Palace Films Pty Ltd v Fairfax Media Publications Pty Ltd

Supreme Court of NSW|2011-09-15|Before: McCallum J

Judgment 1HER HONOUR: These are proceedings for defamation arising out of the publication of two articles in the Australian Financial Review (in the print version of the newspaper and on the Internet) and a third article in an on-line publication known as Screenhub - Film and Television News. 2The articles discuss the fortunes of various Australian film distribution companies, including "Palace Films". The first plaintiff in these proceedings is a company named Palace Films Pty Ltd. The second and third plaintiffs are its two directors, Antonio and Benjamin Zeccola. 3The present application concerns the claim at the suit of the first plaintiff. The defendants submit that the first plaintiff's claim cannot be maintained, for two reasons. First, it is submitted that the articles do not identify Palace Films Pty Ltd as the subject of any defamatory meaning conveyed by the articles. Secondly, it is submitted that Palace Films Pty Ltd cannot maintain an action for defamation in any event because it is a non-trading corporation with no corporate reputation capable of being damaged by a defamatory publication. In those circumstances, the defendants have moved to have the first plaintiff's claim dismissed summarily. This judgment determines that application.

Circumstances in which the application is brought 4As already noted, the articles are concerned with the film distribution industry in Australia. A number of film distributors are referred to, including "Palace Films". It is clear in all three articles that the "Palace Films" referred to is the entity which carries on the business of film distribution in Australia. For example, the two articles in the Australian Financial Review refer to Palace Films as having distributed the Australian movies, Lantana, Chopper, Japanese Story, Kokoda and Ten Canoes. There is further reference to "Palace" as "the film distribution division of the Zeccola family company that also includes Palace Cinemas". There is extensive discussion of the conduct of that business, including reference to its schedule of titles; the suggestion that it had become slow in returning profits to film producers; its dealings with the Film Finance Corporation and its long-standing support of Australian films. Similar references are found in the third matter complained of, the Screenhub article. 5It was common ground at the hearing that the company which conducts that business is not Palace Films Pty Ltd but another company, Palace Enterprises Pty Ltd. The second plaintiff, Antonio Zeccola, is a director of that company as well as being a director of Palace Films Pty Ltd. However, Palace Enterprises Pty Ltd cannot sue for defamation, by reason of the operation of s 9 of the Defamation Act 2005. Section 9(1) provides that a corporation has no cause of action for defamation unless it was an "excluded corporation" at the time of publication. The definition of an excluded corporation is provided in s 9(2) of the Act, as follows: Section 9(2) of the Defamation Act: (2) A corporation is an excluded corporation if: (a) the objects for which it is formed do not include obtaining financial gain for its members or corporators, or (b) it employs fewer than 10 persons and is not related to another corporation, and the corporation is not a public body. 6Palace Enterprises Pty Ltd does not fall within that definition. It trades for profit and is a wholly-owned subsidiary of Balwyn Cinema Holdings Pty Ltd. 7The pleading alleges that Palace Films Pty Ltd was an excluded corporation at all material times, employing fewer than ten persons and not being related to another corporation. It would appear to be a "related entity" in relation to Palace Enterprises Pty Ltd within the meaning of the Corporations Act 2001, since those two companies have a common director in Antonio Zeccola. However, s 9(4) of the Defamation Act adopts, for the purpose of s 9 of that Act, the definition of "related bodies corporate" in s 50 of the Corporations Act. According to that narrower definition, it appears that Palace Films Pty Ltd is not "related" to Palace Enterprises Pty Ltd. 8At the time of publication of the three articles, Palace Enterprises Pty Ltd was trading as "Palace Films". That is not a registered business name. 9Those circumstances prompted the defendants to make inquiries and seek the production of documents relating to the trading status of Palace Films Pty Ltd. Their inquiries revealed that Palace Films Pty Ltd has never traded. It lodged annual returns with ASIC from 2000 (shortly after its incorporation) until 2003 but has not done so since. It has never prepared financial reports or tax returns. It has never entered into any agreements for the financing or distribution of Australian feature films.

Identification of the first plaintiff 10A defamatory publication is not actionable unless it is established to have been published "of and concerning" the plaintiff. Where the plaintiff is not expressly named, it must be established that the matter was published to at least one person who had knowledge of extrinsic facts that would provide the necessary identification: Morgan v Odhams Press Ltd [1971] 1 WLR 1239 at 1243-4 per Lord Reid. The provision of such particulars is a requirement under the rules: r 15.19(d) of the Uniform Civil Procedure Rules. 11The parties were in dispute as to whether the first plaintiff is named in the articles. Nowhere in any of the articles is there reference to "Palace Films Pty Ltd". All of the references are to "Palace" or "Palace Films", the business name under which Palace Enterprises Pty Ltd trades. 12The original pleading assumed that those references were capable of referring, without more, to Palace Films Pty Ltd. The defendants did not accept that position. They contended that, by reason of the omission of the corporate characterisation "Pty Ltd", the first plaintiff was not named. They made repeated requests for particulars of the extrinsic facts that would be relied upon to establish that the matters complained of were published to persons who understood them to be referring to the first plaintiff. 13Those requests were initially met with the response that the first plaintiff was named and that no such particulars were necessary. Particulars were ultimately provided as follows: "...there were persons who read the matters complained of and understood them to be referring to both the plaintiff and Palace Enterprises Pty Limited trading as Palace Films. Such persons included the following: 1.Antonio Zeccola 2.Benjamin Zeccola 3.Michael O'Connell (the CFO of the Palace Group of Companies) We note that the first plaintiff is not directly involved in the Palace Film distribution business. 14Following further complaint that those particulars still failed to include any relevant extrinsic fact leading to identification of the first plaintiff, the plaintiffs propounded a proposed third further amended statement of claim which provides the following additional particulars on that issue: The material complained of was read by persons who identified Palace Films as being the first plaintiff. They identified the first plaintiff because of their knowledge that the first plaintiff was a corporation, was founded by Antonio and Benjamin Zeccola and permitted its name 'Palace Films' to be used in connection with film distribution by Palace Enterprises Pty Ltd. Such persons included: 1.Antonio Zeccola; 2.Benjamin Zeccola; 3.Michael O'Connell. 15The untested premise of those contentions is that Palace Enterprises Pty Ltd can only trade as Palace Films with the permission of Palace Films Pty Ltd. The legal correctness of that premise was not addressed in the hearing before me. The first two persons named in the particulars are the second and third plaintiffs. As the earlier particulars reveal, the third is an officer of what the plaintiffs describe as the Palace Group of Companies. 16The threshold question is whether reference to "Palace Films" without the full corporate title (including the words "Pty Ltd") adequately named the first plaintiff so as to sustain the pleading that there was a defamatory publication "of and concerning" the first plaintiff without resort to the particulars of identification. In submitting that the first plaintiff was not named, the defendants relied upon the decision of the Court of Appeal in Channel Seven Pty Ltd v Parras [2002] NSWCA 202 particularly at [31] and [33] per Mason P; Handley JA and Ipp AJA. That case, however, did not determine this threshold question. 17In Parras, the matter complained of referred only to the name of a club in fact operated by the corporate plaintiff. There was no reference to the name of the company at all. 18The present case is different to the extent that part of the name of the plaintiff company does appear in the matter complained of. Nonetheless I accept, as submitted on behalf of the defendants, that the incompleteness of the company's proper title produces uncertainty, giving rise to the need for the first plaintiff to establish that at least one person to whom each matter complained of was published understood from extrinsic facts that the article referred to Palace Films Pty Ltd. 19The case has some analogy with the circumstances considered in the decision of the High Court in Lee v Wilson & MacKinnon (1934) 51 CLR 276. In that case, a newspaper article reported that "Detective Lee" had accepted corrupt payments. Two Victorian detectives, Arthur Lonsdale Lee and Clifford Lee, each brought an action for defamation against the proprietors of the newspaper. Neither was the detective involved in the events reported in the article. The High Court held that, since the words were reasonably understood to refer to each of them, the two plaintiffs could each maintain an action. 20In my view, in the absence of any reference to Palace Films Pty Ltd by its full title (including the words Pty Ltd), it cannot be said that the matters complained of identify the first plaintiff without resort to knowledge of extrinsic facts. The reference to "Palace Films" does not indicate that the entity referred to is a company. That is significant in the context that, as already explained, it is clear enough that the articles were concerned with the business in fact conducted by Palace Enterprises Pty Ltd trading as Palace Films. The fact that there existed a company carrying the name Palace Films Pty Ltd (which does not trade) brings the matter into the category of cases such as Lee where an unintended target of the same name is reasonably understood as having been referred to. However, without the full corporate title, I accept that the first plaintiff was not named in terms. 21Accordingly, I am satisfied that, in order to maintain the claim, it is necessary for the first plaintiff to establish that it was identified by readers with knowledge of extrinsic facts at the time of publication. 22The difficulty with the particulars relied upon by the first plaintiff is that they demonstrate, unequivocally, that any person who knew the facts particularised (that Palace Films Pty Ltd permitted the name "Palace Films" to be used in connection with film distribution by Palace Enterprises Pty Ltd) must necessarily also have known that it was Palace Enterprises Pty Ltd, and not Palace Films Pty Ltd, which conducted the film distribution business discussed in the matters complained of. 23The circumstances are similar to those that arose in Craftsman Homes Australia Pty Ltd v TCN Channel Nine Pty Ltd [2003] NSWSC 124. In that case the first plaintiff, Craftsman Homes Australia Pty Ltd, carried on the business of franchising. It was not engaged in building work. The broadcast sued on was concerned only with the building works of another entity in the same corporate group. Kirby J directed a verdict against the first plaintiff on the basis that the ordinary reasonable viewer knowing the extrinsic facts would relevantly also know that Craftsman Homes Australia Pty Ltd does no building work and, accordingly, could not reasonably derive any of the defamatory imputations relied upon as referring to the first plaintiff: at [30] to [31]. 24Accordingly, I am satisfied that the particulars provided are not capable of identifying the first plaintiff. The claim pleaded by the first plaintiff is liable to be struck out on that basis.

Claim brought by a non-trading company 25The second basis for the defendants' application was the contention that the first plaintiff cannot maintain the claim in any event, since it is a non-trading corporation with no corporate reputation, business or other interest capable of being damaged by a defamatory publication. 26Mr Richardson, who argued this issue on behalf of all of the defendants, submitted that, in the whole body of jurisprudence dealing with "corporations at the margin" such as non-trading corporations, trade unions, governmental bodies, charities and the like, there is no support for the proposition that a shelf company such as the first plaintiff can sustain an action for defamation. 27The central proposition to emerge from the authorities is that a company suing for defamation must establish that it has been injured in its pocket: Lewis v Daily Telegraph Ltd [1964] AC 234 at 262; NSW Aboriginal Land Council v Jones (1998) 43 NSWLR 300 at 308B per Handley JA; Powell JA agreeing at 311D. Handley JA noted at 307C that "no narrow view has been taken of the type of corporation which may be injured in its pocket". 28The kind of interest was considered in the decision of the House of Lords in Derbyshire CC v Times Newspapers Ltd [1993] AC 534 at 547 per Lord Keith of Kinkel, where his Lordship said: The authorities cited above clearly establish that a trading corporation is entitled to sue in respect of defamatory matters which can be seen as having a tendency to damage it in the way of its business. Examples are those that go to credit such as might deter banks from lending to it, or to the conditions experienced by its employees, which might impede the recruitment of the best qualified workers, or make people reluctant to deal with it. The South Hetton Coal Co. case [p1894] 1 QB 133 would appear to be an instance of the latter kind, and not, as suggested by Browne J., an authority for the view that a trading corporation can sue for something that does not affect it adversely in the way of its business. The trade union cases are understandable upon the view that defamatory matter may adversely affect the union's ability to keep its members or attract new ones or to maintain a convincing attitude towards employers. Likewise in the case of a charitable organisation the effect may be to discourage subscribers or otherwise impair its ability to carry on its charitable objets. Similar considerations can no doubt be advanced in connection with the position of a local authority. Defamatory statements might make it more difficult to borrow or to attract suitable staff and thus affect adversely the efficient carrying out of its functions. 29Although his Lordship there referred to the entitlement of "a trading corporation", he must be taken to have been including reference to those that do not in fact trade. So much is clear from the context in which the passage appears and a consideration of the decision of the Court of Appeal from which the appeal to the House of Lords was brought. It is not the law that a non-trading corporation cannot sue for defamation. However, there must be some circumstance by reason of which the alleged defamation tends to affect the company's property or financial position. 30In NSW Aboriginal Land Council v Jones, it was "enough to save the action" that the plaintiff had a statutory capacity to accept gifts and bequests, such as to bring it within the remarks of Lord Keith in Derbyshire relating to charitable corporations. 31Two English decisions referred to in a passage of Gatley on Libel and Slander relied upon by the defendants (paragraph 8.16) have dealt with the position of a parent company claiming to have a distinct reputation from a trading subsidiary. In McDonalds Corporation v Steel, March 31, 1999, the Court of Appeal considered a case of libel concerning the ubiquitous family restaurant. The Court held that the parent company, although not trading in England, had a distinct reputation and goodwill which it could protect in an action for defamation. 32However, in Multigroup Bulgaria Ltd v Oxford Analytica Ltd [2001] EWHC 582, Eady J dismissed the claim of a holding company which did not itself trade and, unlike the position in McDonalds v Steel, did not claim to enjoy any distinct trading reputation in its own right within the jurisdiction. His Honour concluded that no reasonable jury, properly directed, could conclude that the particular corporate claimant was defamed or damaged with regard to any trading or business reputation. 33Mr Evatt accepted that the first plaintiff is a non-trading company. He relied on two matters to sustain its entitlement to maintain the action. 34First, Mr Evatt stated that the first plaintiff files annual returns. In fact, the evidence establishes that it has not done so since 2003. In any event, I do not think the fact that a company files annual returns with the corporate regulator is of any relevance to the present question. It says nothing as to the way in which any defamatory statement might injure the first plaintiff in its pocket or in the way of its (non-existent) business. 35Secondly, Mr Evatt relied upon the particulars of damage set out in the proposed amended pleading, as follows: Particulars of Damage to First Plaintiff The First Plaintiff is and was the owner of the name 'Palace Films' and permits that name to be used by Palace Enterprises Pty Ltd in connection with the distribution of films. The defamatory matters complained of have injured the name of Palace Films which injury reduces the value of the First Plaintiff's proprietary right to, and goodwill in, that name. The licensing rights to the name 'Palace Films' as owned by the First Plaintiff have been reduced in value by reason of the publication of the defamatory matter. The First Plaintiff also relies upon the presumption that the publication of defamatory matter causes some injury to reputation. 36Mr Evatt stated (from the bar table) that the company "leases out the use of the trading name". He initially stated that it does so in exchange for the payment of money (at T24.35). However, he later said "it hasn't received any finance yet but it owns a valuable asset, the name Palace Films". He stated that although Palace Films Pty Ltd permits Palace Enterprises Pty Ltd to use that name "for nothing", it is nonetheless a valuable name. 37I do not think that is enough to save the action. Upon analysis, the true position is that the only business and reputation with which the articles are concerned is that of Palace Enterprises Pty Ltd. The evidence clearly establishes that Palace Films Pty Ltd is nothing more than a shelf company with no business and no reputation. The matters complained of were plainly directed to the business of another company of which the second plaintiff is a director, Palace Enterprises Pty Ltd. That company is precluded from bringing an action. In my view, it is not open to the first plaintiff to bring an action to vindicate a business interest that plainly vests exclusively in Palace Enterprises Pty Ltd. 38For those reasons, I am satisfied that the defendants are entitled to the primary relief sought in the motion. Although consequential relief was sought in respect of the claims brought by the second and third plaintiffs, it was common ground that they should have a further opportunity to recast their claim in light of my ruling, as sought by Mr Evatt at the hearing. 39I order that the claim at the suit of the first plaintiff be dismissed.

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: 02 October 2012

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