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[2013] NSWSC 7
Supreme Court of NSW
2012-08-06
McCallum J
Original judgment source is linked above.
Judgment 1HER HONOUR: These are proceedings for defamation arising out of the publication of two articles in the Sydney Morning Herald on 21 October 2009. I previously ruled on the capacity of the matters complained of to convey the imputations pleaded by the plaintiff: see Liu v Fairfax Media Publications [2011] NSWSC 612. The defendant has since filed a further amended defence which includes a plea of contextual truth under s 26 of the Defamation Act 2005. This judgment determines the plaintiff's objections to that pleading.
Capacity argument - contextual imputations 12(a)(iv) and 13(a)(iii) 2The first objection to the defence raised by the plaintiff was that one of the contextual imputations relied upon by the defendant is not capable of being conveyed by either matter complained of. The imputation in question (pleaded at paragraph 12(a)(iv) as arising from the first matter complained of and at paragraph 13(a)(iii) as arising from the second matter complained of) is as follows: The plaintiff as manager of Astarra Managed Funds placed investors' funds at risk by investing those funds in investments of dubious integrity. 3The thrust of the plaintiff's argument was that, whatever else the article may say about him, it says nothing capable of sustaining the notion that he invested funds in "investments of dubious integrity". 4As outlined in my earlier judgment, the subject of the articles is the performance of a hedge fund referred to in the articles as the Astarra Strategic Fund. The fund is said in the articles to be managed by the plaintiff, Mr Eugene Liu, and his business associate, Mr Shawn Richard. The articles report that the fund performed unusually well during a period of time when many such funds did not, during the period of the global financial crisis. 5The first matter complained of was published under the headline "Grinning all the way to the bank - until watchdog started sniffing". The article reports that, at the height of the global financial crisis when "cashed up investors were reeling in a world of financial pain, the Astarra Strategic Fund somehow managed to buck the trend and keep clients' returns rolling in". 6After referring to the fact that the plaintiff and Mr Richard came through the downturn "unscathed" with $1 billion of funds under management, the article continues: But the dream run may be coming to an end. The corporate regulator has opened an investigation into several funds - including Astarra Strategic, one of the best performing hedge funds in the Australian market - following a clamp down on similar funds by US regulators in the wake of billion-dollar fund collapses and the $US 50 billion Ponzi scheme run by Bernie Madoff. 7As to the investment of funds under management by the plaintiff, the article states: The strategic fund's assets are held in a special purpose entity in the British Virgin Islands, and the investment manager has been allowed an exemption by the regulator Austrac from all sections of the Anti-Money Laundering and Counter Terrorism Financing Act. That means the fund does not need to verify the identity of its customers and to report transactions to the regulator. The fund was designed to invest in multiple hedge funds, based mostly in the US. 8The article includes a chart showing "the money trail" which illustrates the flow of Astarra Strategic Funds to the British Virgin Islands (illustrated with a photograph of a tropical scene with a swimming pool) and, from there, to "undisclosed US hedge funds". The chart appears over a photograph of each of the plaintiff and Mr Richard smiling, with the caption "winning smile", evoking the derisory sense of the headline "grinning all the way to the bank". 9Mr Richards, who appeared for the plaintiff, submitted that the article says nothing whatsoever as to the integrity of the "undisclosed US hedge funds" in which the Strategic Fund's assets were designed to be invested. Whilst it does not do so expressly, in my view the integrity of those funds is capable of being impugned by implication, taking the article as a whole. 10Mr Blackburn SC, who appeared for the defendant, reminded me of the well-known principles stated in Jones v Skelton [1963] 1 WLR 1362 at 1370 to 1371 per Lord Morris of Borth-Y-Gest (approved by the Court of Appeal in Amalgamated Television Services Pty Ltd v Marsden (1998) 43 NSWLR 158 at 165B per Hunt CJ at CL, Mason P and Handley JA agreeing at 161). Although the relevant passage is well known, it pays revisiting from time to time: It is well settled that the question whether words which are complained of are capable of conveying a defamatory meaning is a question of law and is therefore one calling for decision by the court. If the words are so capable then it is a question for the jury to decide whether the words do in fact convey a defamatory meaning. 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, 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. 11As noted later in that passage, the test of reasonableness guides that determination. 12Although the article makes no explicit statement questioning the integrity of the undisclosed US hedge funds intended for the investment of the Strategic Fund's assets, the overall tenor of the article is to point a finger of suspicion at the two men managing the fund. The reference to ASIC's decision to investigate the funds in circumstances likened to US regulators' investigations of billion dollar fund collapses and Ponzi schemes may point rather to an implication that the so-called undisclosed US hedge funds did not exist at all, rather than to their being of dubious integrity. That is an argument that can be put to the jury. In my view, noting the compelling composition of the article and allowing for a measure of loose thinking in that context, it cannot be concluded that the imputation is incapable of being conveyed by the first matter complained of. 13The second article was published under the headline "ASIC silent on order against trio". The central focus of the article is the news that ASIC has not been able to make any public disclosure about its legal proceedings against the plaintiff and Mr Richard, having been directed by the judge hearing an application to make no public disclosure about the case. 14The article repeats the statement that the Astarra Strategic Fund operated under a structure that held its assets through an entity in the British Virgin Islands. Later in the article, it is stated: The strategic fund had never disclosed the names of any of the hedge funds in which it invested in its monthly updates to investors, instead focussing on vague aspects of its investment strategy. 15The article also records that the fund had not provided any update on its performance since the end of June whereas other funds on the Astarra website had done so. 16As with the first matter complained of, whilst it might be forcefully argued to the jury that the only implication is that the supposed target investment funds did not exist (rather than that they were of dubious integrity), the implication captured in the contextual imputation is in my view capable of being conveyed and must be left to the jury.
Requirement that a contextual imputation arise "in addition to" the plaintiff's imputation 17The plaintiff's remaining objections to the contextual imputations pleaded in the further amended defence derive from the terms of s 26 of the Defamation Act, which provides: It is a defence to the publication of defamatory matter if the defendant proves: (a) the matter carried, in addition to the defamatory imputations of which the plaintiff complains, one or more other imputations ("contextual imputations") that are substantially true, and (b) the defamatory imputations do not further harm the reputation of the plaintiff because of the substantial truth of the contextual imputations. 18The requirements of the predecessor to that section (s 16 of the Defamation Act 1974) were considered by the Court of Appeal in John Fairfax Publications Pty Ltd v Jones [2004] NSWCA 205. Whilst the disparate processes of reasoning of the three members of the Court in that case preclude the articulation of a single, neat proposition for which it stands, the decision provides a helpful analysis of the juridical context in which objections to contextual imputations are to be determined. 19In particular, the judgment of the Chief Justice in Jones calls attention to the importance of determining such applications with an eye to practical justice: see especially at [7] to [14]. His Honour placed importance on the entitlement of a person seeking to vindicate his reputation to articulate with precision the sense in which the publication occasioned hurt to him, and not to have his chosen battleground wrested from under his feet. The decision in Jones was of course concerned with a statutory regime under which the imputation was itself the cause of action but that, in my view, does not derogate from the force of that consideration. 20Under s 16 of the repealed act, the defence of contextual truth arose where "another imputation" was made by the same publication contextually to that complained of by the plaintiff. Spigelman CJ held in Jones at [16]: In my opinion, the words "another imputation" are not satisfied where a defendant relies on a contextual imputation which is, in substance, nothing more than an alternative way of formulating the same imputation relied on by the plaintiff, based on exactly the same words in the matter complained of and applying those words in exactly the same way. Such is not a case where, to use Hunt J's formulation, the contextual imputation is "capable of being conveyed by the matter complained of at the same time as and in addition to the plaintiff's imputation". (Allen v John Fairfax supra and Hepburn v TCN Channel Nine supra.) 21In Ange v Fairfax Media Publications Pty Ltd [2010] NSWSC 645, Simpson J considered that statement to be of equal relevance to the application of s 26 of the Defamation Act 2005, notwithstanding a slight difference in the language of the two sections: at [50] to [55]. Her Honour accepted Jones as lasting authority for the proposition that a defendant cannot expand the area of misconduct by pleading a contextual imputation related to the same class of misconduct, but framed in general terms: at [61]. 22However, as neatly explained by Simpson J in the following passage of her judgment in Ange, the defence of contextual truth may properly be used to expand the case into areas of the plaintiff's character or conduct raised by the matter complained of but which the plaintiff has studiously avoided by the choice of narrowly framed imputations: at [60] to [73].
Contextual imputations 12(a)(i) and 13(a)(i) 23The plaintiff has pleaded the following imputation as arising from each of the matters complained of (paragraphs 4(b) and 6(b) of the further amended statement of claim): The plaintiff behaved in such a way as to warrant ASIC filing charges against him in the Equities Division (sic) of the NSW Supreme Court in October 2009. 24The reference to the 'Equities Division' of this Court is drawn in terms from the matters complained of. 25The defendant seeks to rely upon the following contextual imputation in respect of each matter complained of (paragraphs 12(a)(i) and (13)(a)(i) of the further amended defence): There were reasonable grounds to suspect that the plaintiff acted illegally as a manager of an investment fund. 26The plaintiff submitted that there could be no serious dispute that both the plaintiff's imputation and the defendant's contextual imputation arise essentially from the same sentence in each matter complained of. In the first matter complained of, the relevant passage reads: Yesterday's orders came one week after the regulator filed charges against the managers of the $118 million strategic fund, Mr Richards and Mr Liu in the Equities Division of the NSW Supreme Court. 27In the second matter complained of, the relevant passage reads: The product disclosure statements were removed a week after ASIC separately filed charges against two of the former investment managers of Astarra's funds, Shawn Richards and Eugene Liu, in the Equities Division of the NSW Supreme Court. ASIC has made no public disclosure about that case under the direction of the judge. 28The defendant does not accept that its contextual imputation arises from the same sentence in each matter complained of. As to the first matter complained of, it was submitted that other parts of the article suggest the existence of a broader investigation than that necessarily contained in the so-called "charges" filed in the Equity Division of the Court. In particular, Mr Blackburn drew attention to the following paragraph: The investigation into Astarra Managed Funds, the parent of Astarra Strategic Fund, by the Australian Securities and Investments Commission comes as the corporate regulator examines "red flag" issues such as non-standard business models and the use of in-house registries among some of the industry's smaller funds management operations. 29Mr Blackburn also drew attention to the comparison of the investigation with like investigations in the United States in the wake of billion dollar fund collapses and Bernie Madoff's Ponzi scheme. 30Those submissions have persuaded me that the present issue does not fall to be determined in accordance with the remarks of the Chief Justice in Jones at [16] set out above. I am not persuaded that the defendant's contextual imputation is merely an alternative way of formulating the plaintiff's imputation based on exactly the same words and applying them in exactly the same way. In my view, the plaintiff has selectively focussed on the part of the matter complained of which reports, in terms which lend themselves to an argument of legal inaccuracy at least, the filing of charges in the Equity Division of this Court. Adopting a similar analysis to that of Simpson J in Ange at [60] to [73], it seems to me that it would have been open to the plaintiff to plead an imputation in the terms of the defendant's contextual imputation based on other parts of the matter complained of beyond the single sentence identified by Mr Richards. 31Separately, it is necessary to consider whether the contextual imputation differs in substance from the plaintiff's imputation. That is a necessary but not sufficient quality of a contextual imputation. 32In my view, the imputations do differ in substance. As submitted by Mr Blackburn, the contextual imputation asserts, and requires proof, that there existed, objectively, reasonable grounds for suspicion of illegal conduct on the part of the plaintiff as manager of the fund. Conversely, the plaintiff's imputation alleges and requires proof of behaviour on the part of the plaintiff such as to warrant the commencement of a specific proceeding. Mr Blackburn cited the similar analysis by Kirby J in Purcell v Cruising Yacht Club of Australia Pty Ltd [2003] NSWSC 245 where his Honour identified the difference between a plaintiff's imputation identifying that a particular committee held a suspicion as contrasted with a defendant's contextual imputation that there were reasonable grounds (objectively) to suspect something. 33As to the second matter complained of, the defendant similarly submitted that there is a wealth of material elsewhere in the article, apart from the specific sentence identified in the plaintiff's submissions, capable of supporting the broader nature of the contextual imputation. I accept that submission. 34For those reasons, I am not satisfied that the contextual imputations pleaded in paragraphs 12(a)(i) and 13(a)(i) of the further amended defence are liable to be struck out.
Contextual imputation 12(a)(ii) 35The plaintiff's final objection to the contextual truth defence relates to contextual imputation 12(a)(ii), as follows: There were reasonable grounds to suspect that the investment fund managed by the plaintiff was a Ponzi scheme. 36Imputation 4(c) relied upon by the plaintiff is: That the plaintiff was suspected by ASIC of running a Ponzi scheme. 37In my analysis, it follows from the reasoning set out above in respect of contextual imputations 12(a)(i) and 13(a)(i) that contextual imputation 12(a)(ii) should be allowed to stand on the pleading. The plaintiff's imputation focuses on a specific aspect of the information reported in the article. In my view, the article as a whole is capable of conveying the defendant's contextual imputation, the report of intervention by ASIC merely being one aspect contributing to that meaning being conveyed. 38The article exposes, with some scepticism, the unexplained success of the Astarra Fund compared with the fate of the rest of the financial world. It notes the commencement of ASIC's investigation in the context of the Bernie Madoff Ponzi scheme. However, as noted by Mr Blackburn, the article proceeds to explore the nature of the fund, the location of its assets and the ease with which money was attracted to it. Adopting a similar analysis to that undertaken by Simpson J in Ange, it seems to me that the plaintiff could have pleaded the broader (and in my view different) imputation now sought to be relied upon by the defendant. Accordingly, I am not satisfied that contextual imputation 12(a)(ii) is liable to be struck out. 39The orders I propose are that the plaintiff's application be dismissed and that the plaintiff pay the defendant's costs. Unless either party wishes to be heard as to costs, those are the orders that will be entered.
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. Decision last updated: 29 January 2013
Liu
Fairfax Media Publications Pty Ltd