Defamation - Application to strike out pleaded imputations - Whether imputations capable of being conveyed - Whether embarrassing - Relevant principles - Turns on own facts

Buckeridge v Walter [2006] WASCA 22

Chakravarti v Advertiser Newspapers Ltd (1998) 193 CLR 519

Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135

Favell v Queensland Newspapers Pty Ltd [2005] HCA 52

Gumina v Williams (No 1) (1990) 3 WAR 342

Hill v Westfield [2003] NSWSC 437

Jones v Skelton [1963] 1 WLR 1362

Lewis v Daily Telegraph Ltd [1964] AC 234

Monte v Mirror Newspapers Ltd [1979] 2 NSWLR 663

Random House Australia Pty Ltd v Abbott [1999] FCA 1538; (1999) 167 ALR 224

Taylor v Jecks (1993) 10 WAR 309

Bond v West Australian Newspapers Ltd [2004] WASC 181

Hepburn v TCN Channel Nine Pty Ltd [1984] 1 NSWLR 386

Llewellyn v Nine Network Australia Pty Ltd [2006] FCA 836

Mirror Newspapers Ltd v Harrison [1982] HCA 50; (1982) 149 CLR 293

Purcell v Cruising Yacht Club of Australia Pty Ltd [2003] NSWSC 245

Roberman v Australian Broadcasting Corporation [2002] WASC 301

Robinson v Quinlivan [2005] WASC 196

Sungravure Pty Ltd v Middle East Airlines Airliban SAL [1975] HCA 6; (1975) 134 CLR 1

1 MASTER NEWNES: This is an application by the defendant to strike out the defamatory imputations pleaded by the plaintiff in the statement of claim. The defendant contends that the pleaded imputations are not capable of being conveyed by the words complained of or are embarrassing.

2 In the statement of claim, the plaintiff alleges that, on 4 March 2006, the defendant published of and concerning the plaintiff the following words:

"Elliott got $2m from share sales

SEAN COWAN

LEGAL AFFAIRS WRITER

Olympic gold medallist Herb Elliott, the deputy chairman of Fortescue Metals Group, sold more than $500,000 worth of shares in the company just days before the share price plummeted after doubt was cast over contracts it signed with Chinese companies.

Mr Elliott sold the stock in May 2005, days before the iron ore hopeful revealed the exact nature of contracts it had signed with its Chinese partners.

Fortescue was hit this week with legal action by Australia's corporate watchdog, which claims the company misled and deceived the sharemarket by stating that the contracts were 'binding' on the Chinese.

The Australian Securities and Investments Commission is seeking to have Fortescue and its chief executive, mining entrepreneur Andrew 'Twiggy' Forrest, fined up to $3.6 million over the matter.

ASIC has also asked the Federal Court to force Mr Forrest to pay Fortescue's share of the fine.

Fortescue shares soared from 59¢ in August 2004 to a high of $5.55 in March 2005 on the back of the announcements as investors scrambled for a slice of what many believed would be the State's next iron ore giant.

But they slumped to $3.15 after Fortescue revealed the details of the contracts and fell further to $2.38 in the following months as the company was immersed in ongoing controversy over the affair.

ASIC has vowed to continue investigating Fortescue's conduct and share sales by directors.

Mr Elliott, a gold medallist in the 1500m at the Rome Olympics in 1960 and the youngest runner to break the four-minute mile in 1958, insisted yesterday he had no knowledge of the Chinese contracts. 'Nobody knew anything about it,' he said.

'(I had) absolutely none. Nobody in the world did. Apart from the Chinese bloke who made the statement.'

Mr Elliott said he did not know who had signed the contracts on Fortescue's behalf.

Documents lodged with the Australian Stock Exchange show that Mr Elliott sold 100,000 of the 900,000 Fortescue shares he held for a total of $519,700 on March 18, 2005. Two months earlier he bought 750,000 shares for $562,500 when he exercised some director's options at 75¢.

He recently sold more Fortescue shares, pocketing $1.4 million last month. He still holds 550,000 shares in the company.

Mr Elliott is also a director of big charity the Telstra Foundation and Leaping Joey, the controversial trustee of the Andrew Forrest-backed Australian Children's Trust.

A year before Mr Elliott joined the Leaping Joey board, the company revealed that Mr Forrest, the former chief of Anaconda Nickel, had traded seven million Anaconda shares for $3.5 million in cash granted to the trust by Anaconda seven months before."

3 It is alleged that in its ordinary and natural meaning the article meant, and was understood to mean, that the plaintiff:

"4.1 dishonestly profited from using information concerning contracts between Fortescue and Chinese investors which would have an adverse effect upon the price of Fortescue shares when made available to the market, by selling Fortescue shares just prior to the release of that information;

4.2 illegally profited from using information concerning contracts between Fortescue and Chinese investors which would have an adverse effect upon the price of Fortescue shares when made available to the market, by selling Fortescue shares just prior to the release of that information;

4.3 abused his position as a director and deputy chairman of Fortescue for personal gain, by using information gained by virtue of holding those positions concerning contracts between Fortescue and Chinese investors which would have an adverse effect upon the price of Fortescue shares when made available to the market, to sell Fortescue shares just prior to the release of that information;

4.4 told a deliberate untruth by stating that he had no knowledge, at the time of selling his Fortescue shares, of the existence of the contracts between Fortescue and the Chinese investors."

4 It was submitted on behalf of the defendant that, so far as it concerned the plaintiff, the import of the article, in essence, is that the plaintiff had been fortunate in selling a parcel of shares in the company before the vagaries of the stock market reduced the share price. The pointer on page 1, "Striking Gold", would be understood as a play on words, referring to the plaintiff's good fortune and to his former gold-medal winning Olympic performance. A "windfall" is, as defined by the Macquarie Dictionary, "an unexpected piece of good fortune". In that sense, the plaintiff had realised a windfall.

5 Senior Counsel for the defendant argued that a reasonable reader could not conclude from the article that the plaintiff had been guilty of any wrongdoing. In that connection, the article drew a clear distinction between legal action which has been brought against Fortescue in respect of its earlier announcement about the contracts with the Chinese companies and continuing investigations by ASIC into share sales by directors. The plaintiff is also quoted in the article as vehemently denying any knowledge of the Chinese contracts. At most, the article could convey no more than an imputation that the plaintiff was the subject of investigation by ASIC. Each of the imputations pleaded in pars 4.1, 4.2 and 4.3 was therefore incapable of being conveyed.

6 In relation to par 4.2, it was further submitted, first, that the imputation was embarrassing because the nature of the illegality alleged was not clear. Senior Counsel for the defendant suggested that the plaintiff was simply trying to circumvent the problem that would arise with a plea of insider trading, which it had been held was not an imputation capable of being conveyed to an ordinary reasonable reader who would not have the necessary knowledge of corporations law: Hill v Westfield [2003] NSWSC 437 at [10] - [14]. Secondly, it was argued that the imputation was repetitive of the plea in par 4.1.

7 Similarly, in relation to par 4.3, it was submitted that it was repetitive of the plea in par 4.1.

8 The plea in par 4.4 was attacked on the basis that there was nothing in the words complained of which was capable of conveying an imputation that the plaintiff had said something which was untrue, let alone that he had made a conscious decision to do so.

9 It was submitted on behalf of the plaintiff that the article was sensational and scandalous in its terms and was apparently of such significance as to justify a front page "pointer". It has the by-line of the defendant's "legal affairs writer", which suggests it is something other than simply a business report. The article has to be read in that context.

10 In the article, the plaintiff, who is described as the deputy chairman of Fortescue Metals Group ("Fortescue"), is said to have sold more than $500,000 worth of shares in the company "just days before the share price plummeted after doubt was cast over contracts signed with Chinese companies". The article describes Fortescue as being the subject of legal action by ASIC for having previously misled and deceived the share-market as to the value of the Chinese contracts and it says that the directors are under investigation over share sales. The caption to the photograph refers to the plaintiff being "under pressure from ASIC".

11 The reference to the share price having soared on the announcement of the Chinese contracts would arguably lead a reasonable reader to conclude that the plaintiff, as deputy chairman, must have been aware of such a significant and prominent event for Fortescue. It was submitted that the report that the plaintiff "insisted" he had "no knowledge of the Chinese contracts" is, in the context of the rest of the article, unbelievable. The juxtaposition of that "insistence" with the balance of the article would convey to the ordinary reader it is simply unbelievable for the plaintiff to assert that he did not know even of the existence of the contracts when he sold his shares.

12 In relation to the complaint that the plea in par 4.2 did not adequately describe the nature of the illegality, it was submitted that, while the article imputed that the plaintiff's conduct had been illegal, it did not specify the nature of the offence. The plaintiff could not condescend to a greater degree of specificity than the words complained of.

13 In relation to the complaint that the imputation was repetitive of the plea in par 4.1, it was submitted that dishonesty and illegality are distinct. Something can be dishonest without being illegal, and vice versa.

14 Similarly, there is a distinction between general dishonesty, in which anyone could indulge, and the abuse of one's position as a company officer in par 4.3. The plea of abuse of his position as an officer of Fortescue is made out by the mention of the involvement, and continuing involvement of ASIC, and the implication that the plaintiff was aware of the true position with the Chinese contracts by virtue of his access as an officer of the company to information that was not publicly available.

15 I did not understand the relevant principles to be in dispute on the application. They are well established.

16 Imputations will be struck out at this stage if they are plainly incapable of being conveyed by the words complained of: Gumina v Williams (No 1) (1990) 3 WAR 342, at 346; Taylor v Jecks (1993) 10 WAR 309, at 319; or if, as framed, they would be likely to prejudice, embarrass or delay the fair trial of the action.

17 The principles to be applied in determining whether the defamatory imputations alleged are capable of being conveyed by the words complained of were discussed in the well-known passage from the judgment of the Privy Council in Jones v Skelton [1963] 1 WLR 1362 at 1370 - 1371:

"In deciding whether words are capable of conveying a defamatory meaning the court will reject those meanings which can only emerge as the product of some strained or forced or utterly unreasonable interpretation. In Capital and Counties Bank v George Henty & Sons [1882] 7 AC 741, 745 Lord Selborne LC said:

'The test, according to the authorities, is, whether under the circumstances in which the writing was published, reasonable men, to whom the publication was made, would be likely to understand it in a libellous sense.'

The ordinary and natural meaning of words may be either the literal meaning or it may be an implied or inferred or an indirect meaning: any meaning that does not require the support of extrinsic facts passing beyond general knowledge but is a meaning which is capable of being detected in the language used can be a part of the ordinary and natural meaning of words. See Lewis v Daily Telegraph Ltd [1963] 2 WLR 1063; [1963] 2 All ER 151 HL(E). The ordinary and natural meaning may therefore include any implication or inference which a reasonable reader guided not by any special but only by general knowledge and not fettered by any strict legal rules of construction would draw from the words. The test of reasonableness guides and directs the court in its function of deciding whether it is open to a jury in any particular case to hold that reasonable persons would understand the words complained of in a defamatory sense."

18 The person to whom it is alleged the words were spoken will be assumed to be a reasonable person, not unusually suspicious or unusually naive, nor avid for scandal. In Lewis v Daily Telegraph Ltd [1964] AC 234, Lord Reid said at 258:

"The ordinary man does not live in an ivory tower and he is not inhibited by knowledge of the rules of construction. So he can and does read between the lines in the light of his general knowledge and experience of world affairs."

"When an imputation is made in a general way, the ordinary man is not likely to distinguish between hints and allegations, suspicion and guilt. It is the broad effect that counts and it is no use submitting to a judge that he ought to dissect the statement before he submits it to the jury ... it is the broad impression conveyed by the libel that has to be considered and not the meaning of each word under analysis. A man who wants to talk at large about smoke may have to pick his words very carefully if he wants to exclude the suggestion that there is also a fire ..."

20 In Favell v Queensland Newspapers Pty Ltd [2005] HCA 52, Gleeson CJ, McHugh, Gummow and Heydon JJ at [6] referred with approval to Jones v Skelton (supra) and the judgments of Lord Reid and Lord Devlin in Lewis v Daily Telegraph Ltd (supra).

21 The meaning that the ordinary person will attribute to words will often be a first impression. As such, when attempting to discern the meaning conveyed by words courts should avoid subjecting the words to an "over meticulous scrutiny": Random House Australia Pty Ltd v Abbott [1999] FCA 1538; (1999) 167 ALR 224 at 257. In Lewis v Daily Telegraph Ltd (supra), Lord Reid observed (at 260) that the meaning attributed to words "must be a matter of impression" and Lord Morris (at 266) commented that it should not rest "upon any technical process of analysis or construction, nor upon a process of analysis or construction, nor upon a process of critical reading".

22 In terms of form, what must be clear from the pleading is what meaning the plaintiff contends was conveyed to a reasonable reader by the words complained of. That is, an imputation must specify what the plaintiff claims was "the precise act or condition asserted of, or attributed to" the plaintiff: Monte v Mirror Newspapers Ltd [1979] 2 NSWLR 663 and Taylor v Jecks (supra) at 319.

23 It is self-evident that the proper pleading of imputations in a defamation action is a matter of importance in ensuring a fair trial of the action. As Brennan CJ and McHugh J observed in Chakravarti v Advertiser Newspapers Ltd (1998) 193 CLR 519 at 531 - 532, where the plaintiff pleads a false innuendo, the plaintiff gives a shape and focus to the cause of action.

24 But that is not to justify excessive zeal by defendants in pursuing the refinement of the pleaded imputations. In Buckeridge v Walter [2006] WASCA 22, the Court of Appeal (per Steytler P at [4], per Pullin JA at [23]) endorsed the comments of Kirby J in Favell v Queensland Newspapers Pty Ltd (supra), to the effect that excessive refinement of pleading issues is to be discouraged and courts should discourage, or minimise, the impediment to a fair trial presented by the process of "trial by interlocutory ordeal", which is especially prevalent in defamation proceedings.

25 I do not consider that the defendant's objections to the imputations are made out.

26 I do not accept the contention advanced by Senior Counsel for the defendant that the article, so far as it concerns the plaintiff, could only be read by a reasonable reader as a largely "factually- neutral" report about a highly prominent figure who has made a lot of money from a piece of good fortune, its newsworthy quality arising from the plaintiff's prominence as a sporting figure and public interest in great financial windfalls.

27 The references to the plaintiff must, of course, be read in their context. The article deals not simply with the sale of shares by the plaintiff. The share sale by the plaintiff is described in an article which reports allegations that the original announcement by Fortescue, of which the plaintiff is identified as the deputy chairman, had misled the share-market about the true value of the Chinese contracts, causing a sharp increase in the share price, and that the plaintiff's share sale had occurred only days before Fortescue "revealed the exact nature of [the] contracts", when the share price slumped. The article reports that ASIC has taken legal action against Fortescue and that "ASIC has vowed to continue investigating Fortescue's conduct and the share sales by directors."

28 In my view, it is arguable that, based on their general knowledge and experience of human affairs, a reasonable reader would consider that the article was suggesting it was more than mere coincidence that the deputy chairman of Fortescue happened to sell a substantial parcel of shares only days before the company revealed information which caused a drastic reversal in its share price.

29 It is arguable that a reasonable reader would consider too that allegations that Fortescue had originally misled the market about the contracts, and the report of the sale of shares by the plaintiff, its deputy chairman, only days before the exact nature of the contracts was revealed, would not be interwoven in the article to the extent they were if they were merely coincidental. As the High Court observed in Favell v Queensland Newspapers Pty Ltd (supra) at [14]:

"An article which gives otherwise irrelevant prominence to the existence of smoke may be found to suggest the existence of fire."

30 I therefore consider that the imputations pleaded in each of pars 4.1, 4.2 and 4.3 is arguably capable of being conveyed by the words complained of.

31 I do not consider that the imputation in par 4.2 is embarrassing in failing to specify the nature of the illegality alleged. While it is arguable that the article imputes that in connection with the share sale the plaintiff has engaged in illegal conduct, being conduct which has attracted the attention of the regulatory authority, the nature of such illegal conduct does not emerge with any specificity.

32 As Gleeson CJ said in Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135, [at 137], the requirement that a plaintiff must "specify" the act or condition which he claims was attributed to him is one which, in its practical application, raises questions of degree. Almost any attribution of an act or condition to a person is capable of both further refinement and further generalisation. In any given case a judgment needs to be made as to the degree of particularity or generality which is appropriate to the occasion, and as to what constitutes the necessary specificity. If a problem arises, the solution will usually be found in considerations of practical justice rather than philology.

33 His Honour pointed out that whilst the principles relevant to the plaintiff's obligation to 'specify' the act or condition which he claims was attributed to him remain constant, their practical application may depend upon the facts and circumstances of the given case, and the relevant circumstances may include the manner in which the defendant, or the author of the defamatory matter, has expressed the defamatory matter.

34 In the present case, having regard to the nature of the words complained of, I do not consider that considerations of practical justice require that the plaintiff plead the imputation with a greater degree of specificity.

35 I also do not consider that the plea in par 4.2 is objectionable as being repetitive of par 4.1. The imputations of dishonesty and illegality are, in my view, sufficiently distinct. To the extent there is overlap between them I do not consider that it gives rise to any difficulty that would justify striking out par 4.2.

36 Similarly, in my view, the pleas in par 4.2 and par 4.3 are sufficiently distinct that there is no real embarrassment caused to the defendant.

37 As to par 4.4, I consider it is arguable that, in the context, a reasonable reader would understand the reference to the "insistence" by the plaintiff, the deputy chairman of the company, that he had no knowledge at all of the Chinese contracts which had caused such a dramatic rise in the company's share price, as suggesting that it was untruthful.