Thunder Studios Inc (California) v Kazal

Federal Court of Australia|2018-08-07|Before: Mr P, Rares J

The applicants' interlocutory application for a separate trial be dismissed.
The parties bring in short minutes as to the amount of security for costs that the first respondent / cross-claimant should provide and how and when that should occur. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

RARES J: 1 This is yet another interlocutory application in this closely fought defamation proceeding. Earlier today, by consent, I ordered that the first respondent, Charif Kazal, have leave to further amend his cross-claim by joining the first applicant, Thunder Studios Inc (California), as the second cross-respondent, thus bringing both applicants, namely, Thunder Studios and Rodric David, onto the record as cross-respondents to Charif's cross-claim. 2 The applicants seek today two separate orders: first, the issue of whether one or both applicants was a publisher of the matters complained of in the cross-claim be heard separately and before all other issues in the cross-claim under r 30.01 of the Federal Court Rules 2011, (the separate trial issue); and, secondly, Charif provide security for costs in respect of the cross-claim (the security for costs issue). Needless to say, both of those claims have been opposed.

Background 3 The principal claim by the applicants asserts that Charif and his brother, Adam Kazal, were responsible for the publication of a variety of postings on, from 2014, among others, a website called 'Kazal Family Story - know the truth!', that the applicants allege conveyed defamatory imputations of and concerning them and for which they seek damages. 4 Adam had not filed a defence and last year I refused him leave when he applied to do so. At that time, he was in prison under sentence for contempt and he made that application some very considerable time after the close of the pleadings: Thunder Studios Inc (California) v Kazal (No 3) [2017] FCA 1170. 5 On 7 September 2017, I also made a self-executing order that Charif's defence would be struck out if he failed to file verified answers to particular interrogatories on or before 15 September 2017. On 8 December 2017, I refused Charif's application to extend the time for compliance with those orders retrospectively so that, as a result, his defence remained struck out: Thunder Studios Inc (California) v Kazal (No 5) [2017] FCA 1572. Bromwich J refused leave to appeal from that decision in Kazal v Thunder Studios Inc (California) [2018] FCA 593. 6 The applicants' claim is therefore one, effectively, requiring only proof of the publication of the matters complained of, their defamatory quality and evidence going to the damages to be assessed. 7 Charif's latest cross-claim asserts that both applicants, as cross-respondents, posted or caused to be posted words and images on a website, www.charifkazal.com, titled 'Kazal Family Truth' (the website), that conveyed a number of defamatory imputations, namely, that Charif, first, was a money launderer, secondly, had dishonestly sought to influence a senior government employee in order to obtain favourable treatment in respect of his family business interests, thirdly, was guilty of the criminal offence of perjury, and fourthly, along with his brothers, had assisted Unaoil in funnelling huge sums of cash between multinational companies and government officials in what has been termed "the world's biggest bribery scandal". Charif claims aggravated damages, including by reason of his knowledge of the cross-respondents' alleged improper motive in publishing the matter complained of, namely, to cause him maximum damage. 8 Originally, Charif had commenced the cross-claim against only Mr David, pursuant to leave I granted on 23 May 2017. At that time, his solicitor, Richard Mitry, swore an affidavit in support of leave being granted, in which he said that the factual allegations in the matter complained of, the subject of the cross-claim, were discrete from the allegations in the amended statement of claim. However, as events turned out, nothing in this proceeding is so simple. 9 In his defence to the amended notice of cross-claim filed on 9 October 2017, Mr David pleaded that, among other matters, first, he denied publishing the matter complained of at all, secondly, each of the first three of Charif's imputations was substantially true, thirdly, the contextual truth of four imputations was a defence under s 25 of the Defamation Act 2005 (NSW), and fourthly, the matter complained of was published under common law qualified privilege as a reply to an attack by Charif in respect of the publication by Charif and Adam of the matters complained of in the statement of claim; thus, reconnecting the perhaps otherwise discrete claim and cross-claim in this proceeding. 10 Charif, for his part, has also sought to pursue in two proceedings in the United States of America a number of persons, each of whom he alleges was the publisher of the matter complained of in the cross-claim. On 26 September 2016, he began a proceeding in the Superior Court of the State of California (the California proceeding) against persons whom, at that stage, he said were unknown and whom he claimed had been involved in cyberpiracy, cybersquatting and similar alleged activity based on the use of his name in the website to convey a false association with him as a publisher of material of which he claimed, in fact, not to be associated as a publisher. 11 In about October 2016, Charif obtained information that identified two persons, Matthew Price and Ryan Wells, who, at that stage, were known to be employees of Thunder Studios, as owners of the website. Mr Wells' contact details included his address as that of the business premises of Thunder Studios. That led Charif to amend the complaint in the California proceeding on 21 October 2016, to name Mr Price, Mr Wells, Mr David and Thunder Studios as defendants. Ultimately, on 19 May 2017, the California Court dismissed the California proceeding on a summary basis as against Mr David and Thunder Studios. 12 As I have noted, at around that time, on 23 May 2017, pursuant to the leave I granted, Charif filed the cross-claim in this proceeding against Mr David only. He amended the cross-claim on 11 September 2017, in respect of matters that only went to its form, after the solicitors for the parties had engaged in correspondence about those matters. As I have also noted, his defence was automatically struck out for his failure to comply with a self-executing order on 15 September 2017 and on 9 October 2017, Mr David filed his defence to the amended cross-claim. On 6 November 2017, Charif applied to the California Court to dismiss the balance of the California proceeding, being those against Mr Price and Mr Wells, which appears to have been granted by that court. 13 The next stage in this farrago of litigation involved the interlocutory applications that I determined in the week commencing 4 December 2017, at which time Charif departed for overseas. He then, while in Qatar, commenced together with his brothers, Adam, Tony and Karl, in the United States District Court for the Middle District of Florida a further proceeding (the Florida proceeding), against Mr Price, in respect of Mr Price's publications on the website and other eponymous websites for the three brothers. The four brothers applied for immediate injunctive relief that the District Court dismissed on 8 December 2017, the same day on which I dismissed Charif's application to reinstate his defence. 14 In the meantime, a person who appears to have been a one-time business partner of Mr David, Naveen Singh, and his company, Re Group Pty Ltd, commenced a separate proceeding in this Court against Charif and some other members of the Kazal family for making publications in contempt of an order made by Griffiths J on 6 December 2016. On 23 April 2018, Perram J ordered Charif to pay Mr Singh and Re Group's costs of the contempt proceedings on an indemnity basis. His Honour ordered that those costs be assessed on a lump sum basis pursuant to a procedure determined by the Registrar and that the applicants then be at liberty to enforce the sum so determined without the need for any further grant of leave by the Court. His Honour also ordered that the contempt proceeding stand over for case management, originally, to 19 June 2018, which he later adjourned, at which time the applicants were to inform his Honour of the extent to which those costs had been paid, apparently, as part of the information that his Honour would take into account in relation to the substantive sentence, if any, that he would subsequently impose for the contempt. 15 On 9 May 2018, Mr David filed his interlocutory application for a separate trial on the publication issue, and I fixed that application for hearing on 8 June 2018. On the day before that interlocutory application was to be heard, Charif said that he wished to apply to join Thunder Studios as a second cross-respondent, and filed affidavits in support from Mr Mitry and Carey Martell who, at one stage, had been a vice president of Thunder Studios but had subsequently fallen out with Mr David. The content of Mr Martell's affidavit, as the applicants have pointed out, falls short of demonstrating that Mr David actually published the matter complained of in the cross-claim. 16 Mr Martell deposed to a conversation in which he claimed Mr David had asked him whether "we should make our own website to respond to the accusations made about me on the kazalfamilystory website? Like one linking to their names?" Mr Martell said that he cautioned against doing that, and that, subsequently, the relationship he had with Mr David and Thunder Studios soured, so that he left his employment at Thunder Studios. Mr Martell was not aware whether Mr David ultimately went through with the creation of a website of the kind allegedly discussed, that now nonetheless bears a haunting similarity to the website. 17 Mr Mitry's affidavit in support of the amendment and joinder application of 7 June 2018 annexed the deposition of Mr David in the California proceeding that he had made on 21 September 2017. Since Charif was the plaintiff in that proceeding, I have no doubt Charif has been aware of the fact of that deposition having been taken and its substantive content since then. In the deposition, Mr David denied having any role at all in the publication of the matter complained of in the cross-claim. Moreover, in the Florida proceeding, Mr Price admitted that he was the publisher of the website, and sought to assert that he had sole responsibility for that publication.

The separate trial issue 18 The applicants argue that I should order a separate trial in the cross-claim of the issue of publication based on what they say is the discrete factual and legal compass in which that issue can be decided within a trial lasting, so they say, one or more likely two days. Were the whole cross-claim to be heard in a single trial with the applicants' claim, the applicants estimate it would take between one and two weeks. They argue that Charif and his brothers in the Florida proceeding have sued Mr Price alone because he is the only person against whom they will be able to prove publication and that, this issue, accordingly, can be decided quite separately from the other issues in the current proceeding. They say that if the whole cross-claim went to trial, there would be a very different, and far more factually and legally complex, case occasioning great expense, in circumstances where it would be more efficient to deal with, what they say is, a discrete issue, on which they claim there was a good sound basis to think Charif will not be able to prove the involvement of Thunder Studios or Mr David in publication, thereby rendering it unnecessary to decide the other issues on the cross-claim. 19 Significantly, the applicants did not undertake that, in those circumstances, Mr David would be called as a witness on the separate publication trial, were one to be ordered. Rather, they said that they intended to call Mr Price as the person who would claim to be the person solely responsible for the publication, and the person whom, after the failed California proceeding, Charif and his other brothers have sued in the Florida proceeding. They argued that a variety of factors supported the hearing of the separate issue, including the utility, economy and fairness to the parties of having a decision on a contained, discrete issue that was capable of resolving the whole case. They contended that there was a clear distinction between the issues that would arise in a hearing limited to the question of publication and the balance of the proceeding, and that the question of publication would be able to be determined discretely and in a straightforward way.

Consideration - separate trial 20 I reject the applicants' application for a separate trial. In my opinion, the question of publication of the matter complained of in the cross-claim is not one that is convenient or right to separate from the balance of the issues between the parties. While Mr Price has said that he was responsible for the publication of the matter complained of in the cross-claim, the circumstance that he was an employee of Thunder Studios and gave his address as publisher as his employer's address, suggests that there will be an issue as to whether either directly or circumstantially it may be inferred that he did so as a person who was a publisher with Mr David and or their employer, Thunder Studios. 21 In Trkulja v Google LLC (2018) 356 ALR 178 at 188 [39], Kiefel CJ, Bell, Keane, Nettle and Gordon JJ said that the law as to publication was tolerably clear, citing among others Webb v Bloch (1928) 41 CLR 331 at 363-364, per Isaacs J. They added: It is the application of it to the particular facts of the case which tends to be difficult, especially in the relatively novel context of internet search engine results. 22 Their Honours made that comment in the course of giving reasons for overturning a decision in which the Court of Appeal of the Supreme Court of Victoria had ordered summary dismissal of a proceeding against Google prior to discovery and the filing of defences. 23 Moreover, in my opinion, the inter-relationship between publication of the matter complained of in the cross-claim and all of the circumstances, having regard to the history of relations between the parties, suggests that it would not be in the interests of justice to separate the question of its publication from all other parts of the proceeding. Indeed, the dangers of separate trials are well-known and ought be avoided. In AWB Ltd v Cole (No. 2) (2006) 253 FCR 288, Young J discussed many of those dangers. I followed his decision in City of Swan v Lehman Bros Australia Ltd (subject to a deed of company arrangement) (2009) 73 ACSR 86, although in that case, I determined that there was a discrete issue that could be separated. 24 Relevantly, in Tepko Pty Limited v Water Board (2001) 206 CLR 1 at 55 [168]-[170], Kirby and Callinan JJ, in dissent, expressed appositely for this application, why separate trials ordinarily were to be approached with great caution. They said: The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap. … A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court's, rather than the parties', interests. Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. 25 Were there a separate trial, an application for leave to appeal would be highly likely in this case, whatever decision occurred on a separate trial if it were to be ordered. 26 In order to make a person liable as a publisher all that is needed is, as Isaacs J pointed out in Webb v Bloch 41 CLR at 363-364, that the person intentionally lends his assistance to the existence of the matter complained of for the purpose of it being published: see Trkulja 356 ALR at 188-189 [40]. 27 It is not difficult to contemplate that, in a case where there may be circumstantial evidence only, the fact that the person who admits to being the publisher, namely Mr Price, was an employee of Thunder Studios (which is owned and controlled by Mr David), could give rise to an inference that the applicants themselves were publishers by lending assistance in whatever variety of ways may emerge in evidence. 28 Here, the balance of this proceeding appears to involve the applicants establishing that Charif and Adam published the matters that they complain of, that they are defamatory and the quantification of damages on their claim and them defending the cross-claim. Both the applicants' claim and Charif's cross-claim have interlinking issues, despite the applicants' suggestion that they might be discrete, including through Charif's reply to attack qualified privilege defence, were the applicants found to be publishers. 29 It is likely that if Mr David chooses to give evidence on his claim, he will be cross-examined at some length about whatever involvement he or Thunder Studios might have had as an alleged publisher of the matter complained of in the cross-claim. Of course, it is impossible to predict any outcome of this because the proceeding has not progressed very far despite its longevity, but I have referred to these matters to illustrate that it is highly unlikely that a neat and bright line can be drawn between the issue of publication on the cross-claim and other issues in the proceeding, particularly prior to the giving of discovery and administration of interrogatories. 30 For these reasons, I reject the application for a separate trial.

The security for costs issue 31 On 21 December 2016, I convicted Adam on six counts of contempt and I subsequently sentenced him to 18 months' imprisonment on 27 February 2017. The Full Court subsequently reduced that sentence to 15 months, after finding that Adam should have been acquitted on two of those charges: Thunder Studios Inc (California) v Kazal [2016] FCA 1598; Thunder Studios Inc (California) v Kazal (No 2) [2017] FCA 202; Kazal v Thunder Studios Inc (California) (2017) 256 FCR 90. 32 During the course of the Full Court proceeding, Charif appears to have been responsible for giving instructions to Adam's then lawyers, Clayton Utz, while Adam was in jail. A deal of correspondence occurred between Charif, a number of his other brothers, and the solicitors relating to the payment of Clayton Utz' legal fees for representing Adam in the Full Court proceeding. The correspondence indicates that Charif was seen by his brothers, other than Adam, as being able to give the solicitors instructions, but that a number of the brothers, whose identities varied from time to time, undertook to the solicitors responsibility for the payment of fees, usually having been informed by Charif of what was required. 33 Charif came to learn of a new forecast of $600,000 for the costs of running the Full Court proceeding. That forecast had increased the sum required from what was said to have been the budget of $500,000. In an email of 3 April 2017, he asked for clarification from the solicitors and sought assurance that they would keep within an overall budget of the lower sum. In his heavily redacted email to the solicitors of 10 July 2017, Charif referred to the 3 April 2017 email, saying: I previously discussed my family's concerns [with Clayton Utz] about any increase beyond what I knew the family had pulled together which was a combined total of [a redacted amount]…it was based on total capacity to pay. 34 Another unredacted, small portion of the email then said that, to date, the family had already paid a redacted sum to the account, and that that "was our family's absolute limit". Some of the invoices are in evidence, including the final invoice attached to the letter dated 5 December 2017, which suggested that the solicitors themselves had charged over $300,000 in professional fees for the conduct of the Full Court appeal against conviction and sentence. 35 The applicants' solicitor, Walter MacCallum, has made a number of affidavits in support of the interlocutory application for security for costs. He conducted property and corporate searches throughout Australia, and formed a belief, to which he deposed without objection, that Charif did not own any substantial assets in his own name. However, the real property searches did disclose that some real property of an unspecified kind is held by Charif, either as owner or lessee, at Georges River in New South Wales. 36 Charif lives in rented accommodation in North Balgowlah in Sydney. Charif is a director of three companies, namely, 100 Percent Events Pty Ltd, Burger Foods Pty Ltd and S&B2 Pty Ltd. Mr MacCallum's internet searches have not located any websites for those companies. 37 In addition to the two proceedings in the United States to which I have referred and the cross-claim in this proceeding, Charif has commenced a proceeding as recently as 24 July 2018 in the Supreme Court of New South Wales, through KTC, a company that, apparently, he controls, against, among others, Mr David, claiming a variety of misfeasances by him, Mr Singh, a firm of solicitors and one of its partners. KTC's business address is in the Cayman Islands. Charif affirmed the affidavit verifying KTC's statement of claim under the Uniform Civil Procedure Rules 2005 (NSW) in Gdansk, Poland on 24 July 2018. Mr Mitry said that Charif had commenced that proceeding, although he was not clear whether Charif is, in fact, a party to them. 38 Mr Mitry also said that he was informed by Charif and believed that Charif was employed by his family business and earned approximately $90,000 per annum "through his employment and his family trusts. Annexed and marked "A" is what I am informed and believe is a true copy of [Charif's] tax return for the year ending 2017". That tax return is unsigned but reveals that Charif recorded that his main salary and wage income was $27,184, derived from his occupation as a restaurant manager, of which $7,018 was withheld for the payment of tax. It also disclosed that he had received a round sum of $70,000 from a share of net income from trusts less capital gains, foreign income and franked distributions, taking his total gross income to $97,254. He claimed a few thousand dollars as deductions and revealed that his spouse earned a little under $50,000 per annum in taxable income for the year ended 30 June 2017. 39 Charif submitted that he has not defaulted on the payment of any orders for costs to which he is subject, albeit that none of those orders has yet been quantified or sought to be enforced directly, and that there is no sufficient evidence for me to draw an inference that he is impecunious or unable to pay any amount of costs that might be ordered against him were he to fail on the cross-claim. He contended that in the event that costs orders were enforced against him, it was likely that he would receive, on the evidence, support from his family and that he was in truth bringing the cross-claim defensively in response to the applicants' claim, pointing to his reply to an attack qualified privilege defence. He argued that there had been significant delay by Mr David, at least, since the cross-claim was filed in May 2017, although clearly enough that allegation cannot be levelled against Thunder Studios which only became a party today, albeit that, some time before today, the parties had agreed to the joinder, subject to a question as to the proper formulation of a costs order in respect of it. Charif also submitted that he is an Australian citizen and resident and that he is not bringing the cross-claim for other persons' benefits. He accepted that very little had happened, in terms of expense in the cross-claim, other than his filing the amended cross-claim in September 2017 and Mr David preparing his defence, and that no other procedural steps had been taken in it prior to the joinder application against Thunder Studios. Charif could suggest no relevant prejudice if the application for security was allowed at this time.

Consideration - security for costs 40 In my opinion, this is a proper case in which to exercise the discretion under s 56 of the Federal Court of Australia Act 1976 (Cth) to order Charif, as relevantly an applicant, to give security for the payment of costs that may be awarded against him. As Sheppard, Morling and Neaves JJ said in Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3: The discretion to make orders under s 56 must be exercised judicially, but that is the only relevant limitation. 41 In Commissioner of Taxation (Cth) v Vasiliades (2016) 344 ALR 558 at 578-579 [71]-[72], Kenny and Edelman JJ said that the purpose to be served by making an order for security for costs, is to ensure that the successful respondent to a claim will have a fund available within the jurisdiction of the Court to enforce a judgment for costs in the respondent's favour. This purpose is, of course, relevant to an exercise of discretion. They also held that there was no authority binding on this Court for the proposition that there is anything in the nature of an absolute rule that a Court would not order a person who is, in substance, the defendant to provide security for costs. They held that a person who was a defendant or respondent could be ordered to provide security for costs. However, their Honours said that one factor to be considered in exercising the discretion was that a person who was in the position of the defendant or respondent, as a rule, should be at liberty to defend himself or herself without giving security: Cmr v Vasiliades 344 ALR at 585 [94]. 42 Charif did not submit that the proceeding would be stultified were he to be ordered to provide security for the costs of his cross-claim. Rather, his case was that the factors enlivening the exercise of the discretion to make such an order had not been established. Of course, a court is entitled to consider the likelihood that third parties may provide security or support to, or for the benefit of, a litigant to enable the litigant to conduct a proceeding, including to comply with orders to provide security. For example, in Bond v The Trustee of the Property of Alan Bond, A Bankrupt [1994] FCA 268 at 14, French J said (a decision that Kenneth Martin J followed in Moran v Schwartz Publishing Pty Ltd [No 2] [2015] WASC 35 at [79]-[84]): …I consider that in assessing whether or not special circumstances exist and in looking at Bond's circumstances generally, I am entitled to look through the forms to the substance. In this case, there is a substantial record of considerable financial support from members of his family in relation to legal proceedings and expenses associated with his accommodation and travel. And, looking through the form to the substance, I am entitled to make, I think, a judgment about the probability of the continuance of that kind of support in this case and the probability that this appeal is being funded by support derived from those sources. I think the probabilities are that it is being so funded… So I think the special circumstance in this case is that he is nominally impecunious but is being funded or likely to be funded by members of his family. The framework that they have set up and the course of conduct which they have established indicates that a security order would be met. In other words, I think it is highly unlikely that this appeal would be stultified by the making of such an order in these circumstances. (emphasis added) 43 Here, Charif has chosen to reveal very little about his financial circumstances, but his tax return reveals that his income from his ordinary employment is trivial in comparison to the profligate amount of litigation he has been able to conduct in this country and overseas over the past year. It is safe to infer that he is able to receive, or have access to, substantial funds to ensure that he can conduct what litigation and other lifestyle choices he chooses as and when he wishes, including through whatever arrangements there are for him to receive distributions from the trust disclosed in his 2017 tax return. 44 It is also clear that, although Charif was substantively responsible for giving instructions to Adam's solicitors while he was in jail regarding the conduct of Adam's appeal, even though he (Charif) was not assuming the burden of providing financial support for that appeal. Rather that burden appears to have been placed on other brothers, who apparently, interchangeably, did so. Moreover, in the course of last year, on the evidence before me, Charif had at least three overseas trips to places such as Gdansk in Poland and Qatar, a fact which is somewhat at odds with his humble employment as a restaurant manager, on a very small salary. In his affidavit verifying his application for an injunction in the Florida proceeding, that he swore on 7 December 2017, Charif was in Qatar, having left Australia in the middle of the application before me to restore his defence that I had adjourned the previous day. In evidence before me on that occasion was the fact that Charif had been in New York in September 2017 at the time when he should have complied with providing further verified answers to interrogatories that led to his defence being struck out. 45 In all of those circumstances, I am satisfied that it is safe to infer that Charif will be able to find sources of money to provide security if he wishes to pursue the cross-claim and the proceeding will not be stultified as a result. I am also satisfied, albeit that Mr David's application for security has been brought some considerable time after the cross-claim against him was filed, that this is an appropriate case in which to grant him security for costs, as that would inevitably be security that will overlap with the security to which Thunder Studios is entitled and there is no substantial prejudice to Charif from such an order. Very little has been done in the cross-claim thus far and the security will be for costs to be incurred prospectively and not retrospectively in the proceeding.

Conclusion 46 For the reasons above, I will order Charif to provide security for the applicants' costs of the cross-claim from today. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

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