reasoning process which Mr Carter asserted justified his opinions. If the asserted factual basis approach is correct, his Honour’s findings lead to the conclusion that the Carter Report, subject to objections to specific parts, is admissible. In my opinion, his Honour erred in treating Makita as authority for the true factual basis approach. Matters concerning the process by which an opinion was actually formed go to weight, not admissibility.

The additional ground of appeal for which he Appellant sought leave (which should be granted) should be upheld. His Honour erred in not admitting the Carter Report once he had concluded that the Report professed to set out the factual basis and reasoning process and was otherwise in proper form. The Makita Principles

The critical paragraph in Heydon JA’s decision in Makita is par [85], which I should set out in full (at 743): “[85] In short, if evidence tendered as expert opinion is to be admissible, it must be agreed or demonstrated that there is a field of ‘specialised knowledge’; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be ‘wholly or substantially based on the witness’s expert knowledge’; so far as the opinion is based on facts ‘observed’ by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on ‘assumed’ or ‘accepted’ facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert’s evidence must explain how the field of ‘specialised knowledge’ in which the witness is expert by reason of ‘training, study or experience’, and on which the opinion is ‘wholly or substantially based’, applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert’s specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ’s characterisation of the evidence in HG v The Queen (at 428 [41]), on ‘a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise’.”

Heydon JA had earlier set out the observations of Gleeson CJ in HG v The Queen (1999) 197 CLR 414. The extract from [41] quoted by Heydon JA at [85] was concerned with the particular facts in HG v The Queen . The statement of principle by Gleeson CJ was as follows (at 427): “[39] … An expert whose opinion is sought to be tendered should differentiate between the assumed facts upon which the opinion is based, and the opinion in question ( Ramsay v Watson (1961) 108 CLR 642; Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 347-348). Argument in this Court proceeded upon the basis that it was possible to identify from Mr McCombie’s written report some facts which he either observed or accepted, and which could be distinguished from his expressions of expert opinion. Even so, the provisions of s 79 will often have the practical effect of emphasising the need for attention to requirements of form. By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience, the section requires that the opinion is presented in a form which makes it possible to answer that question.”

It is of significance that when Gleeson CJ went on to consider the kind of evidence that the expert called in that case could give he said (at 428): “[41] … It would have required identification of the facts he was assuming to be true, so that they could be measured against the evidence , and it would have required or invited demonstration or examination of the scientific basis of the conclusion.” [Emphasis added.]

I should note that the observations of Gleeson CJ do not represent the ratio of HG in a manner binding on this Court. The dissentients in that case, Gaudron and Gummow JJ, expressly held that a failure to comply even with the asserted factual basis approach goes only to weight not admissibility. (See at 433 [63], [126].) I proceed on the basis that the reasoning of Gleeson CJ, with which I agree, is correct.

Paragraph [85] in Makita outlines the list of matters which must be made “explicit” for otherwise, as his Honour put it, “it is not possible to be sure whether the opinion is based wholly or substantially on the expert’s specialised knowledge”. The latter clause adopts the concluding words of s79 of the Act.

Gleeson CJ indicated in par [34] that the opinion must be “presented in a form which makes it possible to answer” the question posed by the concluding words of s79 of the Act. This sentence does not support the true factual basis approach that the facts upon which the expert formed an opinion should be the “true” or “real” facts upon which that opinion was actually formed. Nor does his Honour’s explanation in par [41] that the purpose of identifying the facts is to enable them to “be measured against the evidence” support that approach. Each reference is more consistent with the asserted factual basis approach.

Similarly, in par [85] of Makita , Heydon JA referred to the relevant facts, being facts either observed by the expert or established by some other way, as facts that had to be both “identified” and “proved”. The use of terminology of “identification” does not suggest that the facts must be the “true” or “real” facts upon which the opinion was actually first formed. It is, in my opinion, more consistent with the asserted factual basis approach.

In order to determine whether his Honour has correctly interpreted the reasoning of Gleeson CJ and Heydon JA it is relevant to trace the course of Heydon JA’s reasoning in Makita . Heydon JA considered a significant number of authorities prior to reaching the conclusion he expressed at [85].

His Honour commenced this analysis with the following proposition at 729: “[59] If Professor Morton's report were to be useful, it was necessary for it to comply with a prime duty of experts in giving opinion evidence: to furnish the trier of fact with criteria enabling evaluation of the validity of the expert's conclusions.”

Although expressed in terms of “usefulness”, the starting point for Heydon JA’s detailed analysis of the case law on admissibility does not suggest any focus on the true historical process by which the expert first formed the relevant opinion. The focus of attention - the “prime duty” - is to ensure that the court, as the tribunal of fact, is placed in a position where it can examine and assess the evidence presented to it. That can occur without adopting the true factual basis approach. What Heydon JA identified as the expert’s “prime duty” is fully satisfied if the expert identifies the facts and reasoning process which he or she asserts justify the opinion. That is sufficient to enable the tribunal of fact to evaluate the opinions expressed.

My conclusion is reinforced by the reasoning of Heydon JA, after the detailed analysis of the cases, when his Honour came to apply the principles to the particular evidence before the Court. In Makita his Honour said at 745: “[87] There is no doubt about Professor Morton's authority, experience, qualifications and skill. It is also the case that Professor Morton's report is quite lengthy and detailed. But, given that the court is not obliged to take the opinion of an expert as conclusive even though no other expert is called to contradict it, can it be said that Professor Morton's report goes beyond a series of oracular pronouncements? Does it usurp the function of the trier of fact? More vitally, did it furnish the trial judge with the necessary scientific criteria for testing the accuracy of its conclusions? Did it enable him to form his own independent judgment by applying the criteria furnished to the facts proved? Was it intelligible, convincing and tested? Did it go beyond a bare ipse dixit? Did it contain within itself materials which could have convinced the trial judge of its fundamental soundness?” [Emphasis added.] There is nothing in this which supports the true factual basis approach.

His Honour commenced his review of the authorities with reference to the judgment in Davie v Lord Provost, Magistrates and Councillors of the City of Edinburgh 1953 SC 34. His Honour quoted Lord President Cooper at 40, who said, referring to an expert witness at 730: “Their duty is to furnish the Judge or jury with the necessary scientific criteria for testing the accuracy of their conclusions , so as to enable the Judge or jury to form their own independent judgment by the application of these criteria to the facts proved in evidence. The scientific opinion evidence, if intelligible, convincing and tested, becomes a factor (and often an important factor) for consideration along with the whole other evidence in the case, but the decision is for the Judge or jury. In particular the bare ipse dixit of a scientist, however eminent, upon the issue in controversy, will normally carry little weight, for it cannot be tested by cross-examination nor independently appraised, and the parties have invoked the decision of a judicial tribunal and not an oracular pronouncement by an expert ." [Emphasis added.]

Heydon JA went on to indicate that the reasoning in Davie’s case had been anticipated in Australia when he said: “[60] … Before it was decided, in R v Jenkins; Ex parte Morrison (No 2) [1949] VLR 277 at 303, Fullagar J said that an expert witness must ‘explain the basis of theory or experience’ upon which the conclusions stated are supposed to rest, for, as Sir Owen Dixon said in an extra-judicial address quoted by Fullagar J, ‘Courts cannot be expected to act upon opinions the basis of which is unexplained’.”

Fullagar J’s reference to the obligation to set out the basis upon which “conclusions stated are supposed to rest ” coincide with the formulation of Gleeson CJ in HG v The Queen i.e. that the opinion is to be presented in a “ form which makes it possible to answer” the question of whether the opinion is based on specialised knowledge. The terminology of “supposed to rest” and “form” is more consistent with the proposition that the requirements for admissibility are satisfied if an expert opinion complies with the asserted factual basis approach, rather than with the true factual basis approach.

To similar effect are the observations of Rose LJ in R v Gilfoyle [2001] 2 Cr App R 57 at 67, quoted with approval by Heydon JA at 730 [61], where his Lordship rejected expert evidence in part on the basis that the reports “identify no criteria by reference to which the Court could test the quality of his opinions ”. (Emphasis added)

With respect to the “underlying facts”, his Honour’s statements do not point one way or the other on the issue now to be determined. His Honour said at 731: “[64] The basal principle is that what an expert gives is an opinion based on facts. Because of that the expert must either prove by admissible means the facts on which the opinion is based, or state explicitly the assumptions as to fact on which the opinion is based.”

However, his Honour’s reasons emphasise that the purpose of expert evidence is to assist the tribunal of fact to perform its task. This, in my opinion, is more consistent with the asserted factual basis approach.

His Honour went on to refer to the High Court judgment in Ramsay v Watson (1961) 108 CLR 642 and quoted the following from p645: “… A qualified medical practitioner may, as an expert, express his opinion as to the nature and cause, or probable cause, of an ailment. But it is for the jury to weigh and determine the probabilities. In doing so they may be assisted by the medical evidence. But they are not simply to transfer their task to the witnesses.”

To this observation Heydon JA added the comment (at 733): “[67] … The jury cannot weigh and determine the probabilities for themselves if the expert does not fully expose the reasoning relied on.” The terminology “relied on” may be ambiguous but the purpose - enabling the tribunal of fact to “weight and determine the probability” - requires no more than the asserted factual basis.

The focus on this purpose is reinforced by his Honour’s observation after quoting an extract from Steffen v Ruban (1966) 84 WN (Pt 1) NSW 264; [1966] 2 NSWR 622 at 268-269; 626 that: “[68] Underlying these observations is an assumption that the trier of fact must arrive at an independent assessment of the opinions and their value, and that this cannot be done unless their basis is explained.”

His Honour also quoted with approval the observations of Lawton LJ in R v Turner [1975] QB 834 at 840: “… Before a court can assess the value of an opinion it must know the facts upon which it is based.”

Heydon JA then referred to the observations of King CJ in R v Fowler (1985) 39 SASR 440, in which his Honour rejected the mode of giving expert evidence adopted in that case, which King CJ described as involving “the expert … making his own unstated findings of fact and his own interpretation of them”. King CJ noted that a jury might arrive at different conclusions of fact and said at 443: “Clearly a witness cannot be permitted to express his findings and interpretations of fact, and there would therefore be no way by which the jury could know whether the opinion could stand in the light of the jury's view of the facts. … it is of the utmost importance that the assumptions of fact upon which the opinion is arrived at be clearly stated and that the evidence be confined to opinions expressed upon those stated assumed facts.” [Emphasis added.]

Heydon JA then referred to the joint judgment of the Full Court of the Supreme Court of Queensland in Holtman v Sampson [1985] 2 Qd R 472 at 474 where the Court said: “... it is a primary tribunal's duty to find ultimate facts, and, so far as it is reasonably possible to do so, to look not merely to the expertise of the expert witness, but to examine the substance of the opinion expressed.”

Heydon JA went on to observe at 735: “[71] Examining the substance of an opinion cannot be carried out without knowing the essential integers underlying it.”

Heydon JA then referred to the judgment of McLelland J in Bell v F S & U Industrial Benefit Society Ltd (Unreported, Supreme Court of New South Wales, McLelland J, 9 September 1987) in which his Honour indicated that the absence of evidence proving the facts underlying an opinion deprives “the court of an important opportunity of testing the validity of process by which the opinion was formed and substantially reduces the value and cogency of the opinion evidence”. (Emphasis added.)

Heydon JA then referred to the judgment of Maurice J in Lewis v The Queen (1987) 88 FLR 104 at 124, where his Honour said in part that the Crown had a duty to the judge and jury with respect to forensic evidence led by the Crown: “… to put them in a position to make some sort of evaluation of the opinions he expresses.”

Heydon JA then referred to the judgment of Beaumont J in Trade Practices Commission v Arnotts Ltd (No 5) (1990) 21 FCR 324 at 327, where his Honour quoted from Wigmore on Evidence (1979) at §672 where the learned author, having referred to the importance of stating the underlying premises of fact upon which opinion evidence was based, added: “The key to the situation, in short, is that there may be two distinct subjects or testimony - premises, and inferences or conclusions; that the latter involves necessarily a consideration of the former; and that the tribunal must be furnished with the means of rejecting the latter if upon consultation they determine to reject the former, ie, of distinguishing conclusions properly founded from conclusions improperly founded.” [Emphasis added.]

Beaumont J went on to quote from Gordon J Samuels, “Problems Relating to the Expert Evidence in Personal Injury Cases” in Glass (ed) Seminars on Evidence (1970) at 145 where Mr Samuels rejected the admissibility of evidence in answer to a question: “upon all the evidence in the case what is your opinion as to X?” on the following basis: “First, because it renders it impossible for a jury to determine whether the opinion is based on facts which have been proved, or indeed to determine at all upon what facts it is based . Second, it permits and encourages the witness to select for himself which of the evidence he accepts and which he rejects …” [Emphasis added.]

Beaumont J went on to say at 330, as quoted by Heydon JA: “… the opinion of an expert is admissible only where the premises, that is to say, the facts, upon which his or her opinion is based, are expressly stated.” After referring to the evidence in the particular case, Beaumont J concluded that “it is impossible for the court to know what facts [the expert] had in mind when expressing his views”.

On appeal the Full Federal Court affirmed Beaumont J’s rejection of the evidence ( Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313). Heydon JA quoted extensively from that judgment. This included reference to the possibility of additional evidence being adduced after the expert witness had given his evidence. The Full Court said at 349: “Without knowledge of the basis of Dr Williams’ conclusions, the trial judge had no way of knowing whether that additional material would have effected Dr Williams’ views.” [Emphasis added.]

The Full Court noted at 352 that the essential difficulty with the expert evidence was: “He did not assume the set of identified facts, consistent with those contended for by the appellants. Rather, he told the Judge what facts he should accept.” On that basis the Court concluded at 352: “If an economist were permitted to express opinions upon the effect of the evidence given, without identifying the facts which he or she assumed for the purpose of those opinions, it would be impossible for the Court to know how to apply that evidence.” [Emphasis added.]

Heydon JA then set out the well known list of duties of expert witnesses from the National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The 'Ikarian Reefer') [1993] 2 Lloyds Rep 68 at 81-82, to which list his Honour added the observation at 740: “[79] … While some of these matters have an ethical dimension, taken together they point to the need for the trier of fact to be fully informed of the reasoning process deployed in arriving at the expert's opinions.”

Heydon JA then referred to some observations in Clough v Tameside and Glossop Health Authority [1998] 1 WLR 1478 at 1484 and added that the observations imply (at 740): “… the expert must reveal the whole of the manner in which [information] was dealt with in arriving at the formation of the expert’s conclusion.”

His Honour also referred to the judgment of Anderson J in Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370 at 389-390, including the following observations: “Expert opinion is to be judged like any other evidence. It must be comprehensible and reach conclusions that are rationally based. The process of inference that leads to the conclusions must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about the reliability of them . … … it is for the court to judge the reliability of evidence given in support of the case. If an opinion relies on facts that must be proved or assumptions that must be verified, it is to the court that they must be proved and verified, not to the expert witness.” [Emphasis added.]

Heydon JA then referred to the observations of Anderson J in Pollock v Wellington (1996) 15 WAR 1 at 3 which are, so far as I have been able to determine, the only comments that may be more consistent with the proposition that what is required is a statement of the actual historical basis on which the opinion was in fact first formed. In that case Anderson J said at 3: “Before an expert medical opinion can be of any value the facts upon which it is founded must be proved by admissible evidence and the opinion must actually be founded upon those facts .” [Emphasis added.]

This is the only quotation which may be more consistent with the true factual basis approach. However, Heydon JA also quoted the following from the same case at 4: “Unless the process of inference by which an opinion is reached is expressed in a manner which permits the conclusions to be scrutinised and a judgment made as to its reliability the opinion can carry no weight .” [Emphasis added.]

Such a process of scrutiny and judgment as to reliability can be made on the basis of the facts asserted to be the foundation of the opinion, without necessarily disclosing the historical process by which the opinion was in fact first reached by the expert.

It was after this review of the common law authorities that his Honour went on the analyse the position under s79 of the Evidence Act , including the references to HG v The Queen to which I have referred above, and culminating in his Honour’s statement of principles in par [85] as set out above and also his application of the principles to the facts of that case, particularly in par [87], as also set out above.

In my opinion, Heydon JA’s analysis in Makita supports the asserted factual basis approach rather than the true factual basis approach. Austin J erred in adopting the latter.

The finding by Austin J that the Carter Report set out the facts asserted by Mr Carter to support his opinion, by a process of reasoning also set out in the Report, should have led to the conclusion that the Report was admissible. There were some matters which Austin J indicated required supplementation and other specific matters which may need to be reassessed. His Honour did not deal with particular objections.

The issue for a trial judge is whether the opinion expressed to be based on the facts proved or assumed is correct. In determining this issue, the judge will have regard, amongst other things, to the reasoning process (based on those facts) used by the expert. The mere fact that the expert’s opinion is based on facts that are assumed (and not proved) at the time the expert gives evidence is no reason to exclude the evidence at that stage. The assumed facts may be proved later by other evidence. The fact that the opinion was initially formed or later reinforced by reference to other facts, not said by the expert in his evidence to be proved or assumed, is irrelevant to the question of admissibility. Once the opinion is capable of being based on the proved facts, it is admissible. The fact that the expert’s opinion was at one time – or even still is – reinforced by undisclosed facts and reasoning processes is irrelevant to the admissibility of the opinion (although these matters may go to weight).

The appeal should be allowed on the issue of admissibility. Discretionary Exclusion

In the alternative to his decision that the Carter Report was not admissible his Honour excluded the Report in the exercise of the discretion in s135 of the Evidence Act 1995 which provides: “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 (b) be misleading or confusing; or (c) cause or result in undue waste of time.”

His Honour made it clear that he relied, in the alternative, on each of the three limbs of s135, i.e. he concluded that the probative value of the Report was substantially outweighed by the danger of each of : The unfair prejudice to the Respondents that might arise from the admission of the Report; The fact that the Report might be misleading or confusing; and The fact that the Report might cause or result in undue waste of time.

His Honour concluded: “[425] In my opinion the defendants' submissions are correct on this issue. I am persuaded, in terms of s 135, that I should refuse to admit the Carter Report as a whole, on the ground that its probative value is substantially outweighed by the danger that the evidence constituted by the Report might be unfairly prejudicial to the defendants, or might be misleading or confusing, or might cause or result in undue waste of time. The defendants' submissions as to unfair prejudice are made out, once it is appreciated that they would be confronted, if the Carter Report were allowed into evidence, with the prospect that evidence would be held against them, and given weight, that was derived from excluded materials, unless they embarked upon a process, illustrated in the four areas explored on the voir dire , of exposing that reliance. The process of exploration of the four areas pursued on the voir dire amply demonstrates the danger that the evidence in the Carter Report might be confusing and result in undue waste of time. …”

It appears from his Honour’s reasoning earlier in the Judgment that his Honour did not rely on the finding of fact, to which I have referred above, that Mr Carter did in fact take into account information that he was subsequently asked to exclude. This finding of fact played a role in his Honour’s decision on admissibility but not, it appears, in his Honour’s decision when he came to exercise the discretion under s135 of the Evidence Act . In this regard his Honour expressed his reasoning in terms of reliance on, what would appear to be, a less robust finding to the effect that there was a substantial risk that Mr Carter took the excluded material into consideration. As his Honour considered that the factual finding was determinative on the issue of inadmissibility, the discretion issue only had to be addressed if that factual finding was wrong (see [426]).

Probative value would be even more diminished by applying the finding of fact that Mr Carter actually took the excluded material into account, rather than the somewhat weaker finding that there was a risk that he did so. Nevertheless the factor that his Honour took into account in the exercise of the discretion was in the latter form. His Honour, in the course of his judgment, referred a number of times to the risk, rather than to the fact, of the excluded material having been taken into account.

His Honour first expressed the distinction in par [365], to repeat: “[365] In the ultimate analysis, the principal question for me has been one of fact, namely whether to accept or reject Mr Carter's evidence, corroborated by Ms Reynolds, to the effect that he put the excluded materials out of his mind and re-formed his opinions without them. My finding, on the facts and inferences from the facts, that it is more likely than not that Mr Carter took into account information, not identified in Appendix B or otherwise in his Report, gleaned in the course of his other work for ASIC, means that the Carter Report does not comply with the requirements for admissibility set out in Makita . But an alternative conclusion, if the evidence were thought to be not strong enough to warrant that finding of fact, is that the risk of use of excluded material, in a manner and to an extent that cannot now be ascertained, was sufficiently high that the evidence should be excluded on discretionary grounds under s 135 . …” [Emphasis added.]

His Honour reiterated at [376] that the relevant proposition for the application of the Makita principles is “whether the evidence is rendered inadmissible by the fact that the expert, taking into account excluded material, has to that extent failed to state the factual basis for the opinions expressed in the report”. His Honour then went on to say: “[377] Nevertheless it is relevant to consider the degree of risk that the excluded materials will influence the formation of opinions, when one is considering the exercise of the statutory discretion to exclude evidence conferred by s 135. Under that section, the question is whether the probative value of the evidence is substantially outweighed by the danger that the evidence might be unfairly prejudicial, misleading or confusing, or cause or result in undue waste of time. The assessment of the degree of danger that evidence might be unfairly prejudicial, or misleading or confusing, seems to me to involve, in a case such as the present case, considering the degree of risk that the expert might have unwittingly relied on, been influenced by or taken into account material that has not been identified as part of the factual basis for the opinions he or she has expressed.” [Austin J’s emphasis.]

I refer again to the extract from his Honour’s reasoning at par [139] quoted above in which his Honour made the finding of fact that the information obtained by Ms Reynolds and PwC personnel influenced the drafts they prepared for Mr Carter’s Report. His Honour had also found as a fact: “[139] … Even if that were not so, the evidence would least establish a significant risk that information gained by his assistants contemporaneously with the preparation of his Report influenced the formation of the opinions expressed in the Report.”

His Honour also made the finding at par [158], with respect to the assistance provided by former One.Tel employees, not only that it was likely that their assistance contributed to the PwC team’s understanding of the One.Tel business and its accounting systems but also, to repeat, “and if that were putting it too highly, there would at least be a substantial risk that” their assistance made such a contribution.

To similar effect is par [378] quoted above. The structure of that paragraph is to hold the Carter Report to be “fatally flawed” and to express the conclusion in four bullet points. The first two bullet points repeated the finding that Mr Carter had not excluded the excluded information and consequently that the Carter Report did not satisfy the Makita principles. The third and fourth bullet point turned to the question of the exercise of the s135 discretion and, to repeat: “[378] even if it had not been established on the evidence that Mr Carter took into account excluded information, there would be a substantial risk that this may have occurred, creating a danger that the evidence in the Carter Report might be unfairly prejudicial to the defendants or misleading and confusing, outweighing its probative value, with the result that the court's discretion to exclude the evidence under s 135 is enlivened; in the exercise of that discretion, taking into account all relevant matters, the Carter Report should be excluded from evidence as a whole.”

Commencing at par [419] is a subheading entitled: “Should the Carter Report be excluded under s 135?”. That section of the judgment begins with the following: “[419] My conclusion as to admissibility makes it strictly unnecessary for me to consider the discretionary question under s 135. However, if I am wrong in my view that the evidence justifies a positive finding of reliance on excluded material, then in my opinion the same evidence supports, at the very least, the conclusion that there was substantial risk … that the excluded material may have unconsciously affected Mr Carter's opinions, such that I should intervene by the exercise of my discretion under s 135.”

His Honour referred to the submissions on s135 and in particular set out the Respondent’s case in the following paragraphs: “[420] The defendants submitted that they should not be left to extract a clear statement of the opinions, factual assumptions and reasoning processes of Mr Carter by cross-examination, and therefore the correct approach was for the court to exclude the Carter Report under s 135. [421] They contended that they would be unfairly prejudiced if the Report were not excluded, in two ways. The first, more general submission was that they would be forced to ‘unravel and test the assertions made about the factual basis of the reports in circumstances whether the records which would allow a proper testing are manifestly inadequate’. They would be forced to choose between either cross-examining in the dark, ‘with all the perils which usually faced journeys into darkness’ ( Makita , at [62] per Heydon JA), or choosing not to cross-examine, running the risk that the court might attach weight to unsubstantiated opinions. Secondly, they said that if they are left to cross-examine Mr Carter in order to show that he has illegitimately relied on such information in preparing his Report, they would run the gauntlet of putting some potentially prejudicial material before the court during the cross-examination process. [422] The defendants submitted, additionally, that receiving the Report into evidence would be likely to result in confusion and undue waste of court time. …”

His Honour concluded this section of the judgment with par [425] that I have set out above.

His Honour’s focus on the “risk” that Mr Carter relied on excluded material appears to be based on the use of the word “might” in s135. That focuses on only one half of the balancing exercise for which s135 calls. This is, in my opinion, a misplaced focus. Whether Mr Carter took into account excluded material - either as a fact or at the level of risk - is a matter that also impinges on the other half of the balancing exercise, i.e. the issue of probative value.

In my opinion, insofar as Mr Carter’s use of excluded material is entitled to weight of any significance at all, his Honour’s finding of actual use would have given this element greater weight than his Honour’s actual analysis based on the risk of use. It is not, however, appropriate to make an order which would lead to his Honour re-exercising the discretion on the basis that it was exercised on a less powerful basis than his Honour’s findings of fact would have permitted him to do. There would be no point in any remittal if the more substantial basis, i.e. the finding of actual use, would lead to the same result.

Both with respect to the ultimate questions he answered, and to the intermediate propositions he advanced as building blocks along the way, Mr Carter expressed certain opinions on the basis of a list of identified facts, by a reasoning process which he articulated. Austin J correctly so found. Many of the identified facts consist of documents which are not on their face self-explanatory. Although they may be tendered as business records, the significance of many documents and of the information they contain will depend in large measure on the circumstances of their compilation. As I have noted above, subject to such inferences as may presumably arise from the documents themselves, that will have to be proved by evidence other than that of Mr Carter. Some of the documents will speak for themselves. However, not all will do so.

Insofar as the documents do not speak for themselves, Mr Carter’s ability to give relevant evidence, if any, is in a narrow compass. He may, perhaps, give evidence of general practice with respect to the maintenance of accounting and business records. He may also interpret accounting records for the assistance of the Court. As I have said above, he may give evidence about what a document means, but not what a document is. Any evidence about what a document means must be clearly based on his expertise. He cannot, as may prove to be the case, give evidence interpreting a document which is based on what he has been told, where the interpretation of the document cannot be shown to be based on his expertise.

With respect to documents that do not speak for themselves, they have no better status in his Report than an assumed fact. If at the end of the day the assumed fact is not established by the evidence, then Mr Carter’s opinion will be given little and perhaps no weight. However, that is because of the application of the basic principle with respect to expert opinion evidence that the party adducing such evidence must prove any underlying facts assumed by the expert. A number of the submissions accepted by his Honour, and urged upon this Court by the Respondents, were of that character.

It may be the case that with respect to particular matters, the underlying fact or facts said to be the basis of specific opinion, whether final or of an intermediate character, are so weak that the probative evidence of the opinion will be extremely weak.

The primary focus of the Appellant’s submissions in this regard was on his Honour’s failure to assess the probative value of the Carter Report. Indeed, the submission was that his Honour was in no position to form a view as to what the probative value of the Report in fact was because his Honour had not engaged in an examination of the opinions expressed. This submission applied to both the overall opinions expressed in answer to ASIC’s general questions and to the intermediate opinions which represented the building blocks of the Report and which may be separately admissible both from each other and from the ultimate conclusion. (See T38-39.)

Mr R Macfarlan QC submitted that his Honour appeared to be working on the assumption that the probative value of the evidence was not high because the opinions were likely to be based on the extraneous material. He submitted that cross-examination was limited to the four examples referred to above. There was no cross-examination on the substantial bulk of the Report. Furthermore, even with respect to the four areas, Austin J accepted that Mr Carter had not had an adequate opportunity to deal with the challenge to this evidence.

Mr Macfarlan QC submitted that his Honour could not find that Mr Carter’s reasoning was not fully set out when his Honour failed to examine the underlying facts and reasoning put forward by Mr Carter as supporting his opinion. His Honour’s judgment does not contain an examination of that character. (See e.g. T8.) He submitted that his Honour failed to adopt the primary means of ascertaining whether the excluded material was used which was to actually examine what was in the Report (T 16).

Mr D Williams SC, who appeared for the Respondents, directed attention to a number of places in the judgment at which his Honour expressed findings relating to the difficulties of cross-examination, to the possibility of unfair prejudice to the Respondents and to how the evidence was capable of being misleading and confusing. His Honour had earlier made references to the length of time it took to extract information on the four examples chosen for the purposes of cross-examination. Each of these earlier findings is pertinent to the elements listed (a), (b) and (c) in s135 as set out above and would reinforce his Honour’s general conclusions with respect to these elements that I quoted above.

The Appellant’s submission that his Honour does not analyse in any, let alone in a systematic, way the probative value of the opinions expressed in the Report is, in my opinion, made out.

Mr D Williams SC did not direct the Court’s attention to any passage in the judgment which could answer the description of an assessment of the probative value of the Report. I am unable to identify any save in certain particular respects which can, no doubt, be revisited by his Honour. There is no such analysis which can justify the rejection of the whole Report.

In my opinion, it was a fundamental error not to conduct any systematic analysis of the probative value of the evidence. The circumstances in which this Court will intervene with the exercise of a discretion on a matter of practice and procedure, such as a ruling on the admissibility of evidence, are very limited. The authorities in this regard are well known and do not need to be referred to. In my opinion, this is a case in which the Court should do so.

There is an inherent difficulty in the application of the discretion in s135 because it involves the weighing of essentially incommensurable factors. Nevertheless, that is the task the legislature has set. His Honour does express conclusions about the degree of unfair prejudice the possibility of confusion and waste of time. There is not, however, any analysis of the probative value of the Report against which these considerations must be weighed.

His Honour proceeded on the basis, it appears, that because the risk (as would the fact) that the use of extraneous materials was pervasive, this was enough to give the Report limited probative value. His Honour did not articulate the proposition in that manner, but that appears to be the basis on which his Honour proceeded. The Appellant submits that his Honour erred in proceeding on the basis of an assumption that the probative value of the evidence was limited.

The attack on Mr Carter’s use of excluded material is an attack on his credit. He advances the proposition that the opinions he formed were based on the specified facts by the specified process of reasoning. The proposition that the use of excluded material was pervasive is directed to having the court reject his opinions on the basis that they were, as a matter of fact, first formed on the basis of other information, being information that is not before the court.

The Appellant accepted that such history was a legitimate line of questioning going to the weight to be attributed to an expert opinion. The degree to which it affects the weight of an opinion must, however, depend on the force of the evidence which the expert has given to the effect that, by applying a certain process of reasoning to certain specific facts, a particular conclusion should be drawn.

What, if any, impact the existence of access to material which is not otherwise before the Court may have had on the formation of an opinion cannot be determined in the abstract and requires a process of assessment, at the least, of the strength of the opinion based on the facts asserted to have been the underlying facts taken into account. His Honour did not undertake any such task. It appears to me to be an essential task if the probative value of the evidence is to be assessed. It is necessary to assess the degree to which any particular opinion was likely to have been formed by the unconscious use of excluded material. His Honour was not in a position to assess the probative value of the evidence and place it into the s135 balance against the other factors.

I agree with the Appellant’s submission that his Honour erred in proceeding on an assumption that access to excluded material would itself be of major, indeed, determinative significance in terms of weighing the probative value of Mr Carter’s evidence. With respect to evidence of this character a critical factor in assessing the weight is the logical force of the process of reasoning based on the disclosed facts. That some other facts had some role to play in the process of drawing the relevant conclusions does not necessarily mean that the evidence is of lower, let alone low, probative value.

An expert frequently draws on an entire body of experience which is not articulated and, is indeed so fundamental to his or her professionalism, that it is not able to be articulated. Austin J acknowledged this factor. There will be occasions in which matters of this character are proper to be explored during the course of cross-examination for the purposes of determining the weight to be given to the opinion. The mere fact that there must have been use of some extraneous material, even of the extensive character identified by his Honour, does not of itself necessarily lead to a conclusion that the evidence is of low probative value. In many cases the opinion will plainly be capable of being supported by the underlying facts proven or assumed. If so, the fact that a broader range of information may originally have been availed of would not necessarily detract to any significant degree from the probative value of the evidence given. Any such conclusion must depend on the particular circumstances of the matter under consideration.

As Austin J also acknowledged, it is often the case that experts are asked to reformulate their opinions upon a different basis than when they were first formed. As Sperling J said in Elliott v Ivey (Unreported, Supreme Court of New South Wales, 23 April 1998): “It is further to be noted that expert witnesses who have provided an opinion on assumed facts are often asked to vary the assumptions, or to replace the assumptions entirely, and to state their opinion on the new assumptions as varied or substituted. That occurs frequently when the evidence as to fact of the party calling the expert has fallen short of the mark. It also occurs when expert witnesses are pressed in cross-examination for an opinion in favour of the opposite side – or at least to vary their prior opinion – on the basis of assumptions which accord with the facts as the opposite side contends the facts to be. The capacity of a professional person to give an opinion based on an exclusionary set of assumptions is implicit in this process. The implication is reasonable because professional men and women are accustomed to forming opinions on assumed facts in the course of their ordinary professional work. It is part of their stock in trade, developed by training and by experience in the practice of their profession.”

Mr D Williams SC sought to characterise the Carter Report as involving, at least to a substantial degree, the identification and interpretation of documents which Mr Carter and his staff selected from a vast body of documentation. He placed particular reliance on the proposition that the meaning, significance and status of documents became known to Mr Carter and his staff by reason of their broader engagement, including access to the excluded information.

The importance of this element in the reasoning of Austin J is indicated in a number of passages of the judgment which I have already quoted above. (See esp [158] quoted in par [0]; [387] quoted in par [0]; [172] and [173] quoted in par [0] above and [367] quoted in par [78] above.) It is apparent that his Honour attached considerable weight to the fact that Mr Carter and his staff discovered the meaning and significance of many documents from One.Tel staff.

It is clear that the selection, by Mr Carter and his staff, of the particular documents listed in Appendix B from the vast store of One.Tel documentation was determined by their involvement in the investigation phase. I can see nothing in that fact which operates to affect the probative value of the evidence in the Carter Report.

Nor, in my opinion, is the fact that Mr Carter and his staff first became aware of the meaning, significance and status of documents from persons, who will not themselves be called, of such importance as to affect the probative value of the opinions expressed in the Report. Mr Carter cannot, save in the limited manner to which I have earlier referred, give evidence of that character about the documents. He can, however, act on assumptions about the meaning, significance and status of a document. The way in which he first became aware of such matters does not, in my opinion, affect to any significant degree (and possibly not at all) the probative value of his evidence as long as the meaning, significance and status of the document is otherwise established.

If a policeman acts on information from an informant that property - such as drugs or stolen goods - can be found in a specific location, discovery of property at that location may be evidence of the highest probative value. Such evidence does not need to be supported by evidence from the informer.

Evidence so gathered may not, however, speak for itself and require evidence of “meaning and significance”, e.g. proof the property was stolen or laboratory tests to show that it was a prohibited drug. Unless the relevant link is established, the evidence of discovery may not be admitted or, if the inadequacy is subsequently established, may receive no weight. However, that is not because the evidence was originally discovered by reason of a tip off.

Where the documents speak for themselves, or their meaning and significance is established by other evidence, the historical use of excluded material may be of little, if any, significance. Indeed, where such appears to be the case the other element of the balancing exercise - unfair prejudice, confusion and waste of time - can, and should, be minimised by refusing to allow extensive cross-examination.

Insofar as his Honour assumed that the use of the excluded materials necessarily diminished the probative value of each of Mr Carter’s opinions, in my opinion, his Honour erred. Orders

The orders I propose are: 1. Leave to appeal granted. 2. Direct the Appellant to file a Notice of Appeal within 7 days. 3. Appeal allowed. 4. Set aside Austin J’s ruling that the Carter Report is inadmissible or should be excluded. 5. The Opponents/Respondents to pay the Claimant/Appellant’s costs of the Appeal. 6. Remit the issue of costs at first instance to Austin J.

GILES JA: I agree with Spigelman CJ.

IPP JA: I agree with Spigelman CJ.