Charan v Nationwide News Pty Ltd [2019] VSCA 36

Charan v Nationwide News Pty Ltd [2019] VSCA 36 - VSCA 2019 case summary — Zoe

[131]

In my opinion, the reasonable reader would have noted that the article was both general and specific: it refers to problematic issues in the VET sector as a whole and also singles out two companies: Phoenix and Unique - who have been the subject of investigation or prosecution by the ACCC. Of significance, the only persons mentioned are Mr Brown and Mr Charan.

With this in mind, I think the reader would have taken the following matters out of the article (including the headline) relevant to Mr Charan:

(a) That the relevant regulatory authorities (including the ACCC) were cracking down on VET organisations, and Phoenix was one of these organisations;

(b) That there were numerous allegations made about the conduct of a number of organisations in the VET sector;

(c) That ACN was one of those companies under investigation by the ACCC in relation to the conduct of its subsidiary, Phoenix;

(d) That ACN's director, Mr Brown, was comfortable with Phoenix's conduct;

(e) That Mr Charan with Mr Brown 'headed' the management of ACN at the time of the publication of the article;

(f) That, under Mr Charan and Mr Brown's watch, ACN had acquired Phoenix, which had during 2014 received over $100 million worth of government-backed loans;

(g) That Phoenix, whilst under the control of ACN, had grown enrolments significantly;

(h) That Phoenix, an ACN company, had pressured students into enrolling; had not complied with quality standards; and was in the process of being deregistered by ASQA;

(i) That the ACCC was investigating training colleges which engaged in behaviour that affected vulnerable consumers;

(j) That Mr Brown and Mr Charan made 'fortunes' as a result of the listing of ACN, which received significant government subsidies; and

(k) ACN, controlled by Mr Charan and Mr Brown, was under investigation.

There are three matters I should mention before I go to the individual imputations.

First, counsel for Mr Charan submitted that common to each imputation was the proposition that Mr Charan engaged in these practices in his capacity as a director of ACN.[44] It was then said that any broader imputation raised a false issue - namely that given the limited nature of the suggested imputation then the defence of justification could only be tenable if Mr Charan had engaged in such conduct as a director of ACN - which he never was. I do not accept this. In my view, when the article is viewed as a whole, the imputation is that Mr Charan personally, as a director of an RTO, was involved in the impugned conduct. A reasonable reader (even a sophisticated reader of the business section of The Australian) would attach little or no importance to the reference to ACN. Rather he or she would focus on the role of Mr Charan as the manager of an RTO which was said to be implicated in unscrupulous practices involving vulnerable consumers.[45]

Second, as I mentioned earlier, notwithstanding the headline of both versions, the substance of the article is concerned not only with the activities of Phoenix and Unique but also their conduct in the VET sector generally.[46]

[158]

5A Further or alternatively, if (which is denied) the Print Article and the Web Article are defamatory of the Plaintiff in the meanings alleged in sub-paragraphs 5(a)-(b) and 5(g)(h) of the SFSOC, or any permissible variant thereof, then in those meanings the Print Article and the Web Article are substantially true and accordingly the Defendant has a defence in respect of the publication of those meanings both at common law and pursuant to section 25 of the Defamation Act 2005 (Vic), and the equivalent provision in the other States and Territories of Australia.

PARTICULARS

(A) On or about 24 June 2013, the Plaintiff, together with Mr Ivan Brown, registered a company called The Community Initiatives Group Pty Ltd (ACN 164 432 053) (CIG). The Plaintiff and Mr Brown were the founding shareholders, with each holding half of the shares. The Plaintiff held his shares through a company called Sapra Enterprises Pty Ltd (ACN 130 980 817) (Sapra), of which he is the sole director and shareholder.

(B) On or about 29 November 2013, the Plaintiff, together with Mr Brown, acquired an interest in a second company called Consider this Training Pty Ltd (ACN 144 662 868) (CTT), through the purchase of all of its shares by a company called Health Training Services Pty Ltd (ACN 164 821 185) (HTS). The Plaintiff (through Sapra) owned half of the shares in HTS until 1 October 2014. Mr Brown owned the other half of the shares in HTS.

(C) On or about 17 March 2014, the Plaintiff, together with Mr Brown and others, registered a third company called Australian Careers Network Ltd (ACN 168 592 434) (ACN). The Plaintiff was a founding director, and until on or about 11 December 2014 he held 33% of the shares in ACN.

(D) On or about 3 June 2014, CIG purchased all of the shares in a fourth company called Thoan Pty Ltd (ACN 009 983 993) (Thoan). At the same time, the Plaintiff became the sole director of Thoan. The Plaintiff remained the sole director of Thoan until 30 September 2014. Thoan operated under the business name 'Australian Management Academy'.

(E) In the course of 2014, CTT and Thoan operated as private vocational education and training (VET) providers. They each had a 'VET Funding Contract' with the State of Victoria, pursuant to which the State made payments to them for the provision of education and training services.

(F) On 30 September 2014, ACN purchased all of the shares in CTT and Thoan (by purchasing all of the shares in CIG). ACN was then the holding company of the 'ACN Group', which included CTT and Thoan. At the same time, the Plaintiff ceased being a director of ACN, and on or about 11 December 2014 ceased being a major shareholder of ACN.

(G) On or about 24 November 2014, following widespread allegations of misconduct by VET providers, the Senate referred the operation, regulation and funding of VET providers to the Education and Employment References Committee for inquiry and report.

(H) In early to mid-2015, the Victorian Department of Education and Training (Department) appointed auditors to review student enrolments at both Thoan and CTT (Auditors).

(I) The Auditors reviewed student enrolments at Thoan and CTT for the 2014 period, being the period when the Plaintiff was the sole director of Thoan and owned half of the shares in CTT.

(J) The reviews identified material breaches by both CTT and Thoan of their VET Funding Contracts with the State, which resulted in the State suspending, and then terminating, the contracts.

(K) In respect of CTT, it had made claims for, and received, funds from the State under its VET Funding Contract for the delivery of training services in 2014 that it did not provide.

(L) Further, the Department reasonably believed that CTT's conduct was fraudulent on the basis that a significant number of students had informed the auditors that they had not enrolled or participated in courses contrary to data reported by CTT.

(M) In respect of Thoan, it breached clauses 4.6 and 4.10 of Schedule I to its VET Funding Contract in respect of all students enrolled in the Certificate IV in Building and Construction in 2014. Those clauses required it to conduct a Pre-Training Review of current competencies prior to accepting enrolments from students, and to document the review.

(N) It can be inferred from the following matters that the Plaintiff was knowingly involved in the conduct of CTT and Thoan:

(i) the particulars in paragraphs (A)-{F) and (I) above;

(ii) the Plaintiff, together with Mr Brown, was the founder of CTT and Thoan, as VET providers;

(iii) the Plaintiff, together with Mr Brown, was the 'driving force' behind the ACN Group at all material times;

(iv) as at 26 November 2014, the Plaintiffs shares in ACN were valued at approximately $36.55 million;

(v) as at 26 November 2014, the Plaintiff had such intimate knowledge of the operations of the ACN Group (which included the operations of CTT and Thoan) that he entered into the restraint referred to in paragraph 6(aa) below, which was to have effect from the sale of his majority shareholding in ACN.

(O) Contrary to the express representation that the Plaintiff instructed his solicitors to make to the Defendant in his Concerns Notice dated 27 November 2015 (page 5), the Plaintiff had been 'the subject of investigations by government regulatory authorities', and, further, serious findings had been made resulting in the termination of his companies' VET Funding Contracts, as set out in the above particulars.

(P) The Plaintiff received significant funds through the operations of CTT and Thoan. The Plaintiff, together with Mr Brown, are listed in the 2014 Edition of the 'BRW Young Rich List' as having wealth of $177 million.

[164]

In their present form, the particulars of justification in the proposed Amended Defence are not capable of justifying any of the imputations pleaded by the plaintiff in the Further Amended Statement of Claim, because inter alia they do not relate to his conduct as 'head of ACN'. This is not altogether surprising, as even the defendant appears to accept that he was not the head of ACN [at] the relevant times.

Given the particulars do not squarely meet the plaintiff's imputations, the plaintiff is left to guess whether the real purpose of paragraph 5A of the proposed Amended Defence is to justify 'any permissible variant' of the imputations pleaded in paragraphs 5(a)-(b) and 5(g)-(h) of the FASOC, which is pleaded as an alternative in paragraph 5A. If that is the case, the defendant must have taken the view (in accordance with the NSW authority of Fairfax Media Publications Pty Ltd v Bateman [2015] NSWCA 154) that a defendant need not actually plead alternative Hore Lacy imputations/meanings in its Defence.

The plaintiff submits that an Associate Judge of this Court could not accept such a proposition, in light of the binding precedent in this jurisdiction endorsing that 'rule' or 'practice': see eg Setka v Abbott & Anor [2014] VSCA 287; 44 VR 352; David Syme & Co Ltd v Hore-Lacy [2000] VSCA 24; [2000] 1 VR 667.

However, it does not wish to argue the merits of respective the pleading practices of NSW and Victoria, as even if it may be permissible not to positively plead an alternative meaning that is sought to be justified, this does not abrogate the obvious and 'unexceptionable principle' which continues to be referred to in relevant NSW authorities following the decision in Bateman, 'that a defendant, by its pleading and particulars, must put the plaintiff on notice of the case he or she is required to meet (they should "furnish a statement of the case sufficiently clear to allow the other party to fair opportunity to meet it": Dare v Pulham (1982) 148 CLR 658 at 664.2)'.

[187]

Accordingly, from around late 2013 to early 2014, the Plaintiff and Mr Brown acquired CTT and commenced operating the RTO and were the driving forces behind it. They appointed a new Chief Executive Officer, Mr Michael Moffat, who reported to them. They made changes to the scope of registration by removing and adding courses.
By late 2013 to early 2014. the Plaintiff and Mr Brown had devised of 'Project Standard'. The ultimate objective was to establish a group of companies. With Australian Careers Network Ltd (ACN) as the holding company, and then have the group listed on the Australian Securities Exchange (ASX). The size of the operations of each of the companies that were to form part of the group would drive the value of the shares on the public listing.
On or about 17 March 2014, the Plaintiff, together with Mr Brown and others, registered ACN. The Plaintiff was a founding director and until on or about 15 December 2014 he held 33% of the shares in ACN.
On or about 3 June 2014, CIG purchased all of the shares in a fourth company called Thoan Pty Ltd (ACN 009 983 993) (Thoan). At the same time, the Plaintiff became the sole director of Thoan. The Plaintiff remained the sole director of Thoan until 30 September 2014. Thoan operated under the business name 'Australian Management Academy'.
At the time of the purchase, Thoan was the legal entity operating AMA, which was a training organisation registered with the Australian Skills Quality Authority (ASQA) (registration number 21621).
After having acquired all of the shares, on 6 June 2014, the ASQA was notified, in writing, of material changes to the management of AMA. A 'Notification of material change or event' form was submitted, in which the Plaintiff was described as the new Chief Executive Officer of AMA. It was accompanied by a statutory declaration signed by the Plaintiff in which he described himself as 'CEO' (after crossing out 'Man', being 'Managing Director' or 'Manager'). By his statutory declaration, the Plaintiff declared that he:

[195]

The EOE and EOP Audits of CTT identified a material breach by CTT of its VET Funding Contracts with the State, which resulted in the State suspending, and then terminating, the contract.
The material breach found was that CTT had made claims for, and received, funds from the State under its VET Funding Contract for the delivery of training services in 2014 that it did not provide.
Further, the Department reasonably believed that CTT's conduct was fraudulent on the basis that a significant number of students had informed the auditors that they had not enrolled or participated in courses contrary to data reported by CTT.
Of the 84 students interviewed between 7 April 2015 and 25 June 2015, 79 students (94%) told Protiviti that they had not enrolled, or participated, in the Certificate II in Understanding and Management of Diabetes.
Up to the termination of CTT's 2014 VET Funding Contract, the State had paid to CTT at least $1.73 million for training allegedly provided to students. A significant proportion of students had not, in fact, enrolled or participated in the training and, therefore, a significant part of the $1.73 million plus, paid to CTT was paid for training that was not delivered.
So far as the Defendant can presently say, the claims for payment were in respect of the purported provision of training services in respect of the Certificate II in Understanding and Management of Diabetes, Certificate III in Children's Services, Certificate III in Early Childhood Education and Care, Certificate III in Aged Care, and the Diploma in Early Childhood Education and Care.
The Review of Thoan/ AMA identified material breaches by Thoan/ AMA of its VET Funding Contract with the State, which resulted in the State suspending, and then terminating, the contract.
The material breaches were of clauses 4.6 and 4.10 of Schedule 1 to the VET Funding Contract in respect of every student enrolled in the Certificate IV in Building and Construction in 2014. Those clauses required Thoan/AMA to conduct a Pre-Training Review of current competencies prior to accepting enrolments from students, and to document the review. Thoan/AMA did not assess students' existing competencies, students' reasons for enrolling, future aspirations or assess students' current level of education and learning needs.
The Review also found a material breach as defined in clause 1.1(a)(vi) of the 2014-16 VET Funding Contract, namely failure to act ethically and engaging in conduct which may damage, ridicule or bring into disrepute or be detrimental, to the Department, the VET sector, the Victorian government subsidised training market, the Department or the State's name or reputation.
The above business practices of CTT and Thoan/AMA took advantage of vulnerable consumers and government funding schemes in the education and training sector. To claim State funding in respect of a consumer who did not receive training and to enrol people without assessing, inter alia, their existing competencies is to take advantage of consumers. RTOs do not provide higher education qualifications. They provide training and education to those parts of the community that have not had the benefit of such an education.
It can be inferred from the following matters that the Plaintiff was knowingly involved in the above business practises of CTT and Thoan in 2014:

[207]

By paragraph 5A of its Amended Defence Nationwide seeks to justify imputations 5(a), (b), (g) and (h). The particulars upon which it relies and the evidence that it has been permitted to lead at trial have, however, nothing to do with the subject matter of the Articles. Nor do they relate in any way to the conduct of the plaintiff 'as head of ACN'. Nationwide does not allege or seek to prove any conduct of Charan with respect to Phoenix or the proceedings instituted by ACCC against it or that were the subject of any investigation by ASQA or the federal Department of Education. Rather, its case at trial relates entirely to conduct in 2014 with respect to two other registered training organisations (RTOs), Consider This Training Pty Ltd (CTT) and Thoan Pty Ltd (trading as the Australian Management Academy) (Thoan) which is particularised in a document entitled Defendant's Second Consolidated Particulars of Truth (Consolidated Particulars).
Nationwide submitted that the plaintiff's imputations were so broadly drawn as to permit it to rely upon the matters set out in its Consolidated Particulars. But that ignores the words 'as head of ACN' contained in each of the pleaded imputations. Those words restrict the issues to the conduct of the plaintiff as head of ACN. The imputations are not divorced from the Articles, but must be understood in the context of the Articles.[60]
Nationwide's approach is a sleight of hand that ignores entirely the literal meaning of the Articles and the pleaded imputations because, of course, Nationwide cannot justify those meanings. Instead, it has used this proceeding to investigate Mr Charan and to make allegations against him which have not ever been the subject of any article that it has published or, more importantly, any investigation by the federal Education Department, ASQA or the ACCC. It relies entirely on matters said to have occurred in 2014 before ACN was listed and commenced operation. The Defence accordingly raises entirely false issues. This submission is developed below.

[340]

The new particulars are summarised below and can be broadly grouped into the following categories: paid scribes, mass enrolment of vulnerable migrants, enrolment incentives and Mr Charan's financial interest in Certificate II courses.
Paragraphs 35A and 35B assert that student workbooks in courses operated by Mr Charan had been fraudulently completed by paid scribes (rather than students) so that, in the event of an audit by the Department of Education, it would appear as though students had participated in the training course, when in fact they hadn't.
Paragraph 41A asserts that sometime in 2014, Mr Charan (at the very least) facilitated and/or participated in a mass enrolment of vulnerable new migrants from Africa and the Middle East into government-funded training courses.
Paragraphs 41B, 41C and 41D assert that various incentives were approved by Mr Charan in knowing breach of the funding contract with the Department of Education. According to the proposed particulars, Mr Charan approved the giving of various incentives to potential students, including iPads, SurfacePro laptops, Samsung tablets and cash incentives upon completion of certain courses (Certificate II and Diploma). In addition to the giving of incentives to students, it is also said that Mr Charan approved the payment of $1000 to clubs or organisations for each enrolment (after the first three enrolments) into the Diploma course and similarly, $200 per new enrolment into the Certificate II. It is further alleged that Mr Charan actively sought to conceal the giving of such incentives.
Paragraph 42A asserts that Mr Charan, via a complex corporate structure, concealed his 'special interest' in Certificate II at the relevant time and that Mr Charan did not disclose his interest to the Department of Education. It is asserted that it was this interest which drove Mr Charan to attempt to maximise student enrolments via the methods outlined above.
The nub of the argument put on behalf of Mr Charan is, in effect, that 'enough is enough'. If allowed, the amendments contained in the February particulars will inevitably result in the third adjournment of the case. This, it was said, was in the light of the late amendment to the defence to plead justification, and this is where all the trouble began. ...
There is some force in these submissions. However they need to be balanced against the following propositions.
First, I am satisfied that each of the new matters introduced by the February particulars are relevant to the justification defence. Each goes to the conduct of Mr Charan in his management of Community Training Initiatives ('CTI') and associated companies prior to the sale of his shares in ACN, the company which floated in December 2014. If made out, then that evidence may substantiate one or more of the allegations of justification covered in the February particulars.
Second, ... this is not a case in which there is any protracted delay between the publication and the trial date. ...
Third, there is, in my opinion, a reasonable explanation proffered by [the defendant's solicitor] as to the basis of the new matters contained in the February particulars. Nationwide has obtained information from a number of sources, including material provided under subpoena and an undisclosed source. Moreover, the information contained in the particulars does not come as a total surprise to Mr Charan -witness statements have been filed and a number of the allegations now contained in the February particulars are within some of those witness statements ...

[346]

The Defendant obtained leave to raise a plea of justification;
Your client later brought a misconceived application to strike out the justification defence, which was dismissed by the trial judge with an order that your client pay our client's costs of the application.
Voluminous documents and correspondence have been obtained under subpoenas to Ferrier Hodgson, the Victorian Department of Education and Training, ASQA, VRQA and Petra Capital which substantiate the Defendant's plea of justification;
As of the date of this letter, outlines of evidence for 10 witnesses have been filed and served by our client;
Four of the witnesses for whom outlines of evidence have been filed and served are professional auditors who will give evidence at trial supporting the conclusions in the EOP and EOE Audit Reports in respect of Consider This Training and the Review in respect of Australian Management Academy. These witnesses are professional people who will give evidence about the work that they undertook in their professional capacity. They are not in the camp of either party. They have no reason to perjure themselves. Further, their evidence is corroborated by other witnesses to be called by our client;
At least 3 'student' witnesses will give evidence to the effect that they did not knowingly enrol with CTT, or participate in any training for which CTT claimed funding from the Department of Education and Training. We have spent considerable time with 2 of the witness. It was readily apparent to us, and will be to the trial judge, that they are vulnerable people who were taken advantage of;
Outlines of evidence have been provided for former employees and contractors of ACN Group entities who will give evidence, amongst other matters, that your client was intimately involved in CTT and AMA during the relevant period (contrary to your client's previous statement on oath), engaged in unscrupulous business practices and took advantage of vulnerable members of the community. Their evidence is corroborated by a large volume of documentary evidence.

[390]

Notwithstanding the lack of complete knowledge on the part of his lawyers as to the intricacies of the defence, I think that there is merit in Nationwide's submission that the person who must have known the real force of the allegations contained in the letter of 3 February 2017, was Mr Charan. The terms of the letter spelt out the material Nationwide proposed to adduce and the difficulties facing Mr Charan in responding to Nationwide's justification defence. The substance of the matters contained in the letter (which were ultimately established at trial and underpinned much of the defence of Nationwide) had to be within Mr Charan's knowledge. They are carefully identified and, as the documents show and to use the words of his former partner, Mr Brown, any investigation of the workings of the company and its documentation would demonstrate that Mr Charan's 'fingerprints are all over everything'.

Nationwide's letter spelt out, in clear terms, the material that it proposed to rely upon at trial and then gave Mr Charan the opportunity to get out of the case, albeit by paying a premium, but in the scheme of things a very small one given the combined costs that would be incurred if the trial went to verdict. It is to be borne in mind that Nationwide also offered to bear its own costs in relation to one of Mr Charan's interlocutory applications, in which Nationwide was represented by senior counsel. When this is taken into account I think a reasonable person in Mr Charan's position, armed with his own unique knowledge of the 'dodgy' practices at CTI and the prospective duration of the trial (even if only estimated at fifteen days), would have accepted the offer and finalised the litigation. Mr Charan did the opposite: he considered the offer, rejected it and provided a counter offer.

I am conscious that, in reaching this decision, it is unusual for a court to treat an offer to capitulate and pay money as being genuine and to hold that a party acts unreasonably in rejecting such an offer. But this case is highly unusual, as I hope my reasons for judgment demonstrate.

In summary, this was a genuine opportunity for Mr Charan to settle the case and avoid being liable for the massive costs order which would have inevitably followed the success of the justification defence. It was unreasonable for him to reject the offer, notwithstanding that it was an offer to capitulate. I think that Nationwide is entitled to indemnity costs: the remaining question being when should they run from.

Prima facie, section 40 would require payment of indemnity costs from the time of the initiation of the proceeding. However, that would be contrary to the interests of justice. Mr Charan's liability for indemnity costs should commence on 6 February 2017 - when he elected to reject the offer from Nationwide. To hold him liable for indemnity costs prior to that date would be unfair, because of the moving feast of Nationwide's defence and the provision of material substantiating it. As I have said, it is the contents of the letter of 3 February 2017 which he considered and rejected that triggers the liability for indemnity costs.[114]

At a glance

Court

Decision date

Before

Source

Judgment (524 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (15)