Fogarty v Nationwide News Ltd & Anor [2005] WASC 2

Fogarty v Nationwide News Ltd & Anor [2005] WASC 2 - WASC 2005 case summary — Zoe

[68]

(1) ERG Limited shares had once been very popular with share market investors nationwide.

(2) Institutional investors had dumped ERG Limited shares.

(3) Many Western Australian retail investors had suffered large losses as a result of investing in ERG Limited shares.

(4) Rarely does the share market see a fall like the fall of ERG Limited.

(5) The share price of ERG Limited shares at the close of the stock exchange on 19 March 2002 was 26 cents

(6) In mid 2000 the share price of ERG Limited shares had been $4.27.

(7) In mid 2000 ERG Limited had a market valuation close to the market valuation of Wesfarmers Limited.

(8) As at March 2002 ERG Limited had a market valuation of $221 million.

(9) As at March 2002 Wesfarmers Limited had a market valuation of about $11.1 billion.

(10) Some analysts say ERG Limited is still overpriced.

(11) Investors had been calling for change in the management of ERG Limited.

(12) The plaintiff had stated that he planned to remain as chief executive for another 5 years.

(13) A number of ERG Limited contracts with transport system operators had become the subject of legal dispute including contracts in Sydney and Melbourne.

(14) ERG Limited had announced losses of $199 million the previous week as a result of more conservative accounting disciplines being imposed.

(15) In the past ERG Limited counted as revenue in its accounts transactions for which no cash changed hands.

(16) In those transactions, ERG Limited received payment in the form of shares in companies set up as part of the transaction.

(17) When ERG Limited came to work out its profits it counted the shares in these companies as income.

(18) ERG Limited received nothing in cash but the profits claimed formed a platform that allowed ERG Limited to go back to capital markets for more money from investors.

(19) For most if not all of its life as a company ERG Limited had been cashflow negative.

(20) ERG Limited had raised close to $600 million in shares and convertible note issues in 10 years.

(21) The last $104 million was raised in January 2002 which was less than eight weeks before ERG Limited warned the market about the latest losses.

(22) The plaintiff was insisting that his strategy and personal involvement will restore shareholder value.

[106]

47 In Anderson v Nationwide News, the plaintiff was the chief executive officer and managing director of BHP Ltd. He sued the defendant for defamation in respect of a newspaper article concerning BHP's merger with Billiton Plc. The plaintiff alleged that in its ordinary and natural meaning, the article meant and was understood to mean that the plaintiff had promoted and supported the merger for ulterior personal purposes, that he had contrived the merger for those purposes and that he had thereby breached his duties to BHP and its shareholders. By its defence, the defendant denied the plaintiff's imputations and in par 8 alleged that in its ordinary and natural meaning the article meant and was understood to mean that the plaintiff was promoting and supporting the merger on terms which did not favour BHP or its shareholders, that the plaintiff was promoting and supporting the merger on terms which were not as favourable as they should have been to BHP and its shareholders, and that in each of those meanings the article was true in substance and in fact. Paragraph 9 of the defence alleged that the article was fair comment on a matter of public interest. The plaintiff requested particulars of (a) the meaning or meanings in which it was alleged that the article was fair comment, (b) the material facts on which the comment was based, and (c) the matters of public interest. The defendant responded under cover of objection, (a) that the meanings it relied on were those pleaded in par 8 of the defence, (b) that it relied on the facts stated in the article and, in particular, that BHP shareholders were paying too much and losing control of the company, and (c) that the merger, takeover, control and operation of one of Australia's largest and most prominent companies were matters of public interest and the subject matters of the article. The plaintiff applied for orders striking out pars 8 and 9 of the defence. Ashley J dealt first with the challenge to the plea of justification in par 8. His Honour held that although the meanings pleaded by way of justification were capable of arising, they were impermissible because they were substantially different from the plaintiff's pleading meanings. The sting of the libel as pleaded by the plaintiff was that the plaintiff had acted for ulterior motives and that was radically different from the sting which the defendant sought to justify. Ashley J then turned to the challenge to the plea of fair comment in par 9 of the defence. His Honour held that having regard to the further and better particulars under par 9 of the defence, it could not be said that the meanings in which the defendant alleged the article was fair comment were not open. His Honour then held that a defendant pleading fair comment is obliged to specify the substance of the alleged comment. It is not sufficient for the defendant to identify the matter of public interest commented on. However, the plaintiff is not entitled to particulars of the meanings in which it is alleged that the article is fair comment. His Honour held that where a plaintiff sues on an entire article, alleging that it bears a particular defamatory meaning (not necessarily the only defamatory meaning of the article) a defence of fair comment is untenable unless it pertains specifically to the defamatory meaning pleaded or a permissible variation thereof. His Honour did not strike out par 9 of the defence because the defendant had not been asked to provide and had not provided particulars of the substance of the alleged comment.

[127]

(i) As at 30 June 2001 ERG Limited had recorded in its accounts as assets certain values attributed to shares held by ERG Limited in other companies including $14.174 million attributed to shares in Prepayment Cards Limited; $27.426 million attributed to shares in Triumphant Launch Ltd; $23.752 million attributed to shares in ECard Pty Ltd (hereafter the 'Other Company Shares').

(ii) As at 30 June 2001 ERG Limited's accounts disclosed total net assets of $273.185 million.

(iii) Prior to 30 June 2001 ERG Limited had a practice of accepting 'non-cash licence fees' in the form of shares in other companies that acquired a licence to use ERG Limited's technology.

(iv) The 'non-cash licence fees' were treated in the accounts as revenue in the year in which they were received.

(v) The shares received by way of 'non-cash licence fess' were also treated as an asset of ERG Ltd.

(vi) Some of the Other Company Shares were shares that had been received as 'non-cash licence fees'.

(vii) During the year ended 30 June 2001 ERG Limited received from a German company called 'card.etc.AG' shares in that company by way of a 'non-cash licence fee'.

(viii) The directors of ERG Limited regarded the 'non-cash licence fee' from 'card.etc.AG' as having a value of $31 million.

(ix) For the purposes of the preparation of the accounts of ERG Limited for the year ended 30 June 2001 the auditors of ERG Limited advised ERG Limited that the business plan of 'card.etc.AG' was not sufficiently advanced to be able to form an opinion as to the value of the 'non-cash licence fee' from card.etc.AG.

(x) For the purposes of the preparation of the accounts of ERG Limited for the year ended 30 June 2001 the auditors of ERG Limited advised ERG Limited that they would not recognise the 'non-cash licence fee' from 'card.etc.AG' as representing revenue of $31 million in the year ended 30 June 2001.

(xi) On or about 20 November 2002 ERG Limited issued a prospectus to raise $104 million.

(xii) The prospectus referred to the Other Company Shares as being assets valued at $65.351 million.

(xiii) The prospectus did not disclose, as was the fact, that the advice that the auditors of ERG Limited had given to ERG Limited in relation to the value of 'non-cash licence fees' cast doubt on:

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (143 paragraphs)

Fogarty v Nationwide News Ltd & Anor [2005] WASC 2 (14 January 2005)

Parties

Cases Cited (17)