FEDERAL COURT OF AUSTRALIA South Sydney District Rugby League Football Club Ltd v News Ltd (No 4) [2000] FCA 1211 SOUTH SYDNEY DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED v NEWS LIMITED & ORS N 1295 of 1999 FINN J 14 AUGUST 2000 CANBERRA IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1295 OF 1999 BETWEEN: SOUTH SYDNEY DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 002 487 390) APPLICANT AND: NEWS LIMITED (ACN 007 871 178) FIRST RESPONDENT NATIONAL RUGBY LEAGUE INVESTMENTS PTY LIMITED (ACN 081 778 538) SECOND RESPONDENT AUSTRALIAN RUGBY FOOTBALL LEAGUE LIMITED THIRD RESPONDENT (ACN 003 107 292) NATIONAL RUGBY LEAGUE LIMITED (ACN 082 088 962) FOURTH RESPONDENT AND the Fifth to Twenty-third Respondents set out in the Schedule JUDGE: FINN J DATE OF RULING: 14 AUGUST 2000 WHERE MADE: CANBERRA THE COURT RULES THAT: 1. The letter at 6A-584 [Mr Lange's letter] will be admitted in its entirety. 2. The letter at 6A-869 [Mr Colley's memorandum] will not be admitted into evidence. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1295 OF 1999 BETWEEN: SOUTH SYDNEY DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 002 487 390) APPLICANT AND: NEWS LIMITED (ACN 007 871 178) FIRST RESPONDENT NATIONAL RUGBY LEAGUE INVESTMENTS PTY LIMITED (ACN 081 778 538) SECOND RESPONDENT AUSTRALIAN RUGBY FOOTBALL LEAGUE LIMITED (ACN 003 778 538) THIRD RESPONDENT NATIONAL RUGBY LEAGUE LIMITED (ACN 082 088 962) FOURTH RESPONDENT AND the Fifth to Twenty-third Respondents set out in the Schedule JUDGE: FINN J DATE: 14 AUGUST 2000 PLACE: CANBERRA REASONS FOR RULINGS 1 The fourth respondent, National Rugby League Ltd ("NRL"), supported by the first and second respondents, News Ltd ("News") and National Rugby League Investments Pty Ltd ("NRLI"), has sought to tender two documents in this proceeding. The first of these was a letter from a Mr Lange to Mr George Piggins of South Sydney District Rugby League Football Club Ltd ("Souths"). The second was a report from a Mr Colley to Mr Henry Morris of South Sydney Junior Rugby League Club Ltd ("Souths Juniors"). I have ruled the first letter admissible but have excluded the report under s 135 of the Evidence Act 1995 (Cth) ("the Act") even if it was otherwise admissible as opinion evidence under s 79 of the Act. I now give brief reasons for these rulings. 2 I would note by way of background that both Mr Lange and Mr Colley were officers of the company, Complete Marketing and Management Pty Ltd ("Complete Marketing"). Complete Marketing had, apparently, been engaged by the board of Souths to assist in the preparation of what was to be known as the "Millennium Management Plan". That plan was to involve a major restructuring of the management and operations of Souths. As part of that engagement the board of Souths resolved that Mr Lange be appointed Chief Executive Officer of Souths and that Mr Colley be its General Manager Sales and Marketing. While a press release notifying these appointments was issued on 19 April 1999 it is not clear when the appointments were actually formalised. MR LANGE'S LETTER 3 On 4 May 1999 Mr Lange's letter was sent to Mr Piggins. It was on Complete Marketing letterhead and was signed by Mr Lange above the designation "Director". It took the form of a report to the board. The reason for, and circumstances of, its composition are evidenced in the following introductory paragraphs of the letter as is its tenor: "Re: Souths - Situation Analysis At our first Board meeting I expressed my grave concerns as to the far more serious position that I find the Club is in and operating under than was intimated by the Number 14 Supporter Group in earlier discussions. I do not hold that group to account as they, as "outsiders" couldn't have any accurate idea of the internal machinations of the Club. Notwithstanding that, I believe it is my duty, as a professional corporate citizen, to inform the Board, in writing, of this perilous position and in detailing the conditions prevailing as urgently as possible, giving each of the Directors the opportunity to protect themselves in light of the responsibilities they carry. I therefore will not apologise for the brutal frankness of this note. I also will make recommendations. I have asked Mark Colley and Paul Keogh to assess and detail their position in the areas of sales and marketing and commercial services respectively. I have formulated the position in the football department by observation and random discussion with Frank Cookson, Darrell Bampton, Denise Hoynes, Craig Coleman, Tony Henderson (in his role as Trainer) and Sean Garlick. Whilst our appointment is yet to be formally confirmed in writing (in itself an indictment on the lack of professionalism displayed) we have been in and around the Club for approximately 4 weeks." 4 After providing what is in effect an executive summary of his views of Souths' management, revenues and operations, the letter proceeds to itemise what Mr Lange considered to be "key issues" for the club under the headings "Administration", "Football" and "Marketing". Under sub-headings in each of these categories it makes observations (essentially in dot-point fashion) that are a composite of opinion and fact. I give the following by way of illustration. The first represents only part of the "Key Issues" under the "Administration" heading. ". Empowerment The complete lack of empowerment afforded management by the Board is consistent with poor management outcomes. The "kitchen table" mentality that pervades the Clubs management starts at the top. The paralysis that this "interference" renders is totally prohibitive to generating any confidence that the Club could or can compete as a competitor on commercial terms in what has clearly become a multi-million dollar enterprise. This "business" needs infrastructure before it can move forward. . Staffing No full time Financial Controller for the Club is a major weakness. There are no financial systems or processes in place, or if present, adhered to by senior management on a consistent basis. This is manifestly inadequate given the financial state of the Club. . Cheque signing Needing 2 Directors to sign cheques is ineffective and in our view reflects poorly on senior management and the level of financial management practiced by the Club. . Cash flow management Is essentially non-existent, which prevents management from knowing where they may be at any given point in terms of budget." 5 The following are part of the "Marketing" key issues: ". Management In general terms the marketing management of the Club lacks leadership, direction, systems, processes and energy. It is not contemporary in manner, practice or presentation and will not provide the Club with the skill to generate and sustain the necessary funds required to continuing [sic] as an NRL Club. The lack of direction and management has strongly impacted on staff morale and work practices at the Club. . Sponsorship There are no systems in place to provide an immediate audit of sponsorship income and benefits provided. There are minimal and largely inadequate records kept of sponsor contracts and servicing delivery. There is no sponsorship sales strategy in place. Consequently, side agreements have been struck (the majority of which are not in writing) with other Clubs and organisations committing the Club to money it did not nor does not have." 6 The letter goes on to outline options for the club; it makes its own recommendation; and concludes with the summary: "Notwithstanding the substance of our recommendation, there is clearly a mountain of work to be done to re-establish the Club as a leading Club within the NRL environment. The Club lacks true professionalism in most areas of its practices, and lacks the necessary management skill base to compete with other NRL Clubs on even terms. Compounding the deficient management and no doubt inherently largely related to that deficiency, is a recurring and potentially insurmountable funding problem. We would like to have presented a more positive picture of the Club but that is not possible nor would it have been responsible. The Club has immediate and substantial structural and financial issues to address before it should even consider making an application to the NRL for the 2000 season. We look forward to working with the Club and keenly await your advice as to when to proceed." 7 The tender of this letter is made on the dual bases (a) that it embodies admissions by Souths; and (b) that it constitutes opinion evidence based on specialised knowledge. (a) AN ADMISSION 8 Section 81(1) provides that "[t]he hearsay rule and the opinion rule do not apply to evidence of an admission". An "admission" is itself defined in the Dictionary scheduled to this Act in these terms: "admission means a previous representation that is: (a) made by a person who is or becomes a party to a proceeding (including a defendant in a criminal proceeding); and (b) adverse to the person's interest in the outcome of the proceeding." For its part s 87 of the Act provides insofar as presently relevant: "87 Admissions made with authority (1) For the purposes of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that: (a) when the representation was made, the person had authority to make statements on behalf of the party in relation to the matter with respect to which the representation was made; or (b) when the representation was made, the person was an employee of the party, or had authority otherwise to act for the party, and the representation related to a matter within the scope of the person's employment or authority." 9 The admissibility of the letter as constituting admissions is advanced on the basis first that the representations were made by Mr Lange within his authority as CEO of Souths: cf s 87 of the Act; and secondly, even if not made in that capacity, they were representations adopted by Souths by its conduct (i) in receiving the letter without later complaint or contradiction; (ii) in continuing Mr Lange and Mr Colley in their positions in senior management; and (iii) in relying upon them to prepare the Millennium Management Plan which, it is said, implicitly accepted all of the criticisms made in the letter. Souths have opposed the tender of the letter as an admission, first, because it is said that it was written by Mr Lange for Complete Marketing and not as CEO of Souths, and secondly because the representations contained in it could not properly be said to have been admitted by Souths' subsequent conduct. 10 For my own part I do not consider the letter to be an admission of Souths. It clearly was written by Mr Lange for Complete Marketing and in furtherance of that company's engagement by Souths. Notwithstanding that Mr Lange may have been contemporaneously Souths' CEO it cannot be relied upon so as to attribute to Souths the representations made by him when acting on behalf of a consultant of Souths. While there may appear to be some artificiality in this bifurcation of Mr Lange's roles, it has not been suggested in submission that it can be disregarded for present purposes. And it has not been suggested that the provisions of s 87(1) render a representation made by an officer of a third party company in circumstances such as the present, an admission made with the authority of Souths. 11 I likewise do not accept that there has been an admission by conduct. The letter is an internal communication between company and consultant, and it is made in the context of an envisaged reappraisal and restructuring of Souths' management and operations. Whatever may have been the case if the representations had been made public (and hence may have invited disavowal), repudiation of all or any of the criticisms ventured is not something that necessarily ought reasonably to have been expected in the circumstances. The parties' focus was on the future and as a matter of urgency. I equally agree with Souths' submission that its acceptance of the Millennium Management Plan while certainly consistent with its acceptance of a need for a change of management, falls short of an acceptance of the particular criticisms ventured in the letter. Such an admission is not "the most probable deduction from the established facts": Holloway v McFeeters (1956) 94 CLR 470 at 476. (B) OPINION EVIDENCE 12 Objection is taken by Souths to the letter's tender on the bases that Mr Lange's opinions are not shown to be wholly or substantially based on a specialised knowledge based on his training, study or experience, and are not expressed in a form that allows one to determine whether they are so based. Secondly it is submitted that the factual matters on which the opinion are based is inadmissible as hearsay notwithstanding the business records provisions of s 69 of the Act. 13 The letter was, of course, not prepared as an expert's report for contemplated litigation and hence does not as readily reveal those matters - particularly of exposition (whether of the expert's qualifications or of factual matters relied upon) - one is accustomed to find in an expert's report. Having said this, and notwithstanding the limitations of the letter given its provenance and purpose, I am prepared to admit it into evidence. 14 I am satisfied on the admittedly disparate materials before me that Mr Lange was possessed of such a specialised knowledge as is envisaged by s 79 of the Act. As both the Millennium Management Plan itself and the press release of 19 April 1999 indicated, he had had considerable business experience in corporate management. He, along with several other officers of Complete Marketing, had been engaged as the letter indicated to "present and prepare the Club to continue as a member of the NRL; and to develop sustainable revenue stream from marketing based programs". One can infer that Souths perceived Mr Lange and his associates to possess the expertise necessary to embark upon the considerable restructuring of the management and operations of the club to which it was proposing (via the Millennium Management Plan) to tie its fortunes for the purposes of the NRL's Admission Criteria. 15 For my own part I am prepared to infer that Mr Lange possessed a specialised knowledge based on experience in management and marketing and he utilised that knowledge via the consulting company Complete Marketing. I am likewise satisfied that that specialised knowledge was brought to bear upon the circumstances of Souths as Mr Lange perceived these to be from his four weeks "in and around the Club" prior to the writing of the letter and that there was a judgment that inhered in the inference he drew from those circumstances: cf Quick v Stoland Pty Ltd (1998) 157 ALR 615 at 618. Given the subject matter of the opinions, their tie to the management, marketing and operations of the club and their occasional illustration in factual assertions I am prepared to conclude - on albeit limited and necessarily uncontested evidence - that such opinions as were ventured were based wholly or substantially on Mr Lange's specialised knowledge. Though the letter is compressed in its form and blends fact and judgment one can nonetheless fairly differentiate between the facts asserted and the opinions ventured thereon: cf HG v R (1999) 160 ALR 554 at 562-563. 16 It is not possible on the face of the letter to determine the extent to which the factual material relied upon is based on hearsay. Nonetheless because it provides the basis from which opinions are inferred it will "qualify for admission pursuant to s 56 as relevant to the purpose of the basis upon which [Mr Lange] holds [his] opinion so that its weight can be assessed. It could then be used for a hearsay purpose as a consequence of the application of s 60": Daniels v State of Western Australia [2000] FCA 858 at [30]. Though not addressed on the matter I have considered whether an order should be made under s 136 of the Act limiting the use to be made of the factual evidence relied upon. While I am conscious of the "extraordinary effect of s 60": Quick v Stoland Pty Ltd, above at 625; I have determined that no order should be made under s 136. Given the nature and purpose of Complete Marketing's engagement, the functions performed by Mr Lange for Souths (directly and via Complete Marketing), the purpose of the letter and the clear need for change perceived by Souths in its management and operations, I am satisfied that it would not be unfairly prejudicial to allow a hearsay purpose to such factual material as is hearsay evidence. I similarly consider that no basis exists for excluding the letter altogether under s 135 of the Act. 17 Mr Lange's letter will be admitted. In saying this I make no observation on the weight that ought be attributed to it. MR COLLEY'S MEMORANDUM 18 This can be dealt with shortly. It takes the form of a brief interim report to Souths Juniors. It was written on Complete Marketing letterhead and transmitted, apparently, less than a week after Souths had been excluded from the 2000 NRL competition. It is condemnatory of Souths, its attitudes and practices; it is highly critical of Mr Piggins; and it likewise exonerates Souths Juniors from any responsibility for Souths circumstances. Though replete with judgment - and pejorative judgment at that - its factual underpinning is sparse in character and general in content. The following is representative of the 1˝ page report: "The ultimate and cruelest consequence of the Board's behaviour and decisions is that once the participation criteria was put in place by the NRL some 2 years ago, and: . the Football Club (Board or management) took little or no issue (legal or otherwise) with the NRL over the criteria; . the Board benignly pursued a "stand alone" stance at the exclusion of all other options even being formally investigated; and . the Football Club, largely through inadequate resourcing, lacked the Board and management capacity to deal with the process, let alone meet it (a fact acknowledged by George Piggins). that the Club being excluded from the NRL was absolutely inevitable." 19 One presumes the report has been written for Souths Juniors, South Juniors having provided the funding for Complete Marketing's consultancy with Souths. 20 Whether or not Mr Colley had such specialised knowledge to found even some of the opinions he expresses (if they can properly be so described), the memorandum must be excluded under s 135 of the Act. Even if otherwise admissible - and I do not suggest it is - its probative value is substantially outweighed by the danger that it might be unfairly prejudicial. The tone of the memorandum, its timing and the identity of its recipient, collectively give substantial reason for pause. When one adds to this the broad generalisations it contains and the almost complete absence of the factual substratum on which the opinions expressed are based, the danger envisaged by s 135 is manifest. 21 The memorandum will not be admitted into evidence. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Rulings herein of the Honourable Justice Finn. Associate: Dated: 28 August 2000 Counsel for the Applicant: Mr T E F Hughes QC with Mr R W White SC and Mr M G Scheib Solicitor for the Applicant: Nicholas G Pappas & Company Counsel for the First and Second Respondents: Mr N C Hutley SC with Ms S J Goddard Solicitor for the First and Second Respondents: Allen Allen & Hemsley Counsel for the Third Respondent: Mr D Campbell with Mr S Hughes Solicitor for the Third Respondent: Colin W Love & Co Counsel for the Fourth Respondent: Mr A J Meagher SC with Mr J E Marshall and Mr P J Brereton Solicitor for the Fourth Respondent: Minter Ellison Counsel for the Fifth, Seventh, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-first, Twenty-second, Twenty-third Respondents. Mr A Coleman Solicitor for the Fifth, Seventh, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-first, Twenty-second, Twenty-third Respondents. Henry Davis York Date of Hearing: 16, 19-23, 26-30 June; 3-6, 10-13, 24-28 July; 3-4, 7-11 August 2000 (and continuing) Date of Rulings: 14 August 2000 THE SCHEDULE CANBERRA DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 008 568 634) Fifth Respondent CANTERBURY-BANKSTOWN RUGBY LEAGUE CLUB LTD (ACN 001 869 405) Sixth Respondent CRONULLA-SUTHERLAND DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 002 692 186) Seventh Respondent NEWCASTLE KNIGHTS LIMITED (ACN 003 363 228) Eighth Respondent ST GEORGE ILLAWARRA RUGBY LEAGUE FOOTBALL CLUB PTY LIMITED (ACN 085 008 340) Ninth Respondent BRISBANE BRONCOS RUGBY LEAGUE CLUB LIMITED (ACN 010 769 025) Tenth Respondent COWBOYS RUGBY LEAGUE FOOTBALL LIMITED (ACN 060 382 961) Eleventh Respondent MELBOURNE STORM RUGBY LEAGUE CLUB LIMITED (ACN 081 369 468) Twelfth Respondent MANLY WARRINGAH DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 003 348 436) Thirteenth Respondent NORTH SYDNEY DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 003 009 158) Fourteenth Respondent EASTERN SUBURBS DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 002 687 416) Fifteenth Respondent PENRITH DISTRICT RUGBY LEAGUE FOOTBALL CLUB LIMITED (ACN 003 908 583) Sixteenth Respondent PARRAMATTA DISTRICT RUGBY LEAGUE CLUB LTD (ACN 002 254 980) Seventeenth Respondent WESTS TIGERS RUGBY LEAGUE FOOTBALL PTY LIMITED (ACN 090 076 403) Eighteenth Respondent AUCKLAND WARRIORS RUGBY LEAGUE LIMITED (Registered in NZ No. 508 646) Nineteenth Respondent MANLY-NORTHS RUGBY LEAGUE FOOTBALL CLUB PTY LIMITED (ACN 090 093 833) Twentieth Respondent VALIMANDA PTY LTD (ACN 002 639 778) Twenty-first Respondent AH CB PTY LIMITED (ACN 068 819 152) Twenty-second Respondent BRISBANE BRONCOS CORPORATION PTY LTD (ACN 057 607 208) Twenty-third Respondent