Federal Court of Australia

Commonwealth Director of Public Prosecutions v The Country Care Group Pty Ltd (Ruling No 2) [2020] FCA 1713

REASONS FOR RULING

BROMWICH J:

1    The three accused object to evidence being given by prosecution witnesses in relation to, or that is indicative of, the value of what is described as the rehabilitation aid supply industry or its participants, and in particular the share of that industry held by the first accused, The Country Care Group Pty Ltd. It is not altogether clear, but this objection may possibly extend to any separate evidence as to the value of the share of the industry held by a network of subcontractors set up by Country Care.

2    The prosecutor’s case is that Country Care, via the second accused, Mr Hogan, set up a network of subcontractors, called the Country Care Group, comprising existing independent businesses like Country Care around the country. The subcontractors in this network were referred to as “members”. The network was formed for the purpose of suppling assistive technology products under Mobility and Functional Support Tender contracts that Country Care secured with the Commonwealth Department of Veterans Affairs (DVA) in 2011 and 2016 (referred to as the 2011 MFS Tender and the 2016 MFS Tender). The particularised cartel provision that Country Care and the second accused, Mr Hogan, are alleged to have attempted to induce members to adopt by an arrangement or understanding is that members of the Country Care Group would not advertise for sale goods that Country Care contracted with the DVA to sell under the Tender at below the contracted prices.

3    This ruling is confined to the issues of relevance and unfair prejudice in relation to the evidence objected to. It is useful to record principles pertaining to the relevance of individual items of evidence in the context of a circumstantial case, and addressing the concept of unfair prejudice in s 137 of the Evidence Act 1995 (Cth).

4    In relation to objections to the relevance of evidence which forms part of a circumstantial case on a particular topic, in Elomar v R [2014] NSWCCA 303; 316 ALR 206 it was observed at [240]:

By s 55 of the Evidence Act, evidence that is relevant is evidence that, if accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceedings. The flaw in the appellants’ argument is that it focuses only on “the maximum damage conversation”, and isolates it from other evidence. The very point of a circumstantial case, as this was, is that it creates a mosaic of sometimes apparently tiny items of evidence, that, when put together, make up a whole picture. The tiniest fragment of evidence might, on completion of the mosaic, be shown to have significant relevance. It is a mistake, particularly in a circumstantial case, to attempt to determine the relevance of each individual item of evidence in isolation from all of the other evidence.

5    In relation to an assertion that evidence ought be excluded under s 137 of the Evidence Act upon the basis that its probative value is outweighed by the danger of unfair prejudice, the concern to be made good is that there is a realistic possibility that a jury might make improper use of the evidence of a kind that is incapable of avoidance or correction by an appropriate direction to the jury. A fundamental premise of trial by jury is that a jury will obey directions that are given by a trial judge: see Gilbert v The Queen [2000] HCA 15; 201 CLR 414 at [31]; see also more generally R v Glennon (1992) 173 CLR 592 at 614-5. In relation to the concept of unfair prejudice, McHugh J in Papakosmas v The Queen [1999] HCA 37; 196 CLR 297 at [91] observed (footnotes embedded):

Evidence is not unfairly prejudicial merely because it makes it more likely that the defendant will be convicted. In R v BD [(1997) 94 A Crim R 131 at 139 (emphasis in the original)], Hunt CJ at CL pointed out:

“The prejudice to which each of the sections [ss 135, 136 and 137] refers is not that the evidence merely tends to establish the Crown case; it means prejudice which is unfair because there is a real risk that the evidence will be misused by the jury in some unfair way.”

6    Thus to make good such an objection to otherwise admissible evidence, the real risk of the asserted danger beyond the reach of a suitable direction must be demonstrated. This might be achieved in a number of ways, such as by demonstrating that there is a real and incurable risk of the evidence being given more weight than it deserves, or that it realistically may in some way divert the jury from its proper task, be evaluated by the jury in some way that entails an illegitimate form of reasoning, or be used by the jury in a way which is irrational or illogical: see Lodhi v The Queen [2007] NSWCCA 360; 179 A Crim R 470 at [140] and the cases there cited including: Festa v The Queen [2001] HCA 72; 208 CLR 593 at [51]; and R v Suteski [2002] NSWCCA 509; 56 NSWLR 182 at [116]. As McHugh J pointed out in Festa at [51]:

But the weakness of relevant evidence is not a ground for its exclusion. It is only when the probative value of evidence is outweighed by its prejudicial effect that the Crown can be deprived of the use of relevant but weak evidence. And evidence is not prejudicial merely because it strengthens the prosecution case. It is prejudicial only when the jury are likely to give the evidence more weight than it deserves or when the nature or content of the evidence may inflame the jury or divert the jurors from their task.

7    The objection is argued by reference to a relatively small number of representative items of this class of evidence. This ruling can then be used to assess other evidence going to the same topic which may be taken to also be objected to on the same basis. In that regard, it is noted that the prosecution may not need or wish to adduce any additional evidence on this topic from other witnesses and/or may fail to overcome other objections made, such as to opinion evidence which is not properly able to fall within the requirements of s 79 of the Evidence Act.

8    Country Care and Mr Hogan give the following as examples of objectionable evidence:

(1)    statement of George King at [13]:

In the 2015/2016 financial year the Vital Capital Living Business had a turnover of around $2.6 million and a net profit of between $50,000 and $60,000.

(2)    statement of Brooke Aitken at [12] (impugned part emphasised):

When I started with the “Country Care Rehabilitation and Mobility Equipment” business it had about five employees and an annual turnover of about $1 milllion. When I ceased working for CC Company it had expanded dramatically and had about thirty employees working at the Mildura store. The section involving government contracts that I worked in had a turnover of approximately $45 million.

(3)    Statement of John Fely, a former Assistant Secretary of the DVA responsible for procurement and contract management within the Health and Community Services Division of that Department, at [24] (impugned part emphasised):

Between 2010 and 2015, The Country Care Group Pty Ltd (and its subcontractors) supplied MFS equipment to entitled persons under the 2010 DVA MFS Tender. For the financial year ending June 2011, The Country Care Group (and its subcontractors) supplied equipment with a value of $856,216 which represented 10% of the total value of equipment supplied under the DVA MFS Tender for that year. For the financial year ending June 2012 this was $20,747,863, representing 32% of the total supplied under the OVA MFS Tender for that year. For the financial year ending June 2013 this was $30,404,046, representing 37% of the total supplied under the DVA MFS Tender. For the financial year ending June 2014 this was $36,160,755, representing 41% of the total supplied under the DVA MFS Tender for that year. For the financial year ending June 2015 this was $35,394,772, representing 42% of the total supplied under the DVA MFS Tender for that year.

9    Other evidence to which this objection is directed include parts of four exhibits to Mr Fely’s statement, being documents related to the 2011 MFS Tender and the 2016 MFS Tender, marked “JF-1” to “JF-4” and a range of sufficiently similar evidence in other witness statements. It is not necessary to reproduce the detail of that evidence at this point, although aspects are reproduced below.

10    Country Care and Mr Hogan contend, in arguments adopted by the third accused, Mr Harrison, that evidence of this kind is not admissible because:

(1)    the value of participants in the industry or the industry in general, or the Country Care Group’s share of the industry is not relevant because it cannot rationally affect the assessment of any fact in issue because there is no identifiable fact in issue that will be made more likely with this evidence;

(2)    the impugned evidence contains generalised conclusions of opinion as to value, which breaches the opinion rule in s 76 of the Evidence Act;

(3)    the impugned evidence does not establish a foundation for it to be lay opinion evidence in accordance with s 78 of the Evidence Act; and

(4)    even if relevance and those formal defects, where applicable, can be overcome, the danger of unfair prejudice outweighs the probative value of the evidence such that it should be excluded: s 137 of the Evidence Act.

11    Country Care and Mr Hogan assert that the danger of unfair prejudice is the risk that the jury might assume or reason that general statements as to the value of the industry or its participants correlate to, or are representative of, the income and profit derived by Country Care. This, they submit, could lead to incorrect reasoning by the jury that the substantial sums referred to in the impugned evidence make it more likely that Country Care and Mr Hogan are guilty as charged. This is asserted to constitute a real danger of unfair prejudice given that market share does not equate to profit, and that much of the income is derived by Country Care Group members, with Country Care obtaining only a small margin on each subcontracted sale reflecting administration and support services.

12    It is also asserted by Country Care and Mr Hogan that there is in any event a disconnect between such generalised evidence and the relevant supply relied upon to prove the fault element for the competition condition component of the circumstance physical element: see The Country Care Group Pty Ltd v Commonwealth Director of Public Prosecutions [2020] FCAFC 30, [62]-[67]; Commonwealth Director of Public Prosecutions v The Country Care Group Pty Ltd (Ruling No 3) [2020] FCA 1714, [6]-[8].

13    The substance of the prosecution case on relevance is that the evidence objected to goes to motive and thereby to the fault elements for charges 1 and 2 (and thereby charge 3 against Mr Harrison as an accessory). As the prosecutor put in a note appended to the written submissions outlining the objections advanced by Country Care and Mr Hogan and adopted by Mr Harrison, this is said to be circumstantial evidence that tends to show that there were financial incentives for industry participants to gain a competitive advantage in the marketplace. In context, and in the way that the prosecution brings this part of its case, the advantage was sought to be manifested by not advertising prices on member websites that were lower than DVA Tender prices. Put another way, it was at least conceptually relevant for the prosecution to be able to show that there was a real and substantial incentive to maintain profitability by maintaining prices.

14    Thus, the live questions are whether the evidence sought to be relied upon by the prosecution is sufficiently directed to demonstrating the existence of that incentive so as to have any probative value, and if so, whether that probative value is outweighed by the danger of unfair prejudice.

15    I am satisfied that the evidence sought to be relied upon by the prosecution is probative on the question of incentive or motive and therefore relevant to the cirumstantial case on the fault element for charges 1 and 2 (and thereby charge 3). If the hurdle of unfair prejudice is overcome, that evidence will enable the prosecution to demonstrate that the volume and in particular the value of sales was substantial enough to provide a real incentive to maintain Tender prices and thereby profit margins. If profit margins are tight, then the need to maintain prices is all the more acute. This view of this evidence is supported by components of the evidence proposed to be led to prove conduct on the part of Mr Hogan in seeking to maintain online advertising prices which did not fall below the Tender prices.

16    An aspect of the argument in response developed by the accused was that the prosecutor’s stated objective could be adequately achieved by certain of the general, non-financial, information about Country Care that was able to be gleaned from, for example, the 2015 DVA tender documents submitted by Country Care. An example of such evidence comes from certain text in the tender document submitted by Country Care for the contract that became the 2016 MFS Tender (JF-4). At page 7 of that document, Country Care was asserted to be “rated as the number one supplier to DVA (from four contracted companies) with just over 50% of the national product and home modifications solutions for our valued veteran community being provided by us”. The substance of this submission was that the prosecutor could and should make do with what would, on my assessment, be less probative evidence to prove motive in order to eliminate the perceived danger. The reason for viewing such alternative evidence in this way is that the alleged cartel was directed to maintaining prices, being a financial consideration, to which the evidence sought to be adduced more closely relates. As that alternative evidence is going to be adduced in any event, I see no useful purpose in taking this point any further. If the impugned evidence is excluded, then the prosecutor will have to make do with alternative evidence of that kind. I therefore turn to the question of unfair prejudice.

17    As already noted, I am satisfied that evidence of the value of the industry in which it is alleged that the accused endeavoured to maintain DVA Tender contract prices is relevant because it is circumstantial evidence of motive to engage in such conduct. The fact that any net gain in profit to be made is necessarily just a portion, and perhaps a very small portion, of the overall value of the industry and of sales made, is an issue that goes to the question of unfair prejudice, not relevance or even probative value.

18    The unfair prejudice argument advanced by the accused turns on the risk of the jury misusing the evidence and thus the danger in them doing so, in a way that, in effect, improperly supports this aspect of the prosecution case. This argument has several dimensions: identifying the unfair prejudice and the risk and thereby danger of it being manifested, and then assessing whether that risk can be sufficiently addressed by the way in which the evidence is adduced and by directions that can be given to reinforce the limitations on the use that can be made of such evidence. The unfair prejudice and the danger of being manifested was identified by counsel during the course of legal argument as being typified by [24] of Mr Fely’s statement, reproduced above at [8].

19    The burden of the articulation of the asserted prejudice is as follows. The accused take as a working example the evidence in [24] of Mr Fely’s statement, in which, as can be seen above, very large numbers are set out, getting progressively larger over time but being no more than the value of equipment supplied by the Country Care Group as a whole. When juries hear those kinds of very large dollar figures in the context of this case being all about cartels and distortions of markets and the like, the danger of unfair prejudice is said to be “immediately presented”. That is because such figures are not an accurate representation in any way of Country Care’s actual opportunity for profit. The true profit figure in play, the accused say, is a very small fraction of that amount, such that the much larger figures should not be allowed to be presented to the jury because of their capacity to mislead in this way. This concern is reinforced by the forceful way in which the prosecutor wishes to advance an argument as to motive, while understandable from that perspective. It is rhetorically submitted (transcript corrected):

how can it assist the jury to have the witness from the DVA spout figures in the 30s of millions of dollars which relates to all of the 50 or so companies and relates to the value of the goods supplied?; it has no relationship whatsoever to profit, of any of the actual 50 businesses and, in particular, is then further removed from the very small margin that … Country Care ... would actually derive from each of those suppliers.

20    Thus for any particular good, it is submitted, there is probably a modest profit generated by the Country Care member that supplies that good, and an even smaller margin that is provided to Country Care for its administration and organisation services. The asserted problem with the jury hearing such large figures is that it will lead to at least the danger of a “visceral emotional response” which cannot be corrected by a direction. It is submitted that there may be other ways in which evidence of the size of the DVA tender could be led that did not give rise to this particular asserted unfair prejudice. For example, it is likely that there is ample material within the documentary evidence in relation to the 2011 MFS Tender and the 2016 MFS Tender which would demonstrate that this was a substantial industry which had substantial value, but without the risk of ascribing these potentially prejudicial and misleading large dollar figures directly to Country Care.

21    After careful consideration, I am unable to accept the burden of those submissions as to unfair prejudice. To the contrary, I am satisfied that the risk and therefore danger of unfair prejudice advanced on behalf of the accused is significantly overstated. The volume and value of the growing sales by Country Care, including Country Care Group sales, will not be adduced in a vacuum, but in context. For example, as the profit and loss statement at page 165 of JF-4 referred to above makes clear, being part of the evidence objected to, Country Care’s profit in the 2015 financial year was about 8.7% of the total income from sales and about 11.5% of the cost of goods sold. The great bulk of both the income figure and the cost of goods figure was made up of sales made via members of the Country Care Group (recorded as “Contracts Management” in relation to income, and “Contracts Management – Sub Contractors” in relation to costs of goods sold). Thus, for that financial year, the net profit before income tax was just under $4 million out of a total income of almost $46 million and a total cost of goods sold of just under $35 million.

22    The concerns identified by the accused as to the limited use that can be made of this evidence can be made very clear to the jury as the evidence is adduced, and emphasised by a direction to the degree necessary. The jury can be directed clearly and simply that only a very limited proportion of income is reflected in profit. Gross sales figures inevitably have a direct bearing on ultimate profit even though the latter is derived from the former and is only a small or very small proportion of it. To remove financial evidence of that kind is make the evidence in a case that is all about profit margins and price levels disembodied and artificial. It would rob this aspect of the prosecution case of relevant and probative scale and context. The prosecution are entitled to adduce evidence which demonstrates the motive for maintaining tender prices and thereby income, including by way of the impugned evidence, while making it clear that profit is no more than a small proportion of gross sales. I see little real risk of the evidence being misused in the way suggested by a properly informed and directed jury.

23    The objection to the adducing of the impugned evidence is therefore rejected.

Associate:

Dated:    26 November 2020