Mortimer v Nationwide News Pty Ltd

Tuesday, 4 July, 2000 20566/99 David Allen MORTIMER v NATIONWIDE NEWS PTY LTD

1 HER HONOUR: The plaintiff brings proceedings in defamation against the defendant arising out of the publication of three articles in The Australian. The first matter complained of is an article published on 17 August 1999 which the plaintiff claims in its natural and ordinary meaning contained five imputations defamatory of him. The terms of that article are set out in numbered paragraphs in Schedule A to the Statement of Claim. The second article was published on 2 September 1999. The plaintiff contends that in its natural and ordinary meaning it conveys four imputations defamatory of him. It is set out in numbered paragraphs in Schedule B. The third article was published on 12 November 1999. The plaintiff contends that in its natural and ordinary meaning it contains six imputations defamatory of him. It is set out in numbered paragraphs in Schedule C to the Statement of Claim. 2 A number of objections are taken both as to the capacity of the matters complained of to convey and as to the form of certain of the imputations pleaded. The parties agreed to the separate determination of these objections pursuant to Part 31 r 2 of the Supreme Court Rules 1970. 3 The imputations pleaded with respect to the first matter complained of (Schedule A) are set out in paragraph 4(a)-(e) of the Statement of Claim. Objection is taken to imputations 4(a) and 4(d) upon the basis that the matter complained of is not reasonably capable of conveying either imputation. 4 The article set out in Schedule A is a report of the announcement made by Peter Corrigan (who is described as having been running the GIO for the past seven months) of a $743 million loss sustained by the GIO. The article goes on to state that the loss was the work of the previous management and board. They are described as having fanatically fought off a take-over bid by the AMP. In so doing, it is said that they spent a good deal of shareholders' money. 5 Imputation 4(a) is pleaded in these terms: "The plaintiff lied to GIO shareholders in that he, as Chairman of GIO, on 9 December 1998, falsely predicted a profit of $80 million from GIO reinsurance."

6 Mr Blackburn, who appears on behalf of the defendant, submits that the fundamental problem with this imputation is the assertion that the plaintiff lied to shareholders. He submits that the article suggests mismanagement as distinct from dishonesty. In particular he points to the assertion "directors should have realistically known that the position wasn't as glowing as they portrayed". This it is said is very different to an assertion that the directors "must have realistically known" which, Mr Blackburn accepts, would have supported the imputation pleaded. 7 The question for me to determine is whether it is open to a jury to find that ordinary reasonably readers would have understood the matter complained of in the defamatory sense pleaded. In determining this question I must reject any strained, forced or utterly unreasonable interpretation; Jones v Skelton (1963) 63 SR (NSW) 644 at 650. The issue is whether the imputation pleaded is reasonably capable of being conveyed; Amalgamated Television Services Pty Ltd v Marsden (1998) 43 NSWLR 158 at 164/5. I am to bear in mind the statement of the test in Prosser's Handbook of the Law of Torts, 5th ed. (1984) by Prosser & Keeton at 283: "The most common statement is that if reasonable persons may differ as to the conclusion to be drawn, the issue must be left to the jury; otherwise it is for the court." (Cited in Amalgamated Television Services Pty Ltd v Marsden at 164).

8 In determining whether the matter complained of is reasonably capable of conveying the pleaded imputations to the ordinary reasonable reader, I am to bear in mind that he or she is neither perverse, nor morbid, nor suspicious of mind, nor avid for scandal. He or she is a person of fair average intelligence who does not live in an ivory tower and can and does read between the lines in the light of his or her general knowledge and experience of worldly affairs; Farquhar v Bottom [1980] 2 NSWLR 380 at 386 in which the principles from the leading cases are conveniently summarised. 9 The article set out in Schedule A states (paragraph 3) that the minority shareholders will feel angry and betrayed because "the old board clearly misled them badly". It goes on to say: "Yesterday's result goes some of the way to explain why the old board chaired by David Mortimer resisted so strongly. Once control passed, the new owners would put the company and its operations under a microscope" (para 4). 10 The article asserts that what Corrigan and the AMP had found had stunned the market. The loss is said to be the product of a catastrophic $759 million black hole from the GIO's reinsurance business. It is noted that the old board predicted in its Part B defence document (dated December 9) that reinsurance would earn the company a profit of $80 million. "How could they be so wrong?" the author asks. He goes on to observe that independent adviser, Grant Samuel, valued the reinsurance division at between 1.05 and 1.3 billion. That valuation is described as Grant Samuel's "wildest yet". The AMP is described as evaluating its legal options. This is said to be "very ominous for Mortimer and his former GIO boardroom colleagues". The article asserts that "the crucial issue will be the time at which the defending directors knew of the deterioration in the reinsurance division". After observing that the directors should have realistically known that the position was not as glowing as portrayed, the author acknowledges that the full extent of the losses perhaps may not have been predictable at the time of the take-over. However, he goes on to state "clearly problems must have been starting to emerge in reinsurance by the end of last year as the bid was coming to a close". 11 To my mind the tenor of para 4, with it reference to the new owners putting the company under the microscope, together with the rhetorical question "[h]ow could they be so wrong?" and the assertion that the problems with the reinsurance business must have been starting to emerge by the end of 1998 as the AMP bid was coming to a close are (in combination with the other material which I have summarised) reasonably capable of conveying the imputation pleaded in paragraph 4(a). This imputation will go to the jury. 12 Imputation 4(d) is pleaded in these terms: "The plaintiff as Chairman of GIO used a valuation from Grant Samuel which he knew to be crazy in order to fanatically resist the AMP take-over bid for GIO."

13 The defendant submits that there is no reasonable suggestion that the plaintiff knew the Grant Samuel valuation was inaccurate or "crazy". 14 Para 6 is in these terms: "Independent adviser Grant Samuel valued the division at between $1.05 billion and $1.3 billion. This merchant bank has a track record of optimistic valuations but this one is their wildest yet. Now Corrigan has said he wants to sell reinsurance, it will be interesting to see if he gets anywhere near this figure. He won't be able to give it away. Yet this crazy number was used by the defending board to justify a mid-point value of $6.19 a share."

15 As noted above, the article recites that the old board had predicted in its Part B defence document that reinsurance would earn the company a profit of $80 million. As it turns out the reinsurance business caused a loss of $759 million. 16 Mr Neil QC, who appears with Mr Caspersonn on behalf of the plaintiff, submits that it is only by a process of parsing and analysis (the very thing not demanded of the ordinary reasonable reader) that one could advance the submission that the author of the article knew the Grant Samuel valuation to be "crazy" but that the plaintiff did not. He submits that it is clear that the article asserts that the Grant Samuel figures had been used by the old board in order to resist the AMP take-over and refers to the reference to this "crazy number" being used by the defending board to justify a mid-point valuation of shares at $6.19 (para 6). 17 When one goes back to para 3 (with its reference to the old board clearly misleading shareholders badly) it seems to me that there is force to Mr Neil's submission that the article is reasonably capable of conveying that the plaintiff knew the valuation from Grant Samuel to be crazy and that he used it in order to resist the AMP take-over. Imputation 4(d) will go to the jury. 18 I now turn to the objections taken to the imputations pleaded in paragraph 6 of the Statement of Claim which relate to the second matter complained of (Schedule B). Again, objection is taken upon the basis that two of the imputations pleaded are not reasonably capable of being conveyed by the matter complained of. Those imputations are 6(c) and 6(d). They are pleaded in these terms: "(c) The plaintiff as chairman of GIO, in order to cover up the true financial position of GIO, sacked Warburgs and retained Macquarie Bank to advise on GIO's defence of the AMP bid; and (d) The plaintiff as Chairman of GIO acted contrary to the interests of GIO shareholders in that he sacked Warburgs and retained Macquarie Bank in order to further his relationship with Macquarie Bank."

19 The article set out in Schedule B commenced by reference to a $500 million claim brought in the Federal Court by GIO shareholders against the old board and its independent valuer, Grant Samuel. The article goes on to suggest that the AMP is expected to join in the fray and that the former board's adviser, the Macquarie Bank, and its auditor Price Waterhouse Coopers will also be drawn into the firing line. The article suggests that Grant Samuel will for its own preservation find it necessary to bring a cross-claim against the GIO, its former executives and the auditor Price Waterhouse Coopers alleging that it, too, was misled or deceived. 20 A blizzard of litigation is said to be likely to engulf the central players who include the plaintiff. In paragraph 8 the article states: "Mortimer's relationship with adviser Macquarie Bank will also be an issue. He sacked GIO's previous adviser Warburgs and retained Macquarie for this defence. Mortimer works out of an office in Macquarie's Bond Street building. He and Macquarie have continued the relationship by trying to flush out a take-over bid for struggling logistics and health group, Mayne Nickless".

21 With respect to imputation 6(c) Mr Blackburn submits that only a forced or strained reading of the second matter complained of would lead to the conclusion that the reason the plaintiff sacked Warburgs and retained Macquarie Bank was that he wanted to cover up "the true financial position of GIO". He submits that there is neither any explicit or implicit suggestion in the second matter complained of that this was so. I was referred to the observations of Mason J in Mirror Newspapers Limited v Harrison (1982) 149 CLR 293 at 301: "A distinction needs to be drawn between the reader's understanding of what the newspaper was saying and the judgments or conclusions which he may reach as a result of his own beliefs and prejudices."

22 The matter complained of is capable of conveying that the plaintiff retained the Macquarie Bank for the GIO's defence of the AMP takeover. In so doing he sacked the GIO's previous adviser Warburgs. The AMP offer is described as having been clearly quite a generous one. The former directors are described as having made over optimistic statements about the company's prospects (this in the context of the old board's Part B document which predicted a pre-tax profit for the group when in fact it suffered a very substantial loss). It seems to me that the matter complained of is capable of conveying that the plaintiff was aware that the true financial position of the GIO was not as represented to the shareholders. It is in this context that I have regard to the statements "Mortimer's relationship with adviser Macquarie Bank will also be an issue. He sacked GIO's previous adviser Warburgs and retained Macquarie for this defence". Viewed in the context of the matter complained of as a whole, I consider that imputation 6(b) is reasonably capable of being conveyed. 23 The plaintiff submits that imputation (d) arises: "From the concept of fanatical defence when the offer was clearly quite generous; Mortimer was not protecting GIO shareholders' interests but was driven by ulterior and personal motives to favour advisers namely Macquarie Bank over Warburgs because he had a personal relationship with Macquarie Bank - Mortimer works out of an office in a Macquarie Bank building and is involved with that bank viz a viz a takeover bid for Mayne Nickless."

24 Mr Blackburn submits that there is nothing in the second matter complained of to suggest that the plaintiff's action in sacking Warburgs was contrary to the interests of GIO shareholders. It is accepted on the defendant's behalf that there may be a suggestion that the plaintiff had a relationship of some kind with Macquarie Bank and that such a question may give rise to an issue as to whether Warburgs should have been sacked. However, it is submitted that it would only be a reader avid for scandal who would infer that the plaintiff sacked Warburgs in order to further his own relationship with Macquarie Bank, or that it was contrary to the interests of shareholders. 25 Although the matter complained of describes a relationship between the plaintiff and the Macquarie Bank, I do not see how it is capable of conveying the imputation that the plaintiff sacked Warburgs and retained the Macquarie Bank in order to further his relationship with the latter. It may be that there is material in the matter complained of capable of sustaining the imputation that the plaintiff acted contrary to the interests of GIO shareholders in sacking Warburgs and retaining Macquarie Bank but I do not see how the article by implication, inference or otherwise can be said to convey that his reason for so doing was to further his relationship with Macquarie Bank. That the plaintiff has continued his relationship with the Macquarie Bank in connection with the takeover bid of Mayne Nickless does not seem to me capable of establishing that at an earlier point in time, namely when Warburgs were sacked, the plaintiff did so with a view to furthering his relationship with the Macquarie Bank. I consider that imputation 6(d) is not reasonably capable of being conveyed by the matter complained of and I propose to strike it out. 26 The third matter complained of (Schedule C) in its ordinary and natural meaning is said to convey six imputations defamatory of the plaintiff. These are pleaded in paragraph 8(a)-(f) of the Statement of Claim. All save imputation 8(b) are the subject of objection. They are pleaded as follows: "(a) The plaintiff as Chairman of GIO acted dishonestly in that although warned by potential rival bidders who were large international groups that GIO faced $1 billion in reinsurance losses, he failed to reveal this to GIO shareholders, to the detriment of GIO minority shareholders; (b) The plaintiff as Chairman of GIO was grossly incompetent in that knowing from potential rival bidders who were large international groups that GIO faced $1 billion in reinsurance losses, he cavalierly rejected the AMP bid, instead of accepting it, to the detriment of GIO minority shareholders; (c) The plaintiff as Chairman of GIO was dishonourable in that in order to retain his position as Chairman of GIO he rejected the AMP bid when he knew it was in the best interests of GIO shareholders to accept the bid; (d) The plaintiff abandoned his responsibilities to GIO shareholders and caused minority GIO shareholders substantial losses by rejecting the AMP bid for GIO when at the same time he knew from potential rival bidders, who were large international groups that GIO faced $1 billion in reinsurance losses and that therefore the AMP bid should have been accepted; (e) The plaintiff as Chairman of GIO acted dishonestly in that although warned by potential rival bidders who were large international groups that GIO faced $1 billion in reinsurance losses he endorsed a forecast that GIO reinsurance would make a $90 million profit for the 1999 financial year; (f) The plaintiff acted reprehensibly in that he duped the GIO shareholders by telling them their shares were worth between $5.61 and $6.71 when he knew the shares were worth much less, thereby causing loss to the minority shareholders."

27 Objection is taken to imputation 8(a) on the basis that the matter complained of is not reasonably capable of conveying any imputation of dishonesty against the plaintiff. Mr Blackburn submits that the article states that the plaintiff and Mr Steffey were warned by potential rival bidders that GIO faced a $1 billion in reinsurance losses, and that the board endorsed a forecast that reinsurance would make a profit of $90 billion for the 1999 financial year. Mr Blackburn submits that only a reader avid for scandal would infer from those statements that the plaintiff was aware that the warnings he received were correct or likely to be correct and that he deliberately concealed this information from GIO shareholders. 28 The article published in The Australian on 12 November 1999, which is the third matter complained of, was introduced by a photographic collage. That introduction was headed "Twist of Fate". On the left hand side appears the word "Then" and a picture of the plaintiff saying "Your GIO shares are worth between $5.66 and $6.71", together with a photograph of former GIO Chief Executive, Nick Steffey, saying "GIO has a blueprint to enhance your wealth". On the other side appears the word "Now" in bold and beneath that the letters "SG" and underneath that "Your GIO shares are worth between $2.04 and $2.31" a quote attributed to SG Hambros on 11 November 1999. Below that quotation appears a photograph of Mr Corrigan, the GIO's then Chief Executive and a quotation "Nobody has offered us a dollar for the reinsurance division". Underneath that quotation appear the words "Sucked in". Below that a history of the GIO share value is set out in chart form. 29 Having regard to the appearance of the photographic collage introduction, and in particular the words "sucked in", and to the material set out in paragraphs 4 to 7 inclusive, I consider that the imputation as pleaded is reasonably capable of being conveyed. Imputation 8(a) will go to the jury. 30 Imputation 8(c) is objected to upon the basis that it is not capable of arising. Mr Blackburn submits that the matter complained of conveys no suggestion either that the plaintiff knew it was in the best interests of GIO shareholders to accept the bid or that he rejected the bid in order to retain his position as Chairman of GIO. 31 The matter complained of refers to the release of the SG Hambros report on 11 November 1999. This report is described as being a useful weapon in the action brought by minority shareholders against former directors led by the plaintiff. The plaintiff is described as having cavalierly rejected the AMP's hostile share cash offer. That offer was well in excess of the GIO's value at the date of the article. The GIO is described as being fundamentally the same company as the one for which the AMP had bid the previous year. The article goes on to recite that the plaintiff and the former Chief Executive, Nick Steffey, were both warned by potential rival bidders for GIO of the $1 billion in reinsurance losses. The predictions of large international groups on this topic were said to have been disturbingly accurate. The article goes on to note "Yet, the board endorsed a forecast that reinsurance would make a profit of $90 million for the 1999 financial year". I consider the matter complained of, particularly when viewed in the light of the photographic collage, is capable of conveying the imputation pleaded in 8(c). This imputation will go to the jury. 32 Imputation 8(d) is objected to upon the basis that it does not differ in substance from imputation 8(a) and imputation 8(b). Mr Blackburn referred me to the decision of Hunt J (as he then was) in Singleton v John Fairfax & Sons Limited (unreported) NSWSC, 20 February 1980. In that judgment his Honour observed that the test of whether an imputation differs in substance from another may be determined by considering what must be proved by way of justification to each such imputation (at p 6). Mr Blackburn submits that in the instant case that the words of imputation 8(d) referring, as they do, to the plaintiff's abandonment of his responsibilities to GIO shareholders may differ from the words employed in imputations (a) and (b), but the concept remains the same. To this Mr Neil responds that imputation 8(d) takes up the concept of the abandonment of responsibilities as a director of a company. This as he put it was an additional count in the indictment. To my mind the assertion that 8(d) addresses itself to the responsibilities of directors in a way that leaves it as a materially different imputation to those pleaded in paragraphs 8(a) and (b) is somewhat artificial. Both imputations pleaded in paragraph (a) and (b) charge that the plaintiff's conduct as chairman of GIO was to the detriment of GIO minority shareholders. Imputation 8(b) charges that the AMP bid should have been accepted. I consider that the challenge to imputation 8(d) has been made good. I propose to strike it out. 33 Imputation 8(e) is also the subject of objection upon the basis that it does not differ in substance from imputation 8(a). Mr Blackburn submits with respect to this imputation that plainly the allegation is that the plaintiff endorsed the optimistic profit forecast in order to defeat the AMP bid. He submits that there could be no other reason for endorsing the optimistic profit forecast given that the conduct was in the context of the bid by the AMP. 34 Mr Neil submits that this imputation refers to what is said to be the more specific act of dishonesty, namely, knowing of enormous $1 billion losses from the reinsurance division and yet endorsing a forecast of $90 million profit. This is said to differ from imputation 8(a) which takes up the concept of dishonest non-revelation to GIO shareholders. I consider that a somewhat artificial distinction. I accept the force of the defendant's submission that imputation 8(e) does not differ in substance from imputation 8(a) and accordingly, I propose to strike it out. 35 Imputation 8(f) is objected to upon the basis of capacity. Mr Blackburn submits that the words "reprehensibly in that he duped the GIO shareholders" is a plain imputation of dishonesty and that the matter complained of could not reasonably convey the same. Again, by reference to the introductory collage and, in particular, the words "sucked in" I consider that the matter complained of is capable of conveying both that the plaintiff's conduct was reprehensible and that he duped the GIO shareholders by telling them their shares were worth between $5.61 and $6.71 when he knew that they were worth much less. So much seems to me open having regard to the photographic collage and accompanying captions. Imputation 8(f) will go to the jury.

36 1. Imputation 4(a) will go to the jury. 37 2. Imputation 4(d) will go to the jury. 38 3. Imputation 6(c) will go to the jury. 39 4. Imputation 6(d) is struck out. 40 5. Imputation 8(a) will go to the jury. 41 6. Imputation 8(c) will go to the jury. 42 7. Imputation 8(d) is struck out. 43 8. Imputation 8(e) is struck out. 44 9. Imputation 8(f) will go to the jury. 45 Each party to bear his/its own costs. 46 The matter is stood over to the Defamation List on Friday 7 July 2000 for further directions.

Last Modified: 09/26/2000 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.