FEDERAL COURT OF AUSTRALIA

United Dairy Power Pty Ltd v Murray Goulburn Co-operative Co Ltd [2011] FCA 762

UPON the applicant by its counsel undertaking:

(a)    to submit to such order (if any) as the Court may consider to be just for the payment of compensation , to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by any operation of the orders below or any continuation (with or without variation) thereof; and

(b)    to pay the compensation referred to in (a) to the person there referred to.

THE COURT ORDERS THAT:

1.    Pending the determination of the proceedings or further order, that the respondent be restrained from making or directing, authorising or permitting its field officers referred to in paragraph 3 of the affidavit of Ross Greenaway sworn on 4 July 2011 to make, in trade or commerce, representations to third parties that:

     (a)    the Applicant (UDP) is experiencing financial difficulties;

     (b)    UDP does not have sufficient funds to pay its suppliers for milk supplied to it;

     (c)    that suppliers risk not getting paid for their milk if they supply to UDP;

     (d)    UDP is unable to pay suppliers;

     (e)    UDP is shortly going to close in the near future;

     (f)    UDP is in financial trouble;

     (g)    UDP has run out of money;

     (h)    UDP is in a dire financial situation; and

     (i)    UDP does not have sufficient funding.

2.    The applicant file and serve a statement of claim on or before 15 July 2011.

3.    The respondent file and serve its defence to the statement of claim on or before 5 August 2011.

4.    Subject to the applicant and the respondent indicating to one another the proposed categories of documents for discovery, the applicant and respondent file and serve verified lists of documents on or before 5 September 2011.

5.    Pursuant to Order 72 of the Federal Court Rules, the proceeding be referred to mediation by a Registrar of the Court in Melbourne to be conducted prior to 30 September 2011.

6.    The applicant file and serve any further evidence in support of its application on or before 15 October 2011.

7.    The respondent file and serve any evidence in support of its defence on or before 11 November 2011.

8.    The applicant file and serve any evidence in reply on or before 2 December 2011.

9.    The proceeding be listed for further directions at the first available date after 2 December 2011.

10.    Costs be reserved.

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.

REASONS FOR JUDGMENT

Introduction

1    The applicant, United Dairy Power Pty Ltd (“UDP”), seeks an interlocutory injunction restraining the respondent, Murray Goulburn Cooperative Co. Ltd (“MGC”), until the hearing and determination of the proceedings or further order, from in trade or commerce, making or aiding, abetting, counselling or procuring, or otherwise acting as a joint tortfeasor in the making of, representations to third parties that:

  (a)    UDP is experiencing financial difficulties;

(b)    UDP does not have sufficient funds to pay its suppliers for milk supplied to it;

(c)    that suppliers risk not getting paid for their milk if they supply to UDP;

(d)    UDP is unable to pay suppliers;

(e)    UDP is shortly going to close in the near future;

(f)    UDP is in financial trouble;

 (g)    UDP has run out of money;

 (h)    UDP is in a dire financial situation; and

 (i)    UDP does not have sufficient funding.

2    The application is supported by:

(a)    the affidavits of Antonio Esposito sworn on 29 June 2011 (“first Esposito affidavit”) and 29 June 2011 (“second Esposito affidavit”);

(b)    the affidavits of Anthony Watson sworn on 4 July 2011 and 4 July 2011;

(c)    the affidavit of Darryl Cardona sworn on 5 July 2011; and

(d)    written submissions filed on 4 July 2011.

3    The application was opposed by the respondent which sought its dismissal with indemnity costs.

4    The respondent relied on the following:

(a)    the affidavits of Nolan Clarke sworn on 1 July 2011 and 5 July 2011;

(b)    the affidavit of Ross Greenaway sworn 4 July 2011;

(c)    the affidavit of George Anastasiou sworn 4 July 2011;

(d)    the affidavit of Andrew Charles Croxford sworn 4 July 2011; and

(e)    written submissions filed on 4 July 2011.

The evidence

5    Mr Esposito, the managing director of UDP, deposed to the background to the application as follows:

3    UDP is Australia's largest privately owned milk company first established in 1999. UDP has over 70 employees and an annual turnover of approximately $125 million. UDP is a subsidiary of 5 Star Foods Pty Ltd.

…

7    Competition between UDP and its trade rivals such as the Respondent (MGC) to obtain the supply of milk from dairy farmers is very strong. UDP has invested a significant amount of money into developing its reputation within the industry, particularly with dairy farmers, as it is a relatively new business, when compared with many of its rivals such as MGC. MGC has been operating in Australia for 60 years.

8.    UDP has invested in promoting and advertising its services to dairy farmers and providing personalised contact to farmers through field representatives. UDP also seeks to provide better deals for dairy farmers for their products. As a result of extensive advertising and promotion I believe UDP now enjoys a good reputation within the industry as a milk company which is able to offer good deals to its suppliers as well as to the companies to which it supplies milk.

6    Mr Esposito deposed that “over the [last] few years I have received the occasional report… about comments” which MGC’s employees “allegedly” made about UDP, along the lines that it was “broke”, could not pay its suppliers and would close its doors. Mr Esposito deposed that the reporting of the comments (as opposed to the comments themselves) was widespread.

The alleged incidents

First 2009 incident

7    Mr Esposito deposed (in paragraph 10 of the first Esposito affidavit) that in August 2009, a UDP field representative, Scott Elliott, told him that Paul Crae, a UDP supplier, told Mr Elliott that Mr Crae’s brother, a tanker driver for MGC, told Mr Crae that “MCG” had told all its drivers at a meeting to spread the word to dairy farmers that UDP had run out of money, that it would be shut down soon and that any farmers selling milk to UDP would not be paid for their milk. Mr Crae’s brother told him that “the instructions had come from MGC’s senior management” (“first 2009 incident”).

8    Mr Esposito deposed that he subsequently discussed the first 2009 incident with the general manager of milk supply at MGC, Mr Greenaway, who said that he would investigate and would ensure that MGC employees did not say such things. Mr Greenaway subsequently told Mr Esposito that he had investigated and denied that any such direction had been given or statements made.

First recent incident

9    Mr Esposito deposed that about two weeks ago, an unidentified dairy farmer told a UDP employee, David Massey, that he had recently attended a farmers’ meeting in Mt Gambier where MGC employees made disparaging comments regarding UDP, including that it was in financial trouble and farmers selling milk to UDP would not be paid (“first recent incident”).

10    By his second affidavit, Mr Esposito deposed that David Massey had since advised him, and he believed, that the farmer’s name was Colin Seidel, whose farm was at Mount Schank, and that the meeting referred to was held at Heywood.

Second recent incident

11    Mr Esposito deposed that about two weeks ago, a UDP employee, Darryl Cardona, spoke to two dairy farmers in Western Victoria, Rob and Alex Robertson, who supply milk to UDP. Rob Robertson told Mr Cardona that a UDP employee, Nolan Clarke, visited the Robertsons’ house and told them that UDP was experiencing financial difficulties, did not have sufficient funds to pay its milk suppliers and there was a risk that they would not be paid for their milk (“second recent incident”). Mr Esposito telephoned Mr Greenaway about the second recent incident. Mr Greenaway said that he would investigate it. Mr Esposito deposed that one of the farmers, Rob Robertson, telephoned Mr Esposito on 15 June 2011 and said that Nolan Clarke had since contacted him again and asked him not to tell anyone what Nolan Clarke had said, to which Mr Robertson responded that he would not lie and would tell UDP about MGC’s conduct.

12    Mr Clarke, a field officer employed by MGC, deposed that he deals directly with farmers, although only infrequently with those who supply UDP. Mr Clarke deposed that the Robertsons previously supplied milk to MGC, but now supply it to UDP. He nevertheless still saw them at the trading store and sometimes at their farm.

13    Mr Clarke deposed:

7.    I saw Alex Robertson on a number of occasions in June 2011, both at the rural trading store and at his farm and I spoke to him on those occasions.

8.    I refer to paragraph 12 of the first affidavit of Mr Esposito. At no time during these conversations with Mr Robertson did I ever say that:

(a)    UDP was experiencing financial difficulties;

(b)    UDP did not have sufficient funds to pay its suppliers for milk supplied to it;

(c)    there was a risk that Robertson would not get paid for their milk if they kept on supplying UDP.

14    Mr Clarke further denied that he had ever had a conversation with either Robert or Alex Robertson to the effect alleged by Mr Esposito, and deposed that after being contacted by Mr Greenaway:

10.    … I rang Alex Robertson and asked him what was going on. I said that I was supposed to have said that UDP was going broke. I said that I had never said that UDP was going broke. Mr Robertson said he hadn't said anything like that to Mr Esposito and hadn't spoken to him for some time. I asked if his brother Robert might have said something like that to Mr Esposito. He said he did not know.

11.    As a result I called Robert Robertson. I left a message on his answering machine to telephone me. He did so twice and on the second occasion I spoke to him. I asked him if he had said that I had said UDP was going broke. He said he had not said that.

12.    I did not say to Robert Robertson that he should not say to anyone that I had said that:

(a)    UDP was experiencing financial difficulties;

(b)    UDP did not have sufficient funds to pay its suppliers for milk supplied to it;

(c)    there was a risk that the Robertsons would not get paid for their milk if they kept on supplying UDP.

as I had never said those things. Further, Mr Robertson did not say to me that he would not lie about what I had told him and that I had said those things and that he would be telling UDP about how Murray Goulburn was conducting itself. Robert Robertson and I simply did not have a conversation to that effect, nor did I have such a conversation with Alex Robertson.

15    Mr Clarke denied ever having made the representations alleged or being directed to do so. He deposed:

13.    In the last month I haven't spoken to any other UDP farmers, other than Alex Robertson. I have never said anything to the effect that UDP was experiencing financial difficulties or that they did not have sufficient funds to pay their suppliers for milk supplied to it to Mr Robertson or anyone else.

14.    Further, I have never been instructed or directed by anyone at Murray Goulburn to say anything to that effect to any person.

16    By his affidavit sworn on 5 July 2011, Darryl Cardona, the general manager of UDP, deposed that he telephoned Alex Robertson on 5 July and read Mr Clarke’s affidavit to him. Alex Robertson denied that Mr Clarke’s affidavit was true and correct, and told Mr Cardona that:

(a)    Nolan Clarke had made comments to him on several occasions suggesting that UDP was in a poor financial state and that there were real doubts about UDP's ability to pay its suppliers for their milk;

(b)    after he contacted Tony Esposito about two weeks ago and advised him about Nolan Clarke's comments, Nolan Clark called him and questioned him on as to why he had told Mr Esposito. He told Nolan Clarke what he had done in fact was to send a text message to Tony Esposito to advise him of what Nolan Clarke had said and told Nolan Clarke to get his facts straight; and

(c)    he was reluctant to be involved in this proceeding.

17    Mr Cardona further deposed:

6.    I also called Rob Robertson today after I read the Clarke Affidavit. I read the Clarke Affidavit to Rob Robertson. Rob Robertson denied that the Clarke Affidavit was true and correct and told me and I believe that:

(a)    Nolan Clarke has made comments to him several times to the effect that that there were real risks that if the Robertsons supplied their milk to UDP that they would not be paid by UDP; and

(b)    he was reluctant to be involved in this proceeding.

7.    After I read the Clarke Affidavit, I called Tony Esposito who is currently on annual leave in Queensland. I asked Mr Esposito to check his mobile phone to see if he still had the text message from Alex Robertson referred to above stored in his phone. Mr Esposito advised me and I believe that:

(a)    he had deleted the text message from Alex Robertson from his phone;

(b)    he has tried to retrieve the deleted text message but has not been able to do so; and

(c)    the text message was to the effect that Nolan Clarke of Murray Goulburn had visited him and told him that UDP were in financial trouble and would struggle to pay its suppliers.

Third and fourth recent incidents

18    Mr Esposito further deposed:

Since this time I have also been told that MGC employees and field representatives have previously also made similar comments about UDP and its financial capacity to other dairy farmers. I note the following examples:

(a)    Jo Van Rijhoven is a dairy farmer supplying milk to UDP who until recently was a supplier to MGC. Upon deciding to supply milk to UDP Ms Van Rijhoven was visited at her house by 5 MGC field staff over a 10 day period during which time she was bullied by MGC regarding the decision to change to UDP and also warned that UDP was in a dire financial situation and so she would be risking not getting paid by changing to UDP…

…

(“third recent incident”)

19    Mr Esposito did not depose to the source of his information about the third recent incident. Further, the “MGC field staff” were not identified. He further deposed:

Neil Jackson is a dairy farmer in the Kyabram area. Mr Jackson supplies milk to MGC. Mr Jackson has called UDP staff to report that MGC staff at MGC growers and suppliers meetings often make comments about UDP’s lack of funding, and also generally denigrate UDP.

(“fourth recent incident”)

20    Mr Esposito did not identify the “UDP staff” to whom Mr Jackson spoke, and did not in terms state the source of his information about the fourth recent incident. The statements that MGC staff “often make comments about UDP’s lack of funding” and “generally denigrate” it were, moreover, vague.

Second 2009 incident

21    Anthony Watson, by his second affidavit sworn 4 July 2011, deposed that on 4 July 2011, after being contacted by Darryl Cardona, he telephoned Kevin Tesslar, a dairy farmer in Timboon who supplied UDP, who told him:

(a)    after he began supplying milk to UDP in June 2009 Nolan Clarke had come out to his farm and made comments to him and his wife about UDP.

(b)    he could not recall the precise words used but the comments were to the effect that there were real doubts about whether he would get paid for his milk by UDP.

4.    During the phone call Kevin Tesslar handed the phone over to his wife Margaret Tesslar who told me and I believe that she had been present on one occasion when Nolan Clarke had said to her husband when referring to UDP, " I hope you don't mind waiting to be paid" and "you will be back".

(“second 2009 incident”)

22    By a responsive affidavit sworn on 5 July 2011, Nolan Clarke denied that he made the alleged comments to Mr Tesslar and denied any knowledge of UDP’s financial position.

Whether representations misleading and deceptive

23    Mr Esposito deposed that the statements alleged above are untrue, as UDP is not under financial strain or at risk of being unable to pay milk suppliers or other creditors. He exhibited a confidential balance sheet and trading statement of UDP’s ultimate holding company and audited financial statements of the group for the 11 months to 31 May 2011. Mr Watson deposed that UDP’s accounts are not separately audited, but exhibited confidential separate management accounts for the year ending June 2010.

Potential effect of representations

24    Mr Esposito deposed that UDP had hitherto taken no action in relation to the alleged comments as it considered that they would not greatly affect its established reputation in Victoria. They could, however, have a very significant negative impact on its current expansion into South Australia, where UDP commenced a marketing campaign four weeks ago. Contrary to Mr Greenaway’s assurances that MGC had taken steps to ensure that its employees did not say such things, Mr Esposito believed that MGC senior personnel apparently condoned the conduct as part of a plan to mislead farmers and discourage them from supplying UDP.

25    Mr Esposito deposed:

21.    I believe that MGC by way of its agents and employees is making the statements set out above to farmers particularly to discourage farmers in the areas in which UDP is seeking to expand its business to supply milk to UDP.

22.    UDP is a relative new comer in the milk industry in comparison with companies such as MGC which has been operating for over 60 years. As a result UDP has to work very hard in order to ensure that farmers believe that UDP is a stable business with a long secure future ahead of it. The statements referred to above and similar statements being made by MGC directly undermine UDP’s business and reputation in this regard and its ability to grow its sales and to expand into new areas.

23.    UDP is currently seeking to expand its operations into South Australia. It is in the process of purchasing 2 dairy factories in Murrray [sic] Bridge and Jervois in South Australia. UDP has also started a marketing campaign about this expansion into South Australia about 4 weeks ago. It is vital that UDP is able to enter into agreements with a large number of milk suppliers in this new region in order to make its business viable in the long run.

24.    I believe that if MGC is not restrained from continuing to make the statements referred to above and/or similar claims and statements such as are set out above UDP is likely to suffer significant loss, potentially millions of dollars, as well as long term damage to its reputation. Further, the statements referred to above made by MGC have and are continuing to cause long term damage to the brand of UDP, which UDP has spent a lot of money developing.

26    Mr Esposito deposed that it was vital to UDP’s South Australia expansion that farmers give or continue milk supply and if the alleged representations continued, UDP would be likely to suffer significant loss, potentially amounting to millions of dollars, as well as long term damage to its reputation.

27    By his second affidavit, Mr Esposito deposed that UDP has 100 farmers who supply milk, and pays between $500,000 per annum to the smaller farmers and up to $2 million for the larger suppliers. The loss of supply from one farmer could represent a loss to UDP of approximately $2,500,000 in sales per year. Larger farmers are currently paid monthly amounts of approximately $200,000 and, in Mr Esposito’s experience, farmers are very concerned about the solvency and liquidity of the company to which they supply milk.

28    Mr Croxford, of the solicitors for MGC, deposed to an article published in the Saturday Age on 2 July 2011 which stated, inter alia, that “Australia’s biggest dairy processor… is being accused of spreading rumours that a smaller competitor is going broke” and referred to claims made in the proceeding. He also exhibited an article entitled “Murray Goulburn in court action” published on the Weekly Times website dated 30 June 2011, which reported claims made in the hearing.

29    Mr Greenaway, MGC’s general manager of Field Services and Strategic Issues and manager, deposed, inter alia, that:

2.    I have held the position of General Manger, Field Services & Strategic Issues with Murray Goulburn since 1998. In that position, I manage:

(a)    Field Services, which provides advice and support to farmers;

(b)    the supplier-pays area, which pays farmers for the milk they supply to Murray Goulburn;

(c)    the Shares Department, which operates the share registry; and

(d)    the milk-broking business.

Murray Goulburn processes both milk into consumable dairy products and sells milk to other processors and commodity traders. It is the latter sales that constitute the milk-broking business.

3.    The Field Services Branch of Murray Goulburn looks after relationships with suppliers, including providing them with production advice and income prediction. Field Officers are the contact point with farmers to provide them with these services. There are 29 Field Officers at Murray Goulburn. All but one of them is in Victoria and their work is divided into districts. Each Field Services Officer is allocated a district. In addition Murray Goulburn has some Field Services support staff.

4.    I refer to paragraph 10 of the longer affidavit of Mr Esposito. I do not recall having a discussion with Mr Esposito to the effect that he alleges, or at all, in about August 2009.

30    Mr Greenaway deposed that he did not recall the alleged discussion with Mr Esposito in August 2009 but stated:

5.    I do recall having a similar discussion with Mr Esposito perhaps five or six years ago. As I recall that conversation, Mr Esposito called me and said that tanker drivers were saying that UDP was going broke. He told me that it had been mentioned at a transport meeting. As a result of that conversation I spoke to Ken Lees, the head of transport at Maffra for Murray Goulburn. He said that what Mr Esposito alleged had occurred had not occurred. I then called Mr Esposito back and told him that.

6.    I refer to paragraph 14 of Mr Esposito's affidavit. On or about 15 June 2011, Mr Esposito called me and said that a farmer named Robertson had been speaking to a Murray Goulburn Field Officer and that Field Officer had said that UDP was in trouble and going broke. I told Mr Esposito that I would speak to the person who had spoken to the farmer and find out what was said. I told Mr Esposito that if anything along the lines alleged had been said I would make sure that it was corrected.

7.    I knew that Nolan Clarke had been to see Robertson. As a result I called Mr Clarke and told him what Mr Esposito had said. Mr Clarke told me that he didn't say what Mr Esposito said. I told Mr Clarke that to make the point clear, he should call Robertson and say that he didn't say that UDP was in trouble and going broke and that if what he said was interpreted in that way, it was incorrect.

8.    I then called Mr Esposito and told him what I had done.

9.    I have never said to anybody that UDP was in financial trouble or was going broke or words to that effect. Further, I have never told any staff at Murray Goulburn that that was the case and that they should say that it is the case. Further, I have never seen any senior manager of Murray Goulburn say or imply that UDP was in financial trouble or going broke or tell other staff of Murray Goulburn to say that.

31    George Anastasiou, MGC’s manager of corporate services, deposed:

4.    In the 2009/2010 financial year Murray Goulburn processed over 3.1 billion litres of milk or 34.5% of Australia's milk supply into products for sale in both domestic and export markets. Murray Goulburn's sales revenue in this period was approximately $2.24 billion. At present Murray Goulburn has approximately 2100 dairy farmer suppliers and employs approximately 2500 people.

…

6.    I refer to paragraphs 19 to 21 of the Longer Affidavit [sworn by Mr Esposito on 29 June 2011]. I deny that Murray Goulburn, its directors, servants, agents or representatives at any time directed, encouraged or condoned personnel of Murray Goulburn making statements to the effect that the applicant in this proceeding, United Dairy Power Pty Ltd ("UDP") was experiencing financial difficulties or did not have sufficient funds to pay suppliers or words to any similar effect.

7.    I deny that Murray Goulburn has ever at any stage undertaken any planned effort to mislead and deceive farmers into believing that they should not supply milk to UDP and to damage the reputation of UDP as alleged by Mr Esposito in the Longer Affidavit or at all. I have never been involved in or heard any discussions within Murray Goulburn of such an effort, nor have I seen any evidence of such an effort.

PARTIES’ SUBMISSIONS

Applicant’s submissions

32    The applicant submitted that the evidence established a prima facie case of misleading and deceptive conduct and false representations in breach of ss 18 and 29(b) of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (“CCA”) (or conduct whereby it was involved in such contraventions) and of injurious falsehood, in that:

(a)    false publications have been made maliciously with reckless indifference to their truth or falsity;

(b)    MGC has and is continuing to make the alleged representations to dairy farmers; and

(c)    MGC has implicitly facilitated, authorised or approved the making of the representations by its staff.

33    While Mr Esposito asserted a belief that the alleged representations were not isolated but part of a widespread campaign by MGC as a concerted effort to damage UDP’s reputation in Victoria and South Australia, before me, senior counsel for the applicant conceded that the evidence did not at this stage support such an allegation. Senior counsel submitted that although there was no direct evidence of the making of the alleged representations, the evidence of the various incidents deposed to was admissible under the exception to the exclusion of hearsay in s 75 of the Evidence Act 1995 (Cth) (“Evidence Act”), as the source was stated, either expressly or implicitly, and the s 75 exception was not limited to “first hand hearsay”. There was, senior counsel submitted, admissible evidence of a sufficient number of specific episodes to raise a serious question to be tried.

34    Further, senior counsel submitted that although the applicant’s deponents did not always identify the particular MGC representative who allegedly made the representations, such evidence was not unfairly prejudicial thereby justifying exclusion under s 135 of the Evidence Act. The approximate dates and places of relevant meetings and the names of the attending farmers were provided, thus affording an opportunity to answer the allegations, yet Mr Greenaway, who had charge of the relevant MGC field officers, merely made a generalised denial of directing or authorising or knowing of such representations, without stating that he had made reasonable inquiries. Similarly, while Mr Anastasiou, in contrast, stated that he had made relevant inquiries and denied that MGC had a policy of directing or tolerating the making of such representations, he did not state that his inquiries disclosed that no such representations had been made.

35    The applicant submitted that although there was as yet no evidence that the representations had resulted in any farmers denying it milk supply, proof of damage was not a necessary element of an action under ss 18 and 29(b) of Schedule 2 of the CCA. Moreover, although special damage was required for an action in injurious falsehood, farmers had reported the comments, indicating their impact on UDP’s reputation for solvency.

36    The applicant submitted that the evidence established that the comments allegedly made were false, and further, would cause farmers to refuse to supply milk to UDP, thus occasioning significant pecuniary loss and damage to UDP’s reputation, impeding its business development in South Australia.

37    The applicant submitted that the nature of the allegations required it to move swiftly, given the recent conjunction of incidents with its planned expansion, and, at the preliminary stage of an interlocutory application, where it was difficult to identify willing witnesses, the applicant was entitled to the court’s assistance to circumvent pre-emptively anticipated loss and damage, which would be difficult readily to quantify.

38    Further, in the applicant’s submission, the balance of convenience favoured the grant of interlocutory relief, as UDP was a relative newcomer to the dairy industry (particularly the South Australian market) as opposed to its more long established trade rival, and depended on its reputation for reliability and solvency. It had already invested heavily in the South Australian expansion, including marketing and negotiations to purchase factories. If the representations were unrestrained, UDP’s ability to attract suppliers would be damaged. On the other hand, the restraint would not affect MGC or its business at all. Nor would directing MGC’s staff not to make such representations be onerous.

Respondent’s submissions

39    The respondent submitted that there was no prima facie case. There was, on analysis, no admissible evidence that the alleged representations were made or that the balance of convenience favoured the grant of interlocutory relief.

40    The respondent, in that context, submitted that the exception to the hearsay exclusion in s 75 of the Evidence Act not only required the source to be stated but was limited to first hand hearsay. The respondent relied in that context on the High Court’s statement in Lee v The Queen (1998) 195 CLR 594 (“Lee v The Queen”) at page 602 as follows:

It is not surprising… that Divs 2 and 3 of Pt 3.2 of the Act provide certain exceptions to the hearsay rule. But the exceptions are of a limited kind. First, Div 2, which concerns the tender of certain hearsay statements at both civil (ss 63, 64) and criminal trials (ss 65, 66) is confined to "first-hand" hearsay: previous representations made by persons who had personal knowledge of the asserted facts (s 62). Division 3 makes other exceptions but they relate to business and like records.

The provisions for these exceptions are to be understood in light of the view expressed by the Law Reform Commission that “secondhand hearsay is generally so unreliable that it should be inadmissible except where some guarantees of reliability can be shown together with a need for its admissibility”. As the Commission went on to point out, where A gives evidence of what B said that C had said, the honesty and accuracy of recollection of B is a necessary link in the chain upon which the probative value of C’s statement depends. Estimating the weight to be attached to what C said depends on assessing B’s evidence about it.

41    The respondent submitted that in many instances no source was given for the applicant’s hearsay evidence and, even if admissible, second hand hearsay was inherently unreliable. Further, the failure to identify the MGC employees who made the representations should lead to exclusion of the relevant evidence under s 135 of the Evidence Act, as it gave MGC no opportunity to rebut or deny the allegations. The only instances in which the MGC employee was named involved Mr Clarke, who had directly denied the allegations, which were, in contrast, based on hearsay, in circumstances where two informants were reluctant to be involved in litigation. There was thus no evidence admissible at trial to support the applicant’s allegations. The respondent accepted that the representations would, if made, be misleading, but submitted that there was no admissible evidence of resultant damage in the form of denial of milk supply or diminished reputation and thus the balance of convenience did not favour the grant of an injunction.

42    To the contrary, the respondent had a very large work force of 2,500 persons, and an injunction would place it in jeopardy of contempt without justification, given the want of any admissible or cogent evidence to establish a serious question to be tried.

Discussion

43    The principles governing the grant of interlocutory relief are well established and were not in dispute.

44    As the applicant’s submissions stated:

10.    The principles to be applied in an application for interlocutory relief are:

(a)    Whether the applicant has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief.

(b)    A prima facie case means that the applicant must show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending trial. It does not mean that the applicant must show that it is more probable than not, or in excess of 50% chance, that the applicant will succeed at trial.

(c)    How strong the probability needs to be depends upon the nature of the rights the applicant asserts and the practical consequences likely to flow from the order it seeks.

(d)    The second inquiry is whether the inconvenience or injury which the applicant would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the respondent would suffer if an injunction were granted.

11.    In considering disputed factual and legal matters in order to determine whether a prima facie case exists, Young J described the proper approach in Smith v University of Ballarat as follows:

“[26] One final and perhaps obvious point that bears repeating is that the court does not embark on anything resembling a trial of the action when it deals with an application for interlocutory relief. Ordinarily, the court will not attempt to reach any conclusion as to the facts or matters in dispute, beyond satisfying itself as to whether there is a serious question to be tried, or about other matters that may bear on the balance of convenience or discretionary considerations.”

45    Section 59(1) of the Evidence Act provides for a general exclusion of hearsay evidence as follows:

Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation.

46    Part 3.2 Division 2 of the Evidence Act sets out exceptions to the general exclusion in s 59 in relation to first hand hearsay.

47    Part 3.2 Division 3 of the Evidence Act provides for “Other exceptions to the hearsay rule”. Within this division, section 75 provides:

In an interlocutory proceeding, the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source.

48    The respondent objected to the admissibility of many paragraphs of the first Esposito affidavit, submitting that the s 75 exception did not apply, as it did not render admissible hearsay on hearsay or unsourced hearsay.

49    However, in my opinion, the exception in s 75 to the general exclusion of hearsay in s 59 does not apply only to first hand hearsay, as opposed to the exceptions to the general exclusion contained in Part 3.2 Division 2.

50    Section 62(1) of the Evidence Act expressly provides that “in this Division” (that is, Part 3.2 Division 2), other than in s 62(2), “[a] reference… to a previous representation is a reference to a previous representation that was made by a person who had personal knowledge of an asserted fact”. That is, the exceptions in Part 3.2 Division 2 are restricted to first hand hearsay.

51    However, the Dictionary to the Evidence Act states that “previous representation” means “a representation made otherwise than in the course of giving evidence in the proceeding in which evidence of the representation is sought to be adduced”.

52    The Dictionary definition of “previous representation” is thus not limited to one made by a person who had personal knowledge of an asserted fact and, in contrast to Part 3.2 Division 2 (in which a narrower definition generally applies), there is no indication that the wider Dictionary definition does not apply in Part 3.2 Division 3, where s 75 appears. That conclusion is, in my view, consistent with the High Court’s express acknowledgement in Lee v The Queen set out above, that in Division 2 the exceptions are confined to first hand hearsay. Their Honours set out a quotation from the Law Reform Commission Report which recognised the general unreliability of second hand hearsay but acknowledged that exceptions to its inadmissibility were justified where some guarantees of its reliability can be shown, together with a need for its admissibility.

53    In my opinion, the nature of interlocutory applications in such that there may be a need for the admission of second hand hearsay. In the absence of an express limitation, such as that applicable to the exceptions in Division 2, I conclude that the exception in s 75 is not confined to first hand hearsay. Therefore, provided that the source is stated, second hand (or more remote) hearsay is, in my view, admissible, although, due to its relative frailty, may be accorded less weight.

54    At the conclusion of the hearing of the application, and after the preparation of these reasons, counsel for the respondent, with the applicant’s consent, forwarded to chambers two authorities supportive of the view expressed above. In Liu v The Age Company & Ors [2010] NSWSC 1176, McCallum J stated at [38] and [39]:

As I have already noted, Mr Bartlett’s evidence is, in large measure, double hearsay. Such evidence is not in itself necessarily inadmissible in an interlocutory proceeding: see Bray v F Hoffman-La Roche Ltd [2002] FCA 243; 118 FCR 1 at [117].

In my view, however, s 75 applies in that circumstance to both levels of hearsay. The section creates an exception to the hearsay rule subject to a condition, namely, that the party adducing the evidence also adduces evidence of its source. Mr Bartlett has identified the source of his information (the second defendant) but the second defendant has not, in turn, identified the source or sources of his.

55    In Bray v F Hoffman-La Roche Ltd & Ors (2002) 118 FCR 1 at 117, Merkel J stated at 36:

There was some dispute between the parties as to whether s 75 only made admissible in an interlocutory proceeding first hand hearsay, and not second hand or more remote hearsay.

Section 75 is to be construed in the context of Pt 3.2 of the Evidence Act. The structure of Pt 3.2 is for Div 1 to set out the class of evidence excluded under the hearsay rule and for subsequent Divisions of the Part to set out exceptions to that exclusionary rule. The Australian Law Reform Commission, on whose report (ALRC 26) the Evidence Act was based, explained the exceptions to the hearsay rule as being based on the premise that the best evidence available to a party should be received (ALRC 26, vol 1 para 678).

Division 1 of Pt 3.2 defines the hearsay rule, the key provision of which is in s 59(1):

"Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that the person intended to assert by the representation."

Divisions 2 and 3 of Pt 3.2 distinguish between first hand hearsay and secondhand and more remote hearsay. Division 2 provides for certain exceptions to the hearsay rule in respect of "first hand hearsay" which is defined as a previous representation made by a person who has personal knowledge of an asserted fact. Division 3 is entitled "Other exceptions to the hearsay rule". One of those "other" exceptions is provided for in s75.

The distinction between the category of exception contained in Div 2 and the category of exception contained in Div 3 appears to be based on the view of the Australian Law Reform Commission (ALRC 26, vol 1, para 678) that second hand hearsay is generally so unreliable that it should be inadmissible except where some guarantees of reliability can be shown together with a need for its admissibility. Division 3 creates exceptions to the hearsay rule in respect of a number of categories of second hand and more remote hearsay which fall within those criteria.

It is consistent with the meaning, structure, and purpose of Pt 3.2 to construe s75 as creating a further exception to the hearsay rule in respect of hearsay evidence adduced in an interlocutory proceeding that is not admissible under Div 1 and not within an exception to the hearsay rule contained in Div 2. In my view, there is no proper basis for importing a requirement that s 75 is limited to first hand hearsay as defined in s 62 for the purposes of Div 2. The safeguard against reliance on hearsay evidence, where its prejudice outweighs its probative value, is s 135 which confers upon the Court a discretion to exclude such evidence.

56    On the basis of the above reasoning, paragraph 9 of the first Esposito affidavit includes and is based on unsourced hearsay and thus the first two sentences at least are inadmissible.

57    In paragraph 10 of the first Esposito affidavit, as the respondent submitted, the evidence of the first 2009 incident was not first hand hearsay but at least, hearsay upon hearsay upon hearsay. Mr Crae’s brother was, however, apparently advanced as the person with personal knowledge of the instructions to drivers, and despite the imprecision of Mr Esposito’s account, in my view, sufficiently identified him as an MGC tanker driver to constitute a source for the purposes of s 75. As the respondent submitted, however, the evidence, although admissible, was weak. No basis was given for Mr Crae’s brother’s assertion that the instructions had come from “MGC’s senior management”. The person or persons directing the drivers was identified only as “MGC”. Further, the allegation related to 2009.

58    Paragraph 11 of the first Esposito affidavit relating to the first recent incident was, in my view admissible, because Mr Seidel was ultimately identified as the source. The reference to “MGC employees” nevertheless lacked specificity, and the last sentence did not give any basis for the deponent’s knowledge of who typically attended MGC meetings.

59    Paragraph 12 of the first Esposito affidavit, relating to the second recent incident, was, in my view, admissible, as it clearly stated the source of the hearsay. The allegation was nevertheless expressly denied by Mr Clarke.

60    Paragraph 15 of the first Esposito affidavit, which related to Rob Robertson’s report to Mr Esposito of Mr Clarke’s alleged words, again provided the source and was not the subject of an objection, but was expressly denied by Mr Clarke.

61    Paragraph 16 of the first Esposito affidavit was, in my view, inadmissible as the source was not given. I did not, in that context, accept the applicant’s submission that Mr Esposito’s earlier generalised assertion that he has made all due enquiries of UDP staff amounted to the requisite evidence of the source.

62    The respondent’s written submissions asserted that the statement in paragraph 17 of the first Esposito affidavit that UDP is not under financial strain and not at risk of inability to pay suppliers or creditors was inadmissible, as it was based on inadmissible material. That submission was not pressed in oral argument and, indeed, the respondent did not dispute that the alleged representations would, if made, be misleading and deceptive. Further, while there were a number of other objections, it was unnecessary to determine them all, particularly in the context of an interlocutory application.

63    In the present case, in my view, the applicant adduced admissible evidence of two recent incidents (the first and second) in which representations denying or casting doubt on the applicant’s solvency, continuity, liquidity and ability to pay its milk suppliers were made by an employee or employees of the respondent.

64    The applicant also adduced admissible evidence of two 2009 incidents in which such representations were made.

65    As the respondent submitted, the representations allegedly made in incidents in which the relevant MGC employee (Mr Clarke) was named have been denied by that employee, and one of those incidents was in 2009.

66    I was not, however, persuaded that the evidence of incidents in which the MGC employee was not specifically identified should be excluded pursuant to s 135 of the Evidence Act in the preliminary context of an application for an interlocutory injunction, particularly given that a number of other identifying features, such as the approximate time and place, were provided.

67    The evidence of the representations was hearsay and, although admissible in the present context, would not be admissible at trial. Notwithstanding the relatively weak probative value of hearsay evidence and various other deficiencies, including the lack of precise identification of MGC personnel in some incidents, the fact that the only identified MGC employee denied making the representations and the fact that two of the four incidents occurred in 2009, in my opinion, the applicant’s evidence “crossed the line”, albeit not by a wide margin, and sufficed to raise a serious question to be tried.

68    As French J stated in State Government Insurance Corporation and Anor v Government Insurance Office of NSW (1990) 19 IPR 232 (at 242):

Proceedings for interlocutory relief frequently involve the reception of evidence which might not ordinarily be admissible. Or the parties may, for reasons of time or economy, not present the full range of evidence that would be relied upon at trial. For these reasons and the nature of the proceedings, findings of fact are generally of a provisional character. The object is to determine whether there is a serious case to be tried in fact and law, not to finally decide the facts or resolve controverted issues of law.

69    Similarly, in Panasales Clearance Centre Pty Ltd v J B Hi Fi Brighton Pty Ltd [1999] FCA 1227, Ryan J, on injoining the respondent from making representations which were, broadly, disparaging of the applicant’s rival products, relevantly observed (at [14] and [16]):

It is undesirable at this early stage of this litigation that I attempt to make concluded findings of fact based on this necessarily incomplete evidence, as to which there has been no cross-examination. However, the evidence as it stands, even with the qualifications which I have earlier indicated, creates the impression that on some occasions when a prospective purchaser has mentioned Panasales, a sales representative of J B Hi Fi Brighton or J B Hi Fi Camberwell, has taken the opportunity to point out that Panasales is not an authorised retailer of the brand of brown goods enquired after.

…

I accept… that the evidence does not support a finding of a concerted campaign by the respondents to make unsolicited disparaging remarks with a view to diminishing Panasales as a significant competitor in the brown goods market. However, I have been persuaded on balance that a serious question to be tried has been raised by the evidence, going to what I have called extravagant representations by employees of J B Hi Fi. If injunctions were framed to restrain the respondents from repeating those representations or representations to the same effect, I do not consider that the balance of convenience would be against allowing them to go.

70    In the present case, in my opinion, the balance of convenience favours the grant of an appropriately tailored form of interlocutory relief, in circumstances where the applicant is embarking on and has invested in expansion to a new adjacent region; the loss of a single milk supplier represents a significant pecuniary loss to the applicant; the applicant’s managing director credibly deposed that in his experience, farmers are greatly concerned about the solvency and liquidity of the company to which they supply milk; and the respondent denies that it has made or authorised its employees to make the representations alleged; does not dispute that the representations, if made, would be misleading; and asserts no prejudice other than its possible subjection to contempt proceedings should a member of its large workforce make a representation in breach of the court’s order.

71    In my view, an injunction directing the restraint to the respondent’s field staff would, on the basis of the present material before the court, be appropriate. I shall invite further submissions on the precise terms of the order.

Associate:

Dated:    6 July 2011