Griffith & Ors v John Fairfax Publications & Anor

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 CASES CITED : Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 Hession v Century 21 South Pacific Ltd (1992) 28 NSWLR 120 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1

Jeremy Norman Griffith - first plaintiff Foundation for Humanity's Adulthood - second plaintiff PARTIES : Timothy John Macartney-Snape - third defendant John Fairfax Publications Pty Ltd - first defendant David Millikan - second defendant

no appearance - first plaintiff COUNSEL : K P Smark SC/S T Chrysanthou - second plaintiff no appearance - third plaintiff D R Sibtain/C Amato - defendants

no appearance - first plaintiff SOLICITORS : Schweizer Korbas lawyers - second plaintiff No appearance - third plaintiff Johnson Winter & Slattery - defendants

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DEFAMATION LIST

20301/01 Griffith & Ors v John Fairfax Publications Pty Ltd & Anor JUDGMENT 1 His Honour: This is an application for security for costs against the second plaintiff, Foundation for Humanity's Adulthood (FHA) by amended notice of motion filed 20 January 2009 under the Uniform Civil Procedure Rules 2005 Pt 42, r 42.21(1)(d), alternatively, under s 1335(1) Corporations Act 2001 (Cth). The amount of the defendants' costs for which security is sought is $500,000, to be paid into court within 28 days, alternatively, for an amount fixed and payable as the court deems fit. 2 The amount claimed is for the defendants' future costs, which FHA accepted to be reasonable. 3 The trial is fixed for hearing for about six weeks commencing 10 August 2009. Background 4 These proceedings were commenced by the plaintiffs by statement of claim filed 6 April 2001 claiming damages for the publication of defamatory imputations in an article under the heading "Prophet of the Posh" in the newspaper "The Sydney Morning Herald" on 22 April 1995. 5 The first, third, and fourth plaintiffs failed at the 7A trial which took place on 26 September, 27 September and 28 September 2005. However, for FHA it was found that the defendants published the imputation in par 7(b) of the second further amended statement of claim, namely: "The FHA places demands on its members such that their families are torn apart."

and that it was defamatory. 6 By their amended defence filed 14 November 2008 the defendants raise defences of truth, contextual truth, and statutory qualified privilege (s 15, s 16 and s 22 Defamation Act 1974 respectively) in respect of publication in New South Wales, and defences which raise similar issues in respect of publication in the other states and territories of Australia. 7 There is no issue that FHA has a bona fide and genuine interest in pursuing the claim, and a triable case. 8 By letter of 18 June 2001 to the plaintiffs' solicitors, the defendants' solicitors requested security in the amount of $20,000 for costs up to and including the 7A trial. The letter included the following: "… Our clients would, of course, reserve the right to seek additional funds by way of security should the matter proceed beyond that point." 9 By letter of 10 July 2001 the plaintiffs offered, without admission, to provide $15,000 by way of security to cover the proceedings up to and including the 7A trial. The offer was accepted on 26 July 2001, and the plaintiffs later provided a bank guarantee for the amount. 10 On 14 February 2008 the defendants filed a defence. Thereafter necessary interlocutory steps were taken including the filing of a reply, discovery, the filing of an amended defence and a reply to it, and interrogatories to FHA. On 16 September 2008 the hearing date was fixed for 10 August 2009. 11 By letter of 9 December 2008 to the plaintiffs' solicitors, the defendants' solicitors requested provision of security in the amount of $500,000 for costs and disbursements until conclusion of the trial, failing which application would be made for an order. The present application follows FHA's refusal to meet the request. FHA 12 Below is a summary of matters descriptive of FHA, its objects, operations, and present financial situation. It is based on the evidence in the affidavit of its solicitor, Fiona Henderson of 6 February 2009, and the exhibits. In any event, it appeared to be common ground. 13 FHA is a company limited by guarantee, and was incorporated on 25 May 1990. Since 1991 it has been a registered charity in New South Wales under the Charitable Fundraising Act 1991, and holds an authority to raise funds for charitable purposes. Since 1 July 2001 it has been accepted by the Australian Taxation Office as a non-profit organisation and income tax exempt as a charitable institution. 14 Consistent with its memorandum of association, its principal activities as described in its 2008 Financial Report were to "undertake, provide facilities for and otherwise promote and assist study of research into and analysis of human evolution and biological development with the two aims of understanding the current problems of humanity - the Human Condition - in terms of the development of the species Homo sapiens modern and ameliorating the Human Condition". 15 Its constitution does not allow for dividends to be declared or paid, and none have been. There are six directors, none of whom are remunerated. As at 30 June 2008 FHA had 62 members. 16 Since inception, the first and third plaintiffs have been directors. According to the 2008 Financial Report it is likely that FHA may assist in seeking publishers for the first plaintiff's books "The Great Exodus" and "A Species in Denial". It recorded that FHA remains involved in the present proceedings against the defendants "… and will continue such action until a satisfactory conclusion is reached". 17 Information published on FHA's website on 19 February 2009 (Exhibit 1) said that it was incorporated in order to better develop and promote understanding of the human condition, and in particular the work of the first plaintiff. It noted that, as at December 2008, it had over 100 members and supporters including those who supported its objectives on a daily basis, and those who are not as directly involved. Relevantly, it included: "Funding * Giving it is seeking to introduce a new paradigm, the FHA has needed to be financially self-sufficient. Since its inception, its funding has come predominantly from the donations of the proceeds of the sale of a furniture business established by Jeremy Griffith and the proceeds of the sale of a hospitality business established by his brother Simon. More recently, it has been the commitment and support of its members, in particular donating their time and effort, that has enabled the FHA to grow into a strong organisation. … Expenditure The FHA expends its funds in pursing its objectives set out in its Memorandum and Articles of Association which include: * Developing and promoting investigation into human evolution and biological development, with the aim of understanding the current problems of humanity ie the human condition. * Developing interest in the explanation of the human condition put forward by Jeremy Griffith. * Developing and conducting interactive online courses." 18 During submissions Senior Counsel for FHA stated that its primary, but not exclusive, function was to promote the understandings developed by the first plaintiff. 19 The trading result for the year ending 30 June 2008 was a net profit of $141,347. As at 19 February 2009 the closing balance of its account with St George Bank was $7,691.82, and the closing balance of its account with ING Direct was $256,949.40 which reflected a deposit on 11 February 2009 from a linked bank account of the sum of $262,000. FHA also has a term deposit with St George Bank in the sum of $65,000. 20 FHA is not the holder of land in New South Wales, and there was no evidence that it holds lands elsewhere. Determination 21 Relevantly, UCPR Pt 42, r 42.21 provides: "42.21 Security for costs

(1) If, in any proceedings, it appears to the court on the application of a defendant: … (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or … the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given.

(2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct." 22 Section 1335(1) Corporations Act 2001 (Cth) states: "Costs (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given." 23 Essentially, under each provision the defendant must demonstrate that there is reason to believe that the plaintiff corporation will be unable to pay the costs of the defendant if ordered to do so and, if so, whether the court in the exercise of its discretion should grant the relief sought (Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 par 20). 24 As for the first step, the court is required to form an opinion about what the financial position of the plaintiff will be at the time of judgment and immediately after. An important consideration will be the financial position of the plaintiff at the time of the application, however this is not the sole consideration (Idoport par 58). 25 When considering s 1335(1) in Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1 Lee J said (p 5): "The use of the word "credible" suggests a requirement that evidence to be relied upon has some characteristic of cogency. Qualification of the word ``testimony'' by the word "credible" suggests that an evidentiary burden is undertaken by the party seeking the order. It amounts to an obligation on an applicant for an order to show that the material before the court is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the corporation would be unable to pay the costs of that party upon disposal of the proceedings."

The same approach should be taken with an application under UCPR r 42.21(1)(d). 26 FHA acknowledged that it was unable to pay its costs and provide the security sought. However, it put that, in the circumstances, there was no reason to suppose that it will be unable to pay the defendants' costs if ordered to do so. 27 Miss Henderson's evidence, on information and belief, was that if FHA was ordered to pay security in the amount of $500,000 it would be unable to proceed to prosecute this matter as it would be unable to pay a lump sum in that amount and at the same time meet its own continuing legal costs at this stage of the proceedings. She said that since the 7A trial in September 2005, FHA has incurred about $100,000 in legal costs. 28 FHA is not impecunious. At present it has cash at bank to which I have referred in the total sum of $329,641.22. 29 The evidence of FHA's present financial position is mostly found in its 2008 Financial Report. The income statement discloses revenue in the sum of $470,253 of which $425,414 came from donations. The balance sheet discloses current assets in the sum of $707,713 of which $238,524 was cash at bank ($163,524) and term deposits ($75,000), with the balance of $469,189 described as "trade and other receivables". (The notes show that "trade receivables" were nil.) 30 Non-current assets, being property, plant and equipment totalled $123,356. Total assets amounted to $831,069. Total liabilities were $53,954, leaving net assets in the amount of $777,115. This last amount was also described as "retained earnings" and "total equity". The terms "other receivables", "retained earnings", and "total equity" were not explained. The substantial component of FHA's retained earnings is the amount attributable to what is described as "other receivables". 31 The information disclosed in the financial reports for 2004 to 2007 was substantially similar in that revenue was almost entirely donated, and items described as "current receivables" were a significant component of retained earnings. 32 FHA's Senior Counsel accepted that it was a company which runs on donations. He explained, without evidence, that the amounts described as "other receivables" are those which have been pledged to be given by various benefactors, and are accounted for as "current receivables" because it is expected they will be paid in before the next reporting period. He said he had no instructions as to whether or not the pledges are enforceable, but submitted that the court should safely conclude that the gifts would be made (T p 34). 33 No evidence about FHA's present and future position was given by any person directly involved in its affairs. There was no evidence which showed that any part of the amount described as "receivable" would be likely to be received by FHA at any time in the future, or could reasonably be treated as a probable source of funds available for the payment of the defendants' costs if FHA failed in these proceedings. The relevant entries in the 2008 Financial Report are no more than a record of the hope that the amounts will be received at some future time. 34 In my opinion the evidence established that there is reason to believe that FHA will be unable to pay the defendants' costs in the amount sought if ordered to do so. This is because FHA's financial viability depends upon donations which, as a matter of common sense, may be assumed to be voluntarily given. Whether donors would continue to provide funds to enable FHA to meet the defendants' costs if it was unsuccessful was left as a matter of speculation. This leads to the conclusion that there must be a real risk that FHA's source(s) of funds would dry up if it failed in these proceedings. In short, there is no established basis to justify the conclusion that the present inability to pay the defendants' costs is likely to change in the future. 35 I turn now to the question whether, in the circumstances, the court's discretion should be exercised to grant the relief sought. In opposing the claim, FHA relies on the defendants' delay in bringing this application, and on the basis that the making of an order would have the effect of frustrating the ability of FHA to proceed with the hearing of the matter fixed for 10 August 2009. 36 On the issue of frustration, the correct approach is that expressed by the Full Court of the Federal Court in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, as follows (p 4): "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts." 37 With particular reference to a company in liquidation, Meagher JA in Hession v Century 21 South Pacific Ltd (1992) 28 NSWLR 120, p 123 said: "… a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors)." 38 In Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 French J (as he then was), following an extensive review of the cases, said (p 513): "The effect of the authorities is, in my opinion, that the probability or certainty that an order for security for costs will frustrate the plaintiff's claim will not automatically lead to such order being withheld. It is however a factor relevant to the granting of an order and will weigh against it where there is no party standing behind the company who is in a position to provide the necessary security." 39 With regard to these principles, I think that for FHA to resist an order on the ground of frustration it is necessary for it to demonstrate that it cannot fund the prosecution of its case either from its own resources or from other resources available to it if an order for security is made. The nature and extent of resources available to a corporation for consideration in this context will vary from case to case. Those who may be described as persons standing behind a corporation are not confined to directors, shareholders, or those who have a financial interest in the outcome of the litigation. Relevantly, in this case, resources available to FHA include those who fund its operations through donations. 40 FHA contended that, being a corporation limited by guarantee, there was no person standing behind it or identifiable as interested in the fruits of victory. However, its Senior Counsel described the source of funds as follows (T p 32): "SMARK: … each year, relevantly, the FHA gets something like 3 or 4 or $500,000 in donations. That's its source of income. HIS HONOUR: So some of 1,000, some of 4,000, some of 5,000, that sort of thing. SMARK: Yes, there are small donations, but the large share of the donations come from pledges or, in fact, from trusts, and there's no secret about this, it's not in evidence but one benefactor is the Watson family. Is one of the benefactors, through its trusts, and he's one of the directors, your Honour, Mr Watson. HIS HONOUR: So he might have pledged to give, like you do to schools and things, $1,000 a year for the next five years. SMARK: Substantially more. HIS HONOUR: But that's what we're talking about. SMARK: Yes. And the other one is, there is an entity, I think a trading trust, which itself makes money through obstructing fences, I think as it happens, and they pledge similar amounts each year, so the FHA has an expected income stream of around about 3 to $400,000 each year, which truly falls each year, and your Honour can see it's not the case that the other receivables don't fall in, as Mr Sibtain suggested. I can see why he might think that, on the face of the accounts. They fall in as donations and so what happens is they're brought to book properly as current receivables, because they're expected to come in before the next reporting period. That's the usual test, and they show up each year, and your Honour needn't-- HIS HONOUR: So they remain fairly constant because the pledges are over a number of years for the same amount. SMARK: That's right."

and (T p 42): "HIS HONOUR: Is it right for me, then, to conclude that, absent any other evidence, that the level of donations, amounts receivable that have been coming in over a pattern of years, I would infer would continue? SMARK: They seem to be continuing to this very day, your Honour. "

This information was consistent with statements made by FHA on its website that it was funded by donations, and enjoys the commitment and support of its members. 41 Also in evidence was the deposit of the sum of $262,000 on 11 February 2009 to FHA's account with ING Direct. 42 The evidence supports the finding, which I make, that FHA has financial resources available to it for the furtherance of its objects and the conduct of its operations. It did not attempt to demonstrate that these resources are unavailable. Obviously, donations have funded the litigation over many years until the present time. Nothing was put by way of evidence to indicate that such resources would not be available to FHA to fund the litigation henceforth. Indeed, the whole of the evidence supports the inference that it is highly probable that FHA's directors, members, and supporters will ensure that financial resources by way of donations continue to be available to enable it to proceed with litigation the object of which is to vindicate its reputation. It is open to take as an example the deposit made on 11 February 2009 which, with regard to its timing and size, allows the inference that it was from a donor who has a real interest in ensuring that FHA is financially capable of prosecuting its claim. 43 Accordingly, I am unpersuaded that an order for security in the amount sought will stultify FHA's ability to proceed, and that I should decline to order security on this basis. 44 As for the issue of delay, the authorities make plain that if an application for security for costs is to be made, it must be made promptly. As security for costs is a discretionary matter delay will weigh more heavily with the court in some cases than in others. (Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68, p 71; Idoport pars 69-81.) 45 In Idoport Einstein J, in terms with which I respectfully agree, expressed the approach to be taken as follows: "81 Ultimately it seems to me that in the context of the broad discretion and consistently with the approach referred to in the above authorities, delay is best regarded simply as a factor whose consequences are to be weighed in the balance in determining what is just between the parties. [cf French J in Bryan E Fencott supra at 515] The Court, in approaching delay as a discretionary factor, looks at the length of the delay and the nature of the acts done during the interval. If a company has suffered no real relevant prejudice in the sense of expenditure of its own funds or the incurring of liabilities in relation to the litigation in the period until the application for security for costs, the significance of delay reduces or may substantially disappear." 46 The evidence is that since the s 7A trial in September 2005 FHA has incurred about $100,000 in legal costs. It was put that most of these costs have been incurred since the filing of the defence on 14 February 2008 in attending to various interlocutory steps and related preparation earlier referred to (par 10). The request for provision of security was made by letter on 9 December 2008. 47 FHA's submission, as I understood it, was that the period of delay was from 14 February 2008 to 9 December 2008 during which it incurred substantial costs in attending to matters which might have been avoided had the demand been made promptly before these costs were incurred. It was put that in these circumstances it would work an injustice if an order for security was made. 48 The discretion is to be exercised in accordance with the principles referred to. A relevant factor is that the order sought is for future costs. A mitigating factor against delay, and one which weighs heavily against FHA, is that it had been put on notice since 18 June 2001 that security for costs was an issue. On 10 July 2001 FHA agreed to provide security for costs up to the 7A trial, without an order, in the sum of $15,000. By their letter of 18 June 2001 the defendants' solicitors notified FHA of the reservation of the right to seek additional funds by way of security should the matter proceed beyond the 7A trial. 49 Taken overall, the evidence shows that after the 7A trial FHA proceeded with the conduct of its case, incurring costs in doing so, in circumstances where it was on notice that additional security might be sought at any time. Bearing in mind that the application is for future costs, in my opinion there is no basis for finding that the period of delay complained of tells against the making of the order sought. FHA's opposition on this ground fails (cf: Bryan E Fencott p 515). Conclusion 50 The future financial position of FHA depends upon the willingness of donors to continue to support it. Their readiness to do so to enable it to meet an order for payment of the defendants' costs if FHA is unsuccessful was left as a matter for speculation. The defendants should not be exposed to the risk that FHA's source(s) of funds would dry up if such an order was made. In all the circumstances, in my opinion, the justice of the case requires that security be provided for the amount claimed prior to the commencement of the hearing on 10 August 2009. 51 The amount for which security is to be ordered is $500,000. It is reasonable that it be provided by payment to the defendants' solicitors of monthly instalments each of the sum of $100,000 on or before the 30th day of March, April, May, June and July 2009, and I propose to order accordingly. Should the parties agree on an alternative means for providing security, for example, in the form of a bank guarantee, application may be made to my associate to re-list the matter before me for the purpose of making appropriate orders by consent. Orders 52 It is ordered that:

(1) The second plaintiff provide security for the defendants' costs of the proceedings in the sum of $500,000, such security to be provided by way of payment to the defendants' solicitors of monthly instalments each in the sum of $100,000 on or before the 30th of March, April, May, June and July 2009, failing which the proceedings be stayed until further order.

(2) The second plaintiff to pay the defendants' costs of the application.

(3) Liberty to apply on two days' notice. **********

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