Flightdeck Geelong Pty Ltd v All Options Pty Ltd
[2020] FCAFC 138
•14 August 2020
FEDERAL COURT OF AUSTRALIA
Flightdeck Geelong Pty Ltd v All Options Pty Ltd [2020] FCAFC 138
Appeal from: All Options Pty Ltd v Flightdeck Geelong Pty Ltd [2019] FCA 588 File number: VID 997 of 2019 Judges: MARKOVIC, DERRINGTON AND ANASTASSIOU JJ Date of judgment: 14 August 2020 Catchwords: CORPORATIONS – legal capacity and relations with outsiders – extend litigation procedure – appearance in court by company and representation – application by company to be represented in proceedings by non-lawyer – matters which may be considered – no evidence of company’s financial circumstances – complex case too difficult for proposed lay representative – no explanation for delay in applying for leave
PRACTICE AND PROCEDURE – self-represented litigant – duty of court to assist – extent of court’s obligations – absence of detriment flowing from any alleged lack of instruction from trial judge
Legislation: Competition and Consumer Act 2010 (Cth), Sch 2
Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth)
Federal Court of Australia Act 1976 (Cth)
Federal Court Rules 2011 (Cth), rr 4.01, 36.01
Cases cited: AA Shi Pty Ltd v Avbar Pty Ltd (No 4) [2010] FCA 878
Abram v Bank of New Zealand [1996] FCA 635; ATPR 41-507
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (Cth) [1983] 1 NSWLR 1
AMF15 v Minister for Immigration and Border Protection (2016) 241 FCR 30
Applicant NAFF of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 221 CLR 1
Australian Competition and Consumer Commission v Adata (Vic) Pty Ltd (No 2) [2015] FCA 272
Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2004] FCA 1361
Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276
Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58
Barghouthi v Transfield Pty Ltd (2002) 122 FCR 19
Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (No 2) (1986) 8 NSWLR 104
Bhagwanani v Martin (1999) 204 LSJS 449
Browne v Dunn (1893) 6 R 67
Bulstrode v Trimble [1970] VR 840
Clark v New South Wales (No 2) [2006] NSWSC 914
Coulton v Holcombe (1986) 162 CLR 1
Cytel Pty Ltd v Peoplebank Recruitment Pty Ltd [2006] FCA 985
Dairy Farmers Co-operative Ltd v Azar (1990) 170 CLR 293
Damjanovic v Maley (2002) 55 NSWLR 149
Dietrich v R (1992) 177 CLR 292
Downes v Maxwell Richard Rhys & Co Pty Ltd (in liq) (2014) 46 VR 283
Ex parte Aala (2000) 204 CLR 82
Gambaro v Mobycom Mobile Pty Ltd (2019) 271 FCR 530
Hamod v New South Wales [2011] NSWCA 375
House v The King (1936) 55 CLR 499
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640
Jankovic v Minister for Immigration and Ethnic Affairs (1995) 56 FCR 474
Johns v Australian Securities Commission (1993) 178 CLR 408
Jones v Dunkel (1959) 101 CLR 298
King v Delta Metallics Pty Ltd [2013] FCAFC 93
MacPherson v R (1981) 147 CLR 512
Minister for Immigration and Border Protection v WZARH (2015) 256 CLR 326
Minogue v Human Rights and Equal Opportunities Commission (1999) 84 FCR 438
Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68
Muin v Refugee Review Tribunal [2002] HCA 30; 76 ALJR 966
Mulhern’s Properties Inc v Bank of Queensland Ltd [2013] FCA 401
Neil v Nott [1994] HCA 23; 68 ALJR 509; 121 ALR 148
Nobarani v Mariconte (2018) 265 CLR 236
Northern Territory v Sangare (2019) 265 CLR 164
O’Brien v Komesaroff (1982) 150 CLR 310
Oakley Inc v Franchise China Pty Ltd [2002] FCA 404
Park v Brothers [2005] HCA 73; 222 ALR 421
Potts v Miller (1940) 64 CLR 282
Rajski v Scitec Corporation Pty Ltd (unreported, Court of Appeal, NSW, 16 June 1986)
Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1
Samad v District Court of New South Wales) (2002) 209 CLR 140
Silkearl Pty Ltd v Ainsworth Game Technology Ltd [2006] FCA 949
Simto Resources Ltd v Normandy Capital Ltd [1993] FCA 468; 10 ACSR 776
Southcorp Brands Pty Ltd v Australia Rush Rich Winery Pty Ltd [2019] FCA 720; 369 ALR 299
Stead v State Government Insurance Commission (1986) 161 CLR 141
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
SZRUR v Minister for Immigration and Border Protection (2013) 216 FCR 445
Taub v R (2017) 95 NSWLR 388
Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241
Tobacco Control Coalition Inc v Philip Morris (Australia) Ltd [2000] FCA 131
Tomasevic v Travaglini (2007) 17 VR 100
Tritonia Ltd v Equity and Law Life Assurance Society [1943] AC 584
WACO v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 131 FCR 511
Date of hearing: 24 July 2020 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 162 Counsel for the Appellants: Mr M Y Bearman with Mr K Mihaly Solicitor for the Appellants: Aughtersons Lawyers Counsel for the Respondent: Mr T R O Boston QC with Mr D F McAloon Solicitor for the Respondent: HWL Ebsworth Lawyers ORDERS
VID 997 of 2019 BETWEEN: FLIGHTDECK GEELONG PTY LTD
First Appellant
DARREN MATHEWS
Second Appellant
AND: ALL OPTIONS PTY LTD ACN 123 320 169
Respondent
JUDGES:
MARKOVIC, DERRINGTON AND ANASTASSIOU JJ
DATE OF ORDER:
14 AUGUST 2020
THE COURT ORDERS THAT:
1.The appellants have leave to amend the notice of appeal in the form of the proposed further amended notice of appeal filed on 30 July 2020, save in respect of ground 4.
2.The appeal is dismissed.
3.The appellants pay the respondent’s costs of the appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
INTRODUCTION
The central issue in this appeal was said to be the scope of a judge’s duty to assist an unrepresented litigant in the conduct of a trial. However, whilst an issue of that kind was raised by the appellants, it was ultimately without merit. The appellants’ approach was to trawl through the findings of the trial judge so as to identify and rely upon those which they perceived might have been different had they had the benefit of competent counsel. That methodology was not directed to the correct issue. Here, the learned primary judge fulfilled every aspect of the obligation to accord an appropriate level of assistance to the litigant-in-person before him through the provision of advice and assistance where needed, as well as the modification of the usual trial procedure to ameliorate errors which had arisen through the litigant’s lack of understanding of the court processes. In so doing his Honour deftly navigated that fine line between affording the litigant-in-person the required degree of assistance and maintaining impartiality in the conduct of the proceedings. In addition, even in those areas where the appellants claim they were entitled to additional assistance from the trial judge, there is nothing to suggest any lack of assistance had the potential to affect the outcome of the case.
The appellants also complained that the primary judge erred in exercising his discretion by refusing leave to the litigant-in-person to represent the first appellant, a company of which he was the sole director and shareholder. The primary judge, who as the docket judge had control of the proceedings through the interlocutory stages, determined that the litigant-in-person’s candid admission that he did not have the skills to provide meaningful assistance to the Court in the conduct of the hearing was, in the light of other considerations, sufficiently significant to refuse the application for leave. His Honour’s exercise of discretion was dependent upon the particular circumstances of the case and, even if others may have exercised it differently, no error was shown to exist in his conclusion. Moreover, as the liability of the individual and company in this case were coordinate, even if leave had been granted, the result for the company would have been the same.
Finally, the appellants submitted the trial judge wrongly relied upon the opinion of an expert forensic accountant called by the respondent. The complaint was that one matter relied upon in undertaking a confirmatory or check valuation of a business had not been established by evidence. This issue or point was not taken before the trial judge by the appellants or by the experts called on their behalf and, had it been, it is likely that it could have been answered by the expert or by the adducing of further evidence. Putting aside the inappropriateness of allowing such a point to be taken on appeal, this ground fails in limine as there was sufficient evidence on which the expert and the Court could rely in relation to the point in issue.
It must be kept in mind that the issues raised on appeal arise in the context of the respondent advancing a very strong case before the trial judge of misleading and deceptive conduct inducing the purchase of a business at well above its true value. The primary judge found that the representations made to the respondent to induce it to acquire the business were false and, in some cases, intentionally so. He found that revenue and profit figures provided by the appellants were deliberately falsified to exaggerate the business’ financial attractiveness. No challenge was made to these findings and nor was it submitted that the second appellant’s disadvantage from being without legal representation, led to them being made. Indeed, they were fully supported by the evidence. This is not to deny that, if the appellants had not been accorded procedural fairness from which detriment flowed they ought to be entitled to relief. Nevertheless, it does contextualise the issues now raised and brings into focus the question of whether any further assistance from the trial judge could have possibly altered the outcome.
THE RELEVANT FACTS
The purchase of the business
In November 2014, the second appellant, Mr Mathews, resolved to relocate to America and sought the assistance of a brokerage firm to sell several of his businesses. One, in particular, was an indoor trampoline business called “Airodrome Trampoline Park”, owned by the first appellant, Flightdeck Geelong Pty Ltd, a company of which he was the sole director. It operated from two locations at Altona and Geelong in Victoria.
In early 2015, Mr Nicholls, who had significant experience in business and finance, became interested in purchasing a new business to supplement his cash flow. After some initial inquiries the broker handling the sale provided him with a business profile in respect of each site from which the Airodrome Trampoline Park business operated. The financial details in those profiles had been provided to the broker by Mr Mathews. Mr Nicholls used the information in the two profiles to prepare a financial model adopting the sales and profitability figures disclosed.
In or around March 2015, All Options Pty Ltd, of which Mr Nicholls was the sole director, entered into negotiations with Flightdeck with a view to purchasing the Airodrome Trampoline Park business. Mr Nicholls met with Mr Mathews on several occasions and visited the business’ premises in Altona and Geelong. Email correspondence was exchanged between the parties. During the course of negotiations, Mr Mathews made numerous representations about the establishment costs of the business, its past revenue and profit, and its future profitability. Mr Nicholls updated his financial model several times on the basis of those representations.
Mr Nicholls relied on the representations which had been made to him and caused All Options to purchase the business. A written agreement was executed between All Options and Flightdeck on 19 March 2015. Since that date the business has made significant losses.
The claim as advanced
The amended statement of claim asserted the making of a number of representations by Mr Mathews and Flightdeck as to:
(a)the past sales revenue and profit figures derived from the Geelong and Altona sites;
(b)the unavailability of the monthly sales information for February and March 2015 in relation to the Geelong site;
(c)the future profitability of the Altona and Geelong sites concerning the annual profits and stabilisation of revenue; and
(d)the set up costs incurred by Flightdeck in establishing the sites at Altona and Geelong.
All Options alleged it relied on these representations in purchasing the Airodrome Trampoline Park business.
The pleading then set out the particulars of why the representations made by Mr Mathews and Flightdeck were misleading and asserted that, as a result, the making of them contravened s 18 of the Australian Consumer Law (ACL) being Schedule 2 to the Competition and Consumer Act 2010 (Cth).
The substantive damage claimed by All Options was the difference between the cost of the acquisition of the business less its true value. The trading losses sustained whilst the business was owned by All Options were also claimed.
The defence
By the defence, which was somewhat brief, Mr Mathews and Flightdeck admitted making a number of the representations but alleged that the provision of further information by them altered the effect of the initially provided information. They denied making a number of the other representations. They also denied the representations were relied upon or that damages were sustained.
The interlocutory stages of the litigation
The action progressed through the interlocutory stages under the management of the trial judge to whose docket the matter had been assigned. For most of that time the appellants were legally represented by the firm Aughtersons. It caused pleadings to be prepared and filed as well as witness statements and expert reports for use at trial.
On 16 March 2018, the Court was informed that the matter was ready for trial, with the result being that the hearing was set down for five days commencing on 3 September 2018.
However, at a further case management hearing on 27 April 2018, which had been necessitated by the appellants’ failure to ensure that a joint expert’s report was filed, Mr Mathews appeared without legal representation and sought to represent both himself and Flightdeck. He asserted that he was without sufficient funds to pay the cost of the joint expert report. The primary judge informed him that if he wished to appear on behalf of Flightdeck he would need to seek leave to do so as r 4.01(2) of the Federal Court Rules 2011 (Cth) did not permit a corporation to proceed in the Court other than by a lawyer. Mr Mathews was informed that the Court could dispense with that prohibition, although he would have to make an application for such an order which would need to be accompanied by a supporting affidavit. He was further told that there were a variety of considerations which would be relevant to the application including Flightdeck’s financial position and the complexity of the case. The primary judge emphasised the importance of making any such application as soon as possible and before the trial.
Despite Mr Mathews indicating to the primary judge that he understood what he was told, in the period following the April case management hearing he neither made an application for leave to represent Flightdeck nor to adjourn the trial so as to secure representation.
A further case management hearing occurred on 20 August 2018, some two weeks prior to the date on which the hearing was due to start. It was only then that Mr Mathews, on behalf of himself and Flightdeck, made an application for the adjournment of the trial on the basis of the lack of legal representation. It was again pointed out to Mr Mathews that he did not have leave to represent Flightdeck and that he should make any application to do so on the first day of the hearing. He was directed to file any such application before 31 August 2018. The application for an adjournment was refused chiefly on the basis that the lack of legal representation had been known since March of that year and there was no evidence of any attempt to secure new representation since then.
No application for leave to represent Flightdeck was filed by 31 August or at all.
The applications for an adjournment and for leave to represent Flightdeck
When the trial commenced on 3 September 2018, Mr Mathews renewed his application for an adjournment, again on the basis that he lacked the necessary legal skill to conduct a court hearing and that he required additional time to obtain funding so as to secure representation. He indicated that he expected to recover funds from litigation which he was conducting in the Victorian Civil and Administrative Tribunal (VCAT). The learned primary judge refused the adjournment on the basis that Mr Mathews had previously secured legal representation and had not provided any explanation as to why he had neglected to arrange any since April 2018. His Honour was also concerned that he gave no explanation as to why he chose to fund the VCAT proceedings ahead of the action in this Court. Mr Mathews had also failed to produce evidence about his financial position and that of Flightdeck.
In his Honour’s reasons for judgment in this matter, he set out his reasons for refusing Mr Matthew’s application for leave to represent Flightdeck which he made, or was taken to have made, on the first day of the hearing. In particular, his Honour observed there was no formal application before the Court and no evidence in support of it. Mr Mathews was advised that he could renew his application for leave on the following day.
Mr Mathews did make such an application on the following day and he tendered to the Court a copy of his tax return for the year ending 30 June 2017, as well as an income tax return for a trust identified as the DJM Investments Trust for the same period. That was a family discretionary trust with no relationship to Flightdeck.
THE PRIMARY JUDGE’S REASONS
Application for leave to represent Flightdeck
In paragraphs 24 to 32 of the primary judge’s reasons his Honour dealt with Mr Mathews’ second application that he be permitted to represent Flightdeck in the trial. His Honour identified (at [24]) the discretion to allow the company to be represented by a non-lawyer as being a “broad one to be exercised judicially depending upon the existence of sufficient cause”: Silkearl Pty Ltd v Ainsworth Game Technology Ltd [2006] FCA 949. He also referred to the observations of French J (as his Honour then was) in Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241 [13]–[14] that relevant considerations to be taken into account in the discretion’s exercise might include the financial standing of the company and its shareholders or others who stand behind it, the company’s ability or lack thereof to expend its funds on litigation, the nature of the company’s business, its financial structure, and its ability to retain and pay its staff. French J had also cited the complexities of the case and the ability of the proposed representative to conduct it effectively as matters which might also be considered. The primary judge noted that French J had observed that the discretion might be exercised more liberally when the company was a respondent to proceedings rather than an applicant. His Honour then referred to the application of these principles by Allsop J in Silkearl where leave to represent a corporation by a non-lawyer was refused on the grounds that there was an absence of meaningful financial information about the company or the persons who stood behind it and whom might be interested in the success of the action, the case was legally and factually complex such that the company’s director would not be able to deal with it, and the director was not able to litigate the relevant issues in any dispassionate way.
The learned primary judge identified that, in the application before him, there was a real issue as to Flightdeck’s financial position and its capacity to pay for legal representation. Mr Mathews gave evidence by affidavit relating to his job, his income and other sources of funds, and the expectation of funds flowing from the proceedings in VCAT. He deposed that Flightdeck did not have any funds to employ legal representation and he relied on his tax return as well as that of the trust. However, as the primary judge observed, Mr Mathews did not produce financial information in relation to Flightdeck in the nature of tax returns, business activity statements, financial statements or bank accounts. Whilst his Honour was initially prepared to accept that Mr Mathews was impecunious and not able to afford legal representation, he was not able to reach the same conclusion with respect to Flightdeck.
The primary judge also expressed concern as to the delay in making the application for leave to represent the company. In particular, he referred to Mr Mathews being informed at the April case management hearing that he could not represent the company without leave and that he needed to apply for that leave and to file an affidavit in support of it. Despite Mr Mathews indicating that he understood what he was then told, no application was made until the first day of trial and, as his Honour observed, that was notwithstanding that Mr Mathews had been told to make it before 31 August 2018. His Honour concluded that there had been no satisfactory explanation for the delay.
His Honour’s reasons record that he also took into account that Flightdeck was a respondent and, as such, the discretion ought to be exercised more liberally in relation to it than it would if it were the applicant. He also considered that, in the absence of leave, Flightdeck would be vulnerable because there would be no one to adduce evidence on its behalf as to the reasonableness of the future representations which it was alleged to have made. His Honour was of the opinion that Flightdeck could only rely on evidence which it advanced in order to assert that it had a reasonable belief for the making of a future representation and that it could not rely upon evidence adduced by Mr Mathews. Whether that assumption was correct was not disputed on the appeal: cf Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 (ACCC v Universal) [46]; Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58 (Cycclone Magnetic Engines) [194]. But, in any event, it was a factor which obviously was weighed in favour of granting Mr Mathews the leave he sought.
After weighing the competing considerations, his Honour refused the application that Mr Mathews have leave to represent Flightdeck. His Honour recorded that a decisive consideration was Mr Mathews’ assertion that, given the complexity of the matters involved, he would not be able to meaningfully assist the Court. He was also not satisfied that Flightdeck did not have the resources to defend itself as there was an absence of evidence about its financial position. Further, there was no explanation for the withdrawal of representation in the case before his Honour and the continuing legal representation in the VCAT proceedings.
For the same reasons the primary judge also refused the further application for an adjournment. There was no appeal against that latter order. Mr Mathews made further applications for an adjournment on the second and third day of the trial, but they were also refused. No appeal was made in respect of those matters either.
The misleading or deceptive conduct claim
In relation to the substantive claim, the primary judge first considered the representations as to future matters. He observed that two of the representations were in writing and contained in the Business Profiles handed to Mr Nicholls. These were admitted by the appellants. Those representations, were that the forecast future profit of the business was in excess of $400,000 annually at the Altona site and in excess of $750,000 annually at the Geelong site. The primary judge found that these representations were made for the purposes of inducing the sale of the business. He also found that, as Flightdeck had not adduced evidence to establish that there was a reasonable basis for making them, as against it they must be considered to have been misleading or deceptive.
All Options also alleged that Mr Mathews had made oral representations as to the future matters. In particular, it claimed that Mr Mathews had represented that the weekly future revenue of the Geelong site would not drop by more than 30%. This was important to Mr Nicholls and All Options as a rival trampoline park had recently opened in close proximity to that site. The primary judge accepted that the representations were made and, in particular, because they were consistent with contemporaneous evidence and Mr Nicholls’ demonstrated assessment of the businesses. In the absence of any evidence called by Flightdeck, the future oral representations were also found to have been made by it and to have been misleading or deceptive.
All Options further relied upon certain representations as to past matters concerning the revenue obtained from the Altona and Geelong sites, the profitability of each site and the establishment or set up costs. Most of these were alleged to have been in writing and contained in financial documents provided to Mr Nicholls by Mr Mathews and Flightdeck. Mr Mathews claimed that the revenue and profitability representations were true and denied that he had made the representation concerning the set up costs.
Mr Mathews and All Options relied upon different financial information from the business to support their contentions as to the veracity of the representations as to revenue and profitability. However, the primary judge concluded that regardless of which financial information was used, the representations could not be supported and were false. His Honour ascertained that even using the Weekly Till Reconciliation Reports which had been relied upon by Mr Mathews, the weekly figures provided to All Options for the Altona site for the period from 2 November 2014 to 21 December 2014, were each inflated by $10,000. Under cross-examination Mr Mathews was not able to identify any documents which could support the weekly revenue figures which were provided to All Options other than saying that he had disclosed them to the solicitors. His Honour also concluded that the representations were not supported by any of Flightdeck’s financial records. He concluded that they had been concocted by Mr Mathews by adding an extra $10,000 to each week of the actual figures in the Weekly Till Reconciliation Reports.
All Options also relied upon representations as to the revenues for the Altona site for the period from January to March 2015 made by Mr Mathews in an email of 17 March 2015. These figures were also found to be false. They could not be reconciled with any of the financial records of Flightdeck and his Honour found that they had been arbitrarily inflated by Mr Mathews. Under cross-examination in relation to this matter Mr Mathews was again unable to identify any document which supported those figures.
The Altona Business Profile given to All Options also contained representations that the sales figures from April to September 2014 were $726,000 with a profit of around $230,000. The trial judge found that these representations were misleading or deceptive for the purposes of s 18 of the ACL.
For similar reasons his Honour also found that the weekly revenue figures provided to All Options in relation to the Geelong Business Profile were false. Again, Mr Mathews was not able to identify any documents or records which supported the financial information which he had provided. The appellants had also made representations in the Geelong Business Profile to All Options as to the revenue and profitability of the Geelong site. The expert called on behalf of All Options, Ms Wright, was of the opinion that they were inaccurate and explained why that was so. Mr Mathews was not able to identify or produce any documents which supported those figures either.
In the course of negotiations Mr Nicholls had sought further financial information as to the revenue and profit of the Geelong site and it was purportedly provided by Mr Mathews in an email of 13 March 2015. The figures so provided were also found to be false and inflated.
All Options had further relied on what it alleged were misleading or deceptive representations as to the set up costs of the trampoline park business. In the circumstances of the case the primary judge found it unnecessary to reach a conclusion about whether those representations were made.
Given the foregoing, the primary judge held that the misleading representations were made in trade or commerce and that they contravened s 18 of the ACL. The representations were made in order to induce All Options to purchase the Airodrome Trampoline Park business and, indeed, it was found that they had that effect. His Honour concluded that the misleading representations as to past matters were made by Mr Mathews personally and in his position as director of Flightdeck such that they were also made by that company.
In relation to the representations as to future matters, his Honour found that they were made by Mr Mathews without having any reasonable basis for doing so. In effect, his Honour found that Mr Mathews knew the true financial state of the business and that the business activities were not likely to achieve anything near the represented revenues or profits. It followed that Mr Mathews was primarily liable for the making of those misrepresentations as well.
His Honour assessed the primary damages flowing from the misrepresentations on the basis sought by All Options, being the difference between the price paid for the Airodrome Trampoline Park business and its true value at the date of sale. In addition, his Honour awarded damages for the trading losses sustained by All Options for the period during which it operated the business.
In valuing the business at the date of purchase, the primary judge rejected the expert reports relied upon by the appellants. In particular, he rejected the valuation of the assets of the business prepared by a Mr Peisley. He did so because, although Mr Peisley identified what he considered to be the value of the business’ assets at the relevant date, he gave no explanation as to how he reached the figures he did. His Honour preferred and relied upon the first report of Ms Wright, a forensic accountant who gave evidence for All Options. In that report, Ms Wright initially valued the Airodrome Trampoline Park business using the Capitalised Future Maintainable Earnings (CFME) method. She first calculated that the maintainable earnings were in the vicinity of -$400,000 per year. To that she applied an income multiplier of 1 to 2, and that led her to the conclusion that the value of the business was nil. Ms Wright cross-checked the result by valuing the business using the nett asset value method (being the estimate of the business’ value by ascertaining the realisable value of its assets). The primary judge said (at [142]) in relation to this:
…This valuation took the balance sheet historical cost value of the assets as a starting point. Ms Wright then made adjustments to those values to ascertain the appropriate market value. She assessed that the amount recorded as “repairs and maintenance” was indicative of the initial cost of the equipment. None of this was challenged. Her final conclusion was that the value of the Business was somewhere between nil and $325,000.
In her third report, Ms Wright provided a further valuation of the business. She made adjustments to her valuation using the CFME method but still reached a value of between nil and $220,000 depending on which figures were used. She made further adjustments to the nett asset value approach and, on the basis of a report of Mr Tallon from the firm Hymans Valuers and Auctioneers, revised the value so ascertained down to $15,383.
The primary judge was unable to accept the veracity of the valuers — Mr Peisley and Mr Tallon — who gave opinions as to the specific values of the assets of the business, because neither provided any explanation as to how the values were reached. They simply stated what they thought the values were.
As a result, the primary judge accepted the first report of Ms Wright and found the business’ value was between nil and $325,000. For the purposes of assessing damages, his Honour adopted a mid-point being $162,500. The consequence was that, in addition to the trading losses, All Options was entitled to damages in the amount of $1,362,500, being the difference between the price paid by All Options to Flightdeck and the true value of the business at the date of sale.
THE APPEAL
In the course of the appeal the appellants sought leave to file and serve a further amended notice of appeal which, so it was said, would reflect the submissions advanced orally and in writing to the Court. A draft of the proposed notice of appeal was filed subsequent to the hearing. Broadly speaking, it sets out five grounds of appeal, which are in substance that:
(1)The primary judge erred by denying Mr Mathews procedural fairness as a self-represented litigant in that he failed to adequately explain the processes of the trial and the legal consequences of his choices during the trial (particularly in relation to cross-examination and the tendering (or lack thereof) of evidence). It is also alleged that the speed at which the trial was conducted exceeded that which Mr Matthews was able to accommodate.
(2)The primary judge erred by denying Flightdeck procedural fairness as a respondent at the trial of the proceeding by refusing Mr Mathews leave to represent it as its director.
(3)The primary judge so erred by applying Silkearl as authority in the matter, because that decision concerned the representation of an applicant company by director in a proceeding.
(4)The learned trial judge erred in relying upon the expert report of Ms Wright dated 1 August 2017 in determining the respondent’s loss and damage.
(5)The learned trial judge should have found that the respondent had failed to prove that it had suffered loss or damage, or alternatively, the quantum thereof.
Mr Boston QC for All Options opposed the granting of leave in respect of some of the proposed amendments. In particular, he opposed the granting of leave in relation to ground 1(g) which concerned the speed at which the trial was conducted. This was said to have prevented the appellants claiming rights or putting forward arguments such that they were deprived of the possibility of a successful outcome at trial. The first ground of opposition was that the proposed amendment did not specifically identify the grounds on which the appellants relied as required by r 36.01(2)(c) of the Federal Court Rules, although that complaint was probably overcome by the new form of the proposed further amended notice of appeal which was filed after the hearing. The more substantive ground of opposition was that it was bereft of merit.
Mr Boston QC also objected to leave being given in relation to the proposed amendments to ground 4 on the basis that this ground, in its original form and in its proposed amended form, raised points which were not taken at trial such that they should not be raised for the first time on appeal.
Given the manner in which the appeal was argued, the question of leave to amend is considered in these reasons in the course of discussing the issues as they arose.
GROUND 1
Ground 1 of the appeal was eventually framed in the written submissions in the following terms:
Mathews submissions in respect of the whole of ground 1 may be fairly encompassed in the following propositions:
(a) that the explanations given by the Primary Judge to Mathews about what was expected of him at trial in respect of the issues used language with a technical meaning and assumed knowledge that no reasonable lay person could be expected to possess, and which Mathews did not possess at relevant times of the trial;
(b) that the trial was conducted at a speed which did not give Mathews sufficient time to consider whether he understood the import of the Primary Judge’s explanations to him at relevant times; and
(c) by reason thereof, Mathews, “because of [a] lack of legal skill, failed to claim rights or put forward arguments which otherwise he might have done”.
In substance it was alleged the trial judge failed to accord Mr Mathews a fair trial because he did not adequately explain the trial process in certain respects and he conducted the trial at a pace which Mr Mathews could not accommodate. It is not irrelevant that the appellants did not articulate in any substantive manner the rights which Mr Mathews allegedly failed to claim or the arguments which he allegedly failed to put forward consequent upon the asserted lack of explanation or the speed of the trial.
The Court’s duty to the litigant-in-person
The submissions advanced on appeal revealed the existing lack of clarity as to the obligations of a court to a litigant-in-person. Though the principles might be succinctly stated at a high level of generality, their application in a particular case is somewhat more problematic. Statements to the effect that, “Courts have an overriding duty to ensure that a trial is fair”: see, eg, Dietrich v R (1992) 177 CLR 292, 330, 362; or that judges must ensure that trials are conducted fairly and in accordance with law: MacPherson v R (1981) 147 CLR 512, 523, are axiomatic but do not offer any great assistance in the particular circumstances of a trial. On the other hand, the observations of Mason J (as his Honour then was) in MacPherson at 534 that the general duty to ensure that litigants do not suffer any disadvantage from exercising their right to be self-represented, includes the obligation to ensure that they do not remain in ignorance of a fundamental principle which, if invoked, may prove advantageous to them, do offer assistance at a more granular level. The disadvantages to which Mason J referred are usually identified as a lack of knowledge (both of the law and the processes of the court) and a lack of objectivity: Tomasevic v Travaglini (2007) 17 VR 100, 130 [140] (Bell J).
As acknowledged by the High Court in Neil v Nott [1994] HCA 23; 68 ALJR 509; 121 ALR 148, 150, “[a] frequent consequence of self-representation is that the court must assume the burden of endeavouring to ascertain the rights of parties which are obfuscated by their own advocacy”. In addition, litigants-in-person commonly fail to lodge documents in the correct form, observe court formalities and procedures, understand the significance of court processes, put the relevant evidence or law before the Court; and understand the role of the Court in adjudicating the matter.
However, whilst disadvantages exist and the Court is obliged to act to ameliorate them by giving assistance to the unrepresented litigant, its role is constrained by its concurrent duty to remain an impartial adjudicator: see, eg, Barghouthi v Transfield Pty Ltd (2002) 122 FCR 19, 23 [10]. Indeed, the Court must strike a fine balance between providing assistance to a litigant-in-person, and ensuring a fair trial for all parties: Hamod v New South Wales [2011] NSWCA 375 [315]; Minogue v Human Rights and Equal Opportunities Commission (1999) 84 FCR 438, 446 [29]; SZRUR v Minister for Immigration and Border Protection (2013) 216 FCR 445, 452-453 [37] per Justice Robertson (with whom Allsop CJ and Mortimer J agreed); AMF15 v Minister for Immigration and Border Protection (2016) 241 FCR 30, 44-46 [39] per Flick, Griffiths and Perry JJ.
The assistance provided to a litigant-in-person must therefore be limited to that which is necessary to diminish the disadvantage which he or she will ordinarily suffer, and the Court should be wary to avoid placing a litigant-in-person in a position of advantage or privilege over a represented opponent. As acknowledged by Samuels JA in Rajski v Scitec Corporation Pty Ltd (unreported, Court of Appeal, NSW, 16 June 1986), 27, and cited with approval by the High Court in Nobarani v Mariconte (2018) 265 CLR 236, 250 [47]:
[T]he absence of legal representation on one side ought not to induce a court to deprive the other side of one jot of its lawful entitlement … An unrepresented party is as much subject to the rules as any other litigant. The court must be patient in explaining them and may be lenient in the standard of compliance which it exacts. But it must see that the rules are obeyed, subject to any proper exceptions. To do otherwise, or to regard a litigant in person as enjoying a privileged status, would be quite unfair to the represented opponent.
In practical terms, the Court may find it appropriate to provide the following kinds of assistance to a litigant-in-person:
(a)Ensuring the litigant has sufficient information about the practice and procedure of the Court to make effective choices in the conduct of the matter: Hamod [311]. For example, failing to explain the difference between formal sworn testimony and statements made from the bar table, and the significance of failing to file an affidavit, to enable a litigant-in-person to choose whether or not to give oral evidence, may amount to a denial of procedural fairness: SZRUR [39]. Additionally, failing to explain the risks in not leading evidence where adverse inferences might be drawn may also constitute a denial of procedural fairness: Downes v Maxwell Richard Rhys & Co Pty Ltd (in liq) (2014) 46 VR 283.
(b)Ensuring the litigant is informed of procedures which, if invoked, may prove to be advantageous: MacPherson, 534. For example, failing to inform a litigant-in-person of their ability to apply for an adjournment may amount to a denial of procedural fairness: AMF15, 50 [47].
(c)Ensuring the litigant has not, because of a lack of legal skill, failed to claim rights or put forward arguments: Rajski.
The duty of the Court does not extend to providing judicial advice, counselling a litigant on how to exercise their rights, or conducting the case on their behalf: Hamod, [312]; Bhagwanani v Martin (1999) 204 LSJS 449, [23]; Clark v New South Wales (No 2) [2006] NSWSC 914, [13]. Nor does the duty of the Court require it to view a litigant-in-person’s case with a favourable eye. As stated by the High Court in Northern Territory v Sangare (2019) 265 CLR 164, 174 [27], albeit in the context of a determination on costs, “unmeritorious litigation is no less unmeritorious because it is pursued by a person who is … a litigant-in-person”.
It seems to be well accepted that the extent of the Court’s obligation to assist an unrepresented litigant is factually idiosyncratic and, significantly, depends upon “the litigant, the nature of the case, and the litigant’s intelligence and understanding of the case”: Abram v Bank of New Zealand [1996] FCA 1650 ATPR 41-507, 42,347.
Relief for denial of procedural fairness
A denial of procedural fairness must work a practical injustice on the appellant in order for the Court to exercise its discretion to grant relief: Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1, 14 [38] per Gleeson CJ. An appellant alleging a denial of procedural fairness need only demonstrate that they were deprived of the possibility of a successful outcome; to negate that possibility it is necessary to find that a properly conducted trial could not possibly have produced a different result: Stead v State Government Insurance Commission (1986) 161 CLR 141, 147. To put it another way, as framed by the Full Court in King v Delta Metallics Pty Ltd [2013] FCAFC 93 [59], “[i]f the denial of procedural fairness would have made no difference to the outcome of the proceeding, relief will not be granted”: see also Nobarani, 248 [39]; Gambaro v Mobycom Mobile Pty Ltd (2019) 271 FCR 530, 544 [49].
Depending on the circumstances of the case, the onus may be on the appellant to demonstrate what they would have done, or what evidence they would have led, so as to establish they were in fact denied procedural fairness. As explained by Gageler and Gordon JJ in Minister for Immigration and Border Protection v WZARH (2015) 256 CLR 326, 342–343 [59]–[60]:
There are cases in which conduct on the part of an administrator in the course of a hearing can be demonstrated to have misled a person into refraining from taking up an opportunity to be heard that was available to that person in accordance with an applicable procedure which was otherwise fair. To demonstrate that the person would have taken some step if that conduct had not occurred is, in such a case, part of establishing that the person has in fact been denied a reasonable opportunity to be heard.
Where, however, the procedure adopted by an administrator can be shown itself to have failed to afford a fair opportunity to be heard, a denial of procedural fairness is established by nothing more than that failure, and the granting of curial relief is justified unless it can be shown that the failure did not deprive the person of the possibility of a successful outcome.The practical injustice in such a case lies in the denial of an opportunity which in fairness ought to have been given.
(Footnotes omitted). (Emphasis added).
In reaching this conclusion, their Honours cited the Full Court decision of WACO v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 131 FCR 511, where at 525 [58] their Honours had observed that where a party has been denied an opportunity to be heard on an important issue, that will amount to a denial of procedural fairness unless it can be shown that the appellant could not, even if given the opportunity to do so, affect the outcome. See also: Re Refugee Review Tribunal: Ex parte Aala (2000) 204 CLR 82, 88 [3], 122 [103], 150 [200]; Muin v Refugee Review Tribunal [2002] HCA 30; 76 ALJR 966, 979–980 [62]–[68], 1009 [252]–[256], 1018 [309]; Applicant NAFF of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 221 CLR 1, 15 [43]–[44], cited as authority for the first emphasised proposition in the excerpt above.
The circumstances of Mr Mathews
Before proceeding further it is necessary to identify the personal circumstances of Mr Mathews which, to an extent, may have delimited the extent of assistance required from the court for the purposes of ensuring a fair trial.
Perhaps the first matter to observe is that there was very little evidence of Mr Mathews’ particular circumstances. He did not seek to introduce evidence at trial or on appeal as to his level of knowledge or skill or his understanding of the case which he conducted before the trial judge. Mr Bearman for the appellants relied on Mr Mathews’ unsworn statements from the bar table to the effect that he did not have the capabilities to conduct the litigation. However, it appears that Mr Mathews and Flightdeck had been represented by the firm of solicitors, Aughtersons, for an extended period during the dispute with All Options, and perhaps including a period prior to the litigation commencing. At all events, the critical point is that the solicitors were acting in the conduct of the litigation for about one year during which time witness statements and expert reports were filed and served, and subpoenas were issued for the attendance of witnesses at trial and for the production of documents, all on the appellants’ behalf. It was only once the matter was ready for trial and the hearing was set down that Aughtersons ceased acting. Nevertheless, the work which had been undertaken by that firm put the appellants in a significantly better position than litigants-in-person who have had no assistance during the interlocutory stages of an action.
Mr Mathews did not give any evidence as to the extent of the assistance he and Flightdeck had received from Aughtersons. It may well be that they had obtained advice as to prospects in the litigation or as to what would be the real issues in dispute in the trial. They may even have obtained an advice on evidence which might have afforded them something of a blueprint for the conduct of the trial. Given the evidential vacuum in relation to this issue, it is not appropriate to commence from an a priori assumption that the appellants knew nothing about the nature of the real issues which would be in dispute in the proceedings or of the evidence which related to them. On the other hand, the Court simply cannot divine and attribute a level of understanding of the relevant issues to Mr Mathews based on a presumption as to the level of service that he, perhaps, should have received from his erstwhile solicitors. Although little might turn on it in the present case, where a litigant asserts that they were not given sufficient assistance by a trial court in the conduct of their case, it might be thought that they ought to have established by clear evidence the actual level of their lack of knowledge and ability where that is not otherwise obvious.
Here, the objective circumstances reveal that Mr Mathews had a detailed understanding of the nature of the case he was required to meet. His conduct and representations which were said to have induced All Options’ purchase of the business were central to the question of liability, and the business’ financial position, of which he was intimately familiar, was central to the question of the quantum of damage. Necessarily, he ought to be taken as having a greater knowledge and understanding about the factual aspects of both of those matters than any other person. In the course of the hearing he read and relied upon his witness statement of 112 paragraphs (20 pages of text and 85 pages of exhibits) which had apparently been prepared by his former legal representatives. That statement narrated his version of the events surrounding the sale of the business as well as providing a detailed response to the witness statement of Mr Nicholls which had previously been filed and served. These circumstances are far removed from those cases where a litigant-in-person is not aware of the underlying factual matrix relevant to the issues in dispute.
In the course of the trial, Mr Mathews asserted that he had been a businessman for 30 years. His experience derived from that was evident in his cross-examination of Ms Wright in relation to the veracity of her CFME valuation of the business. He particularly questioned Ms Wright about the appropriateness of the earnings multiple which she had adopted and, in the course of that, said:
In my experience in business over a long time, the only businesses I ever saw with a multiple of one was the corner milk bar. And the only business I saw with a multiple as low as two would be a very poorly run hotel. I haven’t seen too many other businesses in 30 years of my business life that have got multiples of less than three, four or five.
That statement was consistent with the high level of understanding Mr Mathews otherwise displayed in the course of cross-examining Ms Wright as to the CFME valuation method. It also revealed that he was a capable and intelligent person with substantial business experience and whose knowledge of the valuation of businesses exceeded that of most people.
As his own witness statement averred, he had been involved in the indoor leisure activity business for many years. He, as the sole director and shareholder of Flightdeck, had established the two venues from which the company conducted the trampoline parks. There would be little doubt that he had a detailed knowledge of the cost of establishing the business, its operations, as well as its revenue and expenses. These were important, if not central, issues before the court.
It is also relevant that the matter was set down for trial commencing 3 September 2018 at the case management hearing on 16 March 2018. The appellants’ solicitors ceased acting six days later. That being so, Mr Mathews had over five months to prepare his case knowing, or at least anticipating, that he would have to represent himself. These circumstances are to be compared to those where litigants-in-person are required to appear before inferior courts or tribunals where matters are set down with very little time to prepare.
Mr Mathews asserted that he had not read a number of the expert reports on which All Options relied although he did not give any reason as to why he had not. However, his unsworn statement carries little weight in circumstances where reports on which All Options relied had been filed and served many months before the trial and he had been acutely aware of the impending hearing in sufficient time to read and understand them.
That aside, a reasonably quick perusal of the transcript of the trial demonstrates that Mr Mathews was far from incapable of conducting his case at all. His cross-examination of the witnesses, and particularly Mr Nicholls and Ms Wright, demonstrated that he was acutely aware of the matters in issue and the evidence relating to them. Whilst not at the level expected of any legal practitioner, he methodically cross-examined Mr Nicholls in relation to the contentious parts of his evidence and clearly put his case to him. Similarly, his cross-examination of All Options’ experts reveals that he was not incapable of dealing with the technical issues in the case. He was also able to structure his cross-examination in an orderly, focused and logical manner. As is discussed below, he was quick to pick up on the court procedure and he tendered reports, witness statements and other documents. He provided a ten-page written outline of submissions in support of his defence after the hearing.
The consequence of the foregoing is that, although a litigant-in-person, Mr Mathews was obviously intelligent and capable, and armed with substantial knowledge relating to the matters which would arise during the hearing. His case had been well prepared by his former solicitors and he was also able to understand the court processes to which he quickly adapted.
The complaints as to the lack of assistance given to Mr Mathews
The advice given by the judge at the commencement of the hearing
A focus of the appellants’ first complaint was the trial judge’s initial explication of the trial process which was given at the commencement of the hearing. After rejecting a further application for an adjournment the learned primary judge said:
So, Mr Mathews, we’re going to proceed. I have a couple of questions for you. And then I will endeavour to give you what assistance I can, bearing in mind, I can’t leave the bench, come down and sit next to you at the bar table, and run your case for you, but I will try and give you what assistance I can without impermissibly overstepping my role as the independent umpire.
His Honour then proceeded to identify, from the material filed, the evidence on which he anticipated Mr Mathews wished to rely. He warned Mr Mathews about the potential problems which Flightdeck faced given that it was unrepresented and would not be in a position to call evidence to rebut the onus imposed on it by s 4 of the ACL in relation to the future representations which All Options had alleged were made. He then explained in some detail how the trial would proceed. He explained the contents of the Court Book and how the documents in it would be used and then the manner in which the trial would proceed including the openings and the calling of witnesses. Mr Mathews was asked whether he would be cross-examining any of the lay witnesses and he said that he would. The trial judge explained the manner in which that might occur. Mr Mathews also indicated that he would be cross-examining the applicant’s expert witnesses.
His Honour, having read the witness statements and expert reports in the days immediately prior to the hearing, then assayed the issues of the case. He identified the various representations alleged and the circumstances in which it was said they were made. His Honour pointed out the different legal effect of alleged representations as to future matters and representations as to past matters. After doing so he asked Mr Mathews whether he understood the distinction and Mr Mathews said that he did. His Honour then identified the expert evidence which went to the quantification of the damage on the assumption the contraventions of s 18 of the ACL were made out.
After his Honour’s lengthy explanation of these matters the following exchange occurred:
HIS HONOUR: … All right. Do you have any questions you would like to ask me?
MR MATHEWS: No. I don’t have any questions regarding what you just explained to me. But my first opportunity to speak again from 10 minutes ago I’m still confused about the inability for me to get Legal Aid or legal assistance, given that, from my understanding, after speaking with the court and researching the court online, I could only have received that by making an application to yourself.
Mr Bearman for the appellants submitted that this Court should not take Mr Mathews’ answer that he did not have any questions about what had been explained as being an indication of his having understood it. He submitted that ought to be ignored and attention should focus on Mr Mathews’ statement that he was interested in obtaining legal aid. It was submitted that this indicated that he was not really paying attention and was only waiting to raise his ability to secure legal aid. With respect, that submission should be rejected. As indicated previously, Mr Mathews was an experienced businessman who was also articulate and, as the course of the hearing subsequently discloses, he was able to stand up for himself when he considered he should. Further, when he did not understand a matter he had no compunction about asking for further information. His statement in response to the trial judge’s question should be taken for what it was; an indication that he understood the matters which the judge had taken the time to explain.
Failure to advise of how evidence was admitted into evidence
A major criticism of the primary judge’s initial explication of the trial process was that his Honour used legal terms without further exposition. In particular, it was said that his Honour referred to the process of tendering evidence but did not explain that merely because a document was referred to in the Court Book it would not necessarily be received into evidence. A further complaint was that the trial judge did not explain the concept of “evidence” in its technical sense. These were somewhat sterile arguments for a number of reasons. Firstly, because Mr Mathews tendered a number of documents in the course of the hearing, albeit mostly on the fourth day. His witness statement had been tendered with the assistance of the trial judge on the third day. Mr Mathews also tendered extracts from a draft report of an expert engaged by All Options as well as the expert reports on which he relied. Mr Mathews was obviously aware of his entitlement to tender documents and of how to do it.
Secondly, the trial judge gave the parties the opportunity to identify which documents from the Court Book they wished to tender. Mr Bearman took the Court to a passage in the transcript of the hearing on the fifth day where the primary judge discussed with the parties how the tender of documents from the Court Book would occur. His Honour said:
HIS HONOUR: Well, what I was going to do is allay to tender the whole lot, in terms of it coming into evidence, and then letting you think about which particular pages you then want me to look at.
MR MATHEWS: Yes, yes. In my closing submission.
It is rather axiomatic that the words “allay to tender” should be “allow you to tender”. Mr Mathews said that he understood, and provided to the Court a box of “various” documents which were accepted into evidence and given exhibit number R5. No sustainable submission could be made that Mr Mathews was not able to tender any document on which he intended to rely.
However, it was further submitted that despite the above, it was apparent that Mr Mathews did not really understand the point of tendering documents. The Court was taken to Mr Mathews’ written submissions where he was said to have sought to rely upon a document which was said not to be in evidence. That submission concerned a Mr Richards who had some expertise in relation to trampoline parks. He had prepared a report and given evidence on behalf of the appellant as to the cost of removing the trampoline equipment from the existing sites and installing them at new premises. The primary judge made findings in accordance with Mr Richard’s report and which were not disputed by Mr Mathews. However, in his written submissions, Mr Mathews asserted that there existed certain spreadsheets which were prepared by Mr Richards in 2017 and which identified the establishment costs of the trampoline parks at Geelong and Altona as approximately $1.42 million in total. He further asserted that the spreadsheets were obtained through a subpoena, were tendered into evidence and not disputed by the applicant. On that basis, Mr Mathews’ written submissions at trial asserted that the figures in Mr Richard’s spreadsheet supported his defence to the alleged misrepresentations concerning the set up costs and disclosed or evidenced the true value of the businesses.
The submission which was sought to be made in respect of this is possibly discerned from the following submission of Mr Bearman:
Now, the point we’re making is that these documents, subpoenaed, whether or not tendered into evidence, were (1) not put to Mr Richards in cross-examination, asked whether they were his documents or whether he adopted them or were they correct. They weren’t put to any other witness. His Honour took absolutely no notice of the submission in his reasons and, on the assumption one is bound by the way one ran the case below, that would be absolutely right. It could be accorded no weight. We don’t suggest otherwise. But there were documents in existence, subject to subpoena which the applicant wished to rely upon and, in fact, sought to rely upon. And when your Honour goes to the last exchange that I took the court to at page 126 to 127 about what would happen at closing submission and the highlighting of documents at the submission, if that is read, as we would say a layperson might understand it rather than a lawyer, and Mr Mathews was doing precisely what he was invited to do by the learned primary judge, and he’s drawing attention to documents in evidence in an attempt to, well after the case is closed, present the case that he wished to argue as a result of the trial.
It seems that the real complaint here was not so much about the ability to tender documents but that the trial judge took no notice of the spreadsheets because they were not put to Mr Richards in the witness box and that Mr Mathews was bound by the manner in which he conducted the trial. It was further submitted that the trial judge had failed to explain to Mr Mathews the obligation to put evidence or documents to experts whose opinions he wanted to challenge. The submission might also carry the implicit assertion that Mr Mathews was misled in that he thought that he might simply make his case by drawing the judge’s attention to documents at the end of the case without putting them to the relevant witnesses.
There are a number of difficulties with these submissions. Firstly, the documents in question were, in fact, in evidence before the Court. It seems that they were spreadsheets from an earlier draft report of Mr Richards which Mr Mathews had obtained on subpoena, although they did not form part of the final report and neither they, nor any derivative of them, were relied upon by Mr Richards. The primary judge allowed the spreadsheets to be tendered given that Mr Richards’ final report had been relied upon and tendered. They were marked as Exhibit #R2. It also appears that they had been relied upon and updated by Mr Tallon from the firm Hymans, an expert called by All Options, who annexed them to his report. As such, they were effectively included in that report which was referred to at the trial as the Hymans report. Therefore, contrary to the appellants’ submission, they were not ignored by the primary judge who considered them as part of his analysis of that report.
The difficulty for the appellants is that the primary judge found that the schedules (as they were replicated in the Hymans report) did not constitute valid evidence of the cost of the plant and equipment. As is discussed below, the identified value of the items in the schedule were not supported by evidence or any reasoning. They were simply assertions and, as such, could be given no weight (see the reasons of the primary judge at [139] and [147]).
A further difficulty for the appellants is that the adoption by Ms Wright (in her second report) of the values in the Hymans report (which were derived from the spreadsheets) had the consequence of reducing her assessment of the nett asset value of the trampoline business to less than that which had appeared in her first report: (reasons of the primary judge at [146]). In his conclusions, the primary judge accepted and relied upon the higher initial valuation of Ms Wright and that was to the benefit of the appellants. Had the figures in the spreadsheets been accepted, a higher award of damages would have followed. Therefore, far from ignoring the contents of the documents or giving them no weight, they were considered by the primary judge albeit in the context of their inclusion in a different expert’s report. Ultimately, the evidence in the spreadsheets carried no weight.
Second, contrary to Mr Bearman’s submissions that the spreadsheets were the centrepiece of the appellants’ defence, they were ultimately irrelevant to the outcome of the case. To the extent the documents related to the alleged representations made about the establishment costs of the trampoline parks, they did not support the alleged representation that each park cost over $1 million to set up. Indeed, they contradicted it. However, the primary judge concluded it was not necessary to reach any conclusion about whether the representations as to the capital costs of establishing the parks were made and he reached no conclusion about that (see reasons of the primary judge at [91]–[94]).
Third, Mr Mathews put a number of documents to Mr Nicholls in the course of cross-examination and questioned him extensively about them and their contents. They included spreadsheets and profit and loss statements relating to revenue and expenses. He also put documents to the witness Mr Templer and cross-examined him on them. Otherwise, the transcript reveals that during the course of the trial he demonstrated an ability to confront witnesses with documents which he perceived to be contentious and to cross-examine on them. If, as Mr Bearman submitted, the spreadsheets prepared by Mr Richards concerning the establishment costs was the “centrepiece of Mr Mathews defence about misrepresentation”, it is difficult to understand why this was not raised by Mr Mathews with Mr Nicholls or with any other witness. Contrary to Mr Bearman’s submission, there is nothing to suggest that he was not aware of his ability to do so if that is what he wished to do.
Given the above, the issue of how the trial may not have been fair because Mr Mathews was not informed of the importance of tendering a document was somewhat obscure. It became more so when, in response to a question from the Bench, Mr Bearman acknowledged that there was no document from the Court Book or, indeed, any document on which Mr Mathews wished to rely, which was not tendered into evidence.
It is pellucidly clear that the primary judge was correct to perceive that Mr Mathews was not a person who required any further explanation as to the need for or the importance of the tendering of documents. It is also abundantly clear that no unfairness in the trial process occurred as a result of any omission of the trial judge to more fully explain the process of tendering evidence or putting documents to witnesses. Obviously, it was not needed.
Absence of an explanation as to calling witnesses
At the trial Mr Mathews claimed that he was prejudiced as a self-represented litigant because he was not aware that he had to call evidence at a particular time, such as in the course of his own case. On the fourth day of the hearing he told the Court that he wished to call two experts, Mr Wilkinson and Mr Peisley, whom he had previously indicated he was not intending to call. When his inconsistency was pointed out to him he said:
I make the comment that maybe the court could have explained to me earlier in the week that documents that are in the court book are not actual evidence and I need to present evidence on top of what’s in there, even though I maintain Peisley’s report and Wilkinson’s report are in the court book. There was no explanation earlier in the week that the court book documents are not actual evidence so that did not help me and did not help a self-represented respondent. To answer your first question - - -
In response the primary judge informed Mr Mathews that he had been told at the commencement of the trial that unless those experts were called their reports could not go into evidence. At that time Mr Mathews had responded by informing the Court that he did not have the funds to be able to call his expert witnesses. Then, on the fourth day, Mr Mathews responded by indicating that he would secure the attendance of those witnesses. Despite the opposition of All Options, the primary judge allowed Mr Mathews to call his expert witnesses the following day. It was submitted that this interaction, on the fourth day of the trial, revealed that Mr Mathews had laboured under a disadvantage for most of the trial because it had not been adequately explained to him that if he wished to rely on the expert reports he would have to call them to give evidence.
Again, this was a sterile submission. Even assuming that Mr Mathews was truly unaware of the requirement to call the witnesses on which he relied, the trial judge permitted an alteration to the standard trial procedure so as to overcome any detriment. The trial was adjourned to the following day to allow Mr Mathews’ experts to be called and they both attended and gave evidence. Second, it was not suggested that there was any witness which Mr Mathews was prevented from calling because of his lack of knowledge of the court process. This issue demonstrated that, far from the trial being unfair to Mr Mathews, the management of the case by the trial judge actually prevented him from falling into any of the traps which might have arisen from his lack of knowledge of the court process.
The failure to explain that submissions could not substitute for an absence of evidence
Mr Bearman further submitted that the trial process miscarried because Mr Mathews was not informed that an absence of evidence on a point could not be overcome or rectified by submissions. However, Mr Mathews’ evidence had been prepared by his erstwhile solicitors who filed the lay evidence and expert’s reports on the appellants’ behalf. It was all tendered in evidence during the trial. In relation to any additional issues which arose during the course of the appeal, it is to be observed that the primary judge did inform Mr Mathews, in the course of explaining that he might renew his application to represent Flightdeck, that he would need to get his material in before the evidence closed:
HIS HONOUR: You can make that sort of application, that is, you can try and make it, right up until the evidence closes. So what that means, when the evidence closes is when both sides are finished presenting their evidence. After that, it’s very hard to change things.
MR MATHEWS: Understand.
There is no reason why the Court should not accept that Mr Mathews did understand the effect of what his Honour was saying when he said he did. His conduct of his case and the evidence discloses that he thought about what evidence he wished to adduce and did so. There is no basis on which it might be concluded that he was not aware of the obligation to tender the evidence on which he wished to rely when making submissions at the end of the hearing.
In any event, even if Mr Mathews had been labouring under some misapprehension that he was not required to tender the evidence on which he wished to rely, no detriment flowed from that lack of knowledge. It was not said that, had he been fully aware of the correct procedure, there existed a piece of evidence which he would have produced but, given his alleged ignorance of the procedure, he failed to do. Mr Bearman took the Court to the written submissions made by Mr Mathews at the conclusion of the trial as evidencing that he did not have a proper understanding of the process. In those submissions he referred to the cost of setting up the two trampoline parks as had been assessed by Mr Richards and the submission seemed to be that Mr Mathews’ lack of knowledge resulted in him failing to establish a sufficient evidential foundation for the submission he wanted to make. However, as has been discussed above, Mr Mathews specifically tendered the spreadsheets which became exhibit #R2 and they were also incorporated into the Hymans report which the trial judge rejected. Further, the evidence was without value and, if it had been accepted, it would have disadvantaged the appellants in any event.
The short answer to the complaint is that, even if it is assumed that Mr Mathews did not know that he had to tender into evidence the documents on which he wished to rely, there was no document which he refrained from tendering. Although it was submitted that the trial judge paid no attention to the spreadsheets prepared by Mr Richards, that was not the case and, in any event, the spreadsheets were ultimately not relevant to any decided issue.
Whether a lack of instruction led to adverse findings against Mr Mathews
Mr Bearman also submitted that the alleged failures of the trial judge to give a more fulsome explanation of the trial process had the consequence that adverse findings were made against Mr Mathews as a result of shortcomings in his evidence and the manner in which he conducted the trial. He further submitted that the Court was obliged to instruct Mr Mathews on the rules in Browne v Dunn(1893) 6 R 67 and Jones v Dunkel (1959) 101 CLR 298 so that he would avoid adverse inferences from not putting matters to All Option’s witnesses or from failing to call witnesses.
That submission cannot be sustained. It is clear that the trial judge found against Mr Mathews in relation to disputed questions of fact because he disbelieved his vague exculpatory statements which were not supported by any evidence. That was particularly evident in relation to the falsified revenue and profit figures which Mr Mathews had provided to Mr Nicholls. For instance, the primary judge found (at [90]), that Mr Mathews’ explanation for the disparity between the actual nett profit figures for the business and those represented by him in his email of 13 March 2015 was unlikely. In general terms, the trial judge relied upon Mr Mathews’ inability to explain the origin of the figures which he used in the several representations made to Mr Nicholls in reaching the conclusion that his evidence was not credible and that the representations were false. It is true that, from time to time in his judgment the primary judge mentioned that certain witnesses were not challenged or seriously challenged by Mr Mathews (see [45] and [58] of the primary judge’s reasons), however, it is far from clear that this was because Mr Mathews did not appreciate the need to challenge witnesses. As mentioned, he challenged several witnesses in relation to aspects of their evidence and that was particularly so with respect to Mr Nicholls and Ms Wright. It is more probable that Mr Mathews’ failure to challenge witnesses, especially in relation to the veracity of his representations about the revenue and profit of the business, was because he had nothing to challenge them with. It is not without relevance that, on this appeal, Mr Bearman did not identify any material with which Mr Mathews might have made such a challenge. He did not identify the financial records which supported the alleged representations even though, at the trial, Mr Mathews had said that they had been discovered and contained within the box of documents which he tendered.
The suggestion that there existed financial records of Flightdeck which supported the representations Mr Mathews made as to revenue and profitability was most unlikely. Mr Mathews did not produce them at trial despite having some months to prepare his case. Moreover, as the evidence to be relied on by the parties was ordered to be filed before the hearing, if there existed evidence which supported the veracity of the representations, it is improbable that the appellants’ former solicitors would not have included it in Mr Mathews’ witness statement or have obtained an expert’s report with respect to it.
In the context of these submissions, Mr Bearman also submitted that the trial judge relied upon the failure of Mr Mathews to respond to calls for documents as discrediting him, but that the judge had not warned Mr Mathews of the consequences of not responding. This was not the case. In reaching his conclusion that Mr Mathews was not credible, the primary judge relied upon the fact that when, under cross-examination, Mr Mathews was afforded an opportunity to produce or identify any document which might have supported his representations as to revenues and profit, he was unable to do so.
In the result, even if, contrary to the view reached above, Mr Mathews was not fully aware of his ability to put matters to witnesses, there was no possible unfairness in the trial process.
The speed of the hearing
It was submitted by Mr Bearman that the speed at which the trial was conducted rendered it unfair to the appellants. The nature of how the unfairness arose was not precisely identified. Mr Bearman submitted that Mr Mathews, whom it was asserted had not been in a court previously, did not have the benefit of the Court Book until a copy of it was provided to him by the applicant’s solicitors at the commencement of trial. It was said that it would have been sensible for the trial judge to stand the matter down to allow Mr Mathews to read it.
With respect, the mere fact that Mr Mathews did not bring a copy of the Court Book to Court with him did not suggest that he did not otherwise have access to it and nor did it suggest that he had not read it or studied it. He gave no evidence as to the documents which he had received from his solicitors and, as he was representing himself, he had access to the Federal Court’s Commonwealth Court Portal which would have provided him with access to all relevant documents. He did not suggest that he had not read the Court Book or the documents which constituted it. The trial had been set down five months previously and, at least since that date, nearly all of the relevant information had been available. There is no evidence whatsoever that Mr Mathews did not have access to the materials constituting the Court Book prior to the hearing. There is no foundation to the complaint that Mr Mathews only received the material relevant to the hearing on the first day of trial.
The appellants also submitted that the trial judge misapplied the decision in Silkearl, on the basis that it was a case where the corporation was an applicant in the action. This point was not elaborated upon in oral argument and it seems to be misconceived. The primary judge merely adopted the observation of Allsop J in that case that the discretion to grant leave for a company to be represented other than by a lawyer would be exercised more liberally where the company had been brought to the Court. Indeed, the primary judge expressly applied this approach in Flightdeck’s favour, even though it was outweighed by more significant facts. The appellants demonstrated no error in the primary judge’s reasoning in this respect.
Neither party addressed the Court on the nature of materiality insofar as it relates to the issue of whether, in the exercise of a judicial discretion, a court or judge has failed to take into account a material consideration. On the assumption that it means that had the omission not taken place there was a possibility of a different outcome (Jankovic v Minister for Immigration and Ethnic Affairs (1995) 56 FCR 474, 477) or that the error is one on which the case depends (Samad v District Court of New South Wales (2002) 209 CLR 140, 156 [44]) the alleged errors in this case were not material. The overwhelming preponderance of significant considerations weighed against granting leave. Flightdeck had not established that it was unrepresented otherwise than by choice, there had been a long and unexplained and, indeed, contumacious delay in making the application, and Mr Mathews had no ability to represent it in complex litigation. The fact that he might conveniently advance arguments on behalf of Flightdeck was necessarily of minimal relevance in those circumstances.
Mr Bearman also referred to a number of other circumstances on which the primary judge below relied. However, his criticisms were directed to the weight which the primary judge gave to them and that amounted merely to an impermissible invitation to this Court to conclude that it would have exercised the discretion in a different manner. No error in the exercise of the primary judge’s discretion to refuse Mr Mathews’ leave to represent Flightdeck has been shown. Grounds 2 and 3 therefore fail.
One final matter in this context is that even if the trial judge’s discretion had miscarried, the Court would not exercise its discretion to order a new trial. On the appellants’ argument, Flightdeck’s case stood or fell with that of Mr Mathews. It is not suggested that the case below would have been conducted differently had Mr Mathews been allowed to represent Flightdeck or that some further or additional evidence may have been adduced. The outcome for Flightdeck would have been the same even if Mr Mathews had been given leave to represent it.
GROUNDS 4 AND 5
Grounds 4 and 5 relate to the primary judge’s conclusions as to All Options’ damages consequent upon the purchase of the trampoline business. It had advanced its case on the basis that had the representations not been made to it, it would not have purchased the business. In other words, what might be referred to as a “no transaction” case. It sought to establish the quantum of its damage as, inter alia, the difference between the price which it paid for the business and its true value at the date of sale. That approach is sometimes referred to as the Potts v Miller measure of damages derived from the decision in Potts v Miller (1940) 64 CLR 282. The manner in which that measure is applied was refined or explained by the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. In particular, the Court identified and explained the concept of “true value”.
How the issue as to the veracity of Ms Wright’s valuation arises
The learned primary judge concluded that the real or true value of the business at the date of the sale to All Options was $162,500. In doing so he relied on the first valuation report of Ms Wright who had been called by All Options. That report has been referred to above. His Honour adopted the midpoint between the low value of “nil” derived from the CFME method of valuation and a nett asset value methodology of $325,000. The essence of the appellants’ complaint was that the primary judge erred in using the nett asset valuation figure in his calculation because it had been reached by Ms Wright upon a factual assumption which was not reasonable and not supported by probative evidence.
All Options had, in fact, relied on three expert reports of Ms Wright, who is a qualified chartered accountant as well as a senior managing director and leader for Australia of the Forensic Accounting and Advisory Services practice at FTI Consulting. As mentioned previously, for the purposes of her third report Ms Wright also relied on the Hymans report prepared by Mr Tallon. Mr Tallon was called by All Options and was examined by Mr Mathews. All Options also relied on the report of a Mr Richards of the business “Mr Trampoline” who provided an opinion as to the cost of relocating the trampoline equipment from the existing business locations to a new site. The appellants relied upon a report by a business valuer, Mr Wilkinson of the firm “Munday Wilkinson” and a report by Mr Peisley of “Peisley Associates Valuers” who valued the assets of the business at the two sites.
Mr Wilkinson had valued the business at approximately $1.3 million based on his assessment of the Weekly Till Reconciliation Reports and not upon the figures in the “PBSA system” which he had considered to be incomplete. His Honour noted that Mr Wilkinson did not refer to the figures in the Xero accounting system. In his report Mr Wilkinson indicated that he initially considered adopting a CFME method to derive a value for the business, but rejected that because, in his view, the profitability of the business was “insufficient to provide an appropriate economic return on the costs of the assets employed by the business”. He then valued the business by the nett assets value approach and in doing so relied upon the values attributed to the assets by Mr Peisley. He restated the balance sheet of business as at 30 June 2015 which disclosed nett assets of $1,009,740 and that value was increased by the sum of $383,580 so as to disregard an alleged loan said to be due to Mathews.
The primary judge rejected the valuation of Mr Wilkinson for a number of reasons. First, because it valued the business at the incorrect date being 30 June 2015 and not 19 March 2015, the latter being the date of entry into the agreement to acquire the business. Second that it was dependent upon the existence of a loan which had not been proven. Third, and most significantly, the values of the assets were derived from the report of Mr Peisley whose report was rejected as being unreliable.
In relation to that latter point, the primary judge identified (at [138]) that Mr Peisley had used a Depreciated Replacement Cost or DRC methodology for the purpose of valuing the major assets and comparable sales data for more general assets. His Honour observed (at [139]) that Mr Peisley had attached to his report an inventory of business assets in which each asset had been described and attributed a value, but that no reasons were given as to how the attributed values were calculated. By way of example, his Honour referred to the fact that “trampoline fitout” for the Altona site was ascribed a value of $373,000 but without supporting reason or explanation for that conclusion. His Honour also referred to items in the schedules for each of the business sites which were described as “additional to schedule per email confirmation, Aughtersons 26/9/17”. These line items were attributed a value of $51,000 in respect of the Altona site and $140,000 in relation to the Geelong site. Although there was a generic description being, “Additional to schedule item allocation such as leasehold improvements required for the business operation, to include but not limited to building and office painting, café area flooring, electrical, lighting kitchen, bathroom upgrades etc”, there was no explanation of how the conclusion as to value was reached.
In the result, his Honour concluded (at [139]) that he was unable to give any weight to Mr Peisley’s report because the opinions or conclusions as to value were not appropriately supported. It followed that his Honour could not give any weight to Mr Wilkinson’s report as it was founded upon the asset values assessed by Mr Peisley.
In relation to Ms Wright’s reports, his Honour noted that, in her first report, she had assessed the future maintainable earnings of the business in the sum of $1,598,739, and the future maintainable expenses being valued at $2,015,496. That resulted in a negative annual nett income of -$416,757 with the consequence that the CFME method produced a value of the business at “nil”. Neither the methodology nor the application of it was criticised by the appellants. However, Ms Wright undertook a cross check of the value of the business in order to assess the reasonableness of her conclusions. This was described by the primary judge in the following terms (at [142]):
… Ms Wright cross-checked that valuation by applying a net asset methodology (estimates the value of a business by reference to the realisable value of its assets), which led to the Business being valued at $325,000. This valuation took the balance sheet historical cost value of the assets as a starting point. Ms Wright then made adjustments to those values to ascertain the appropriate market value. She assessed that the amount recorded as “repairs and maintenance” was indicative of the initial cost of the equipment. None of this was challenged. Her final conclusion was that the value of the Business was somewhere between nil and $325,000.
The primary judge held that he could not rely on Ms Wright’s third report because it, in turn, had relied on Mr Tallon’s report which was rejected for substantially the same reason as Mr Peisley’s report was found to be unreliable; i.e. an absence of supporting evidence and reasoning.
The complaint that one element of the nett asset value method was not established
Mr Bearman did not dispute the correctness of the trial judge’s identification of the methodology followed by Ms Wright in her first report. However, he submitted that, in the application of the nett asset value method, Ms Wright adopted a figure for the value of the plant and equipment of the Airodrome Trampoline Park business which was also not supported by evidence. It was claimed that Ms Wright did not receive any further information or instruction about the market value of the equipment assets and nor did she give any basis for assuming the veracity of the assumptions. In this respect the appellants submitted that Ms Wright’s report ought to be treated in the same manner as the report of Mr Peisley.
The price of the plant and equipment adopted for the nett asset methodology by Ms Wright was derived from Flightdeck’s financial records described by Ms Wright as the Accounting System Transactions. Those documents appeared to include historical balance sheets. As the values there recorded were the historical costs of the assets and not their market value, Ms Wright made adjustments to reflect the realisable value of the assets as at the valuation date. That is, she identified the depreciated value of the assets as opposed to their purchase price. The adoption of asset values from the company’s financial records, of itself, cannot be controversial, as they are prima facie evidence of the value of its assets: s 1305 of the Corporations Act 2001 (Cth). Mr Bearman submitted that the financial records of Flightdeck were generally rejected by the primary judge. However, there was no general determination that all of the financial statements of the business were without any value. There was a very real question over the profit and loss figures which were made available by Mr Mathews to Mr Nicholls, but there was nothing to suggest that the statements in the records relied upon by Ms Wright were devoid of all value. In other words there was nothing which eschewed the prima facie value of the documents accorded to them by s 1305 in relation to the acquisition cost of plant and equipment.
In the course of oral argument, Mr Bearman refined the contentious point as being, effectively, the manner in which Ms Wright had interpreted Flightdeck’s financial information with which she had been presented. It was submitted that in extrapolating information from Flightdeck’s financial records, and in particular that the value of the business’ plant and equipment was $442,996, Ms Wright made erroneous assumptions or based her conclusions on information which was not established. First it was said that she had assumed, without any basis for doing so, that the line item described as “repairs and maintenance” was a cost associated with the acquisition of assets for the business. In her report Ms Wright stated:
Whilst the Accounting System Transactions do not record an asset related to the equipment, the initial expense incurred by the Airodrome Business and recorded as repairs and maintenance has been recognised as an asset for taxation purposes, per document 21 of the Supplementary Brief. In the absence of any other information or instruction about the cost of the depreciable assets, I proceed on the basis that it is reasonable to assume that the value expensed as repairs and maintenance in the Accounting System Transactions between January and July 2014 is indicative of the initial cost of the equipment. (Repairs and maintenance expenses after this period are considered in my assessment of the Airodrome Business’ future maintainable earnings).
Apart from the identification that Flightdeck’s own financial documents record the “repairs and maintenance” line item as an asset for taxation purposes, Ms Wright also supported the reasonableness of the assumption in the following manner:
In my opinion this is a reasonable assumption because the timing of these costs coincides with the periods prior to the opening of the Altona Site (opened in January 2014) and the Geelong Site (opened in August 2014), and because it is consistent with their inclusion as an equipment asset for tax purposes.
No objection made and no point taken at trial on this issue
It should be observed that no objection was made to the admissibility of Ms Wright’s report at the hearing. Further, it was not put to Ms Wright that her interpretation of Flightdeck’s financial records was erroneous in any way. That may not have been surprising given that, for the purposes of the trial, the experts on each side had accepted that the line item of “repairs and maintenance” in the financial records related to the acquisition costs of the business’s assets. In the report of Mr Wilkinson dated 13 October 2017, he also identified or assumed that certain assets acquired for the business were treated in the accounts as expenses, although not to the same extent as did Ms Wright. However, none of the experts called on behalf of the appellants criticised Ms Wright’s assessment of the financial information.
The interpretation of Flightdeck’s financial documents
The submission advanced on behalf of the appellants in this respect is without foundation. Ms Wright examined Flightdeck’s financial documents relating to the operation of the trampoline business and interpreted their contents. As a forensic accountant, she interpreted a line item of “expenses and maintenance” as being the acquisition costs of assets. She identified her reasons for this as being that those costs were treated as being referable to an asset in Flightdeck’s tax returns which suggested they were not truly an “expense”, the lack of any other evidence about the cost of depreciable assets, and that the timing of the incurring of the costs being consistent with the opening of the two trampoline parks established by Flightdeck. It follows that there was a sufficient, if not persuasive, foundation for Ms Wright’s opinion as to the meaning of the content of Flightdeck’s financial documents.
The alleged absence of supporting evidence as to the cost of plant and equipment
A second ground of attack was that the identity of the documents on which Ms Wright relied was not clear. Ms Wright stated in her report that she had relied upon documents 23 and 24 of the Supplementary Brief which had been delivered to her and they were referred in her report as being financial documents of Flightdeck. Mr Bearman submitted that this Court was not now able to identify the documents to which Ms Wright referred. Reference was made to documents at pages 505 to 507 of the Appeal Book which certainly have the appearance of being the depreciation schedules for Flightdeck’s trampoline businesses at the two sites, although there was no agreement that these were, in fact, the correct documents. Further, those documents do not, either separately or together, wholly establish the fact on which Ms Wright relied. Then again, it is not clear that the documents were reproduced in their entirety. In the circumstances, Mr Bearman submitted that there was no evidence as to the contents of Flightdeck’s documents such that Ms Wright’s opinion based on it is not supported.
The difficulty is that this point was also not raised at trial. It was not put to Ms Wright that her opinion as to the value of the assets of Flightdeck’s business was in error because she had mistakenly relied upon what was said in the identified documents. Her evidence in this respect was not challenged in any way. In other words Ms Wright’s approach to ascertaining how Flightdeck valued the assets of its trampoline business was not questioned and she was not afforded any opportunity to answer the criticism. It may be that had this point been raised with Ms Wright she would have been in a position to specifically identify the documents from Flightdeck’s financial records. The point was not even raised by Mr Mathews in written submissions.
Where the parties are both represented this issue is generally overcome by adherence to the rule in Browne v Dunn the effect of which was stated by Newton J in Bulstrode v Trimble [1970] VR 840, 846:
A typical formulation [of the rule] is that set out in Cross on Evidence, 3rd ed, pp 211, 212, which is in the following terms: In the cross-examination of a witness “any matter upon which it is proposed to contradict the evidence-in-chief given by the witness must normally be put to him so that he may have an opportunity of explaining the contradiction, and failure to do this may be held to imply acceptance of the evidence-in-chief” (italics are mine).
The rationale for the rule was explained by Hunt J in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (Cth) [1983] 1 NSWLR 1, 22–23:
There are many reasons why it should be made clear, prior to final addresses and by way of cross-examination or otherwise, not only that the evidence of the witness is to be challenged but also how it is to be challenged. Firstly, it gives the witness the opportunity to deny the challenge on oath, to show his mettle under attack (so to speak) although this may often be of little value. Secondly, and far more significantly, it gives the party calling the witness the opportunity to call corroborative evidence which in the absence of such a challenge is unlikely to have been called. Thirdly, it gives the witness the opportunity both to explain or to qualify his own evidence in the light of the contradiction of which warning has been given and also, if he can, to explain or to qualify the other evidence upon which the challenge is to be based.
The consequences of a failure to comply with the rule in Browne v Dunn will vary with the circumstances of the particular case. As the rule is directed to the fairness of a trial there may be a multitude of remedial steps which might ameliorate the non-compliance. That is even so where an issue is raised for the first time in the course of address in which case the Court may allow a party to re-open their case to deal with the issue. However, where a point about the veracity of the evidence of a witness is taken for the first time on an appeal, the opportunities to remediate the situation are substantially less. Here, there is no opportunity to recall Ms Wright and ask her to identify the documents from which she derived the figure of $422,996 as being the value of the plant and equipment. That provides a strong reason for not permitting this issue to be raised now for the first time.
However, it may be that the underlying premise of Mr Bearman’s submission was not correct. Whilst the documents identified by Ms Wright in her report as being the source of her information could not be identified in the Appeal Book or may not have been tendered as exhibits in the hearing, it did not follow that there was no evidence of the contents of Flightdeck’s financial records. As appears from the above text taken from her report, Ms Wright identified the information contained in Accounting System Transactions (which had been defined as the Company’s Statutory Accounts) between January and July 2014 by stating that it recorded amounts for repairs and maintenance and that the amount of those totalled $370,293. In her evidence she asserted that her report was true and correct and that the opinions in it remain her opinions. Whilst it may be that her statements in her report describing the material in Flightdeck’s financial documents was secondary evidence of their content, no objection was taken to her evidence on that basis. It follows that the evidence on which Ms Wright based her opinion does, in fact, exist, being her description of the content of Flightdeck’s documents. To that extent the submission that Ms Wright’s opinion as to the value of the assets of the business was not based on established facts it is not sustainable.
True enough, had this particular matter been in issue and Mr Mathews been cognisant of it, he may well have sought to undermine the value of Ms Wright’s report through cross-examination. However, it was not ever raised with Ms Wright and it was not put to her that her opinion was not founded upon established facts. In this respect it might be assumed that Mr Mathews, the sole director of Flightdeck, would have had knowledge of the balance sheets of his company and the nature of the expenditure which was reflected in the line item “repairs and maintenance”. However, at the commencement of his cross-examination of Ms Wright he said:
MR MATHEWS: Hello, Ms Wright. I haven’t read all of your reports. I’m not qualified to really understand your reports, to be honest.
Despite that denial of qualification, Mr Mathews then proceeded to cross-examine Ms Wright as to the veracity of her valuation of the business on the CFME basis. That cross-examination revealed that he was well aware of the nature of that calculation and of its constituent elements. However, he did not question Ms Wright about the veracity of her valuation based on the nett asset value. Had he done so and put to Ms Wright that her view as to the value of the plant and equipment of the business was erroneous, it may have been that Mr Boston QC would have been able to deal with that issue on re-examination. As it was, there was none.
In these circumstances, even if Ms Wright’s opinion as to the value of the assets were not entirely founded upon facts which had been established, the rule in Browne v Dunn would possibly have prevented the point being raised in the course of addresses. It was a matter which, if raised at the hearing, could have been responded to by evidence. For similar reasons the point should not be raised on appeal.
Alternatively, the issue may be disposed of on the principle that a party may not for the first time raise a point or objection on appeal: Park v Brothers [2005] HCA 73; 222 ALR 421, 435 [47]; Dairy Farmers Co-operative Ltd v Azar (1990) 170 CLR 293, 305; O’Brien v Komesaroff, 318–319 (Mason J, Murphy, Aickin, Wilson and Brennan JJ concurring); Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 438: and the issue now in question is a factual one which is not beyond controversy. In that latter case the Court (Latham CJ, Williams and Fullagar JJ) said:
The circumstances in which an appellate court will entertain a point not raised in the court below are well established. Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards. ...
Here, the issue now raised could have been answered by evidence at trial with the result that it is now too late to raise it. Mr Bearman for the appellants submitted, or rather asserted, that he could not locate any documents in the evidence which met the description of the documents referred to by Ms Wright in her report as supporting her conclusion. Whatever may be the value of such a statement from the bar table it does not overcome the fact that, had the matter been raised at trial, Ms Wright may have been able to identify the relevant documents in the evidence or All Options’ legal representatives may have been able to locate and tender them if they were not otherwise part of the material before the Court.
It is also not insignificant that Mr Bearman made no submission that Ms Wright’s interpretation of the information in Flightdeck’s Accounting System Transactions was in error. He did not produce to the Court the documents to which Ms Wright referred, he did not produce and seek to tender any financial documents which might have contradicted Ms Wright’s view, and nor did he suggest the existence of any. In effect the submission was that, although Ms Wright’s conclusion as to the content of Flightdeck’s financial records as to the acquisition cost of its plant and equipment may be entirely correct, and although no point or objection was taken at trial about it by the person most likely to know the truth, the trial judge ought not to have relied upon the opinion which was founded, in part, upon her conclusion. It is a submission which is as unpalatable as it is sterile.
Further, even if it were assumed that there was insufficient evidence for Ms Wright’s opinion as to the nett asset value of the business that does not render her report inadmissible. There was no objection made at trial to the tender of Ms Wright’s first report and it was received into evidence. There was no dispute on appeal that Ms Wright’s first report was admissible under s 79 of the Evidence Act 1995 (Cth), even if every fact on which the opinion was formed was not proved: Taub v R (2017) 95 NSWLR 388. That decision of the New South Wales Court of Appeal on what is effectively national scheme legislation was not challenged in this Court and it ought to be followed. The consequence is that the opinion may still be one which is based wholly or substantially on specialised knowledge and relied upon by the Court even if the basis for the whole opinion is not established. At best, the absence of some evidence would go to the weight of the report. This was candidly acknowledged by Mr Bearman in the course of the appeal. In this case Ms Wright identified the facts on which she formulated her opinion and transparently identified her reasoning. No error has been shown by the learned primary judge in accepting Ms Wright’s report into evidence and relying upon it. That is particularly so in circumstances where there exists evidence of the facts on which Ms Wright relied, the point now raised by the appellants was not raised before his Honour and had it been it is likely it could have been responded to, and the appellants’ own experts adopted a similar approach to the assessment of the value of the business’ assets. It might be added that despite its defects, whether real or perceived, Ms Wright’s report had a substantially more solid foundation than the reports relied upon by the appellants, being Flightdeck’s own financial records.
It is also not irrelevant that the complaint made is as to one line item in the assessment of the value of the assets of Flightdeck’s business, which was described as “repairs and maintenance” but regarded by Ms Wright as being the cost of the acquisition of equipment. On that assumption, Ms Wright adjusted the value of the plant and equipment upwards from the written down value. That increased the value of the plant and equipment from $38,395 to $422,996, being an increase of $384,601, and was a substantial adjustment in favour of the appellants. After taking other matters into account Ms Wright valued the assets of the business at $325,000. As mentioned, the primary judge adopted a figure which was midway between that and the value ascertained on the CFME method which was nil and arrived at a value of $162,500 for the business. If, therefore, it was not appropriate for Ms Wright to conclude that the “repairs and maintenance” item was not the cost of the acquisition of assets, it could only be assumed to be what it says it is and, consequently, not referable to Flightdeck’s assets. The simple arithmetical calculation would then decrease the value of the nett assets to -$59,601. The consequence would be to increase the damages to which All Options is entitled.
Mr Bearman submitted on behalf of the appellants that the proper approach on finding that Ms Wright’s view as to the value of the business based on its asset value was erroneous was to reject her report in its entirety with the consequence that All Options would have failed to establish any capital losses. With respect, that is a wholly unacceptable proposition. The putative error was that one line item in the check method of valuing the business was erroneous, but that did not impinge upon nor infect the primary valuation undertaken by Ms Wright using the CFME method. If the alleged error had been sustained and resulted in the rejection of the nett asset valuation, the effect would have been that the court would have been left with only one reliable valuation of the business which disclosed it as being “nil”. It would have been appropriate to adopt that value which would thereby increase the damages payable by the appellants by $162,500. Such an approach would be well within the scope of the power of this Court under s 28(1)(b) of the Federal Court Act. That section provides that in the exercise of the appellate jurisdiction this Court may, inter alia, “give such judgment, or make such orders, as in all the circumstances, it thinks fit, or refuse to make an order”. Whilst, despite its apparent width, the modal power does not confer unfettered jurisdiction on the court: Johns v Australian Securities Commission (1993) 178 CLR 408, 433 per Brennan J: an alteration to the level of damages awarded at first instance would be well within it. That would be so in the circumstances of this case despite there being no notice of contention filed by the respondents given that it would have resulted from the appellants’ arguments had they been successful.
However, the appellant did not establish any error in the primary judge’s reasons in relation to his acceptance of Ms Wright’s valuation or his assessment of damages. This ground must also fail.
Whether leave should be given to amend ground 4?
Mr Boston QC opposed the Court granting the appellants leave to amend ground 4 of the notice of appeal which raised the alleged deficiency in proof of the facts underlying Ms Wright’s report. In particular, he submitted that the points now sought to be taken were of a nature that had they been raised below they might have been met by evidence. As the discussion above shows, that submission should be accepted and, for that reason, leave to amend the notice of appeal in respect of ground 4 should be refused. It might be added that, even if leave had been granted, the ground would not have succeeded.
Conclusion on grounds 4 and 5
It follows that no error was shown in the trial judge’s adoption of the values given by Ms Wright in her first report. Grounds 4 and 5 must therefore also fail.
CONCLUSIONS ON APPEAL
On the question of leave to amend the notice of appeal, the appellants should have leave to amend in the form of the proposed further amended notice of appeal filed on 30 July 2020, save in respect of ground 4.
Otherwise, none of the grounds of appeal can succeed. The appeal should be dismissed and the appellants must pay the respondent’s costs of the appeal.
I certify that the preceding one hundred and sixty-two (162) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Markovic, Derrington and Anastassiou. Associate:
Dated: 14 August 2020
77
39
5