Business & Research Management P/L v P G Flude & Ors

Supreme Court of NSW|2002-04-22|Before: Research Management P, Kirby J, Hunt J

Background 2 BARM was appointed the Manager of a number of joint venture syndicates. The syndicates were established to participate in research and development projects. Research was to be undertaken to develop products which could then be commercially exploited. The products were based upon tea tree oil, and celery extract as an anti-arthritic agent, as well as wine grape gene technology. 3 Each syndicate was referred to as a "Budplan". The Rural Group was appointed as the Trustee of each syndicate. The assets of each syndicate were beneficially owned by participants, invested, for the time being, in the Trustee as agent for the participants.

The Publication 4 It is alleged that the Trustee and others published a newsletter to syndicate members and others in the financial community. The newsletter runs to nine pages. It contained a number of criticisms of BARM, commencing with the following: (p 1) "Over the past couple of months we have sought to work alongside BARM to ensure your interests are properly protected. Unfortunately, we have not always received the cooperation we expected." 5 The newsletter thereafter referred to the powers of the Trustee and the membership to remove the Manager. It continued as follows: (p 2) "The prospect of the Trustee acting as Manager in these circumstances is not something that we would expect. The Manager must perform its obligations until such time as a resignation or retirement is effected. BARM have been paid considerable amounts for their efforts and in advance of their obligations to commercialise and fund this phase. For our part, we have not been paid our fees as Trustee since 1999, additionally we have funded from our own resources legal, other costs and out of pocket expenses in excess of $250,000.00 in seeking to protect participants' interests. Clearly we have limited funds with which to embark on matters not contemplated by the deeds or prospectus. There is also the need to commercialise available R&D results in the shortest possible time." 6 Thereafter, reference is made to the resignation of BARM in Budplan "A" Series No 1, and the Trustee assuming the management role. In the context of a test case, where the tax issues were being considered, the newsletter said this: (p 2) "Our prime concern with the progress relates to the commercialisation issues." 7 The heading on the following page was as follows: "Lack of Commitment to Commercialisation Obligations" 8 The newsletter voiced its concerns about the Manager: (p 3) "For some time now we have been concerned at the lack of preparedness by the Manager of each of the Budplan Projects, to adequately discharge its obligations in relation to the marketing of the intellectual property developed from the research programs conducted on behalf of the respective Budplans." 9 A contrast was then made between the inertia of the Manager and the success of the Trustee in the role it had been obliged to assume as Manager of Budplan "A", Series No 1. The newsletter stated the following: (p 3) "As we understand the position, a substantial body of intellectual property has been developed and it has been indicated to us that failure to commercially develop this intellectual property may have been detrimental to the interests of Budplan investors. The problem is that, in general, intellectual property has a finite life and unless it is properly protected by patent registration (if appropriate) and promptly commercialised, its value will dissipate over time. When we have voiced these concerns to BARM, they have responded by saying that they were not prepared to undertake any commercialisation activity because some of the research is yet to be completed and there are no project funds to move forward." 10 The newsletter added: (p 3) "And yet, even though we have only taken over the role as Manager of Budplan "A:" Series No 1 last November, we have already been successful in negotiating two potentially major commercial arrangements for participants in this project based on the intellectual property generated prior to the closure of the research institute." 11 The newsletter then emphasised the urgency. It said this: (p 3/4) "Never the less we have been informed by representatives of those same research bodies that even though there is still some work to be undertaken, on some projects, sufficient of the program had been completed to produce valuable results that have commercial value. Whilst it would have been preferable for all of the work programme to have been carried out on all projects, it does not detract from the fact that there is valuable property already in existence, which should be marketed. It was this view that prompted us to successfully pursue the commercial arrangements for Budplan "A" Series No 1 participants." 12 The document then referred to the terms of BARM's engagement as Manager. It said: (p 4)

"We have come to the view with respect to other Budplan projects that by doing nothing, substantial business opportunities are being lost. The difficulty we have however is that, with the exception of Budplan "A" where the Manager (BARM) resigned, there is a clear line of demarcation between the role that we can play as Trustees of the various Budplans and that of BARM as the manager. The management agreement between BARM and you as a participant clearly requires BARM to carry out the commercialisation responsibilities." 13 The newsletter suggested its concern that these obligations were being ignored. It said this: (p 4) "A substantial proportion of the management fees that you have paid to BARM were in recognition of the work that BARM would have to undertake to ensure that your business interests were developed to the greatest possible extent. It has been of great concern to us that BARM has appeared to ignore its obligation to protect the intellectual property which has been produced by ATTORI and/or AARI as a consequence of their research programs and nominated as being worthy of protection, in particular, their failure to meet the costs of registering certain patents which have been identified as having value or allowing existing patents to lapse." 14 The Trustees then point out that they have taken legal advice that they may enter commercial agreements and market products at once. They added: (p 4) "We have come to the decision that we can not delay initiating a marketing programme ..." 15 The former head of a research organisation, Mr Stanley Coupe, had been retained. The newsletter then said this: (p 4) "We would have preferred not to have to become involved in this element of your business. BARM, not we, have been paid by you to attend to this function. However, we feel that in the circumstances we have no option but to act to protect your interests. We do not claim that we have particular expertise or prior experience to deal with these matters of commercialisation, however we believe we have been left with no other short-term viable choice." 16 The newsletter then incorporated Mr Coupe's contribution. In the research into "novel genes" patents had been taken out and a multinational company in Europe licensed. Other achievements are documented. 17 The newsletter concluded with an indication of the strategies to be undertaken in the future. Mr Coupe was to continue "our plan to progress the commercialisation process". The newsletter then said this: (p 7) "We will seek some recovery from BARM of the fees paid to them in advance, in respect of their obligation to commercialise the research outcomes. We anticipate some difficulty in negotiating a realistic measure of compensation in view of the fact they remain the appointed manager and have taken the view that it is not timely to proceed with commercialisation. Additionally they have already spent an indeterminate amount on commercialisation activities in the past. However a compromise must be reached."

The Imputations 18 The plaintiff asserts that the publication of the newsletter gave rise to the following imputations: (a) BARM has failed to honour its duty to pay the annual fee of the second defendant. (b) BARM has failed to adequately discharge its obligations to Budplan participants in that it failed to market the intellectual property developed by those Budplans despite having been paid considerable amounts of money in advance to do so. (c) BARM is in breach of its management agreement with Budplan participants by its failure to carry out its commercialisation responsibilities. (d) BARM's failure to perform its duties as to marketing the intellectual property developed on behalf of the various Budplan projects is so serious as to cause concerns to the Budplan trustee over a number of years. (e) BARM has breached its duties to Budplan participants by failing to apply for necessary patents to protect the intellectual property. (f) BARM's breach of its obligation to perform its duties to market Budplan intellectual property is so serious that the Budplan trustee was obliged to take over that task to protect the participants. (g) BARM behaved incompetently in that its breach of its obligation to perform its duties to commercialise Budplan intellectual property was due at least in part to its lack of the required ability. (h) BARM took advantage of Budplan participants by taking fees in advance and then ignoring its duties to seek to commercialise Budplan intellectual property."

Imputations (b) to (f) 19 Two issues are raised in respect of imputation (b). The first relates to the use of the word "Budplan". It is suggested that the meaning is unclear. It would, of course, be clear to readers of the newsletter, who were members of syndicates. However, that is not good enough, since the plaintiff is relying upon the natural and ordinary meaning of the words used. 20 Although the meaning of the word "Budplan" is not immediately apparent from the newsletter, it does become obvious in the course of the letter. The ordinary reasonable reader would be expected, of course, to read the entire publication. I therefore do not see the use of the word "Budplan" in the imputation as a problem. 21 The second objection relates not only to imputation (b), but imputations (b) to (f) inclusive. There is, according to the defendant, no difference in substance between these imputations. They are, therefore, bad in form (Pt 67 r 11(3)). The sting in each imputation, on the defendants' argument, is that the Manager, BARM, failed to discharge its obligations to Budplan participants by marketing the intellectual property. Imputations (b) to (f) express that same idea in a number of different ways. Whereas in imputation (b) additional phrases are incorporated ("despite having been paid considerable amounts of money in advance to do so"), they do not alter the meaning or create a difference in substance. The defendants point to the phrase "failed to market the intellectual property developed by ... Budplan" in imputation (b). How, they ask, is that different in substance from the "failure to carry out the commercialisation responsibilities" in imputation (c)? 22 The plaintiff responded in a number of ways. The newsletter was a comprehensive slur upon the Manager, BARM. It was a general attack. At the same time the newsletter identified a number of specific defaults. The plaintiff was entitled to frame imputations which captured both the general and the specific. 23 Imputation (b), for instance, focused, according to the plaintiff, upon BARM's failure to earn the large fees that had been paid to it by marketing the intellectual property developed by each syndicate. Imputation (c) was directed to the failure of the Manager, according to the newsletter, to discharge its commercialisation responsibilities in respect of the intellectual property. These responsibilities are described in the newsletter. They are much broader than simply marketing. They include collating the research reports, scientific papers and other material relating to research undertaken, and evaluating the suitability of the product for exploitation in the market. Where suitable, there was the need to apply for patents to protect the intellectual property, and that done, to market the product. Where the marketing was successful, there was a need to license the person given the rights to use the product. 24 The imputation is, therefore, according to the plaintiff, broader and different in substance from imputation (b). Simply to establish a failure to market would not establish a failure to carry out commercialisation responsibilities. 25 The next imputation, imputation (d), was also different in substance, on the plaintiff's argument. It dealt with the impact of these failures upon the Trustee, who is the watchdog on behalf of investors. An index of the seriousness of the breach by the Manager is provided. The breach was "so serious as to cause concerns to the Budplan Trustee over a number of years". 26 Imputation (e) is a specific breach which the newsletter attributes to the Manager, namely the failure to protect the intellectual property by patent. A general imputation is substantially different from one which is specific (Singleton v John Fairfax & Sons Limited (Hunt J, 20.2.80, unreported); Laucke v John Fairfax & Sons Limited (Hunt J, 20.3.81, unreported). 27 Imputation (f) asserts that the failure to market the intellectual property was so serious that the Trustee was obliged to step in and undertake the management role. This imputation is a companion of imputation (d). It provides, according to the plaintiff, a measure of the seriousness of the Manager's default, by reference to the actions or concerns of the Trustee. 28 The plaintiff, in these circumstances, submits that the imputations are each different in substance. Some are general. Some are specific. Each focuses upon different issues. Hunt J suggested a convenient litmus test as to whether two imputations are different in substance. One may ask whether the same evidence could be used to justify both? (Singleton v John Fairfax & Sons Limited (supra) per Hunt J; cf Parker v Laws [2002] NSWSC 311 paras 7 to 13). If it could, that may be some indication that the imputations do not differ in substance. Applying that test, the evidence necessary, according to the plaintiff, to justify the imputations would differ in respect of most imputations. Even where the same evidence may justify more than one imputation, the focus of the imputation is different, according to the plaintiff, concentrating, for instance, upon the seriousness of the default by reference to the Trustee. 29 I accept that imputations (b), (c), (d), (e) and (f) are different in substance. They should each go to the jury.

Imputation (g) 30 It is convenient to repeat imputation (g) in order to consider the defendants' objection. It is: (g) BARM behaved incompetently in that its breach of its obligation to perform its duties to commercialise Budplan intellectual property was due at least in part to its lack of the required ability. 31 The defendants submit that the newsletter does not state in terms, incompetence, nor is it implied. Mr Blackburn of counsel said this: (T 6) "My friend meets that argument by drawing threads. He seems to be saying it is a matter of inference and that is right, imputation can arise (by inference). We say that inference is not available." 32 The plaintiff, however, asserts that there is a clear inference of incompetence, or the jury may so regard the newsletter. The Manager was made aware, over a considerable period, of the Trustee's concern about the failure to capitalise upon the research undertaken, and exploit the opportunities generated. The Manager, according to the newsletter, provided what was shown to be a feeble excuse. It had said that the research was incomplete, so that commercialisation was therefore premature. That was demonstrably not so, according to the plaintiff. In the syndicate where the Manager had been replaced by the Trustee (Budplan "A" Series No 1), significant progress had been made in a short time to commercialise the assets produced by that syndicate. Mr Coupe, in a matter of months, had taken out patents, marketed the product, and secured a multinational company to take out a license. At least part of the explanation for the Manager's inertia, according to the plaintiff, was that it was incompetent. 33 I am persuaded by the plaintiff's argument. I find imputation (g) is capable of arising. It should go to the jury.

Imputation (h) 34 Again it is convenient to repeat imputation (h) to appreciate the argument. It is: (h) BARM took advantage of Budplan participants by taking fees in advance and then ignoring its duties to seek to commercialise Budplan intellectual property." 35 The newsletter, according to the defendants, suggested that the Manager had taken fees in advance and then had not carried out its commercialisation responsibilities. However, it does not suggest that the Manager "took advantage" of syndicate members. Alternatively, if the imputation does arise, it is not substantially different from imputation (b), which, again for convenience, I repeat: (b) BARM has failed to adequately discharge its obligations to Budplan participants in that it failed to market the intellectual property developed by those Budplans despite having been paid considerable amounts of money in advance to do so. 36 Both imputations involve a contrast between the breach of duty by the Manager and taking monies in advance. 37 The plaintiff insisted that the imputation did arise. The newsletter, on more than one occasion, referred to the Manager having taken considerable money in advance and then failing to carry out the job. The Trustee, in contrast, although undertaking a different role, had spent its own money and discharged obligations properly belonging to the Manager. Indeed, the Trustee announced that it intended to seek recovery from BARM of the fees paid in advance in respect of their obligations to commercialise (p 7). The Manager, it was suggested, had therefore taken advantage of syndicate members, or a jury could regard the newsletter in that way. 38 Again I am persuaded that the imputation is capable of arising. Is it, however, substantially different from imputation (b)? I believe that it is. Imputation (b) is really directed at the Manager's alleged failure to earn its fees. Imputation (h) is more serious. It suggests that the Manager took advantage of gullible investors, having them pay in advance for obligations which were then ignored by the Manager. 39 Imputation (h) should go to the jury.

Imputations (a) to (h) inclusive should go to the jury.

The defendants should pay the plaintiff's costs.

The matter will be listed in the Registrar's Defamation Directions List on Friday 3 May 2002 to determine whether it is ready for a s7A hearing. **********

Last Modified: 04/23/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Business & Research Management P/L v P G Flude & Ors [2002] NSWSC 318 CURRENT JURISDICTION: Common Law Division Defamation List FILE NUMBER(S) : SC 20933/01 HEARING DATE(S) : 17/04/02 JUDGMENT DATE : 22 April 2002

COUNSEL : R A Campbell/S Doctor (Pl) T Blackburn (Defs) SOLICITORS : Cordato Partners (Pl) Teys McMahon (Defs) CATCHWORDS : Defamation - Imputations - Whether different in substance - Test - Whether arise LEGISLATION CITED : Defamation Act 1974 Singleton v John Fairfax & Sons Limited (Hunt J, 20.2.80, unreported) CASES CITED : Laucke v John Fairfax & Sons Limited (Hunt J, 20.3.81, unreported) Parker v Laws [2002] NSWSC 311 DECISION : Ref para 40

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