McMahon v John Fairfax Publications Pty Limited [2012] NSWSC 224 | Case summary

Defence of substantial truth 7On the fifteenth day of the hearing, I ruled on an application by the plaintiff to have the truth defence withdrawn from the jury (T1325). The argument proceeded by reference to the truth of each individual imputation. The plaintiff did not suggest that, if some were not capable of being proved substantially true but others were, the defence could not stand. It was implicit in that approach that a defendant is entitled to have the jury answer questions as to the truth of each imputation even if those answers will not establish a defence to the whole of the defamatory matter complained of (that is, all of the defamatory stings complained of by the plaintiff). In my view, that is the correct approach. I will return to that issue. 8As to the first article, my ruling was that, insofar as the plea of truth responded to imputation (a) complained of by the plaintiff, the defence would not go to the jury. Insofar as the plea of truth responded to imputations (b), (c) and (d), I rejected the plaintiff's application and allowed the defence to go to the jury in respect of those imputations. 9As to the second article, I ruled that the truth defence in response to imputations (a) and (b) would not go to the jury. As to imputations (c), (d) and (e), I rejected the application and allowed the defence to go to the jury in respect of those imputations. 10It was subsequently accepted by the plaintiff that imputation (c) complained of in respect of the second article was incapable of arising (at T1343). That imputation did not go to the jury. 11These are my reasons for the rulings given in respect of the truth defence. 12Imputation (a) complained of by the plaintiff in respect of the first article is: 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. 13The particulars of truth pleaded in respect of that imputation alleged that, in or around 1999, the Australian Taxation Office commenced a program called the Legal Profession Project designed to crack down on the level of unpaid tax amongst members of the legal profession. 14The only evidence sought to be adduced by the defendants to establish the existence of that program consisted of a number of annual reports and compliance reports published by the Commissioner of Taxation. I refused to admit those reports into evidence, for the reasons published in McMahon v John Fairfax Publications Pty Ltd (No 4) at [18]-[33]. 15Following the rejection of that evidence, there was no evidence that there was a crackdown on unpaid tax by the Australian Taxation Office of the kind particularised in the defence. It followed, in my view, that the truth defence could not be left to the jury insofar as it related to that imputation. 16Mr Dawson submitted that the proposition that the Australian Taxation Office had lawyers in its sights could be left to the jury, either as a matter of notoriety or as a matter of common sense, and notwithstanding my refusal to admit the Annual Reports of the ATO. I did not think it would be fair to leave the imputation to the jury on that basis. 17Mr Dawson further submitted that the particulars given by the defendants as to the Legal Profession Project had arguably introduced an unnecessary complication and that the evidence was capable of sustaining an inference that the Australian Taxation Office had cracked down on Mr McMahon personally. However, since that did not accord with the way in which the case had been particularised, I did not think it would be fair to permit the defendants to put the defence on that different basis. 18Imputation (b) alleged to arise from 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. 19The first part of the imputation, although not strictly accurate as a matter of law, was not in contest (T1283.45). As at 2 October 2007, Mr McMahon's firm was a limited partnership of which the only general partner was a company, McMahon's Management Consultants Pty Limited. Mr McMahon was the only director and shareholder of that company. On 2 October 2007, Mr McMahon filed a debtor's petition in bankruptcy and appointed administrators of the company. That raised doubt as to whether the limited partnership could continue. On 4 October 2007 the administrators of the company applied to this Court to be appointed receivers of the limited partnership and that occurred on 5 October 2007 (the day on which the article was published). I should note that, so far as I recall, that last event was not in evidence before the jury (see T1307.15). In any event, it was accepted by Mr McMahon that, in substance, what had occurred as a result of the events of 2 October 2007 was that he had permitted the limited partnership to go into administration. 20Further, it was not in dispute that, as at 2 October 2007, Mr McMahon was planning to open a new firm, to be called McMahon Charleston. However, it was submitted that there was no evidence that McMahon Charleston opened for business before 19 October 2007, some two weeks after publication of the article. The written submissions filed on behalf of the plaintiff stated: The sting of the imputation lies in the allegation of "phoenixing" the firm, or, put another way, of abandoning its still warm corpse and continuing to trade at a time and from a location which permitted it to maintain the continuity necessary to preserve all of its benefits while creditors and employees are left to struggle with the old structure. It is an imputation of callous indifference and trickery. This was not put to the plaintiff. 21The plaintiff submitted that preparatory steps taken prior to 2 October 2007 towards opening the new firm at a later point could not establish the substantial truth of the imputation because they missed the sting, which lay in the allegation of phoenixing. 22According to Mr McMahon's evidence, the following things had happened as at the date of publication of the first article (5 October 2007): (a) on 24 September 2007, Mr McMahon told one of his employees, Linda Charleston, that he would be going bankrupt. Subsequently, both Mr McMahon and Ms Charleston had discussions with another law firm before deciding to continue in practice together under "some sort of loose association" (T215); (b) at a further meeting on Saturday 29 September 2007 between Ms Charleston, her husband and Mr McMahon, Ms Charleston suggested calling the new firm McMahon Charleston; (c) on 2 October 2007 (the day on which Mr McMahon went bankrupt and placed the company, McMahon Management Consulting Pty Ltd, into administration), Ms Charleston registered the name McMahon Charleston as a business name. 23Mr McMahon gave evidence that he started practising at McMahon Charleston on 19 October 2007 after the affairs of the old partnership had been wound down. He said that, between 2 and 19 October 2007, he was assisting the administrators and receivers with that task. 24Mr McMahon also gave evidence that, on 3 October 2007, he received a telephone call from Mr Jamie Abrahamse of Lumley (then a major client of Mr McMahon's). Mr Abrahamse told Mr McMahon that he had heard the firm was in financial trouble and was in fact in liquidation. Mr McMahon said: "Well, no, we do have problems. I put the firm's general partner into administration but the partnership is still continuing. The files are being looked after. I'm looking after the Lumley files personally in Sydney and I intend in due course to start a small law firm with Linda Charleston and that I would like to take the Sydney Lumley files with me, that Tony's got - the Brisbane partner - had about 22 files. He had already by that stage found the firm and I would like to recommend that the Lumley files go with him in Brisbane and with Andrew Fairbank in Melbourne." 25Central to the plaintiff's application to have the defence withdrawn from the jury was the proposition that, before "opening" a new firm, certain steps must be taken, critically including taking out professional indemnity insurance and being registered with the Law Society. Mr McClintock emphasized that, viewed in the context of the article, the imputation conveyed a sense of there having been, as at 2 October 2007, a new office with physical premises, a receptionist and employed lawyers ready to accept new clients. 26The question for my determination was whether there was evidence upon which the jury could (not would) decide in favour of the defendants on that issue. Further, it must be remembered that the defence under s25 requires proof only that the imputation is substantially true. I concluded that it was a matter for the jury to determine, as a question of fact, whether the steps that had been taken by Mr McMahon as at 5 October 2007 amounted, in substance, to his having opened a new firm "on the same day" that the old firm was put into administration. As submitted by Mr Dawson, the words of the imputation did not necessarily require proof that there had been "a ribbon-cutting ceremony". What amounts in substance to opening a new firm (where the sting of the imputation was dishonourable behaviour in that particular respect) was properly a matter for the jury on the strength of all of the evidence. 27Imputation (c) alleged to arise from the first article is: That the plaintiff cheated the staff of his firm by failing to pay the superannuation monies which they were owed. 28The plaintiff's argument in respect of the plea of truth in response to that imputation turned in part on a number of technical points, which I considered to be without substance. First, it was submitted that, from 1 July 2007, the plaintiff himself did not owe superannuation monies to any staff. His only personal obligations were in respect of the former practice, McMahon's National Lawyers, of which Mr McMahon had been the sole partner. With effect from 1 July 2007, the structure of the practice was changed to a limited partnership. Mr McMahon had no personal liability for debts of the firm that accrued from that point. 29One answer to that submission was that there was some evidence relied upon by the defendants suggesting that some superannuation remained unpaid in respect of the period before 1 July 2007 (the period for which Mr McMahon was directly liable at the relevant time and for which he continued to have some conditional liability under an indemnity given at the time of the restructure). I later expressed some doubt as to whether that evidence could fairly be relied upon, but I should acknowledge that I took it into account in determining the present application. 30In any event I was of the view that, even if all of the liability related to the period from 1 July 2007, it was open to conclude that, in substance, the task of ensuring staff were paid was the plaintiff's. He was the sole director and shareholder of the only general partner of the limited partnership, McMahon's Management Consultants Pty Limited, which managed the partnership from that date. He was, in practice, the mind and the arms and legs of that company. He was the architect of the restructure and the person who determined what funds the limited partnership would have available to meet superannuation obligations as they accrued. 31Secondly, the plaintiff relied on the fact that the superannuation was not payable until after publication of the first article, although it had accrued before that point. I took the view that it was open to conclude that, if the plaintiff had failed to make provision for payment of superannuation as it accrued or otherwise failed to ensure that the firm could pay those amounts when they fell due, it was open to conclude that it was substantially true to say he had failed to pay those amounts. 32Separately, a point was taken that the superannuation monies were not owed to the staff of the firm but to their respective superannuation trustees. I took the view that that was a technical point, which did not go to the substance of the defamatory sting of the imputation. 33Finally, the plaintiff submitted that the defendants could not establish that the plaintiff had the intention of cheating his employees of those payments. I took the view that that was very much a matter within the province of the jury and that I should not withdraw that issue from their consideration based on my own assessment of the evidence. 34Imputation (d) alleged to arise from the first article was: That the plaintiff had behaved in a devious and underhand way by concealing the true financial position of his firm from his staff. 35In my view, the plaintiff's submissions as to that imputation overlooked the proper constraints on a judge in withdrawing a defence from the jury. The submissions were very much directed to persuading me on the basis of all the evidence that the imputation was not substantially true. 36The plaintiff submitted that to conceal a matter implies an obligation to disclose, whereas there was no evidence in the trial of the existence of any obligation on the plaintiff to give staff details of the firm's financial position. In my view, that was plainly a matter for the assessment of the jury. 37A separate submission addressed the issue of whether it could be regarded as devious or underhanded not to telegraph the collapse of the firm in circumstances where Mr McMahon had been advised not to do so by a senior insolvency practitioner. Once again, that was plainly an issue for the jury. It is not the function of the trial judge to usurp the role of the jury based on his or her own assessment of contested facts. It is only where the evidence is not capable as a matter of law of establishing the truth of the imputation that the defence can be withdrawn.

Defence of contextual truth 49On the twentieth day of the hearing, the jury returned with answers to the first set of questions. As to the first article, the jury found that two of the four imputations complained of by the plaintiff were conveyed and were defamatory. The jury further found that one of those imputations was substantially true: 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 (imputation (b) complained of in respect of the first article). 50As to the second article, the jury found that all four imputations complained of by the plaintiff were conveyed and were defamatory. Of those, the jury found that the following imputation was substantially true: That the plaintiff had conducted his firm's affairs dishonourably and so as to permit it to avoid payment of the debts which it owed (imputation (e) complained of in respect of the second article). 51In light of those answers, a dispute arose between the parties as to whether, in its consideration of the defence of contextual truth under s26 of the Defamation Act, the jury should in each case exclude consideration of the true imputation. 52Section 26 provides: It is a defence to the publication of defamatory matter if the defendant proves that: (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. 53Mr Andronos, who argued this issue on behalf of the plaintiff, submitted that, when making the determination as to "further harm" under s26(b), the jury should be directed to consider all of the imputations complained of by the plaintiff which the jury found were conveyed and were defamatory. He submitted that their consideration of that issue should in each case include consideration of the harm done by the imputation found to be substantially true. On behalf of the defendants, it was submitted that the question posed by s26 should be determined in each case disregarding the imputation the jury found to be substantially true. 54I ruled in favour of the defendants on that issue (at T1685.35). I directed the jury accordingly, including by giving them a written direction as to the defence of contextual truth with the following paragraph: As to the third issue, you are not asked to compare imputation with imputation. On the one hand, you must consider all of the facts, matters and circumstances that establish that the contextual imputations are substantially true. On the other hand, you must consider all of the plaintiff's defamatory imputations (disregarding any which you have found to be substantially true). 55The jury's task under s26(b) was left in the form of a written question as follows (in respect of the first article): Have the first and second defendant, Fairfax Publications Pty Ltd and Marcus Priest, established that the publication of the following meaning: (a) 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. Did not further harm the reputation of the plaintiff because of the substantial truth of the additional meanings (that is, those you have answered Yes in Question 2). 56These are my reasons for taking that approach. 57The plaintiff's position finds support in the decision of the Supreme Court of Queensland in Mizikovsky v Queensland Television Limited (No 3) [2011] QSC 375 at [39] to [43] per Dalton J. Her Honour said (at [40]-[41]): In my view it follows from the principles in Besser that all the plaintiff's imputations found to be conveyed and defamatory are considered against the substantial truth of all the contextual imputations. Under the previous legislative regime in New South Wales, where the imputation was the cause of action, a finding by the jury that one of several plaintiff's imputations was substantially true, in effect, removed it from the jury's consideration. It was not to be further considered, including in the comparative process involved in the contextual truth defence. Under the Act, as explained in Besser, to succeed on a defence of substantial truth - s 25 of the Act - it is necessary for a defendant to show that all the imputations in the matter complained of are substantially true. It does not avail a defendant to prove that some, but not all, imputations conveyed by defamatory matter are true, although that may go in reduction of damages (partial justification). If a defendant fails to prove a defence pursuant to s 25 of the Act, the question becomes whether or not there is a defence available pursuant to s 26 of the Act, and in performing the exercise required by that section, it seems to me there can be no warrant for excluding from consideration some of a number of imputations made which the jury consider to be substantially true. 58The decision in Mizikovsky provides a careful and helpful analysis of the complexities of the defence of contextual truth under s26 of the Defamation Act and was applied by me (on a different issue) in this trial (see McMahon v John Fairfax Publications Pty Ltd (No 3) [2012] NSWSC 196 at [18]). However, with great respect to Dalton J, I do not agree with her Honour's conclusion on this issue. Accordingly, acknowledging the proper constraints on declining to follow the decision of the superior court of another state dealing with nationally uniform legislation, I determined that I should not follow Mizikovsky on this point. 59In reaching her conclusion, Dalton J placed considerable emphasis on statements of this court in respect of the former defence of contextual truth under s16 of the Defamation Act 1974. In particular, her Honour noted that the defence under that section stood as an independent and alternative defence to the defence of substantial truth. 60A number of statements to that effect have been made by Hunt J, the former Defamation List Judge of this Court, whose expertise and wisdom in this field are legendary. Dalton J cited the following extract from his Honour's judgment in Allen v John Fairfax & Sons (NSW Court of Appeal, 2 December 1988, unreported). The emphasis (both underlining and italics) is that of Dalton J: The defence of contextual truth afforded by s 16 accepts that the matter complained of conveys the imputation pleaded by the plaintiff and that no other defence is available to the cause of action based upon that imputation. It asserts that the imputations pleaded by the defendant (the contextual imputations) are also conveyed by the matter complained of and that, even though the plaintiff's imputation is otherwise indefensible, such was the effect of the substantial truth of the defendant's contextual imputations upon the plaintiff's reputation that the publication of the imputation of which he complains did not further injure his reputation (in the sense that it did not cause additional injury to that reputation.) 61As observed by Dalton J in Mizikovsky, those remarks have been cited by Nicholas J, the present Defamation List Judge, in Con Ange v Fairfax Media Publications Pty Ltd & Ors [2011] NSWSC 204 at [15] and are echoed in similar remarks of Hunt J in John Fairfax Publications Pty Ltd v Hitchcock [2007] NSWSC 364. 62Dalton J acknowledged that, contrary to the position under the 1974 Act, it is no longer the case that the cause of action in defamation is the imputation itself. On that basis, her Honour suggested that the italicized words "based upon that imputation" in the remarks of Hunt J in Allen (set out above) ought to be ignored. 63I would interpret the significance of those words differently. In my respectful opinion, consideration of the fact that a defendant now has to defend the matter complained of rather than individual imputations reveals that the high level description of the defence of contextual truth offered by Hunt J in Allen should not inform the proper construction of s26 of the 2005 Act so far as the present issue is concerned. 64The remarks of Hunt J in Allen were directed to explaining the logic of the 1974 Act. Under that Act, since the imputation was the cause of action, the defence of contextual truth only arose for consideration on the assumption that no other defence was available to the cause of action based upon that imputation. 65The introduction of the 2005 Act brought NSW in line with other States in providing that there is a single cause of action in relation to the publication of defamatory matter even if more than one defamatory imputation is conveyed (s8 of the Act). The significance of that change and its impact upon defences of justification (both under the 2005 Act and at common law) are carefully analysed in the judgment of McColl JA in Besser v Kermode [2011] NSWCA 174 especially at [75] to [86]; Beazley and Giles JJA agreeing at [1] and [2] respectively. 66However, the defamatory imputations complained of by the plaintiff retain some significance, for example under Part 3 in respect of offers to make amends (see especially s14(3)) and in respect of the defences of truth (s25), contextual truth (s26) and qualified privilege (s30). 67Turning to the terms of s26 itself, Mr Andronos noted that the words "the defamatory imputations" in subsection (b) refer back to the words "the defamatory imputations of which the plaintiff complains" in subsection (a). He relied upon that aspect of the section to support the contention that the jury must consider all of the plaintiff's imputations that they have found to be conveyed and defamatory when determining whether the defendant has proved the requirement of subsection (b). I accept that is a possible construction of the section. However, I do not think that, on a purely textual basis, that is the only possible construction of the section. Further, in my view, that construction could produce absurd results and is unlikely to be what was intended by Parliament. 68To adopt the example given by Mr Dawson in argument, suppose an article conveyed the imputations that the plaintiff was a murderer, a thief and a litterbug. If the plaintiff chose not to cover the field, and sued only on the imputations that he was a murderer and that he was a litterbug, it should be open to the defendant to plead the defence of contextual truth on the strength of the imputation that the plaintiff was a thief. 69Suppose the defendant was able to prove that the imputation that the plaintiff was a murderer was substantially true, but was unable to prove the substantial truth of the imputation that the plaintiff was a litterbug. Suppose, further, that the defendant was able to prove the substantial truth of the contextual imputation that the plaintiff was a thief. 70According to the analysis propounded on behalf of the plaintiff in this case, the defendant in that example would have no defence under the Act. The defendant would have failed to prove the substantial truth of all of the plaintiff's defamatory stings. Further, the plaintiff would have defeated the contextual truth defence, since the task for the jury would be to enquire whether, by reason of the truth of the thief imputation, the murderer imputation (albeit true) and the litterbug imputation taken together did not further harm the plaintiff's reputation. 71As submitted by Mr Dawson, that analysis would enable the plaintiff to avoid the serious sting of the thief imputation by selective pleading: cf Besser v Kermode at [85] per McColl JA. 72At the conclusion of her judgment in Besser v Kermode, McColl JA summarized the courses of action open to a defendant seeking to justify defamatory matter under the 2005 Act as follows (at [86]): In summary, a defendant seeking to justify the defamatory matter under the 2005 Act may take the following courses of action, some statutory, some based on the common law: (a) prove that the defamatory imputations carried by the defamatory matter of which the plaintiff complains are substantially true: s 25; (b) prove that rather than the defamatory imputations pleaded by the plaintiff, the defamatory matter carries nuance imputations which are substantially true; (c) to the extent that the defendant fails to establish all the defamatory imputations carried by the defamatory matter of which the plaintiff complains are substantially true, rely on those proved to be true in mitigation of the plaintiff's damages: partial justification; and (d) to the extent the defendant can not prove that the defamatory imputations carried by the defamatory matter of which the plaintiff complains are substantially true, prove that it carries contextual imputations that are substantially true, by reason of which the defamatory imputations do not further harm the reputation of the plaintiff: s 26. 73Mr Dawson emphasized the words chosen by McColl JA in paragraph (d) above ("to the extent the defendant can not prove"). He submitted that, rather than the supporting the plaintiff's position, as Dalton J thought it did, the decision in Besser v Kermode lends support to the defendants' position. He submitted that there is no reason for not allowing s26 to be relied upon to defend the balance of the defamatory stings that remain following consideration of a defence of substantial truth under s25. 74I think it must be acknowledged that the decision in Besser v Kermode does not determine the present issue one way or the other. The ratio of that decision is that any plaintiff's imputations that are true cannot be taken into account on the defendant's side of the test in s26(b), since they are not "other imputations" within the meaning of s26(a). The question in the present case is whether any plaintiff's imputations that are true can be taken into account on the plaintiff's side of that test in determining the "further harm" issue. 75Besser v Kermode does not answer the latter question. I was concerned at one point that the matters considered in that decision at [88] to [89] implicitly prohibit the ruling I gave but, after further consideration, I do not think that is the case. 76Separately, although not determinative, the decision in Besser v Kermode does provide some comfort in support of the view I reached. First, the language of 86 relied upon by Mr Dawson does suggest that a defendant may defend the matter relying on defences of truth and contextual truth cumulatively. In my view, although defences under the act (including those under s25 and s26) are defences to "the publication of defamatory matter", and require the defendant to defeat all of the plaintiff's defamatory stings, nothing in the language of the Act precludes defence by a process of attrition. This is not to revert to the thinking of the 1974 Act. It merely reflects common sense, in my view, that the plaintiff's remedy should lie in respect of the combination of untrue defamatory stings of which he complains. 77Further, I note that the second reading speech of the Minister of Justice and Attorney General in the Northern Territory recorded by McColl JA at [39] assumed that the issue of further harm was concerned only with harm done by untrue statements in the matter complained of. 78For those reasons, I concluded that the construction contended for on behalf of the defendants does no violence to the language of s26 and accords with the objects of the Act. Accordingly, I concluded that the defence should be left to the jury on the basis indicated.

McMahon v John Fairfax Publications Pty Limited

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