Australian Handsets Pty Limited (In Creditor's Voluntary Liquidation) (formerly known as Australian Business Telephone Co Pty Limited) (ACN 051 992 226) v Craig Michael Alvarez & Anor

Judgment 1In these proceedings, the plaintiff takes objection to substantial parts of the evidence relied on by the defendants/cross-claimants. 2Before dealing with the objections, I should say something about the issues in the case. 3By an agreement dated 22 January 2008, the plaintiff sold to ABTC, one of the cross-claimants, a business which supplied to business users peripheral equipment used in telecommunications. Under the terms of the agreement, the purchase price was payable in instalments. ABTC's obligations under the agreement were guaranteed by the defendants, Mr Nasr and Mr Alvarez. There is no dispute that the last two instalments, totalling approximately $800,000, were not paid by ABTC. The plaintiff seeks to recover those amounts under the guarantees. 4In their cross-claim, the defendants and ABTC say, in substance, that the plaintiff did not pay suppliers to the business sold to ABTC before it was sold, that by failing to do so the plaintiff breached warranties in the business sale agreement and that by not telling the cross-claimants that the suppliers had not been paid the plaintiff engaged in misleading and deceptive conduct. The cross-claimants also say that, because the plaintiff failed to pay the suppliers, ABTC suffered loss because those suppliers would not deal with ABTC or would only do so on unattractive terms. 5The evidence to which objection is taken is primarily directed at establishing this last point - that is, that the reason suppliers would not deal with ABTC or would only do so on unattractive terms was because the plaintiff had failed to pay the suppliers when it owned the business. 6The evidence is of two broad types. 7First, there is evidence from the defendants of conversations with suppliers. An example falling into this category is evidence given in para 129 of Mr Alvarez's affidavit. In that paragraph, Mr Alvarez deposes to a meeting he attended with a representative of an entity referred to as GN Jabra and which I will refer to as "GN". GN is one of 2 manufacturers of equipment sold by ABTC. In para 129, Mr Alvarez deposes to the fact that, during the course of the meeting, the GN representative said that GN was not prepared to deal directly with ABTC and that ABTC should deal with GN's Australian distributors, who were known as Westcon and 24/7. Mr Alvarez says that the GN representative went on to say: Well, the deal proposed involved GN giving you a substantial credit upfront in return for the promise by you to achieve certain future sales of our products. With debts still unpaid to Westcon and 24/7 and the resulting strained relationships between ABTC and those partners, we are hesitant to proceed with negotiations on contracts that may not be able to be fulfilled particularly if credit terms are not reached with these distribution companies. 8Second, there is evidence of internal ABTC emails reporting on the attitude of suppliers. An example is an email dated 22 February 2008 from Mr Taylor to Messrs Alvarez and Nasr in which Mr Taylor says: As you are aware I am dependant on my contractors to perform work for ABTC under the Telstra contracts. Craig I have previously sent you a list of contractors and suppliers that are critical to these contracts. We have been advised by Integrated Wireless this week that they will no longer repair or supply DECT handsets and today I have lost a contractor in Brisbane because ABTC owes him $14,475. I have a number of others that are owed in excess of $20K each that are also very unhappy with the non-response from John Lu when they try to call him and will most likely pull the pin on any more work until payment is made. 9In my opinion, it is clear that evidence of both types is admissible under the Evidence Act 1995. 10As to the conversation, s 60 of the Evidence Act relevantly provides: (1) The hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of an asserted fact. (2) This section applies whether or not the person who made the representation had personal knowledge of the asserted fact (within the meaning of subsection 62(2)). In this case, the evidence of the conversation is admissible to prove the intentions of the supplier: see, eg, Walton v The Queen (1988-89) 166 CLR 283 at 289 per Mason J; Bull v The Queen (2000) 201 CLR 443 at 479 per McHugh, Gummow and Hayne JJ. 11As to the email, it is admissible as a business record under s 69 of the Evidence Act. 12The question, then, is whether the evidence should be excluded under s 135 of the Evidence Act or whether an order should be made limiting its use under s 136. 13Section 135 provides: 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. 14Section 136 provides: The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might: (a) be unfairly prejudicial to a party; or (b) be misleading or confusing. 15In my opinion, there is no basis for applying s 135. I do not think it could be said that the probative value outweighs the danger that the evidence might be unfairly prejudicial to a party. 16That leaves s 136. The question under that section in this case is whether there is a danger that the particular use to which the evidence might be put would be unfairly prejudicial to the plaintiff. 17In answering that question, it is important to bear in mind that s 136 should not be used to uncut the policy behind sections such as ss 60 and 69. There must be good and substantial reason to depart from the policy underlying those sections: see Tim Barr Pty Ltd, v Narui Gold Coast Pty Ltd [2008] NSWSC 654 at [18] per Barrett J; Seven Network Ltd v News Ltd (No 8) [2005] FCA 1348 at [21] per Sackville J. 18In my opinion, there is no reason why the evidence should not be admitted to prove the willingness or otherwise of suppliers to deal with ABTC and the reasons the suppliers took the positions that they did. Mr Aldridge, who appears for the plaintiff, submits that there is a danger that the use of the evidence for that purpose may be unfairly prejudicial to the plaintiff because the plaintiff is not able to cross-examine the relevant suppliers. According to Mr Aldridge, the cross-claimants should have called the suppliers if they wanted to prove the reasons for the suppliers' conduct. I do not accept that submission. The relevant suppliers are not under the control of the cross-claimants. The plaintiff was on notice of the evidence on which the cross-claimants rely and, if there was a dispute about that evidence, it was open to the plaintiff to call evidence from the suppliers itself. 19Nor do I think that there is any reason to limit the use of the email in some other way. Both Mr Alvarez and Mr Nasr are available for cross-examination and can be cross-examined on the assertions in the email, if those assertions are important to the plaintiff's case. To the extent that they do not have personal knowledge of the relevant matters, that will affect the weight that ought to be given to the email. However, in my opinion, it would undercut the purpose behind s 69 of the Evidence Act if it were necessary to examine each business record to determine what limitation, if any, should be placed on its use because the maker of the relevant statement was not called. There is no special reason to depart from that principle in this case. 20That leaves the passage I have quoted from paragraph 129 of Mr Alvarez's statement. In my opinion, an order should not be made under s 136 in respect of that paragraph. Unless an order is made, the paragraph is some evidence that Westcon and 24/7, the Australian distributors of GN, had not been paid and that, as a result, there were strained relations between them and ABTC. However, it is likely that the GN representative would have some knowledge of those matters. It is open to the plaintiff to prove that it did pay Westcon and 24/7; and it is in a position to cross-examine Mr Alvarez and Mr Nasr in relation to the relationship between ABTC and Westcon and 24/7, if that is important. The fact that the relevant evidence does not come directly from Westcon or 24/7 is a matter that the court can take into account in determining what weight to give to the evidence. In those circumstances, I do not think that there is a danger that the evidence will be unduly prejudicial to the plaintiff. 21For those reasons, I propose to admit paragraph 129 of Mr Alvarez's statement and the email without limitation. Evidence of a similar nature should be treated in the same way.