McMahon v John Fairfax Publications Pty Limited

Supreme Court of NSW|2012-03-06|Before: McCallum J, Nicholas J

Judgment 1These are proceedings for defamation and injurious falsehood arising out of the publication of two articles in the Australian Financial Review on 5 October 2007 and 26 October 2007 respectively. The first defendant is the corporate proprietor of the newspaper and is sued in respect of both articles. The second defendant, Mr Marcus Priest, was the author of the first article and is sued only in respect of that article. The third defendant, Ms Rachel Nickless, was the author of the second article and is sued only in respect of that article. 2The trial commenced on 8 February 2012 before me with a jury of four. At the outset of the trial I gave procedural rulings in respect of the pleadings, reserving my reasons so as to avoid detaining the jury. These are my reserved reasons for those rulings.

Plaintiff's strike-out application and defendants' application to amend 3The only substantive defences relied upon by the defendants are the defences of substantial truth and contextual truth pursuant to ss 25 and 26 respectively of the Defamation Act 2005. Shortly before the commencement of the hearing, the solicitor for the plaintiff wrote to the solicitor for the defendants contending that the particulars supplied in support of those defences were incapable of proving the substantial truth of the relevant imputations. The letter foreshadowed an application to have parts of the defence struck out. Separately, objection was taken as to the form of one of the contextual imputations pleaded by the defendants. 4The defendants in turn foreshadowed an application to seek leave to amend their defence, partly in response to the issues raised on behalf of the plaintiff and partly in response to the plaintiff's provision on 27 January 2012 of further documents following ongoing disputes as to the adequacy of his discovery in the proceedings. 5With some reluctance, I accepted that the substantive disputes as to the defences that could be maintained would have to be determined before the trial could proceed with a jury, notwithstanding the lateness of the applications. However, both applications also entailed detailed and extensive argument as to individual particulars in the defence. As the scope of those disputes became apparent, I determined that the commencement of the trial should not be delayed to abide separate consideration and determination of each such issue. I indicated, in general terms, that any allegations in the proposed amended defence that were wholly new would not be permitted. I otherwise deferred objections as to individual particulars to be determined as they arose when the evidence in question was adduced during the trial.

Contextual imputation 7(b)(B) 6It is convenient first to address the plaintiff's objection to contextual imputation 7(b)(B) pleaded in respect of the first article. The challenged imputation is: That the plaintiff's legal practice collapsed after he was hit with a substantial claim for unpaid tax from the Australian Taxation Office which he was unable to pay in full. 7The plaintiff's complaint in respect of that imputation was that it was defective in form and incapable of being defamatory. It was submitted that the use of the conjunction "after" asserts only a temporal connection between the collapse of the legal practice and the claim for unpaid tax, rather than suggesting any causal connection between those events. It was further submitted that, without any suggestion of a causal connection, the contextual meaning sought to be relied upon had no defamatory sting. 8The defendants responded to that complaint by seeking leave to amend the contextual imputation to read as follows: The plaintiff's legal practice collapsed partly because he was unable to pay a substantial tax debt owed to the ATO. 9In addition, the defendants sought to rely upon a new contextual imputation 7(b)(C) as follows: The plaintiff, a solicitor, failed to pay tax for which he was personally liable. 10Mr McClintock SC, who appears with Mr Andronos for the plaintiff, submitted that it was simply too late for such an amendment. He noted that an application brought by the plaintiff to amend two of his imputations was refused on that very basis by the Defamation List Judge, Nicholas J, in a decision upheld by the Court of Appeal: see McMahon v John Fairfax Publications Pty Ltd (Supreme Court of New South Wales, Nicholas J, 8 March 2010, unreported) and McMahon v John Fairfax Publications Pty Ltd [2010] NSWCA 308. 11Nicholas J held that, shortly stated, it was "just simply too late for that step to be taken": at [13]. The Court of Appeal strongly endorsed his Honour's approach: at [32] to [35] per Allsop P; at [59] to [61] per Giles JA; Young JA agreeing with Allsop at [63]. Mr McClintock submitted in light of that decision that the plaintiff would have a justifiable sense of grievance if the defendants were now permitted to amend their contextual imputations. 12I took the view that, as to proposed new imputation 7(b)(C), there was considerable force in that submission. I refused the leave sought on that basis. 13The application to amend imputation 7(b)(B) was in a different category. As already noted, the application was prompted by the plaintiff's late communication of an objection as to the form of the existing imputation. Such objections should be made promptly after the filing of a pleading so that they can be determined in the Defamation List. The plaintiff's objection was communicated to the defendants for the first time on 2 February 2012, the day before the proceedings were listed before me on a Friday at my request to ensure that the matter was ready to proceed with a jury the following Monday (6 February 2012). The contextual imputation now objected to has been on the pleadings since the filing of the original defence on 19 December 2008. 14The imputation in its original form was arguably capable of being understood to suggest a causal connection between the collapse of the legal practice and the tax debt. However, I thought there was some force in Mr McClintock's contention that it should or at least could be understood otherwise. Rather than allow an ambiguous or unclear contextual imputation to go to the jury, the objection having been taken, I considered it appropriate to allow the amendment proposed in respect of contextual imputation 7(b)(B). I accepted, as submitted on behalf of Mr Dawson, that the changes proposed to the wording of the imputation were otherwise for felicity of expression and should also be allowed. 15The proposed new contextual imputation was objected to on the separate basis that it was not capable of being defamatory or not capable of "swamping" the plaintiff's imputations (that term, while commonly used as convenient shorthand for the cumbersome test posed by the legislation, is in fact not accurate). After some debate, I determined that the so-called swamping issue, which raises complex legal questions, should be deferred so as not to detain the jury further (T49.45-T52). 16As to whether the imputation was capable of being defamatory, I did not accede to the objection because I concluded that the imputation was capable of being defamatory. I took the view that the community might reasonably think the less of a solicitor of whom it was said that he allowed his practice to fail for inability to pay his tax. 17Since ruling on that issue, I have come to the view that I reached the correct result but for reasons which differ from those I then had in mind. During argument, Mr McClintock drew my attention to the decision of Dalton J in Mizikovsky v Queensland Television Ltd (No 3) [2011] QSC 375. It was in part the need to consider that decision which prompted the deferral of the swamping issue. 18With great respect to Dalton J, the decision in Mizikovsky provides a careful and helpful analysis of a number of complex issues that arise in respect of the defence of contextual truth under s 26 of the Defamation Act 2005. One of the issues with which her Honour was concerned was whether it is appropriate to include, in the questions for the jury, the question whether the defendants have established that the contextual imputation was defamatory of the plaintiff. Her Honour concluded that the questions for the jury should not include that question (at [44] to [55]). I would respectfully agree with her Honour's analysis of that issue and the conclusion reached. 19Separately, a consideration of her Honour's analysis has prompted me to doubt whether a contextual imputation is liable to be struck out on the basis that it is not capable of being defamatory. It may be accepted that the premise of the defence is the existence of some additional defamatory sting not sued on by the plaintiff. However, the defence does not compare imputation with imputation. The essence of the defence is to permit the defendants to put the plaintiff's imputations in their factual context according to the content of the whole of the article. The essence of the defence is that if, viewed in its factual context, the defamatory publication was true enough that no further harm to reputation was done by the particular imputations selected by the plaintiff, no remedy should lie. 20Thus, as explained by Spigelman CJ in John Fairfax Publications v Blake [2001] NSWCA 434 at [5] (with whom Rolfe AJA agreed at [70]), in determining whether the defence should go to the jury, "the Court must focus on the facts, matters and circumstances said to establish the truth of the contextual imputation, rather than on the terms of the contextual imputation itself". 21The decision in Blake was of course concerned with the defence of contextual truth as it stood under the Defamation Act 1974 and must be read with an understanding of the changes effected by the 2005 Act. As recently explained by the Court of Appeal in Besser v Kermode [2011] NSWCA 174, the defence under the 2005 Act must defeat the whole defamatory matter, which is to be understood to mean all of the defamatory stings complained of by the plaintiff: at [78] per McColl JA; Beazley and Giles JJA agreeing at [1] and [2] respectively. 22However, for the purpose of a strike out application, it is doubtful (in my view) whether the Court should assume that all of the defamatory meanings complained of by the plaintiff will be established to have been conveyed. In my view, the principles applicable to strike-out applications would require the Court to take the defendant's case at its highest as to which of the plaintiff's imputations were conveyed (that is, to compare the particulars of contextual truth with the least serious of the plaintiff's imputations). 23It follows that a contextual imputation is not liable to be struck out for want of defamatory sting unless (taking that approach) it is not open, on the strength of the facts, matters and circumstances relied upon to support all of the contextual imputations, to reach the conclusion articulated in the section (namely, that because of the truth of those matters the plaintiff's defamatory imputations do not further harm his or her reputation). 24Separately, the requirement to focus on the facts, matters and circumstances relied upon to prove the substantial truth of the contextual imputations demonstrates the difficulty of establishing, in a case such as the present, that a contextual imputation should be struck out or disallowed on the basis that the imputation is not capable of satisfying the requirements of section 26. As already noted, the determination of that issue has been deferred for further consideration in the present case.

Particulars of truth 25The next objection raised by the plaintiff related to the truth defence. The plaintiff sought orders that the truth defence and all of the particulars provided in support of it be struck out, presumably on the basis that they disclosed no reasonable defence: rule 14.28(1)(a) of the Uniform Civil Procedure Rules 2005. I was not satisfied that any part of the defence was liable to be struck out on that basis.

First imputation (a) 26Imputation (a) alleged to arise from the first article is: That the plaintiff so failed to meet his tax obligations that he was a major scalp in a crackdown on unpaid tax by the Australian Taxation Office. 27The particulars of truth given in respect of that imputation include the contention that, in around 1999, the Australian Tax Office commenced a programme called the Legal Profession Project, designed to crack down on the levels of unpaid tax amongst members of the legal profession. However, there is no allegation in terms that the plaintiff was a target of that project. Further, in a letter dated 24 March 2011, the defendants acknowledged that they could not allege that the plaintiff was a target of that project. It was asserted on behalf of the defendants in that context that the ATO is not amenable to compulsory process. 28In those circumstances, the plaintiff submitted that the particulars are incapable of proving the truth of the imputation that he was "a major scalp" in any crackdown on unpaid tax by the Australian Taxation Office. 29The principles applicable to strike-out applications are well known. The stringency of those principles reflects the draconian consequences of depriving a party of the entitlement to have his case determined in the ordinary way. The High Court has recently emphasised that the test to be applied is not an assessment of the prospects of success of a claim but, rather, demonstrated certainty of outcome: see Spencer v Commonwealth [2010] HCA 28 at [54] to [55] per Hayne, Crennan, Kiefel and Bell JJ. 30In the present case, I was not persuaded that the matters relied upon by the plaintiff demonstrated certainty that imputation (a) cannot be proved to be substantially true. Undoubtedly, the defendants' inability to ascertain by compulsory process whether the ATO had identified the plaintiff as a target of the Legal Profession Project is a potential weakness in the defence. The critical question, however, is whether on the strength of the particulars pleaded it would be open to the jury to infer that imputation (a) is substantially true. 31The plaintiff's submissions did not persuade me that the defence was so clearly untenable that it could not possibly succeed. The evidence could well have established a proper basis for an inference that the plaintiff was successfully targeted in a crackdown by the ATO, even though the defendants were not in a position to make a positive assertion to that effect in the pleading. I do not think the concession in the letter dated 24 March 2011 precluded the defendants from inviting the jury to draw that inference, if fairly open to them, at the end of the case.

First imputation (b) 32Imputation (b) relied upon by the plaintiff in respect of the first article is: That the plaintiff behaved in a dishonourable way by permitting his old firm to go into administration and, on the same day, opening a new firm. 33The plaintiff submitted that the justification defence in respect of that imputation was fundamentally flawed in two respects. First, it was contended that there could be nothing dishonourable in the plaintiff's continuing to work as a solicitor after the collapse of his previous firm. Secondly, it was submitted that none of the particulars supported the proposition that the plaintiff actually opened a legal practice on the same day on which he permitted his old firm to go into administration. 34In substance, the truth defence insofar as it relates to imputation (b) invokes the allegory of a "phoenix" company. The particulars allege that, prior to 1 July 2007, the plaintiff was in practice as a sole practitioner and was personally liable for all of the debts of his practice. From 1 July 2007, the practice was restructured as a limited partnership. The only general partner of the limited partnership was a company, McMahons Management Consultants Pty Limited (referred to as MMC), of which the plaintiff was the sole shareholder and director. The particulars allege (in substance) that a staff member invited to join the limited partnership was given to believe that the plaintiff had more than sufficient financial resources to make available to the new limited partnership. 35The particulars further allege (and it is uncontroversial) that on 2 October 2007 the plaintiff became bankrupt and put MMC into administration. The particulars compare the position of the plaintiff following those events with the position of his creditors and employees. 36Separately, the particulars allege that, shortly before 2 October 2007, the plaintiff "made plans for his continued legal practice". 37I was not persuaded that the "phoenix allegations" as particularised were manifestly incapable of establishing the substantial truth of imputation (b). Whether it is to be regarded as dishonourable for a solicitor to permit his old firm to go into administration and, on the same day, open a new firm is plainly a matter for the jury. 38I had more difficulty with the question whether the particulars were capable of establishing that that is what occurred. Ultimately I was persuaded that there is some scope for different views as to what amounts to opening a new firm on the same day. Mr McClintock submitted that a distinction must be drawn between doing something and merely planning to do something. He submitted that nothing in the particulars could establish that anything more than planning had been done at the relevant time. 39The plaintiff did not assert that no new firm was opened at any point, and evidently accepts that at least some steps had been taken to that end on the day he put MMC into administration. The steps involved in "opening" a law firm and the extent to which those steps had been taken by the plaintiff may well be open to debate, according to the evidence. Not knowing what the evidence would be on that issue, I concluded that it would be wrong to strike out the defence on that basis.

First imputation (c) 40Imputation (c) relied upon by the plaintiff in respect of the first article is: That the plaintiff cheated the staff of his firm by failing to pay the superannuation moneys which they were owed. 41With great respect to Mr McClintock, I think the arguments put in respect of that imputation were directed rather to a qualitative assessment of the prospects of success of the defence than to demonstrating that it was certain to fail. 42I accept, as submitted by Mr McClintock, that the allegation is one of deliberate dishonesty and must be proved to the high standard applicable to such allegations. 43The defence rests on a broad combination of circumstances leading to the plaintiff's bankruptcy from which the defendants proposed to invite the jury to infer that the plaintiff's failure to meet staff superannuation entitlements reflected a deliberate and dishonest choice. I was not persuaded, from a reading of the particulars alone, that the evidence in support of them could never sustain that conclusion. It seemed to me to be a matter that should rather have been raised, if appropriate, at the conclusion of the evidence. 44A separate point taken by Mr McClintock rested on matters I regard as technicalities which ought not be regarded as being fatal to the defence. Mr McClintock noted that the imputation asserts failure to pay staff "superannuation moneys which they were owed". He noted that such moneys are not owed to staff since the superannuation is not payable to them but to the trustee of their superannuation fund. 45He noted further that the particulars do not assert when the plaintiff came under an obligation to make the payments in question. However, the substance of the defence is that payments to which an entitlement had accrued (whether or not then due for payment) were never made. If the evidence is capable of establishing that occurred as a result of deliberate choices made by the plaintiff in the management of his financial affairs, it may well be open to the jury to conclude that it was substantially true to say that he cheated his staff of those amounts, depending on the evidence.

First imputation (d) 46Imputation (d) relied upon by the plaintiff in respect of the first article is: That the plaintiff had behaved in a devious and underhand way by concealing the true financial position of his firm from his staff. 47As with imputation (c), the points made by the plaintiff in respect of that imputation should rather have been raised, if appropriate, at the conclusion of the evidence. Mr McClintock submitted that the particulars provided do not support an allegation that the plaintiff behaved in a devious or underhand way, in that there is no statement as to the dates and circumstances in which it is alleged that the true financial position of the firm was concealed. In my view, a fair reading of the particulars as a whole adequately reveals the way in which the case is put on that issue. Whether it should go to the jury will turn very much on the detail of that evidence.

Second imputation (c) 48Imputation (c) relied upon by the plaintiff in respect of the second article is: That the plaintiff so conducted himself as a solicitor and as a director of a corporation as to give rise to a suspicion that he allowed that corporation to trade insolvent in breach of the Corporations Act. 49As I understood the plaintiff's submissions in respect of the particulars relied upon to justify that imputation, the short point was that there was no allegation to sustain the contention that the relevant company traded. 50The company referred to was MMC. As already noted, the particulars allege that, from 1 July 2007, that company was the only general partner in the limited partnership established by the plaintiff. In that capacity it managed the law firm and stood to incur debts. I confess do not understand how, in that context, the proposition that it traded could be said to be unsustainable. 51Separately, the plaintiff complained that particulars as to his own financial position were incapable of supporting the allegation that he allowed the corporation to trade whilst insolvent. That submission overlooked the fact that, as particularised, the defendants' case is that the company could only have been able to meet the debts of the limited partnership by having recourse to the resources of the plaintiff. His level of aggregate debt was accordingly plainly relevant to the proof of the imputation, in my view.

Second imputations (d) and (e) 52In my view, the arguments put in respect of the remaining imputations fell into the category of being directed to a qualitative assessment of the prospects of success of the defence rather than to demonstrating that it was certain to fail. I was not persuaded that the truth defences were liable to be struck out before the trial began.

Imputations relied upon in respect of the second article - defendants' application to amend to plead truth to imputations (a) and (b) 53The first two imputations relied upon in respect of the second matter complained of included the proposition that the plaintiff was being investigated by the Legal Services Commissioner for various purposes. They were: (a) the plaintiff was being investigated by the Legal Services Commissioner to determine whether he should be prosecuted for offences. (b) the plaintiff was being investigated by the Legal Services Commissioner to determine whether he should lose his practising certificate and be fined for breaches of the Legal Profession Act. 54The defendants did not initially seek to justify those imputations. 55Just over a week before the trial was due to commence, the plaintiff gave further discovery of documents including correspondence between himself and the Law Society flowing from the fact that his presentation of a debtor's petition on 2 October 2007 was a "show cause" event under the Legal Profession Act 2004. The letter under cover of which that material was provided to the defendants (signed by Mr McMahon) stated that he did not consider that material to be discoverable but was nevertheless enclosing copies as requested. 56At least some of the correspondence plainly fell within the categories for discovery agreed between the parties, in my view. To the extent that others were debatable, for prudence they ought to have been discovered. I find it surprising that Mr McMahon took a different approach. Read in the context of the relevant legislation, the correspondence reveals that, as at the date of publication of the second article, the plaintiff was being investigated by the Law Society Council to determine whether he remained a fit and proper person to hold his practising certificate having regard to all the facts and circumstances surrounding the show cause event. 57The receipt of that material prompted the defendants to seek leave to amend their defence so as to justify imputations (a) and (b) as being true in substance. Although the investigation was not undertaken within the Office of the Legal Services Commissioner, Mr Dawson submitted that a consideration of the regulatory regime reveals that the participation of the Law Society occurs under the auspices of that Office and amounts in substance to the same thing. 58Mr McClintock vigorously opposed the application, submitting that the defendants ought to have known that there must have been an investigation by the Law Society, since that is what the legislation requires upon the happening of a show cause event. There was a measure of tension between that submission and the position evidently taken by the plaintiff himself, who appears to have considered (wrongly, in my view) that the Law Society's response to the show cause event did not amount to an investigation of his entitlement to hold a practising certificate. 59Separately, Mr McClintock submitted that the particulars could not on any analysis support the proposition that the purpose of any investigation was to determine whether the plaintiff should be prosecuted for offences or be fined for breaches of the Legal Profession Act 2004. Not knowing what the evidence would be as to the investigation, I did not consider that a sufficient reason to reject the application to amend. The statute expressly provides that the Law Society Council is not limited to investigating and making its determination on the basis of just the show cause event concerned and must have regard to the facts and circumstances that surround, arise in connection with, relate to or give rise to the show cause concerned (s 68(4) of the Act). 60Accordingly, I determined that the amendment to plead the defence of substantial truth to imputations (a) and (b) relied upon in respect of the second matter complained of should be allowed.

Defendants' application to amend to plead a new contextual imputation 61Also allegedly as a result of the late discovery of the Law Society correspondence, the defendants sought to rely upon a new contextual imputation as follows: The plaintiff's conduct as a solicitor was under investigation by a legal services regulatory authority. 62Put shortly, I accepted, as submitted by Mr McClintock, that the new contextual imputation was incapable of amounting to an "other imputation" within the meaning of s 26. 63In John Fairfax Publications Pty Limited v Jones [2004] NSWCA 205, Spigelman CJ said (at [15]-[16]): The background history of s16 is set out by Priestley JA in Waterhouse v Hickie supra at 61,490. It does appear that the defect in the common law position was identified in circumstances where the two imputations were of a different character, rather than different levels of generality of the same allegation, e.g. the allegation of murder, theft and failure to attend church referred to in Plato Films Ltd v Speidel [1961] AC 1090 at 1142. This concern is reflected in the word "another", where appearing in the clause "another imputation is made by the same publication" in s16(1). 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.) 64Mr Dawson sought initially to persuade me that those remarks did not enjoy the support of a majority of the Court in that case. However, as noted by Mr McClintock, they have since been cited with evident approval in the unanimous decision of the Court of Appeal in Besser v Kermode at [68]-[69] per McColl JA; Beazley and Giles JJA agreeing at [1] and [2] respectively. 65I was not satisfied that the proposed new contextual imputation was of a different character from the plaintiff's imputations. In my view it was, in substance, no more than an alternative way of formulating imputations (a) and (b) relied on by the plaintiff in respect of the second article. It was based on the same words in the article and applied those words in the same way. Accordingly, I refused leave to the defendants to amend their defence so as to rely upon that contextual imputation.

Costs thrown away 66Separately, the proposed amendment formalised the position that had previously been foreshadowed, namely that the defendants had abandoned the defence of qualified privilege. Mr Dawson accepted in those circumstances that the plaintiff should have the costs thrown away by reason of the abandonment of that defence.

Conclusion 67For those reasons, I refused the plaintiff's application (made orally) to have parts of the defence struck out. I granted leave to the defendants to amend their defence to the extent identified in these reasons. 68I now order the defendants to pay the plaintiff's costs thrown away by reason of the abandonment of the defences of qualified privilege.

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: 20 March 2012

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