FEDERAL COURT OF AUSTRALIA Australian Competition & Consumer Commission v Emerald Ocean Pty Ltd [2003] FCA 43 EVIDENCE – rulings – no point of general principle Evidence Act 1995 (Cth) ss 57, 79, 135(a), 136 Trade Practices Act 1974 (Cth) s 51A Sykes v Reserve Bank of Australia (1998) 88 FCR 511 considered City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 considered Blacker v National Australia Bank [2000] FCA 681 referred to Australian Competition & Consumer Commission v Giraffe World Australia Pty Ltd (1999) 166 ALR 74 referred to AUSTRALIAN COMPETITION & CONSUMER COMMISSION v EMERALD OCEAN DISTRIBUTORS PTY LTD and SLENDERTONE HEALTH & BEAUTY PTY LTD and SEAN O'DONOGHUE and EMERALD OCEAN DISTRIBUTORS PTY LTD and SLENDERTONE HEALTH & BEAUTY PTY LTD and SEAN O'DONOGHUE and BIO-MEDICAL RESEARCH LIMITED W118 of 2000 RD NICHOLSON J 4 FEBRUARY 2003 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W118 OF 2000 BETWEEN: AUSTRALIAN COMPETITION & CONSUMER COMMISSION APPLICANT AND: EMERALD OCEAN DISTRIBUTORS PTY LTD AND: FIRST RESPONDENT SLENDERTONE HEALTH & BEAUTY PTY LTD SECOND RESPONDENT SEAN O'DONOGHUE THIRD RESPONDENT EMERALD OCEAN DISTRIBUTORS PTY LTD FIRST CROSS CLAIMANT SLENDERTONE HEALTH & BEAUTY PTY LTD SECOND CROSS CLAIMANT SEAN O'DONOGHUE THIRD CROSS CLAIMANT BIO-MEDICAL RESEARCH LIMITED CROSS RESPONDENT JUDGE: RD NICHOLSON J DATE OF ORDER: 4 FEBRUARY 2003 WHERE MADE: PERTH THE COURT RULES: (1) Objections to respondents' expert reports: The applicant's objections to the report of M/s Cadariu and Dr Rosenbaum is to be held over pending cross-examination on the matters referred to in the accompanying reasons. (2) Applicant's objections to respondents' lay witnesses: (a) Subject to the rulings on the specific objections, the respondents' lay witness statements be provisionally admitted as relevant pursuant to s 57 of the Evidence Act 1995 (Cth) and limited pursuant to s 136 of that Act to the issue of whether the respondents had reasonable grounds for making the representations alleged. (b) the specific objections as pressed in oral argument be dealt with as follows: (i) Statement of M/s Good: pars 8, 9 – objection allowed (ii) Statement of M/s Bannister: par 9 – objection allowed (iii) Statement of M/s Carslake: pars 7, 8 and 9 – objection allowed (iv) Statement of M/s Molnarffy: par 11 – objection allowed (par 10 – second sentence conceded; objection not allowed to first sentence) (v) Statement of M/s Talacko: (par 5 – second sentence conceded) par 9 – third sentence – objection allowed par 11 – objection allowed (vi) Statement of M/s De Preston: (par 5 – second sentence and pars 9, 11 and 12 conceded) par 10 – objection allowed par 13 – objection allowed par 14 – objection allowed (vii) Statement of M/s Chalkley: (par 11 – second sentence conceded) par 12 – objection allowed pars 15 and 16 – objection not allowed on basis the evidence is to be understood as confined to the experience of the witness (par 17 – second to fourth sentences conceded) par 18 – objection allowed par 19 – objection allowed (viii) Statement of M/s McConkey: (par 7 – second sentence conceded) par 9 – objection allowed par 12 – objection not allowed (ix) Statement of M/s Chapman: (par 5 – final sentence conceded) par 7 – objection not allowed par 8 – objection not allowed (x) Statement of M/s Byrne: pars 7, 8 and 9 – objections allowed par 10 – second sentence objection allowed par 11 – second to fourth sentences inclusive – objection allowed (par 12 – conceded) pars 13, 15 and 16 – objection allowed (xi) Statement of M/s Wallace: (par 7 – second sentence – "we" conceded) par 7 – third sentence – objection allowed par 7 – remaining sentences – objection not allowed subject to cross-examination establishing unfairness in non-availability of records par 9 – objection not allowed par 11 – objection not allowed (3) Cross-respondents' objections to third respondent's supplementary statement: (pars 4 and 9 conceded) par 2 – objection allowed to second sentence par 6 – objection allowed to all but final sentence par 7 – objection allowed (4) Applicant's objections to third respondent's other witness statement: to be address at continuation of hearing Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W118 OF 2000 BETWEEN: AUSTRALIAN COMPETITION & CONSUMER COMMISSION APPLICANT AND: EMERALD OCEAN DISTRIBUTORS PTY LTD AND: FIRST RESPONDENT SLENDERTONE HEALTH & BEAUTY PTY LTD SECOND RESPONDENT SEAN O'DONOGHUE THIRD RESPONDENT EMERALD OCEAN DISTRIBUTORS PTY LTD FIRST CROSS CLAIMANT SLENDERTONE HEALTH & BEAUTY PTY LTD SECOND CROSS CLAIMANT SEAN O'DONOGHUE THIRD CROSS CLAIMANT BIO-MEDICAL RESEARCH LIMITED CROSS RESPONDENT JUDGE: RD NICHOLSON J DATE: 4 FEBRUARY 2003 PLACE: PERTH REASONS FOR JUDGMENT 1 These reasons deal with further evidentiary objections additional to those dealt with in reasons published on 24 July 2002. Applicant's objections to respondents' expert reports 2 In the abovementioned previously published reasons I dealt with objections taken on behalf of the cross respondent to the admissibility of three expert witnesses proposed to be called by the applicant. The applicant's objections to the respondents' expert witnesses are now approached by me in the context of the same law as that which was set out in the reasons previously referred to. Report by M/s Cadariu 3 M/s Cadariu describes her qualifications as including a diploma of Aesthetics (Beauty & Body Therapy) in Bucharest, Romania (1972) and to practice in Europe until 1979 when she migrated to Australia. In 1981 she registered as a member of the Australian Federation of Associated Beauty Therapists. She became education officer of that Federation from 1982 to 1989. She was appointed to the Consultative Committee of TAFE for Beauty Therapy. In 1985 she was appointed to the Beauty Industry Training Committee and chaired that Committee since 2000. She serves on the Wholesale, Retail and Personal Services Industry Training Board as a member and as consultant/representative of Beauty Services. She has also served as vice-president of the Federation of Electrolysis and Thermolysis of Australasia. She states that she holds a degree in Health Science for Dermal Therapy and, most importantly, has worked with the neuromuscular stimulation and its related modalities since 1972. Her report shows her as being with Health Science, Dermal Therapy at Victoria University, Melbourne. 4 The report is entitled "Refutation of Report prepared by J Coombes…". In a summary it is stated that the methodology of Dr Coombes requires closer scrutiny and does not establish the claims in issue in this proceeding were false or misleading. 5 The first question requiring answer is whether M/s Cadariu has specialised knowledge based on her training, study or experience. I do not consider it is necessary for it to be shown that beauty therapy is a field of specialised knowledge in the sense of a body of knowledge sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience. It is apparent that from the existence of the Australian Federation of Associated Beauty Therapists there are persons treating beauty therapy as a field of specialised knowledge. The existence of the TAFE Committee also supports that view, as does the nature of the diploma held by M/s Cadariu. Those matters all point to the acceptance of the therapy as organised or recognised in any event. 6 From M/s Cadariu's description of her profile I accept that, subject always of course to the effect of cross-examination, she is an expert in that field by virtue of her training, study and experience. That is, I consider that training, study and experience have each contributed to her field of specialised knowledge. 7 There is the question whether the opinions which she has expressed in her report are wholly or substantially based on the specialised knowledge. The objection for the applicant is that her expertise does not qualify her to comment on Dr Coombes' report. It is said that her report is commenting on Dr Coombes' methodology and gives no or no admissible comments on her practical experience or no admissible expert opinion on the effect of using the machines in question in the litigation. It is said that so far as she purports to make statements commenting on the statistical basis for Dr Coombes' study she is far outside her area of expertise. In par 3.a of the report it is stated: "The measurement of calorimetric energy consumption applied as the basis for the report is inappropriate to the advertisers claims. By using this single measurement it has ignored the importance of nerve muscle interaction and the subsequent effects of stimuli… While ATP [adenosine triphosphate] can play a part in muscle contraction it does not initiate the contraction." It is submitted that here the reporter is purporting to comment on a measure based on aerobic exercise where it has not been demonstrated she has any relevant expertise in that area. 8 There are also some specific objections to other parts of the report. The first relates to statements as to the manner in which the machine's Sequence 16 is used by beauty therapists in a range of countries – this is said to be inadmissible hearsay. 9 The second refers to reference material referred to in Dr Coombes report. It is said that: "Comparing all authors of the reference material and checking them against approximately 500 published articles and reference material in teaching texts on Neuro Muscular stimulation and Nerve Muscle interaction no names could be matched." Again, it is said this is inadmissible hearsay because it is not within M/s Cadariu's specialised knowledge. Alternatively, it is said to be unfairly prejudicial because the studies are not cited or anywhere referred to. 10 Additionally, the same objections are said to be attracted by a statement in the report that "There are numerous reports, published research material, teaching texts etc which establish that "such device" increase muscle strength." 11 The paragraph, the second of the above specific objections also attracts the objection that it has not been demonstrated that M/s Cadariu has expertise in neuro muscular stimulation or nerve muscle interaction such that she would know what the relevant sources are or indeed be qualified to comment on them. 12 I consider it is important that in M/s Cadariu's profile it is stated that "most importantly she has worked with neuro muscular stimulation and its related modalities since 1972". This is in the context where, as the report discloses, she is familiar with the three units in issue in the proceedings namely, the Gymbody 8, the Toptone 12 and Sequence 16. Subject to what is heard in cross-examination my present opinion is that her report is wholly or substantially based on her training, study or experience. 13 On the issues of hearsay and the scope of specialised knowledge, again cross-examination would elucidate whether M/s Cadariu speaks in the report from her own training, study or experience. Cross-examination would also elucidate the nature of the articles and references which she has in mind so that any unfair prejudice to the applicant from the absence of their prior identification (beyond the reference to those referred to in Dr Coombes's report) can be addressed in the course of the trial. 14 In the case of M/s Cadariu's report therefore I would not allow the objections on behalf of the applicant at this time but I would therefore mark the report as an MFI and reserve the right to return to any of the objections in the light of the evidence which follows from cross-examination. 15 I agree with the submission for the applicant that the fact that Dr Coombes has responded to M/s Cadariu's report is not a matter to determine the admissibility of that report. Report of Dr Rosenbaum 16 Dr Rosenbaum graduated from Monash University in 1975 and entered general medical practice thereafter. He left that in 1983 and spent extensive time overseas, mainly in the United States and Israel, where he obtained wide experience in general, orthopaedic and cosmetic surgery. In 1989 he completed a training program in liposuction at the Graduate Hospital in Philadelphia and worked with a leading cosmetic surgeon in Melbourne. He has had specific training in oculoplastic laser surgery, breast surgery training and general cosmetic surgery. He claims to have performed thousands of cosmetic and general surgical procedures. He is currently the principal surgeon at the Image Centre for Cosmetic and Laser Surgery in South Yarra and a visiting cosmetic surgeon at Vaucluse Hospital. 17 The report which it is sought to admit seeks to comment on his experience with the use of electromagnetic stimulation in clinical practice. He states that the main areas of use have been for cellulite, facial skin and muscle stimulation and for resolution of post-operative swelling. He relies on his experience and observations to support the effectiveness of the treatments. With respect to cellulite he refers to its causes and to the fact that a number of treatments have been effective in improving conditions, included in those are electromagnetic stimulation. He expresses his absence of doubt as to the effectiveness of the treatments and continues to rely on them for the management of his patients. 18 For the applicant it is accepted that Dr Rosenbaum has specialised knowledge in the field of medicine and is an expert in that field. Nor is it objected to that his opinion is based substantially on his training, study or experience. Two objections are made, each on the ground of relevance. The first is that the purposes for which he uses electrical muscle stimulation (being for cellulite, facial skin and muscle stimulation and the resolution of post-operative swelling) bear no resemblance to the purposes set out in the advertisements the subject of this proceeding. Secondly, it is said that the opinion he purports to express is irrelevant to any of the issues which arise from the representations which the applicant alleges are contained in the advertisements. For the applicant it is said these representations can be grouped in the following categories: "1.1 the devices can and will produce an improvement in the user's body and their appearance without any work or effort (eg 'workout without the work; the power to tone and firm 'with absolutely no effort'); 1.2 the devices can and will reduce, eliminate or 'conquer' cellulite; 1.3 the use of the devices can and will tone and firm the body; 1.4 the use of the devices can and will reduce waist and body measurements; and 1.5 the use of the devices is equivalent to regular exercise." The expert evidence which it is submitted is required in relation to these issues is scientific knowledge and experience in relation to exercise or muscle physiology; neuromuscular contraction and principles of weight loss or fat reduction. 19 Thirdly, it is said that the process of reasoning by which Dr Rosenbaum has applied his specialised knowledge in medicine and cosmetic surgery to the observed facts (being the patients condition before and after the treatment) has not been demonstrated. It is not, therefore, open to the Court to conclude whether his opinion is in application of that knowledge or a combination of speculation and inference. 20 Finally, it is said that the absence of supporting documents, as disclosed by patient records before and after treatment, has not anywhere been proved so that the opinion is inadmissible and the applicant would be unfairly prejudiced within the meaning of s 135(a) of the Evidence Act 1995 (Cth) because it would not be able to effectively contest or cross-examine Dr Rosenbaum on his opinions. 21 In relation to the first objection of relevance it is clear that the field of Dr Rosenbaum's expertise from training, study or experience includes the use of electrical muscle stimulation in relation to, at least, cellulite and arguably to other effects on the body. No general objection of relevance can be made in that way. 22 As to the second objection of relevance and for the same reason the opinion here purports to express is not irrelevant to any of the issues arising from the representations. As the submissions for the respondents make apparent, there is in addition to the issues as delineated for the applicant the question of whether there is any aspect of reasonable grounds for making a "prediction" concerning what could be achieved by the use of the machines. Certainly it is the case that the evidence of Dr Rosenbaum would require relating to the machines or devices the subject of the proceedings but that is a matter for cross-examination which can affect the weight of the report. 23 As to the third and fourth objections I agree with the submission for the respondents that the application of s 79 does not require production of patient records and every foundation for training, study or experience. What is required, however, is that the basis of the opinion is made explicit. In this case that is absent from the report as tendered so that the report should be marked and that aspect considered in the light of cross-examination. That cross-examination would also make apparent whether Dr Rosenbaum used machines or devices the same as those in issue in these proceedings and if not, whether foundations of his training, study or experience in that respect nevertheless satisfy requirements of relevance. 24 Accordingly, I do not presently allow any of the objections made on behalf of the applicant to either the proposed report of M/s Cadariu or Dr Rosenbaum but I reserve the right to finally determine the abovementioned aspects of those objections in the light of the evidence heard in cross-examination on the documents marked as MFI. Applicant's objections to respondents' lay witnesses Generic Objections: Reasonable grounds issue – 25 The applicant makes a general objection that the evidence of the lay witnesses is irrelevant because it cannot assist the respondents' case to show it had reasonable grounds for making the representations complained of or any of them: s 51A Trade Practices Act 1974 (Cth). Three grounds are said to support this. The first is that the evidence does not show the opinions were expressed to the respondents prior to the representations being made. It is accepted for the respondents, however, that cross-examination may be addressed to this point. 26 The second is that the evidence does not disclose whether the opinions were conveyed to the third respondent. In Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513 Heerey J said: "If there was a representation as to a future matter, s 51A requires the representor to show: · some facts or circumstances · existing at the time of the representation · on which the representor in fact relied · which are objectively reasonable and · which support the representation made." It is the third element which this contention for the applicant says is absent in the evidence tendered. Of this Mason P in City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 at [85] said: "The third proposition stated by his Honour (Heerey J in Sykes v Reserve Bank at 513] is, I think, implicit in the provisions. Were it otherwise, the sections would throw the inquiry into the full realm of the law of negligence, calling for consideration of what the representor ought to have taken into account, an inquiry that would track back into investigating the scope of any duty of care. Rather, the sections effectively require the representor to identify the facts or circumstances (if any) actually relied upon before turning it over to the trier of fact to decide whether they were objectively reasonable and whether they support the representation made" [emphasis added] See also Blacker v National Australia Bank [2000] FCA 681 at pars [86] to [87]. 27 For the respondents it is submitted it is sufficient that there may be a body of evidence of satisfied customers from which it may be argued it is open to inference there was a reasonable ground for the representation (whether or not the representation is shown to have been correct). It is to be noted that the evidence tendered in the affidavits is not in the nature of causative evidence such as Lindgren J excluded in Australian Competition & Consumer Commission v Giraffe World Australia Pty Ltd (1999) 166 ALR 74. I therefore accept the submission for the applicant that the evidence of the respondents' lay witnesses should be held to be provisionally relevant pursuant to s 57 of the Evidence Act 1995 (Cth). 28 Thirdly, it is said for the applicant the statements should only be admitted for a limited purpose under s 136 of the Evidence Act 1995 (Cth), being to the issue of whether the respondents had reasonable grounds for making the representations and therefore not in relation to the issue of whether the opinions were correct or whether the devices produced the effects claimed. This is not in dispute. Specific objections: Evidence going to credit of third respondent – 29 Evidence in a number of the respondents' statements is directed to the credit of the third respondent. This is said to be in response to evidence in the statement of the applicant's witness Marian Wright (Ex H) in portion of pars 29 and 33. However that statement was admitted into evidence with those portions excised. The objections to the evidence of credit in the respondents' witness statements should therefore be allowed. Other objections - 30 These are set out in the accompanying ruling. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson. Associate: Dated: 4 February 2003 Counsel for the Applicant: Mr DJ Pratt Solicitor for the Applicant: Phillips Fox Counsel for the Respondents and Cross-Claimants: Mr MJ McPhee Solicitor for the Respondents and Cross-Claimants: Michell Sillar McPhee Counsel for the Cross-Respondent: Mr LA Tsaknis Solicitor for the Cross-Respondent: Williams & Hughes Date of Hearing: 7 November 2002 Date of Judgment: 4 February 2003