IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 978 of 1997 BETWEEN: LAMESA HOLDINGS BV Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: SACKVILLE J. DATE: 30 JULY, 1998 PLACE: SYDNEY REASONS FOR JUDGMENT HIS HONOUR: In this matter, the applicant ("Lamesa") moves by way of notice of motion for orders that the evidence of two witnesses, namely Mr Gregory Annick and Mr Frederick Schneider, be heard by video-link. The motion is supported by an affidavit sworn by Mr McGuire, a solicitor employed by the firm of solicitors acting for Lamesa. That affidavit establishes that both Mr Annick and Mr Schneider are residents of Los Angeles, California. The affidavit suggests that the hearing of their evidence, including cross-examination, is likely to take no more than one hour for each witness. The submission made by Mr McGuire on behalf of Lamesa is that the Court, in exercise of the power conferred by O 69 r 13 of the Federal Court Rules ("FCR"), should grant the relief sought in the motion. Order 69 r 13 provides as follows: "13(1)In an Australian proceeding, a party may apply to the Federal Court or a Judge of that Court, either orally or by notice of motion, to have testimony of a witness (or part of that evidence) heard, or submissions made, by video-link or by telephone conference. 13(2) An application under subrule (1) must be supported by an affidavit stating: (a) the reasons why such a course is desirable; (b) the nature of the evidence; (c) the number of witnesses to be examined; (d) the expected duration of the evidence; (e) whether issues of character are likely to be raised; and (f) in the case of submissions, the expected duration of the submissions. 13(3) In deciding whether to grant the application, a Judge of the Federal Court may take account of the factors set out in the applicant's affidavit in addition to any other matters considered to be material, including cost, and convenience to all parties." It is necessary to say something briefly about the nature of the proceedings. In substance Lamesa's claim is that the respondent ("the Commissioner") was obliged to repay a large sum of tax by reason of Lamesa's success in earlier proceedings in this Court. In those proceedings, Lamesa successfully appealed against objection decisions made by the Commissioner in respect of several tax years. The dispute between the parties is essentially whether the Commissioner, by reason of the earlier proceedings, was obliged to repay a sum calculated in US dollars or in Australian dollars. The answer to this question is significant because of movements in exchange rates. I have been informed that, if Lamesa's claim is upheld, it will be entitled to at least the sum of A$5 million. The Commissioner's defence includes the following pleas: "10. Further and in the alternative, on 21 June 1996 the applicant and the respondent entered into a contract for valuable consideration. Particulars Telephone conversation on 21 June 1996 between Michael Worthington, Australian Taxation Office, Newcastle on behalf of the respondent and Paul King of Greenwood & Freehills on behalf of the applicant. 11. It was express term of the contract that if the applicant became entitled to a refund of income tax that refund would be constituted by the amount of Australian dollars received by the respondent under the June notice together with interest in full satisfaction of the respondent's obligations. 12. Further and in the alternative, on 21 June 1996 the applicant made an express representation that if it became entitled to a refund of tax it would accept in full satisfaction of the respondent's obligations the amount paid to the respondent in satisfaction of the sum specified in the June notice in Australian dollars together with interest. Particulars Telephone conversation on 21 June 1996 between Michael Worthington, Australian Taxation Office, Newcastle on behalf of the respondent and Paul King of Greenwood & Freehills on behalf of the applicant. 13. By reason of the representation and in reliance upon that representation the respondent had acted to its detriment. 14. In the premises the applicant is estopped from asserting that it is entitled to anything other than a refund of the Australian dollar amount specified in the June notice plus interest on that sum." These paragraphs elicited the following response in a reply filed on behalf of Lamesa. "In further answer to paragraphs 10 to 14 of the Defence the applicant says that if, which is not admitted, a telephone conversation took place on 21 June 1996 between Michael Worthington and Paul King, then: (a) it did not have the effect alleged in paragraphs 10 or 11; (b) Paul King did not enter into any contract on the applicant's behalf as alleged or at all; (c) Paul King had no authority from the applicant to enter into any such or any contract on its behalf, nor did he do so; (d) Paul King made no representation on behalf of the applicant as is alleged in paragraph 12, or at all; (e) if, which is denied, any such representation was made as alleged, then it was not relied upon by the respondent and the respondent has suffered no detriment; (f) it is not estopped as alleged in paragraph 14 or at all." Mr Annick and Mr Schneider have each sworn relatively brief affidavits in the proceedings. At the relevant time, Mr Schneider, was the managing director of Lamesa. In his affidavit, he says that throughout the whole dispute with the Commissioner, he was the main source of instructions to Mr Paul King of Greenwoods & Freehills, Lamesa's Australian taxation advisers. He states that the only other regular source of Mr King's instructions was Mr Annick, who was one of his fellow principals at the firm of Leonard Green & Associates LP, a limited partnership formed pursuant to the laws of the State of Delaware. Mr Schneider acknowledges in his affidavit that he gave Mr King authority from time to time to take specific action on behalf of Lamesa. He gives as an illustration a letter of 2 February 1996, in which he gave Mr King an authority to sign and lodge with the Australian Taxation Office ("ATO") notices of objection against the assessments on Lamesa's behalf. However, Mr Schneider denies at any time giving Mr King authority to enter into binding contractual arrangements on Lamesa's behalf. For his part, Mr Annick states that throughout the dispute between Lamesa and the Commissioner, he was responsible, together with Mr Schneider, for giving Mr King instructions on behalf of Lamesa. Mr Annick states in his affidavit that "[a]t no time did Lamesa give Paul King general authority to enter into binding contractual negotiations on Lamesa's behalf", although he acknowledges that, at various times, specific authorities were given by Lamesa to allow Mr King to take routine steps on Lamesa's behalf. Mr Poulos, who appears on behalf of the Commissioner, submits that this is not a case in which it is appropriate to give a direction that the evidence of Mr Annick and Mr Schneider be taken by video-link. He says that the Commissioner wishes to test their evidence and that this is likely to involve a challenge to their credit. Since such a challenge is likely, it is important that the trial Judge should have the advantage of seeing the witnesses in person. The following documentary evidence was admitted into evidence for the purposes of this application: · A letter of 12 January 1996, apparently signed by Mr Schneider, directed to Mr Worthington of the ATO. In this letter, Mr Schneider states that Mr King "is an authorised representative of Lamesa, duly authorised to carry on discussions with you on our behalf." · A letter of 25 March 1996, apparently signed by Mr Schneider and directed also to Mr Worthington. In this letter, the following passage appears: As you know Lamesa is majority owned by Green Equity Investors, LP, a Delaware Limited Partnership, [whose] general partner is Leonard Green & Associates, LP (formerly Leonard Green & Partners, LP - the name was changed on January 1, 1995). As a director of Lamesa, I have previously notified you that Paul King of Greenwoods & Freehills is authorised to act to represent Lamesa in tax matters. This will serve as notification that he is also authorised to represent Green Equity Investors, LP and Leonard Green & Associates, LP, on such tax matters. Having regard to this correspondence, I think that I should approach the application on the basis that the Commissioner is likely to put matters to Mr Schneider and Mr Annick that are at odds with the contents of their respective affidavits and that their credit is likely to be in issue. I also take into account that the nature and scope of Mr King's authority may well be important in the case. It is quite true that the Commissioner has certain hurdles to overcome before the issue of Mr King's authority is reached, but that issue may ultimately be significant. In making these points, I should emphasise that I have formed no view as to the factual legal issues in the case. I am merely concerned with whether an order should be made for evidence to be taken by video-link. A number of cases have addressed the circumstances in which video link facilities may be used to take evidence. In Sunstate Airlines (Qld) Pty Ltd v First Chicago Australia Securities Ltd (S Ct NSW/Comm D, 11 March 1997, unreported), Giles said this: "The ordinary procedure [that witnesses give evidence in court] is as stated above, and there are sound reasons for following it unless cause to the contrary be shown. The conduct of proceedings in open court, available to public scrutiny, is of great importance. Cross-examination may be more difficult when video evidence is taken because documents have to be transmitted or produced in an unfamiliar manner, because of delay in voice transmission, or for other reasons, and the effectiveness of cross-examination as a weapon in the fight for truth should not be unduly hindered. And in many cases the Court is assisted in fact finding by observance of what is misleadingly called the demeanour of the witnesses, upon which the taking of video evidence may impact. All that said, particularly where the evidence is relatively uncontroversial, the cross-examination is not likely to be lengthy, or no real issue of credit is involved, the taking of video evidence can be beneficial to the administration of justice and consistent with justice between the parties. It may permit the Court to receive the evidence of a witness which would otherwise not have been available, it may permit the evidence to be received without causing undue inconvenience to witnesses (which should be an important matter in the administration of justice), and it is now an accepted feature of litigation – so much so that for some years the Federal Court of Australia has had in place the video conference facilities proposed to be used in the present proceedings." His Honour added that experience had shown that demeanour can adequately be assessed using video-link facilities: see B v Dentists Disciplinary Tribunal [1994] 1 NZLR 95 (Williams J), at 108; Bayer AG v Minister for Health (1988) 13 IPR 225 (S Ct NSW/Young J), at 296; Woodside Petroleum Development Pty Ltd v H & R – E & W Pty Ltd (S Ct WA/Anderson J, 28 April 1997, unreported), at 2. These cases provide some guidance on how the discretion conferred by FCR O 69, r 13 should be exercised. However, none of these cases involved rules in the form of O 69, r 13 and it is necessary to consider the criteria laid down by the rule. One criterion is "whether issues of character are likely to be raised". I take the reference to character to include cases where a witness' credit is likely to be challenged directly. In any event, the likelihood of such a challenge is encompassed by the expression "the nature of the evidence" in r 13(2)(b). There are some factors which support Lamesa's motion. For example, bringing Mr Schneider and Mr Annick (neither of whom is currently associated with Lamesa) to Australia from California will necessarily involve expense. Doubtless requiring the witnesses to come to Australia will cause them some inconvenience. Moreover, it seems that their evidence will not be particularly lengthy. However, if their credit is challenged I do not think that their evidence will be as brief as Mr McGuire suggests in his affidavit. On the other hand, as I have indicated, it is likely that the Commissioner will challenge the witnesses' version of events and, in doing so, challenge their credit. Moreover, their evidence goes to one of the pleaded issues that may be critical to the outcome of the proceedings. While the authorities suggest that demeanour can be adequately assessed where a witness gives evidence by video-link, I am inclined to think that there are advantages, at least in a case such as this where the witness' credit is in issue on a potentially crucial question, for the evidence to be given in the usual way. Furthermore, Lamesa has not adduced any evidence that either of the witnesses will suffer disruption to their personal or professional lives, or some other significant inconvenience over and above that necessarily associated with a journey to Australia. I have also taken into account that Lamesa's claim is for a large amount of money. The cost of bringing Mr Annick and Mr Schneider to Australia will be modest in comparison to the amount at stake in the proceedings. Mr McGuire conceded, correctly in my view, that the comparison between the cost of bringing witnesses to Australia and the amount at stake in the proceedings was a matter relevant to the exercise of the discretion conferred by O 69, r 13. On balance, I think that Mr Schneider and Mr Annick should give their evidence in person. Had there been evidence that either of them would suffer disruption to or serious inconvenience in their professional or personal lives I may well have taken a different view. But there was no such evidence. The circumstances of the present case are different from cases to which I have referred in which the court made an order for the taking of evidence by video-link. In B v Dentists Disciplinary Tribunal, evidence was to be given by an eminent medical specialist in Texas, who was unable to leave his practice in order to travel to New Zealand. In Bayer v Minister, the witness was also an expert. In Sunstate, the witness was president of a large corporation in the United States and there was evidence that to require his presence in Australia would be disruptive of the business for which he was responsible. Moreover, his evidence was not regarded as crucial. In Woodside, the witness, who was in Texas, was unwell and was likely to find it difficult to travel to Australia. Nothing I have said should be taken as indicating that evidence by video-link will always be inappropriate if a witness' credit is likely to be challenged. The circumstances of each application must be considered in the light of the criteria laid down by O 69, r 13. In the circumstances of the present case, I do not think that an order should be made that evidence be taken by video-link. I dismiss Lamesa's motion. The costs of the motion should be costs in the cause. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville Associate: Dated: 30 July, 1998 Solicitor for the Applicant: Freehill Hollingdale & Page Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 30 July, 1998 Date of Judgment: 30 July, 1998