FEDERAL COURT OF AUSTRALIA Morris v Danoz Directions Pty Ltd (in Liq) (No 2) [2010] FCA 836 Citation: Morris v Danoz Directions Pty Ltd (in Liq) (No 2) [2010] FCA 836 Parties: BENJAMIN MARK MORRIS and SUSAN BARBARA MORRIS v DANOZ DIRECTIONS PTY LTD (IN LIQ), MICHAEL AMLER, TREVOR GOODMAN, TVN CORPORATION LTD, ROBERT EDWIN HUNT, RONALD BASKIN and NICKOLAS JAMES GIANNAKOULIAS File number(s): NSD 1313 of 2008 Judge: PERRAM J Date of judgment: 10 August 2010 Catchwords: EVIDENCE – Admissibility – Opinion evidence – Expert evidence – Existence of "basis rule" – Whether "counsel of perfection" PRACTICE AND PROCEDURE – Amendment of pleadings – Delay – Absence of explanation Legislation: Trade Practices Act 1974 (Cth) s 52 Cases cited: Adler v Australian Securities and Investments Commission (2003) 179 FLR 1 cited Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296 cited Australian Securities and Investments Commission v Plymin (2003) 46 ACSR 126 cited Dean-Willcocks (as liq of Austral Pacific Group Ltd (in liq)) v Commonwealth Bank of Australia (2003) 45 ACSR 564 cited Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 54 ACSR 410 cited Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 explained Morris v Danoz Directions Pty Ltd (in Liq) (No 1) [2009] FCA 134 cited Paino v Paino (2008) 40 Fam LR 96 cited Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 cited Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 applied Date of hearing: 16 and 23 April 2010 Date of last submissions: 23 April 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 52 Counsel for the Applicants: Mr R Perry SC Solicitor for the Applicants: Lynch Morgan Lawyers Counsel for the Second, Third, Fifth and Sixth Respondents: Mr R Foreman with Ms M R Cairns Solicitor for the Second, Third, Fifth and Sixth Respondents: Minter Ellison IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1313 of 2008 BETWEEN: BENJAMIN MARK MORRIS First Applicant SUSAN BARBARA MORRIS Second Applicant AND: DANOZ DIRECTIONS PTY LTD (IN LIQ) First Respondent MICHAEL AMLER Second Respondent TREVOR GOODMAN Third Respondent TVN CORPORATION LTD Fourth Respondent ROBERT EDWIN HUNT Fifth Respondent RONALD BASKIN Sixth Respondent NICKOLAS JAMES GIANNAKOULIAS Seventh Respondent JUDGE: PERRAM J DATE OF ORDER: 10 AUGUST 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Paragraph 7.5(9) of Mr Benjamin's statement of 7 July 2009 and paragraph 3.3 of Mr Benjamin's statement in reply of 1 September 2009 be inadmissible. 2. The applicant's motion to amend their statement of claim be dismissed. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1313 of 2008 BETWEEN: BENJAMIN MARK MORRIS First Applicant SUSAN BARBARA MORRIS Second Applicant AND: DANOZ DIRECTIONS PTY LTD (IN LIQ) First Respondent MICHAEL AMLER Second Respondent TREVOR GOODMAN Third Respondent TVN CORPORATION LTD Fourth Respondent ROBERT EDWIN HUNT Fifth Respondent RONALD BASKIN Sixth Respondent NICKOLAS JAMES GIANNAKOULIAS Seventh Respondent JUDGE: PERRAM J DATE: 10 AUGUST 2010 PLACE: SYDNEY REASONS FOR JUDGMENT I - Interlocutory Rulings 1 This matter is presently part heard having run for 12 days so far. It is in recess awaiting the making of final submissions on 20 September 2010. During the course of the evidence I rejected certain parts of an expert's report and refused an application by the applicants to amend their pleadings. These are my reasons for those two decisions. I deal first with the ruling on evidence. II - Ruling on Evidence 2 Objection was taken by the respondents to two statements by Mr Stuart Benjamin filed on 7 July 2009 and a statement in reply filed on 1 September 2009. Mr Benjamin was called to give expert evidence about the solvency of Danoz Directions Pty Ltd (in Liq) ("Danoz Directions") and TVN Corporation Ltd ("TVN"). On 16 April 2010 I largely admitted that evidence. 3 The insolvency of Danoz Directions and TVN is relevant to the present proceedings because it is said to falsefy a number of representations made by Danoz Directions. For example, the applicants allege in paragraph 9 of the further amended statement of claim that Danoz Directions represented to one of the applicants, Mr Morris, that "the business of [Danoz Directions] was on a growth path". That representation and a number of other representations of the same genre are said to have been misleading or deceptive or likely to mislead and deceive because in the words of paragraph 50(b): [Danoz Directions] was not on a growth path because [Danoz Directions] and the remaining entities forming the Danoz Group were close to insolvent. (emphasis added) 4 It may well have been possible for the applicants to prove that Danoz Directions was not "on a growth path" by proving something less onerous than proximal insolvency. However, the pleading makes clear the method by which that falsity is to be proved and it is with that allegation that this litigation is concerned. 5 The witness, Mr Benjamin, is an accountant holding a Bachelor of Business from the University of Central Queensland and a Masters of Business Administration from the Queensland University of Technology. He is a member of the Institute of Chartered Accountants in Australia. He has worked as an accountant at two firms – DW Allen & Co, Chartered Accountants, and Coopers & Lybrand (now PricewaterhouseCoopers) – and he has also worked as a commercial analyst, in business advisory and also in litigation support. More recently he has worked as a forensic accountant. His training and work experience do not include any special qualifications in insolvency work. 6 Mr Benjamin was due to be called to give evidence at 2.15pm on Thursday 15 April 2010. Just before the luncheon adjournment at 12.45pm the parties indicated that there was to be a debate about the admissibility of certain aspects of his evidence. At 2.15pm there then took place extensive debate, which occupied the rest of the afternoon, about the admissibility of the two reports. An earlier objection notified before lunch to a third report of Mr Benjamin –essentially a report quantifying the extent of the applicants' losses – was not pursued in oral argument. Mr Foreman, counsel for the second, third, fifth and sixth respondents, made extensive submissions which, with his assistance, I distilled into 11 points. Most of these points related to multiple parts of Mr Benjamin's reports and the debate took place at the level of examples. On 16 April 2010 I delivered rulings on those 11 points, refused to admit paragraphs 7.5(9) of his report and 3.3 of his report in reply and indicated that my reasons would be forthcoming. It is useful to deal with objections in the order they were made. Objection One – The list of insolvency indicators 7 Mr Benjamin's reports seek to demonstrate that Danoz Directions and TVN were "close to insolvency". In an introductory section to his first report Mr Benjamin indicated the factors which he took into account in determining whether Danoz Directions or TVN were insolvent or close to insolvent. The third of these factors he described this way: I also considered the "key indicators of insolvency" as summarised in the Australian Securities and Investments Commission (ASIC) Information Sheet 42 "Insolvency: A Guide for Directors". 8 He attached to his report an extract from those guidelines which included a table entitled "Signs that may indicate your company is at risk of insolvency". The complete guide was placed into evidence during argument. 9 Mr Benjamin then immediately went on to say: Having regard to the above, in my opinion, the following indicators are most relevant to an examination of the Danoz Group's solvency during the period September 2003 to March 2004. 1. Poor cash flow; 2. Continuing loss-making activities; 3. Current ratio less than one; 4. Excess of liabilities over assets; 5. Demands or judgments for payments received; 6. Arrangements regarding loans from Mr Ozana. 10 Putting the matter somewhat compendiously these six indicia are taken from amongst a longer list of factors contained in the ASIC guidelines. The balance of the report is then devoted to an examination of each of those six indicators. Thus, for example, the first matter dealt with in Mr Benjamin's examination is the topic of "poor cash flow". 11 Mr Foreman's objection to this approach was twofold. First, the utilisation of a list published by ASIC did not involve the application of any expertise by Mr Benjamin; secondly, it was not explained why some elements from the ASIC list had been used and not others. 12 Mr Perry SC, who appeared for the applicants, relied upon Australian Securities and Investments Commission v Plymin (2003) 46 ACSR 126 at 214-215 [386] per Mandie J the report of which indicates that in that case an accountant, Mr Humphris, "agreed that a checklist of matters put to him as being indicators of insolvency, was a fairly extensive list, albeit in general terms, and brought to mind very common features in insolvency situations". It was submitted that that checklist of indicators of insolvency had been applied by Reeves J in Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 at [41]. 13 I do not regard ASIC v Plymin or Playspace Playground as determining the issue before me. However, they do underscore a significant matter, namely, that the factors appearing on the ASIC checklist are commonsense indicators of insolvency. I do not see why an expert accountant needs to explain his reasons for thinking that generally the presentation of statutory demands to corporations can be an indicia of insolvency. I reject, therefore, Mr Foreman's first objection. I reject the second point too. It is true that Mr Benjamin does not explain clearly why it is that he has selected only the six factors that he has from the larger list in ASIC's document. The strict application of the dictum of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at 743-744 [85] might well lead to the conclusion that this aspect of Mr Benjamin's report would be inadmissible. However, the prevailing view is that that dictum is a counsel of perfection: see Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 at 356 [7] per Branson J. In the same case Weinberg and Dowsett JJ also analysed Heydon JA's dictum and placed particular emphasis upon his Honour's use of the words "strictly speaking" in the dictum. They observed (55 IPR at 379 [87]): The use of the phrase "strictly speaking" … should not be overlooked. It may well be correct to say that such evidence is not strictly admissible unless it is shown to have all the qualities discussed by Heydon JA. However, many of those qualities involve questions of degree, requiring the exercise of judgment. For this reason it would be very rare indeed for a court at first instance to reach a decision as to whether tendered expert evidence satisfied all of his Honour's requirements before receiving it as evidence in the proceedings. More commonly, once the witness's claim to expertise is made out and the relevance and admissibility of opinion evidence demonstrated, such evidence is received. The various qualities described by Heydon JA are then assessed in the course of determining the weight to be given to the evidence. There will be cases in which it would be technically correct to rule, at the end of the trial, that the evidence in question was not admissible because it lacked one or other of those qualities, but there would be little utility in doing so. It would probably lead to further difficulties in the appellate process. 14 That approach to Makita v Sprowles was approved by the Court of Appeal in Adler v Australian Securities and Investments Commission (2003) 179 FLR 1 at 138 [631] per Giles JA with whom Mason P and Beazley JA agreed, a position repeated in Paino v Paino (2008) 40 Fam LR 96 at 110-112 [60]-[66] per Hodgson and McColl JJA. In those circumstances, whilst noting that Mr Benjamin has not explained why he alighted upon the six factors from the ASIC list that he did, I propose, at this stage, to admit the evidence. Objection Two – Absence of qualifications 15 Mr Foreman submitted that Mr Benjamin was not qualified to give evidence about the insolvency of Danoz Directions and TVN. I reject that submission. Mr Benjamin is a qualified accountant and it is within the professional expertise of an accountant to express opinions on questions of solvency. I accept that he is not a member of any particular college or institute of insolvency practitioners and does not hold specialist qualifications in insolvency. However, that seems to me to be a matter going to the weight to be given to his evidence rather than to its admissibility. Objection Three – No expertise in relation to inferences 16 Mr Foreman drew attention to paragraphs 3.2 through to 3.5 of the report in reply. This report was prepared following the filing of evidence by one of the respondents, Mr Baskin, whose evidence was directed, in part, to demonstrating the financial health of Danoz Directions. He attached certain materials to his statement. Mr Benjamin drew upon that material and proffered some comments upon it. At paragraph 3.3 he expressed the opinion that "the available information indicates the Danoz Group … had entered into special arrangements regarding payments to creditors". In the following paragraph he then explained that his reason for reaching that conclusion was some correspondence which was attached to Mr Baskin's statement. At paragraph 3.5 he drew the conclusion that those matters provided some basis for drawing the conclusion of insolvency. 17 Mr Foreman submitted that drawing the conclusion that the documents indicated that Danoz Directions had entered into special payment arrangements with its creditors was a matter of fact for the Court and was not within Mr Benjamin's expertise. He placed reliance upon Dean-Willcocks (as liq of Austral Pacific Group Ltd (in liq)) v Commonwealth Bank of Australia (2003) 45 ACSR 564. In that case, Austin J rejected an expert's report which had sought, inter alia, to draw inferences of fact about what the Commonwealth Bank in that case should have known about another party's solvency. Austin J held (45 ACSR at 570-571 [27]) that the whole of that section of the report was inadmissible "because the opinions expressed there are not wholly or substantially based on the specialised knowledge of the experts". This was so because it offered "nothing more than the kind of analysis of the documentary facts that it is open to counsel to present in final submissions" (45 ACSR at 571 [27]). Paragraph 3.3 of Mr Benjamin's report in reply is of this character and I reject it. Objection Four – Process of reasoning not disclosed 18 Mr Foreman then took me to a section of Mr Benjamin's report in chief dealing with the consequences of Danoz Directions having an excess of assets over liabilities. It will be recalled from above that an excess of liabilities over assets was one of the indicia of insolvency which Mr Benjamin had selected as being a relevant factor. A consolidated statement of the financial position for the TVN Group was attached to Mr Benjamin's report and it showed a fluctuating net asset value of between $15 million to $21 million throughout the June 2004 financial year, which was the relevant year. It might be thought that that showed a substantial credit position for the TVN Group. However, Mr Benjamin expressed the following opinion at paragraph 7.22: Given the above analysis, in my opinion, the satisfaction of this test is a weak indicator that the Danoz Group was not insolvent or close to insolvency for the period September 2003 to March 2004. 19 Mr Benjamin does not explain why he believes that the indicator is a "weak" one. This stands in contrast with his conclusions at paragraph 7.27 where, having recited a number of outstanding tax liabilities (another one of Mr Benjamin's indicia), he concluded that the failure to satisfy that test indicated the Danoz Group was insolvent or close to insolvency for the period January 2004 to March 2004. 20 Mr Foreman submits, not without some force, that it is hard to understand why emphasis has been given to Danoz Directions' failure to pass one of the tests whilst its success in passing another has been discounted. He submits that this underscores a failure on Mr Benjamin's part to explain why he has given some factors more weight than others. 21 In a sense this submission is closely allied with the complaint about Mr Benjamin's failure to explain why he alighted on the six factors in the first place. It is not known why those six factors in particular were selected and, at least at paragraph 7.22, Mr Benjamin does not explain why he thought that some were more important than others. This is a substantial criticism of Mr Benjamin's report and one which may ultimately impact on the value of the opinion. Strict compliance with what fell from Heydon JA in Makita v Sprowles would lead to the conclusion that the report was thereby rendered inadmissible. However, for the reasons I have already given I am bound by the Full Court's decision in Red Bull not to approach Makita v Sprowles on that basis. Whist I have some misgivings about the value of the evidence in its current form I am constrained, at this stage, to admit it. Objection Six – Incorrect application of legal tests 22 It will be recalled that the question posed for Mr Benjamin's consideration was whether Danoz Directions was insolvent or "close to insolvent" in the 2004 financial year. At paragraph 7.5(2)(a) Mr Benjamin points out that there was a decline in cash assets held by the Danoz Group in eight of the 12 months of the 2004 financial year which was ameliorated by a number of shareholder loans together with the exercise of some options. Mr Benjamin draws upon those injections of capital to conclude: If the Danoz Group had not received [the funds] from shareholders the decline in cash held for the 2004 financial year would have been $6,096K. 23 Mr Foreman submits that Mr Benjamin has, in effect, used the fact that the company received capital injections as evidence of insolvency. This was submitted to be contrary to authority and reference was made to Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 54 ACSR 410 at 433 [103] and 434-435 [110]-[111] per Giles JA with whom Hodgson and McColl JJA agreed. I reject this submission. Whilst I accept that the availability of shareholder loans is not capable of proving insolvency as a matter of law one of the questions which Mr Bejamin's report addresses is the question of whether the companies were "close to insolvency". For that purpose I do not think that the principle in Lewis v Doran means that the material is not able to be received. "Close to insolvency" could mean, in appropriate circumstances, sustained only by loans from shareholders. Objection Seven – Wrongful discounting of ability to raise funds 24 The same point was made in relation to a passage at paragraph 7.5(10) of the report where, in effect, an adverse inference was drawn about the solvency of the Danoz Group by reason of it having received a capital injection. I reject the argument for the same reason. Objection Eight – Absence of material 25 At page 23 of his report Mr Benjamin set out a list of the 18 documents upon which he relied. Mr Foreman objected to paragraph 7.5(9) which sought to prove certain positive matters using the formula "I have not seen anything which indicates …". He submitted that it was meaningless since all that Mr Benjamin had seen was those 18 documents. Mr Perry submitted that that was something which could be taken into account in assessing its weight. I do not agree. The evidence is without utility and proves nothing. I reject paragraph 7.5(9). Objection Nine – Lack of area of expertise covering concept of "closeness of insolvency" 26 It was submitted on behalf of the applicants that although it was possible to express an expert opinion on whether a company was insolvent it was meaningless to express an opinion on whether it was close to insolvency. I reject this submission. There are many circumstances in which accountancy professionals could well be called upon to advise a person about the proximity of insolvency. For example, it is not difficult to imagine that a director might seek advice from an accountant on how close to insolvency the company of which he was director was. If Mr Foreman's submissions were correct it would ban forever the leading of any evidence designed to demonstrate that a company was in difficulties. Objection Ten – Inability to disaggregate 27 Mr Foreman submitted that the inadmissible portions of Mr Benjamin's report were so extensive that even if some parts of it remained after objection they were so disparate or incomplete that they should be rejected. In the events which have occurred little of the report has been rejected so this submission does not arise. Objection Eleven – Incorrect opinion 28 At page 3 of his report Mr Benjamin concludes: On the basis of the overall result of my examination, subject to the assumptions and the available information described later in my report, in my view, it is reasonable to conclude that the Danoz Group was experiencing financial difficulties and was close to insolvency during the period September 2003 to March 2004. (emphasis added) 29 Mr Foreman submitted that the emphasised words are not an expression of opinion by Mr Benjamin but instead merely take the character of some advice proffered by him to the Court. Accordingly, he submits they have no utility and are, therefore, irrelevant and inadmissible. If one were to read paragraph 2.4 in the way Mr Foreman suggests then I would agree that the evidence would have no utility. It would be of no assistance to know that the conclusion that the Danoz Group was experiencing financial difficulties was a "reasonable" one. However, I accept Mr Perry's submission that this is not the way that paragraph 2.4 should be read. Paragraph 2.4 appears in the context of the balance of the report. The balance of the report includes paragraph 2.1 which is as follows: As instructed, I have formed a view as to whether the Danoz Group was insolvent or close to insolvency during the period September 2003 to March 2004. 30 This is of course the inquiry one would expect Mr Benjamin to have been requested to undertake. Once that is appreciated it follows that the suggested construction of paragraph 2.4 should not be accepted. 31 In those circumstances I reject the argument. 32 It was for those reasons that I rejected paragraph 7.5(9) of Mr Benjamin's report in chief and paragraph 3.3 of his report in reply. III - Amendment application 33 I turn then to the amendment issue. On Friday 23 April 2010 – the 12th day of the trial – the applicants sought leave to file a second further amended statement of claim. I heard argument on that day and refused the application. 34 The proposed amendments related to paragraphs 27 and 53 of the further amended statement of claim ("the FASOC"). The application was first raised in Court late on Thursday 15 April 2010 which was the sixth day of the trial. The present FASOC is 55 pages in length and occupies 81 paragraphs. That pleading, in turn, was the result of a grant of leave following a substantial contested amendment application together with an application for summary dismissal: Morris v Danoz Directions Pty Ltd (in Liq) (No 1) [2009] FCA 134. The trial commenced on 7 September 2009 and was adjourned part heard to 12 April 2010. At the close of the Court on Friday 23 April 2010 the evidence had been completed and the matter was adjourned for the purpose of final submissions. 35 Despite the relative breadth and duration of the proceeding the issues between the parties are reasonably straightforward. The applicants purchased a number of franchises from the first respondent, Danoz Directions, to run retail stores to be known as "Danoz Directions". The applicants, who are members of the same family, allege that they were told a number of matters by Danoz Directions (and by a number of its officers) that they were induced by those statements into buying the franchises and that the statements were misleading and deceptive and therefore contrary to s 52 of the Trade Practices Act 1974 (Cth). They claim damages from several of the officers of Danoz Directions who they claim were knowingly involved in the making of the representations. 36 To grasp the issues which arise on the amendment application it is necessary to have some understanding of four concepts which had been explained in the evidence by the time that the application was made. The first concerns the direct television marketing business conducted by the fourth respondent TVN. That company was in the business of direct marketing of retail consumer products on television by means of product displays on popular daytime programs such as the Kerry-Anne Kennerley Show and also by means of longer "infomercials" both on free to air television and subscription television services. Persons viewing these programs who felt moved to purchase a product could telephone a call centre and acquire them readily using a credit card. 37 The franchises bought by the applicants were intended to be a retail complement to that structure. Such an arrangement was likely, apparently, to capitalise on customers who saw the products on television but who either liked to touch or feel a product before purchasing or who did not have a credit card and hence could not purchase items over the telephone. 38 The second concept concerns the constant appetite for new products which the business of TVN engendered. New products were discovered at trade fairs, tested on day time television shows and, if encouraging sales figures ensued, further developed but otherwise allowed to lapse. Amongst this constant flow of ever-changing products – items like carrot slicers, button sewers and tummy tautners – there was a kind of product which stood out from the rest and commanded constant public demand. This kind of product – with which the third concept is concerned – was known in the business as a "hero product" and such products were greatly valued by those running businesses such as TVN's. 39 The fourth and final concept concerns two of these "hero products". The first was known as the "AbTronic" which was a device said to improve the state of a consumer's abdominal muscles by using electric currents and requiring little effort on the consumer's part to achieve visually pleasing results. The "AbTronic" had been a successful "hero product" until 2002 when the Australian Competition and Consumer Commission ("ACCC") commenced proceedings against Danoz Directions about the claims made for the AbTronic. These proceedings were ultimately determined in the Commission's favour on 22 August 2003: Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296. The demise of the "AbTronic" was followed by the rise of a new hero product – "the Abswing" – which, through different and this time mechanical means, offered the hope of better abdominal muscles. 40 The present case is concerned with the Morris family's decision to acquire Danoz Directions franchises in 2003-2004. Paragraph 27 of the FASOC contained five representations allegedly made to them by a Mr Amler who worked for Danoz Directions and whose duties included the sale of franchises. These statements were said to have been made on 8 September 2003 at a meeting with the members of the Morris family at premises at 15 Orion Road, Lane Cove or subsequently, by telephone, with Mr Morris. These representations are alleged to have been as follows: Between 8 September 2003 and December 2003, the First Respondent by the Second Respondent represented to the Applicant that:- (a) the First Respondent had a large product range and was continuously introducing new products to its range; (b) the First Respondent had an exclusive product range; (c) there was increasing demand for Danoz retail products; (d) as a Danoz Directions franchisee the Applicant would have the benefit of the Emjoi range of women's beauty products which were exclusive to the Danoz Group; (e) as franchisee they would have the benefit of the Princess range of electrical kitchen appliances which were exclusive to the Danoz Group. 41 At paragraph 53 of the FASOC these statements were said to be misleading and deceptive because: (a) the Princess range was withdrawn from the product range available to franchisees; (b) before the Princess range was withdrawn, the First Respondent or its related entities were selling Princess range products to competitors of franchisees, including Myers and David Jones, at a price enabling those competitors to undercut prices charged by franchisees; (c) Abtronic, the primary 'hero' product, had seen declining sales since 2003 and was not able to be further marketed after August 2003 due to an undertaking made in the Abtronic Proceeding but this was not disclosed to the Applicant; (d) no replacement hero product was found to replace the Abtronic product; (e) the Emjoi range of products was not exclusive to the Danoz Group and was being sold by department stores and chemists at lower prices than the price at which it was supplied to franchisees of the First Respondent; (f) the range of goods available to the First Respondent's franchisees was limited and many of the products were from older inventory that the Danoz Group had not sold such a Guitar and lesson kit, Electronic Business Card scanner, Roy Orbison CD collector packs. 42 It will be observed that, as framed, these allegations did not raise for consideration any question about the performance of the "Abswing" in and following 2003. Instead, the only point about the "Abswing" or the "AbTronic" being made was that the "AbTronic" had been in decline since 2003. That allegation was itself, however, merely one of the ways in which the representations pleaded in paragraph 27 was said to be falsified. Those representations were not concerned either with the "Abswing" or the "AbTronic". Indeed, the allegedly declining status of the "AbTronic" after 2003 would only appear to falsify the representation in paragraph 27(c). 43 The proposed amendments would add two additional allegations about representations made at the Orion Street meeting. They consist of the addition of two subparagraphs to paragraph 27 in the following terms: (cc) the Abswing was currently the hero product and had been successful for a long time; (dd) a hero product was important in terms of attracting sales and the key to the success of a Danoz business. 44 These were now said to be falsified by new allegations inserted into paragraph 53 in these terms: (c) the Abswing had been the primary 'hero' product since late 2002 but had seen declining sales since 2003 and was coming to the end of its useful life as a hero product. (d) no replacement hero product was found and promoted to replace the Abswing product. 45 Mr Perry submitted that there was no controversy about the making of the statements now to be inserted in paragraph 27. In this there is no dispute that he is correct. There is no issue between the parties that the AbTronic ceased to be a hero product in 2002 when the ACCC became involved. Nor is there any debate that by 2002 the Abswing had taken over from the AbTronic as the new hero product. Mr Perry took me to evidence from both parties which showed that this was so and I accept it to be the case. 46 The real issue on the application, however, was not whether the Abswing was the hero product in 2002 – it plainly was – but whether, as paragraph 53(c) and (d) would now suggest, its sales were beginning to decline in late 2003 and that it was coming to the end of its useful life as a hero product. 47 Mr Perry submitted that there was no real dispute that sales of the Abswing were declining in 2003/2004. To make good this point he emphasised four aspects of the evidence. These were: (a) Paragraph 31 of the statement of Mr Amler. In this paragraph Mr Amler gave evidence for the second, third, fifth and sixth respondents that sales of the Abswing had began to decline in or around November 2002. (b) Paragraph 117 of the statement of Mr Goodman. This paragraph intimated that sales of the Abswing began to decline in early to mid-2004. Mr Goodman, however, was not called and the paragraph in question is not in evidence. The point however was that it was said to show that there was no real question of prejudice to the respondents because the matter was not really in dispute. (c) The cross-examination of Mr Jovani. Mr Jovani was called by the applicants and gave evidence about hero products in general and the Abswing and AbTronic in particular. The point made was that he had been cross-examined about whether the Abswing was selling well in September 2003 or early in 2004 to which he had replied, in substance, that it had been but that 2004 marked the beginning of a downturn in sales. Mr Perry submitted that there could be, in those circumstances, no suggestion that the respondents had been denied the capacity to cross-examine on the question because they had, in fact, done so. (d) The ability of witnesses to be recalled. Mr Perry submitted that to the extent that there were any issues about cross-examination of witnesses who had already been called, this could readily be cured by the recall of those witnesses. In that regard, he noted that the respondents' case had not closed and that his own witnesses could readily be returned to the witness box if necessary. 48 Until the amendment was articulated it had not been an issue in this proceeding for the respondents to prove anything about whether sales of the Abswing were declining from late 2003. The fact that it was not an issue is reflected, I think, in the inconsistency in the evidence tendered on their behalf on this topic. The proposed pleading alleges a decline from 2003 but Mr Amler's evidence is that the decline was from 2002 and, if Mr Goodman had been called, his evidence would have been that the sales had declined from early to mid 2004. Neither Mr Baskin nor Mr Hunt, who were called by the respondents, gave evidence about sales of the Abswing in 2002. And, indeed, Mr Goodman's proposed evidence that the sales began to decline in early to mid-2004 would have supported the respondents in denying the proposed case because it is inconsistent with the proposition that sales were declining in 2003. The respondents submitted that they would have run their case differently had the issue been raised at an earlier time and, one might think, an exploration of Mr Baskin's and Mr Hunt's evidence on the issue together with a different approach to whether Mr Goodman should be called are, at least, some obvious ways this might have occurred. 49 But there are other problems too. Mr Raine, the solicitor with the day to day carriage of the proceeding for the respondents, gave evidence that he had reviewed a very substantial body of documentation consisting of 54 boxes produced by TVN and that his review had not included looking at this material from the perspective of the sales of the Abswing at the end of 2003. He made a similar point in relation to the documents held by the liquidator of Danoz Directions. Mr Foreman submitted that to meet a case based on declining sales in 2003 this material would need to be looked at again with the attendant cost and expense that that would necessarily entail. 50 I accept that submission. If this issue were now to be raised I do not see how I could deny to the respondents the right to recall Mr Baskin and Mr Hunt and to reconsider afresh the decision not to call Mr Goodman. I would also need to permit them the opportunity to re-examine the substantial documentation in the case and to consider additional tendering of documents and perhaps the additional cross-examination of Mr Morris and Mr Jovani. 51 To accede to that course would require further hearing time. The position, but for the present application, is that the evidence is finished and final submissions are being prepared. I do not doubt that in appropriate circumstances an amendment could be granted. However, I do not think that this is one of those cases. Events in this case happened over six years ago and memories are likely to be beginning to fade. The case has come on twice, no doubt with all the stress and expense for the parties which accompany the conduct of trials in which personal reputations and fortunes are in focus. Even in such a case, such a course might still be undertaken if the reason for the late raising of the point were laid before the Court. Here, however, I am asked to disturb the ordinary running of the case, at the heel of the hunt, with the potential for great stress, delay and expense without any explanation of why it is that the question now under consideration was not raised well in advance of the trial. It is not necessary to determine whether the absence of such an explanation invariably means that applications such as the present must be refused. It suffices only to say that given the matters to which I have adverted this is not an appropriate case in which to grant an amendment. 52 It was for those reasons that I refused the application. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 10 August 2010