Cvek and Anor v Mihailescu and Ors
[2019] VSC 679
•11 October 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
MAJOR TORTS LIST
S ECI 2019 04351
| DALI CVEK | First Plaintiff |
| GRANVILLE GROUP PTY LTD (ACN 600 441 094) | Second Plaintiff |
| v | |
| ADRIAN MIHAILESCU & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | John Dixon J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 October 2019 |
DATE OF JUDGMENT: | 11 October 2019 |
CASE MAY BE CITED AS: | Cvek & Anor v Mihailescu & Ors |
MEDIUM NEUTRAL CITATION: | [2019] VSC 679 |
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TORTS – Defamation - Injurious falsehood – Injunction sought until trial of proceeding – Whether prima facie case of injurious falsehood - No evidence of actual loss – Reliance on ‘grapevine effect’– Delay by plaintiffs in seeking injunctive relief – Where defamation claim being reframed in other causes of action - Application refused
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | J Catlin | Marshalls Dent Wilmoth |
| For the Defendants | R Moore | Macpherson Kelley |
HIS HONOUR:
This proceeding was commenced by a generally indorsed writ dated 23 September 2019. It comes before me pursuant to a summons of the same date that seeks interlocutory relief against the defendants.
The first defendant is a former manager employed by the plaintiffs in connection with a number of land development projects.
The first defendant is, relevantly, a director of Mandeville Group Pty Ltd. The second and third defendants are investors in the Mandeville Group Trust (Mandeville), of which Mandeville Group Pty Ltd was the corporate trustee. Mandeville is presently undertaking a land development project at 3 Mandeville Crescent, Toorak (Mandeville Project).
In addition to the Mandeville Project, the plaintiffs are involved in another four current projects. These other projects are in Copelen Street, South Yarra; Toorak Road, Kooyong; Hopetoun Road, Toorak; and Kooyong Road, Armadale (other projects). They are in various stages of development, from planning through to negotiations for building contracts and building finance.
The first plaintiff has deposed to becoming aware of oral communications that occurred between the defendants and other investors in Mandeville. There is evidence that participants drew certain imputations from those conversations to the effect that the defendants were stating that the first plaintiff (the statements):
(a) was a dishonest person and was always out to deceive the Mandeville investors;
(b) had been defrauding the Mandeville investors and other investors and will continue to do so;
(c) is a liar;
(d) had no interest (either personally or through his family trust) in the success or failure of the Mandeville Project, because neither has invested any money in it;
(e) had run away to Spain with the money of investors in the Mandeville Project;
(f) has engaged in criminal conduct with relation to the Mandeville Project and other projects;
(g) was planning to cheat investors out of their investments in the Mandeville Project and other projects;
(h) is not a unit holder;
(i) should have no role in the Mandeville Project because he is not a unit holder; and
(j) has engaged in dishonesty for personal or financial gain.
The plaintiff believes on information from others that these imputations have been communicated on at least three occasions in meetings in which a Mr Chris Chen was present, being a meeting at a café on 17 August 2019, a second meeting at a café on the same date and a telephone conference call on 20 August 2019. There is also some supporting evidence from a Mr James Ye, the third defendant, that such statements have been made.
The plaintiffs sought interlocutory relief of two distinct kinds. Firstly, the plaintiffs sought relief against the first defendant in respect of confidential information either in his possession or under his control. Secondly, the plaintiff sought to restrain the defendants from communicating to unit holders who have invested in the other projects and to Property Shares Pty Ltd or Greythorne Group Pty Ltd about the plaintiffs or their projects.
On 24 September 2019, I granted an interim injunction restraining such communications until 1 October 2019, when I extended that injunction to operate until the delivery of these reasons. I also granted the relief sought by the plaintiffs in respect of the alleged confidential material, but that matter was not in contest when the proceeding returned before me on 1 October 2019.
The plaintiff applied to extend the interlocutory injunction until the trial of the proceeding.
By their generally indorsed writ, the plaintiffs allege three causes of action that they contend support their claim for interlocutory relief. First, the first plaintiff contends that the defendants have defamed him by the publication of the statements. Secondly, the second plaintiff contends that it has (or will) suffer loss and damage by reason of injurious falsehood by the defendants, or thirdly, by making the statements, the defendants, in trade or commerce, engaged in conduct that was misleading and deceptive or likely to mislead or deceive within the meaning of s 18 of the Australian Consumer Law.
Direct evidence of publication comes from two sources. Principally, Xiao Chen, also known as Chris Chen participated in a conference call on 9 August 2019 with the defendants and Carlos Burros of Macpherson Kelley, solicitors. This telephone call was in the context that a number of investors in Mandeville, the so‑called ‘Sydney investors’ whom Mr Chen represented, were hoping to pull their money out of the investment and had encountered some difficulty in achieving this. Mr Chen stated that he was told about a new trust deed for this project and complained about not being told before:
In that context I said, “what happened to Dali?”
Petra said he had “run away to Spain”. Adrian said that he had “taken our money”. I cannot recall what other exact words were spoken on that subject. Adrian assured me Dali had not contributed a cent to the purchase of the property. He also said that a potential buyer Elia. He would pay $5.02 million for the Mandeville Project.
Then, in Melbourne on 17 August 2019, Mr Chen met the defendants in a café in East Melbourne with one of the Sydney investors for the purpose of working through issues, including getting a refund of the investment. Mr Chen sought explanations of entries in bank statements, having noticed that a lot of money was being spent. The first defendant could not presently explain the transactions being questioned. Mr Chen recalled the following conversation:
As best I can recall the following words spoken
Petra said “don’t be naïve, Dali has run away with all of our money and investors money.”
Adrian said: “I believe so.”
Adrian said: “do you know Tony (an accountant friend of Dali). You know Tony had invested $1 million into another property. Dali has sold the underlying property, and he did not pay anything money to the investors involved in that property project and he still has not paid Tony.”
James talked about seeing Dali in Spain and saying he saw in a Ferrari and said, “he has a lot of money in Spain”. Petra said “yes” in agreement.
Adrian said: “Dali has a lot of accounts globally-I know. I did a lot of transfers for Dali. I don’t know what they were for.”
I queried Adrian about how money could be disappearing from the Mandeville project accounts when it did not appear to be from the documents I had. Adrian said he couldn’t recall but he would “go back and check all books and transactions”. He confirmed he had all the books for the Mandeville projects. I asked him whether the books were still at Mandeville Crescent, which I knew to be the site office.
Adrian said: “I’m going to collect them and take all of them just in case Dali takes them and tries to make changes.”
I said: “are you suggesting he may forge documents?” He replied “yes”.
Petra said Dali had “used our money on something else” meaning other than the Mandeville project and referred to Dali’s “sons soccer training” and art, referring to paintings.
Adrian then referred to Dali “loving sports cars but holding under someone else’s name”.
Adrian then said further that Dali was on the Chinese wanted list.
Adrian further said: “You probably do not know Dali has lots of bank accounts overseas, and I am actually wondering why he always sent other people to Mainland China for meetings with other investors of other projects in the past, and why he met with James just couple months ago in Macau. I do not think Dali can ever enter into the territory of Mainland China.”
I said: “Are you serious? You mean he is on the list of the wanted by Chinese police bureau?”
Adrian said: “I think so.”
I suggested we should talk to Dali and go through the issues one at a time.
Petra said: “Do you know Dali also had his mum opened a bank account in Phillipines so he could do funds transfers?”
I said: “How am I supposed to know? I know his mum and she is a very nice lady. But how do you know?”
Petra said: “His mum told me.”
I said: “So you guys are saying Dali is on the run and will never come back to Australia to face all these.”
Adrian and Petra both said: ”Yes.”
Adrian and Petra, then said words the substance of which “you can’t tell Dali (what we are doing), we need him to keep paying interest”, referring to the mortgage finance of the Mandeville land. The context was that Dali had been paying interest on the mortgage finance and might stop he became aware of what the unit holders were doing.
There was a second telephone conference call on 20 August 2019 between the defendants, Mr Burros and the Sydney investors. Relevant to the allegations of publication of the statement, Mr Chen recalled:
I asked Adrian about further records such as bills, invoices, agreements with service providers to 3 Mandeville project and an explanation as to who had been making payments on the Mandeville project.
Adrian said that he was still considering the accounts but also that “Dali didn’t put a cent in”.
Carlos said “don’t worry we can show Dali put no money in.” He also said “there are over fifty parties chasing Dali and we were not the only ones”.
Adrian said: “He has used you guys money.”
Petra confirmed this in words. I cannot remember exactly how she said it. The words “steal” and “fraud” were used by either Adrian or Petra, I can’t remember who by.
Adrian said that Dali had “run away to Spain”. He said “I told you he had transferred a lot of money out. He-is not coming back because he is being sued. I was a defendant in another lawsuit.”
“Dali told me bankruptcy is the best thing in the world.”
“I think he planned everything for several years in the past. That’s why he went to Spain. That’s why he hasn’t come back to Australia.”
”I think Dali lied to you guys. I think he took everyone’s money”.
Petra said similar things to those spoken by Adrian.
Mr Chen concluded by suggesting that the impression he took from these meetings was that the first plaintiff was a fraud, with no real investment in the Mandeville Project, who is on the run from creditors, a skilled avoider of creditors and had engaged in premeditated fraud against the Sydney investors by stealing money from the project and hiding from creditors in Spain.
Subsequently, the third defendant emailed Chris Chen, the other defendants, Lei He, the other Sydney investors and the solicitor, Mr Barros in which he stated:
Imagine my horror when I found out when Petra and Adrian reached out to me that Dali has been defrauding a lot of investors, not only in this country but abroad. I understand there are multiple actions that have and are being brought against him.
I will assume for present purposes that these publications convey sufficient of the meanings alleged by the statements to raise a serious question for trial that there has been publication of false statements about the first plaintiff who is identified by name. However, the second plaintiff is not identified in the publications. Further, each of the statements is made, as the plaintiffs distinctly allege, about the first plaintiff. The plaintiffs also allege that the statements were knowingly malicious in that they were motivated by an intention to secure support from investors for a takeover of the land development project by the defendants. There is no allegation, or evidence, that the second plaintiff has any relevant role with investors. Its role was described as that of a project manager charged with the task of implementing the investment.
Each of the second and third defendants have denied on oath that they made the statements but I can presently do no more than conclude that there is a serious question for trial. On the other hand, the first defendant swore two affidavits in response to orders concerning the breach of confidence claim that is not presently relevant. In neither of these affidavits did the first defendant address the content of Mr Chen’s affidavit.
In Palmer Bruyn & Parker Pty Ltd v Parsons,[1] the High Court identified the following as the four elements of the cause of action of injurious falsehood:[2]
[1](2001) 208 CLR 388.
[2]Ibid 404 [52].
(a) a false statement of or concerning the plaintiff’s goods or business;
(b) publication of that statement by the defendant to a third person;
(c) malice on the part of the defendant; and
(d) proof by the plaintiff of actual damage (which may include a general loss of business) suffered as a result of the statement.
The defendants also contended that the plaintiffs had not demonstrated a sufficient basis for asserting a prima facie case of malicious intention. No ulterior motive could be demonstrated, except, perhaps, on the part of Lei He, although any motive on his part is not being attributed to the defendants.
That said, the plaintiffs contended that malice was established, at least for the present interlocutory purposes, by reference to the flamboyant nature of the accusations made. The statements, particularly those made by the first defendant were described as entirely immoderate, alleging fraud, criminal conduct, financial advantage by deception, fleeing creditors to the other side of the world and having no financial stake in the relevant project.
The plaintiffs further submitted that other conduct of the first defendant supported their contention. There was evidence of the first defendant taking and hiding documents, doing so, so the plaintiffs cannot ‘prove anything’, having an overall objective of destroying the first plaintiff, hiding their conduct from the plaintiffs so that the first plaintiff would continue to make payments on loans and other matters, failing to seek explanations from the plaintiffs for their assertions and failing to adopt the conventional response of taking their grievances to a unit holder’s meeting or to their solicitors.
Although these allegations were limited to the conduct of the first defendant, the defendants were jointly represented and for present purposes it might be inferred that the second and third defendants had acquiesced in or adopted the conduct alleged by the plaintiffs as evidence of malice. I am not persuaded to accept the defendants’ contention that there is no serious question to be tried that the defendants had engaged in injurious falsehood by reason of the absence of evidence of malice.
One distinction between injurious falsehood and defamation is the fact that damage is not presumed in the former. Notwithstanding, an injunction can lie to restrain the commission of tort even though the damage has not yet been demonstrated.[3]
[3]Swimsure Laboratories Pty Ltd v McDonald [1979] 2 NSWLR 796, 802; Neville Mahon v Mach 1 Financial Services Pty Ltd (2012) 96 IPR 547, 550 [22]; Beechwood Homes (NSW) v Camenzuli [2010] NSWSC 521; Kaplan v Go Daddy Group [2005] NSWSC 636; Australand Holdings Ltd v Transparency & Accountability Council Inc [2008] NSWSC 669 [169].
The plaintiffs acknowledged that they could not point to damage. Their concerns were focussed on the prospect that such damage might be sustained in the future. As I am not persuaded that there is a prima facie case that such damage might be suffered in the future, this conclusion is sufficient to justify refusing an interlocutory injunction.
I will say a little more about how the plaintiffs developed this contention. Firstly, the plaintiffs contended that they relied on a chain of interlocking service providers to take their projects through to completion. These service providers included financiers, architects, town planning consultants, builders, construction financiers and real estate agents. The plaintiffs contended that their vulnerability to malicious statements was magnified by the effect of such statements on each service provider. Further, they contended there was a particular coterie of builders for the Toorak and surrounding areas preferred by financiers, submitting that should the plaintiffs become persona non grata in the industry and amongst particular service providers, the current projects would simply have to be sold off. The plaintiffs also submitted that there was a risk that the statements could influence investors in the other projects to interrupt the progress of such projects, pointing to the project in Toorak Road, Kooyong as a possible example. Further, the plaintiffs contended that not all units nor projects have been sold. The project financing facility agreements, that were personally guaranteed by the first plaintiff, were susceptible to the imposition of default interest if there was a material adverse change in the guarantor’s financial condition.
In the context of this contention, the position of the second plaintiff is that of a service provider to the investment. It is not a party that will suffer loss in the relevant sense. Its entitlement to remuneration is presumably guaranteed by some contractual arrangement. The prospect of future damage that is at the heart of the submission will only affect the first plaintiff.
As the plaintiffs could not point to any specific loss, they relied on statements by the defendants of their desire to question financiers to ascertain whether the plaintiffs intended to refinance or encumber the Mandeville Project. By such inquiries, the plaintiffs contended that loss will be caused. In this context, it is noteworthy that there is no evidence of any repetition of the statements since they were made in mid-August. Neither is there evidence of any adverse response from any lender, project consultant or potential investor. The plaintiffs sought to rely on the ‘grapevine effect’, but in this context the analogy is misconceived.
In Palmer Bruyn, Gummow J explained:
The expression "grapevine effect" has been used as a metaphor to help explain the basis on which general damages may be recovered in defamation actions; the idea sought to be conveyed by the metaphor was expressed by Lord Atkin in Ley v Hamilton as follows:
"It is precisely because the 'real' damage cannot be ascertained and established that the damages are at large. It is impossible to track the scandal, to know what quarters the poison may reach: it is impossible to weigh at all closely the compensation which will recompense a man or a woman for the insult offered or the pain of a false accusation."
The "grapevine effect" may provide the means by which a court may conclude that a given result was "natural and probable". However, this will depend upon a variety of factors, such as the nature of the false statement and the circumstances in which it was published. The "grapevine effect" does not operate in all cases so as to establish that any republication is the "natural and probable" result of the original publication. This was what was meant by Heydon JA, when his Honour referred to the appellant's submissions being put "as though the grapevine effect was some doctrine of the law, or phenomenon of life, operating independently of evidence". As Heydon JA correctly identified, the appellant can point to no evidence that the "grapevine effect" operated in this case.[4]
[4](2001) 208 CLR 388, 416 [88]–[89].
In the present circumstances, the plaintiffs cannot point to any evidence that the ‘grapevine effect’ may operate so as to demonstrate a reasonable apprehension of repetition of the act of publication of false statements about the plaintiffs that might be liable in the future to cause damage.
In this context, the plaintiffs’ delay in seeking an equitable remedy is relevant. There was a period of almost six weeks from initial publication until the grant of an interim injunction. In that time, no evidence has emerged that would support the plaintiffs’ contention that they may suffer damage in the future.
Beyond the involvement of Mr Lei He and the solicitor, Mr Burros, the communications about which the plaintiffs complain have been confined to a particular group of investors in the Mandeville Project. Although the language employed might be thought to be unnecessarily colourful, the context in which the statements were made suggests discussion of a commercial dispute about the performance of an investment between the investors who are party to it. In this context, it may reasonably be anticipated that defences of justification and/or fair comment (and their statutory equivalents) may be taken in the proceeding. This is a further reason to deny the first plaintiff interlocutory relief.
In contra distinction to the tort of defamation, actions for injurious falsehood seek to protect proprietary and commercial interests, rather than personal interests.
In Australian Broadcasting Corporation v O’Neill,[5] the High Court held that general equitable principles relating to the grant of injunctive relief applied to defamation cases. However, the majority of the court considered that the case against injunctive relief was very strong.
[5](2006) 227 CLR 57.
The court observed that in the application of general equitable principles, a court would be informed by the special features of the particular subject matter or right in issue.
Gleeson CJ and Crennan J observed:
We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the Court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd should be folIowed In the context of a defamation case, the application of those organising principles will require particular attention to the considerations which courts have identified as dictating caution. Foremost among those considerations is the public interest in free speech. A further consideration is that, in the defamation context, the outcome of a trial is especially likely to turn upon issues that are, by hypothesis, unresolved. Where one such issue is justification, it is commonly an issue for jury decision. In addition, the plaintiff's general character may be found to be such that, even if the publication is defamatory, only nominal damages will be awarded.[6]
[6]Ibid 68 [19].
Consistent with this position, it is commonly said that the power to grant interlocutory injunctions in defamation proceedings is exercised with great caution, and only in very clear cases. These considerations are relevant to the claim by the first plaintiff for interlocutory relief. The position of the second plaintiff is different, as the causes of action on which it sues are injurious falsehood and s 232 of the Australian Consumer Law. The second plaintiff contended that interlocutory relief is appropriate on these causes of action.
This submission directs attention as to whether actual commercial activity has been targeted and threatened by the publications. In this context, it is desirable to identify the precise proprietary or commercial interest of the second plaintiff that it seeks to protect in the proceeding. That is because a plaintiff cannot persuade a court to decline to exercise the particular caution applicable in defamation proceedings merely by reframing its case in injurious falsehood or some other cause of action.[7]
[7]Fraser v Evans [1969] 1 QB 349, 362; Woodward v Hutchins [1977] 2 All ER 751, 755; Swimsure (Laboratories) v McDonald [1979] 2 NSWLR 796, 799; Neville Mahon v Mach 1 Financial Services Pty Ltd (2012) 96 IPR 547, 552 [32].
There are a number of reasons for thinking that that is precisely what the plaintiffs do in this proceeding. First, each plaintiff relies on precisely the same statements for the cause of action in defamation and injurious falsehood respectively. Secondly, each of the statements only concern the first plaintiff. Thirdly, it is unclear precisely how the second plaintiff is affected by the statements. Its apparent role was as a project manager for trustee companies on behalf of investors in various projects. It may be that the second plaintiff had a pivotal role in that respect, but the allegation made by the plaintiffs is that the statements were calculated to cause pecuniary damage to the first plaintiff in respect of his business as a property developer, not the second plaintiff as a project manager.
The plaintiffs submitted that none of the statements pleaded can be usefully separated from the ongoing commercial activity of the current projects. Although directed first and foremost at commercial conduct of the first plaintiff, it was through the second plaintiff that the first plaintiff principally operated and conducted project management. The plaintiffs contended that the statements affected their capacity to do business and generate a profit.
I am not persuaded that the plaintiffs can roll up the different commercial activities of project management and property investment in the manner in which they have attempted to do in this pleading. What the submission sought to achieve was to transfer across as an allegation against a project management company the prospect of loss and damage that might be suffered by an individual, the first plaintiff, through the conduct of disgruntled investors in a property investment.
In the circumstances that I have described, I am satisfied that the real complaint made in this proceeding is that of the first plaintiff, which is that he has been defamed. I am satisfied that, for the purposes of this application, other causes of action are being alleged by the plaintiffs in order to reframe their case away from the particular considerations (identified above) that apply to applications for interlocutory injunctions to restrain defamatory publications.
The plaintiffs’ application to extend paragraph 1 of the order of 24 September 2019 until the trial of the proceeding is refused.
SCHEDULE OF PARTIES
S ECI 2019 04351
BETWEEN:
| DALI CVEK | First Plaintiff |
| GRANVILLE GROUP PTY LTD (CAN 600 441 094) | Second Plaintiff |
| -and- | |
| ADRIAN MIHAILESCU | First Defendant |
| PETRA GERENDASI | Second Defendant |
| JAMES YIA YE | Third Defendant |
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