Document delays, legal privilege disputes wrongfoot ANZ cross-examination

Lawyers for Australia & New Zealand Banking Group, Citigroup Global Markets and Deutsche Bank Australia had a clear goal when they entered a local Sydney court on Dec. 5 to cross-examine witnesses in the criminal-cartel case against the lenders.

They wanted to get a better understanding of the Australian competition regulator's immunity process that had prompted executives from JP Morgan to hand over information on a 2015 ANZ share placement — an immunity deal that had sparked the prosecution.

The defense lawyers reckoned that by extracting information on how JP Morgan locked in the immunity arrangement they could create a level playing field for their clients when the case moved to the Federal Court of Australia.

Their goals were simple, but the process wasn't.

With the questioning of witnesses mired in delays and clashes over the supply of documents, the last two weeks have hinted at the challenges the defending banks will likely face as they head into 2020.

The hearings have also revealed that federal prosecutors, supported by Australia's competition watchdog, aren't above employing stalling tactics in their campaign against the banks and the six executives, in what has become a test-case for the efficacy of Australia's 2009 criminal-cartel legislation.

— Court disruptions —

Despite the large court room, there wasn't a spare seat in the house on Dec. 5, when those involved in the case — or just fascinated members of Sydney's legal community — gathered at the Sydney Downing Centre Local Court to hear ANZ, Citi and Deutsche Bank lawyers question JP Morgan witnesses.

The five days set aside for the hearings were meant to give lawyers enough time to question four JP Morgan witnesses, and four officials from the Australian Competition & Consumer Commission, or ACCC, who had been involved in investigating the case.

The ACCC's investigations culminated in federal prosecutors laying charges in 2018. The allegations centered on a 2015 institutional-share placement involving ANZ, which saw ANZ engage Citigroup, Deutsche Bank and JP Morgan as underwriters for the capital-raising exercise.

ANZ issued 80 million shares worth A$2.5 billion ($1.7 billion today). The ACCC alleges that when market interest in the offering proved low, banks entered into an agreement with the underwriters that amounted to illegal cartel conduct.

JP Morgan's former head of equity and derivative capital markets for Australia, Richard Galvin, was the first to take the stand. But just as defense lawyers began to question him over his interactions with ACCC officials and federal prosecutors relating to his receiving conditional immunity, the disruption began.

— Legal Privilege —

The first disruption was one no lawyer could have prepared for: the smoke of fires burning around Sydney. Judge Jennifer Giles was struggling to breathe, let alone talk, as she coughed through the smoky conditions plaguing the city. She would struggle throughout the committal process.

Galvin gave short answers to questions where he could. But the former JP Morgan executive had few clear recollections of meetings he'd had with his employer's legal team, or the ACCC, regarding the ANZ share placement.

Much as though Dean Jordan, a lawyer representing Citigroup, tried to jog Galvin's memory, he didn't get far.

Within minutes, two other lawyers, Nick Owens, representing JP Morgan and Catherine Gleeson representing Galvin himself, were raising objections.

This was surprising. Gleeson and Owens had initially introduced themselves for the local court's public record by saying they didn't expect to intervene much in the day's proceedings. That soon changed, with both lawyers' moving towards the bench to make continued objections.

Jordan's questions, Gleeson and Owens argued, were over-stepping the remit of court orders handed down by the judge on Nov. 8 to govern the cross-examination.

Jordan was allowed to ask the witnesses about the immunity process but, Owens and Gleeson said, he wasn't entitled to probe the details of any conversations Galvin had with his legal team. That information is subject to "legal privilege," they argued.

Through coughs and splutters, Giles told lawyers they were "spinning" her on the spot with their arguments over the topics on which Galvin could be questioned.

The lawyers were wasting precious time, Giles said — and this wouldn't be the only occasion that the judge criticized the banks' large legal teams for "bleeding time."

Gleeson's defense of Galvin's right to confidential conversations and legal advice saw Galvin reduced to silence for the rest of the day as lawyers fleshed out a dispute on legal privilege. The first day of hearings was all but wasted.

It was an inauspicious start. With defense lawyers hindered in their line of questioning, the usefulness of the cross-examinations to the institutions and individuals facing both fines and jail time was in doubt.

The defense argued that it wanted the prosecution to be fair and efficient once it moved to the Federal Court of Australia. On this day, it was hard to see how they would be able to achieve that.

— Playing for time —

When the courtroom reconvened on Dec. 6, the clash over legal privilege wasn't over. The judge told the three JP Morgan witnesses at the heart of the ACCC's investigation that they had waived their rights to privilege the moment they pursued immunity.

The day-long legal-privilege dispute gave way to a quick-fire round of questions for Galvin — questions that were restricted to the ANZ's management of the capital-raising exercise and the witnesses' account of that involvement.

Meanwhile, Giles was struggling, telling the courtroom that "on any other day" she "would not have left [her] sick bed." But her concerns over the timing of the case led her to try to "fight through it." Little did she know the smoke, and the delays, would get worse.

Late in the afternoon on Dec. 6, a written-statement from a member of the ACCC's enforcement team, Jane Lin, was made available to defense lawyers and suggested there had been tension between regulators and former JP Morgan executive Jeffrey Herbert-Smith in drafting his witness statement.

The disagreement between Lin and Herbert-Smith, along with suggestions that Herbert-Smith had altered his statement after the dispute, caused consternation among lawyers as the case adjourned for three days.

By the time the trial had reconvened on Dec. 10, the ACCC had presented 300-pages of additional documents. This prompted ANZ, Deutsche Bank and Citigroup lawyers to seek permission from Giles to widen the scope of their cross-examination.

The defense lawyers were successful in this application, but the delays caused by the applications prompted the court to tell another JP Morgan witness — Oliver Bainbridge — to return to the UK without having appeared before the court. He had flown to Sydney specifically for the cross-examination.

Giles' complaints over loss of time stepped up a gear when she warned lawyers that if the cross-examinations fell into 2020, which they subsequently have done, they could risk colliding with her long-service leave and her retirement. She didn't want to spend the autumn of her life in a courtroom.

Yet despite the defense lawyers' requests for documents from the ACCC and another agency, the Australian Securities and Investments Commission, the regulators weren't forthcoming.

In one instance, lawyers for the ACCC claimed that all the documents in their possession had already been handed to the defense lawyers — raising questions over the whereabouts of notes JP Morgan witnesses had all said were taken in their meetings with the regulator.

The ACCC and the federal prosecutors appeared to be saying that to take on corporate giants — ANZ is Australia's second-largest bank — they were prepared to employ bullish courtroom tactics.

— 2020 Outlook —

Tactically, the five days of hearings were a victory for the ACCC and the Commonwealth Director of Public Prosecutions. Just three of the eight witnesses expected to take the stand were questioned.

Thanks to the ability of lawyers for the prosecution, JP Morgan and its former executives to dig their heels in and shut down the line of inquiry pursued by defense lawyers in the cross-examination hearings, the court will now have to allocate at least another five days for the process.

Ongoing issues between ANZ lawyers and Australia's securities regulator on document submissions for the case will be carried over to two days of hearings on Jan. 30 and 31, ahead of February cross-examinations.

Disputes on document access and legal privilege are expected to still be central to those hearings next year.

This month's hearings were at times dramatic and occasionally like pulling teeth. Yet they also highlighted some key themes in the proceedings, offering important clues on how criminal-cartel prosecutions are likely to be managed in the future.

How immunity is granted is important; what people say in meetings and whether they take notes is also important. Handing over documents, or refusing to do so, can almost undo a case before it even gets to trial.

The cross-examination hearings in February are bound to be tense. The credibility of the ACCC's witnesses in its investigation against the banks has yet to be put to the test, but the credibility of the system under which executives were granted immunity is, without doubt, already under the microscope.