Australian Institute of Fitness Pty Limited v Australian Institute of Fitness

2014/300068 Counsel: Mr MS Osborne QC with Mr J Tomlinson - Plaintiff Mr D Pritchard SC - First Defendant Mr R Newlinds SC with Mr R Yezerski - Second to Fifth Defendant

Solicitors: B2B Law - Plaintiff Watson Mangioni - First Defendant Yeldham Price O'Brien Lusk - Second to Fifth Defendants File Number(s): 2014/851412014/2999812014/300068 Publication restriction: N/A

Judgment

1. These proceedings concern three matters being heard together. The three matters are referred to as the "Licence Fee Proceedings", the "Sage Proceedings" and the "Oppression Proceedings" respectively. On 13 March 2015 I made orders by consent that evidence in one proceeding be evidence in the other proceedings. Those orders also provided that evidence in the oppression suit would be heard first.
2. On 8 April 2015 an application was made by the second to fifth defendants in the Oppression Proceedings to limit, pursuant to s 136 of the Evidence Act 1995 (NSW), the use of any evidence of Messrs Hurst and Creagh in the Licence Fee Proceedings and the Sage Proceedings to those proceedings, such that their evidence would not be evidence in the Oppression Proceedings. In the alternative, a variation to the orders of 13 March 2015 is sought to the effect that any evidence given by Messrs Hurst and Creagh in the Licence Fee Proceedings and Sage Proceedings is not evidence in the Oppression Proceedings.
3. This application is opposed by the Victorian Parties (as defined below) and is neither opposed to nor consented to by the Australian Institute of Fitness Pty Limited (Institute).
4. I heard the matter on 1 May 2015 and refused the application The parties specifically did not request reasons but I indicated that if time permitted I would give them given the matter is of some importance generally. These are my reasons.

The proceedings and the parties

1. The Institute is the plaintiff in the Licence Fee and Sage Proceedings and the first defendant in the Oppression Proceedings.
2. The Australian Institute of Fitness (Vic/Tas) Pty Limited (AIF Vic/Tas) is the defendant in the Licence Fee proceedings.
3. The Australian Institute of Fitness (Vic & Tas) Pty Limited (AIVT) is the plaintiff in the Oppression Proceedings.
4. The Sage Institute of Fitness Pty Limited (Sage) is the first defendant in the Sage Proceedings. The Australian Careers Institute Pty Ltd (ACI) is the second defendant. Mr Robert Hornsey (Mr Hornsey) is the third defendant, Ms Vicki Tuchtan (Ms Tuchtan) is the fourth defendant and Mr Paul Kinghorn (Mr Kinghorn) is the fifth defendant.
5. The Australian Institute of Fitness (NSW) Pty Limited (AIF NSW), the Australian Institute of Fitness (WA) Pty Limited (AIF WA), the Australian Institute of Fitness (QLD) Pty Limited (AIF QLD) and the Australian Institute of Fitness (SA & NT) Pty Limited (AIF SA/NT) are the second to fifth defendants in the Oppression Proceedings and are collectively referred to as the "Shareholder Defendants".
6. The Shareholder Defendants are all shareholders and licensees in and of the Institute. Each of those four parties holds 20% of the shares in the Institute. In Victoria and Tasmania the shareholder and licensee are different corporate entities; the shareholder is AIVT and the licensee is AIF Vic/Tas. Both AIVT and AIF (Vic/Tas) are wholly owned subsidiaries of the same corporate entity, The Institute Holdings Pty Limited. AIVT, AIF Vic/Tas, Mr Hornsey, Ms Tuchtan and Mr Kinghorn are referred to as the "Victorian Parties".
7. The Oppression Proceedings were commenced by AIVT, which alleges that various alleged acts and omissions by the Institute and the Shareholder Defendants were, individually or cumulatively, in contravention of s 232 of the Corporations Act 2001 (Cth). The Licence Fee Proceedings concern a claim by the Institute that AIF Vic/Tas has not paid licence fees owed under a regional licensing agreement. The Sage Proceedings relate to the conduct of the defendants in relation to the establishment of Sage's fitness business in competition with the Institute and its licensees.

The evidence of Messrs Hurst and Creagh

1. Messrs Hurst and Creagh are witnesses for the Institute in the Licence Fee Proceedings and the Sage Proceedings. It is clear that the Institute intends to call them both in the context of those proceedings. Mr Creagh prepared an affidavit of 11 March 2015 which was filed on behalf of the Shareholder Defendants in the Oppression Proceedings. Mr Hurst prepared an affidavit of 9 March 2015 which was similarly filed on behalf of the Shareholder Defendants in the Oppression Proceedings.
2. Mr Creagh's affidavit deals with an affidavit of Mr Hornsey sworn on 28 November 2014. Mr Creagh responds to the evidence given by Mr Hornsey relating to those matters that are said to constitute oppression in contravention of s 232 of the Corporations Act. Similarly, Mr Hurst's affidavit responds to Mr Hornsey's 28 November 2014 affidavit. The issues dealt with include allegations regarding a failure to secure funding for AIVT's nominee, the increase in licence fees, the alleged exclusion of AIVT's nominee from board meetings, the alleged improper establishment of a disputes committee, the alleged improper commencement of the Licence Fee Proceedings and allegations in relation to a Fair Work complaint made against Mr Hornsey.

The application by the Shareholder Defendants

1. Counsel for the Shareholder Defendants advanced the application on the basis that the effect of the orders sought would be to afford the Shareholder Defendants the forensic opportunity, which would ordinarily be available to a defendant in any proceedings, to elect not to call a witness. It appears that the Shareholder Defendants do not, as things currently stand, wish to call any oral evidence in answer to case put by the plaintiff in the Oppression Proceedings. The Shareholder Defendants submit that, as a consequence of the orders made on 13 March 2015, they are denied that opportunity.
2. The concern of the Shareholder Defendant's is that, as the Institute intends to call Messrs Hurst and Creagh in the Licence Fee Proceedings and the Sage Proceedings, they will be susceptible to cross examination in relation to matters relevant to the Oppression Proceedings notwithstanding that they have not been called to give evidence in defence of that case.
3. Section 136 of the Evidence Act provides as follows: 136 General discretion to limit use of evidence 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.
4. There is no suggestion that the evidence of Messrs Hurst and Creagh falls under s 136(b) - the application is put on the basis that it would be unfairly prejudicial to the Shareholder Defendants if Messrs Hurst and Creagh were able to be cross examined in relation to the Oppression Proceedings.

Relevant principles

1. There are a number of provisions of the Act in which the test of unfairness is used for the exclusion of evidence or limitation on its use: ss 53, 90, 114, 135, 136, 137 and 192. Sections 90, 114 and 192 do not refer to unfair prejudice, whereas ss 53 and 135-137 do.
2. Many provisions of the Evidence Act deal explicitly with the manner in which evidence is to be given and the type of question that may be asked (see Part 2.1). The High Court (Toohey, Gaudron and Gummow JJ) acknowledged in R v Swaffield (1998) 192 CLR 159 at [53] that the concept of unfairness "necessarily lacks precision". In that case, unreliability was described as a "touchstone" of unfairness (though it may not be the sole touchstone). Although this case discussed the approach at common law, it has influenced the approach of New South Wales Courts to the Uniform Acts: see, eg, R v Em [2003] NSWCCA 374; R v Fernando [1999] NSWCCA 66.
3. The Australian Law Reform Commission acknowledged in its report on the Uniform Acts that there was "some uncertainty as to whether unfair prejudice can arise from procedural considerations (such as the inability to cross-examine on hearsay evidence)." The exercise of power under s 135-137 has typically taken place in contexts such as where there is an inability to test the truth of a representation, where there are questions concerning the factual basis of expert opinion (see, eg, Roach v Page (No 11) [2003] NSWSC 907), or in order to limit what has been described as the "extraordinary effect" of s 60 in circumstances where hearsay involves "facts" that are in conflict or unreliable (see, eg, Quick v Stoland Pty Ltd (1998) 87 FCR 371, 382 per Finkelstein J).
4. In Seven Network Ltd v News Ltd (No 8) [2005] FCA 1348 at [20]-[21] Sackville J made the following observations about the applications of s 136: [20] The weight of authority, however, supports the view that a procedural disadvantage may mean that a particular use of evidence might be 'unfairly prejudicial to a party', depending upon the circumstances of the particular case. For example, a number of decisions have held that there may be unfair prejudice in admitting hearsay evidence under s 60 of the Evidence Act (which is framed in similar terms to s 77), where the truth of the representation cannot be tested by the party against whom it is tendered: see Roach v Page (No. 11) [2003] NSWSC 907 at [19] and the detailed discussion there of the authorities; Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 933 at [27] per Hely J; Quick v Stoland Pty Ltd (1998) 87 FCR 371, at 377-378 per Branson J; at 382 per Finkelstein J. [21] In my opinion, considerable care should be exercised before s 136 of the Evidence Act is invoked to limit the use of evidence on the ground that its use might be unfairly prejudicial to a party in a procedural sense. I agree with Mr Sheahan that the policy apparently underlining provisions such as ss 60 and 77 of the Evidence Act should not be undercut by the making of orders under s 136 as a matter of course. This is particularly so where a judge, rather than a jury, is the trier of fact, since the danger of unfairness to a party might be expected to be mitigated by the judge attributing less weight to material that cannot adequately be tested in cross-examination. Even so, the circumstances may be such that the power conferred by s 136 will not only be enlivened but it will be appropriate for the Court to make a direction limiting the use of otherwise admissible evidence.
5. In Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296, Basten JA made the following remarks concerning unfairness at [72]: In the present case, there was little risk that the evidence would be misunderstood, its probative value incorrectly assessed or that it would be used illogically. The real basis of "prejudice" was that the appellants were deprived, assuming that rejection would have led the [parties adducing the evidence] to call oral evidence, of an opportunity to establish their case through [their] witnesses. That is not the kind of "unfair prejudice" to which s 136 is directed.
6. In Papakosmas v The Queen (1999) 196 CLR 297, McHugh J considered at 325 that (citations omitted): Some recent decisions suggest that the term "unfair prejudice" may have a broader meaning than that suggested by the Australian Law Reform Commission and that it may cover procedural disadvantages which a party may suffer as the result of admitting evidence under the provisions of the Act. In Gordon (Bankrupt), Official Trustee in Bankruptcy v Pike [No 1], Beaumont J used his discretion under s 135(a) to exclude the transcript of a bankrupt, which would otherwise have been admitted as an exception to the hearsay rule pursuant to s 63, on the basis that the prejudicial effect of being unable to cross-examine the maker of the representation on a crucial issue in the litigation substantially outweighed the probative value of the evidence. In The Commonwealth v McLean, the New South Wales Court of Appeal also used s 135(a) to exclude hearsay evidence otherwise admitted via the exception contained in s 64 on the basis that the defendants were prevented by other evidentiary rulings from effectively challenging the evidence. It is unnecessary to express a concluded opinion on the correctness of these decisions, although I am inclined to think that the learned judges have been too much influenced by the common law attitude to hearsay evidence, have not given sufficient weight to the change that the Act has brought about in making hearsay evidence admissible to prove facts in issue, and have not given sufficient weight to the traditional meaning of "prejudice" in a context of rejecting evidence for discretionary reasons.
7. In relation to cross examination, in Re Quartz Hill & Co; Ex parte Young (1882) 21 Ch D 642 Jessel MR made the following observations (citations omitted): The principle of Clarke v. Law is quite intelligible-a party who has given notice to read an affidavit is not entitled to withdraw it in order to avoid cross-examination. He need not use the evidence if he does not like it. So a party who has called a witness is not to withdraw him in order to avoid his being cross-examined.
8. Brett LJ considered (citations omitted): I cannot imagine anything more calculated to bring the course of justice into contempt than to allow a person to file evidence which if there is no cross-examination makes in his favour, but which he knows will break down on cross-examination, and then to withdraw it if he finds cross-examination is threatened.
9. Cotton LJ held that (citations omitted): …the rule was laid down in Clarke v. Law in 1855, that a person who has made an affidavit cannot be withdrawn from cross-examination. It is a good rule, and one which ought to be followed.

Submissions on the application

1. The submission in support of the application is put on the basis that the orders proposed by the Shareholder Defendants would ameliorate the forensic disadvantage imposed by the regime put in place on 13 March 2015. The Shareholder Defendants also say that there is no risk of confusion being caused by the limiting of the evidence because Messrs Creagh and Hurst swore separate affidavits for use in the Oppression Proceedings. Further, they submit that if the orders they seek were made it would substantially limit the extent to which the Shareholder Defendants would need to participate in the hearing from this point onwards. Consequently, they argue that it is in the interests of costs and efficiency for the orders to be made.
2. The Shareholder Defendants submit that the proposed orders work no unfairness upon the plaintiff in the Oppression Proceedings, because the effect would be to place AIVT in the ordinary position of any plaintiff. The Shareholder Defendants further submit that the defendants in the Licence Fee and Sage Proceedings would not be disadvantaged because Messrs Hurst and Creagh could be cross examined on any matter relevant to those proceedings, including a matter connected with the Oppression Proceedings. The only limitation would be that any material elicited in cross examination relevant to the Oppression Proceedings could be used only in the resolution of the Licence Fee Proceedings and the Sage Proceedings.
3. The Institute neither opposes nor consents to the application made by the Shareholder Defendants. The Institute has indicated, however, that it presently intends to call Messrs Creagh and Hurst in the Licence Fee Proceedings and the Sage Proceedings and that, further, it intends to rely on certain paragraphs of the affidavits served on behalf of the Shareholder Defendants in the Oppression Proceedings. The deployment of forensic strategy has, in my view, a significant impact on the practical utility of the current application.
4. The Victorian Parties oppose the application. The Victorian Parties submit, firstly, that it cannot be said that the existence of an order, entered into by consent, is unfairly prejudicial to any party. The Victorian Parties say that, by consenting to the orders made on 13 March 2015, the Shareholder Defendants willingly forwent any "forensic opportunity" they might otherwise have had in the absence of the orders being made. The Victorian Parties point out that the question of prejudice to the Shareholder Defendants was, in fact, raised at a directions hearing on 25 February 2015. The Shareholder Defendants subsequently consented to the orders made on 13 March 2015.
5. The Victorian Parties contend that the management of the trial has proceeded on the basis of the orders made on 13 March 2015; had those orders not been made, the Victorian Parties say, they may have sought to have the proceedings all heard separately so that they had the forensic opportunity to decide what evidence to lead in answer to the Licence Fee and Sage Proceedings. The pre-emptive cross examination of the Victorian Parties' witnesses would not have occurred had those orders not been made.
6. They also submit that to now revoke the orders made on 13 March 2015 would not be in accordance with the duty imposed by s 56 of the Civil Procedure Act 2005 (NSW) on the basis that the purpose of the civil procedure rules "is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. They say that "unfairness" cannot arise merely because the Shareholder Defendants now regret a deliberate forensic decision they previously made.
7. In addition, they further point to the fact that the evidence of Mr Champion, another shareholder, has not been the subject of an application for limitation to the Sage Proceedings and the Licence Fee Proceedings. That being the case, they say it is unclear how limiting the evidence of Messrs Hurst and Creagh will remedy the "foregone forensic opportunity".
8. They submit that, were the orders sought by the Shareholder Defendants made, the Victorian Parties would suffer a significant disadvantage. They say, firstly, that the order would constitute an unwarranted restriction on the principle that counsel is at liberty to cross examine on all issues, relying on Prentice v Cummins (2003) 134 FCR 449 at [25]-[28]. They argue that this liberty should be curtailed only in circumstances where the interests of justice demand it, and that this is not the case in this instance.
9. They have further concerns about the burden on a cross examiner attempting to avoid infringement of a s 136 restriction. They submit that this might have the effect of preventing the cross examiner putting relevant matters to the witnesses. Alternatively, they say this would force me into an "artificial sorting process" involving the need to "assiduously excise from the judicial brain those…aspects of the Licence Fee or Sage Proceedings cross examination that could be relevant to the Oppression Proceedings."
10. Finally, they submit that the foregone "forensic opportunity" is illusory because the Court will be required to draw inferences from the failure of Messrs Hurst and Creagh to give evidence.
11. In relation to the proposal that the orders of 13 March 2015 should be varied, the Victorian Parties submit that there is no suggestion that the making of those orders was accidental, susceptible to amendment under the slip rule or a consequence of fraud - all of which would be grounds for permitting a variation: see Paras v Public Service Body Head of the Department of Infrastructure (No 2) (2006) 152 IR 352; [2006] FCA 652 at [5].
12. They submit that while the court has a power to govern its own procedures, a party cannot call on the Court to re-visit a question that has been agitated

The hearing of the application

1. Mr Newlinds SC, counsel for the Shareholder Defendants, rightly acknowledged at the hearing of the application that Mr Pritchard SC's intention to read portions of the affidavits of Messrs Hearst and Creagh filed in the Oppression Proceedings posed significant problems for his application. He also indicated that at the time the application was made he had not been aware that Mr Champion was going to be called by the Institute.
2. The Shareholder Defendants also accepted that s 136 is not designed for "high-level procedural or forensic matters" of the sort dealt with by the application. They continued to press the application by way of submitting there should be a variation of the 13 March 2015 orders.
3. Although neither party required reasons, given the importance of this question I considered it appropriate to deliver brief reasons. Despite the concession made by the Shareholder Defendants, I will make some brief remarks concerning the application of s 136.

Scope of section 136 of the Uniform Evidence Acts

1. As observed above, the Shareholder Defendants correctly conceded that s 136 is not intended to deal with "high-level procedural or forensic matters". A consideration of whether there is any operative unfair prejudice turns upon characterisation of the claimed prejudice. In this case, that unfair prejudice is said to arise from the inability of the Shareholder Defendants to exercise a particular forensic choice. It appears to turn on the different context in which these witnesses were proofed, with an eye to the forensic objectives of the Sage Proceedings and the Licence Fee Proceedings. With that said, Messrs Hearst and Creagh prepared affidavits in the Oppression Proceedings on the basis that their legal advisors believed their evidence provided an honest challenge to Mr Hornsey's account of the events subject to the proceedings.
2. I consider that any relevant prejudice is a misfortune the Shareholder Defendants have brought upon themselves. Once a witness has been called to give evidence in proceedings such as these there is a likelihood of prejudice. It was encumbent upon the Shareholder Defendants to demonstrate unfair prejudice, and I am not satisfied that they have done so. The Shareholder Defendants agreed to take a particular course; that they now regret doing so does not make the admission of the evidence in all three proceedings unfairly prejudicial.
3. As observed by the Victorian Parties, the freedom of counsel to cross examine on relevant issues should be curtailed only in exceptional circumstances. I do not consider that course is justified in these proceedings.
4. Section 136 gives a general discretion to "limit" the use to be made of evidence if there is perceived the requisite danger of unfair prejudice. The section therefore permits a judge to restrict the use of particular evidence. In my view it cannot be invoked to address substantive forensic dilemmas. In the adversarial system such matters remain rightly in the hands of counsel conducting the case.

Whether a variation should be made

1. The orders made on 13 March 2015 were consented to by the Shareholder Defendants; they exercised a deliberate forensic choice. The fact that this foreclosed a course which might otherwise have been open to them is not a basis on which I am convinced I should vary those orders. They were made to facilitate efficiency and confinement of costs regarding the matters and I am not satisfied they should be varied. I accept that there is prejudice to the other parties which might flow from that course.

Conclusion

1. Accordingly, I dismissed the application of the Shareholder Defendants. Costs followed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 May 2015