Evans v John Fairfax Publications P/L

[2002] NSWSC 317

CITATION:	Evans v John Fairfax Publications P/L [2002] NSWSC 317
CURRENT JURISDICTION:	Common Law Division Defamation List
FILE NUMBER(S):	SC 20869/01
HEARING DATE(S):	17/04/02
JUDGMENT DATE:	22 April 2002
PARTIES :	Len Evans AO, OBE (Pl) John Fairfax Publications Pty Limited (Def)
JUDGMENT OF:	Kirby J

COUNSEL :	B McClintock SC/R G McHugh (Pl) T Blackburn (Def)
SOLICITORS:	Abbott Tout (Pl) Freehills (Def)
CATCHWORDS:	Defamation - Imputations - Whether capable of arising
LEGISLATION CITED:	Defamation Act 1974
CASES CITED:	Amalgamated Television Services P/L v Marsden (1998) 43 NSWLR 158
DECISION:	Ref para 37

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
DEFAMATION LIST

KIRBY J

Monday 22 April 2002

20869/01 - LEN EVANS AO, OBE v JOHN FAIRFAX PUBLICATIONS PTY LIMITED

JUDGMENT

1 KIRBY J: This is an application to strike out certain imputations in the Statement of Claim. Mr Len Evans (the plaintiff) has commenced an action for defamation against the publishers of The Australian Financial Review, John Fairfax Publications Pty Limited (the defendant). The action arises out of the publication by that company of an article on 24 October 2001 in The Australian Financial Review in the following terms:

"LEN EVANS' NET OFFERING CORKED
Katrina Nicholas

How do you convert zero dollars into $920,000 in two years, plus get paid a quarter of a million a year to do it? If you're wine pro Len Evans, it's easy.
Just collect $250,000 per annum in consulting fees to run a website that has minimal sales. Then, after about 18 months, decide the revenue model's no longer viable, shut up shop and tell shareholders you'll kindly return their funds.
Play down the fact that of the $25 million they tipped in, there's only $7.4 million left. And hope they don't notice that, as the majority shareholder, you're entitled to $920,000 - more than 12 per cent of the kitty. This exact scenario looks set to transpire, following the news yesterday that online liquor group Winepros plans to voluntarily liquidate its business.
In a statement to the stock exchange, Winepros, which listed in December 1999 after raising $25 million by selling shares at $1 apiece, said that after a meeting of directors it had 'resolved to take steps to realise the assets and business of the company and return the proceeds and cash on deposit to the shareholders'.
It would also seek to 'sell the Winepros business as a going concern' and as such would continue to operate the business accordingly, the statement said.
According to Winepros' latest quarterly cash flow statement, the company had $7.35 million in the bank as at September 30.
It made just $37,000 in sales for the quarter and burnt through $811,000.
Leaving aside what may be realised from the sale of its non-cash assets, a pro rata redistribution of funds to shareholders would see Mr Evans receive just over $1 million 918,750 of which it represents the 6.25 million shares he received for nix in 1999.
Other beneficiaries would include fellow wine buff James Halliday, who also received an annual consulting fee of $250,000, and News Corp's Harper Collins Publishers. Both parties, who paid $600,000 for their shareholding - 6.25 million shares at 9.6c each - would receive a pro rata payout of about $920,000.
With a 20 per cent holding, colesmyer.com would receive $735,000.
But receiving such a handsome payout was certainly not his idea, Mr Evans said last night.
'I didn't originate this deal. I want to make it quite clear I was given the deal. In fact, I was talked into it,' he said. 'If I've finished off with a monetary gain, then so be it.'
Not set to receive any pro rata redistribution - she owns no shares - but still not waking away empty-handed is Mr Evans' daughter and Winepros managing director, Ms Sally Evans. She has received $160,000 a year for running the site.
While the pro rata redistributions may be more, depending on how much Winepros gets for its two main assets - a minor shareholding in US online wine site vineyard, which operates wine.com, and its own website and content - industry players said yesterday Winepros' assets were worth little.
'My opinion is that the assets are worth around $2.50', said Mr Mark Mezrani, the one-time chief executive of Winplanet.com.au, which in March was bought and subsequently dismantled by majority shareholder Foster's.
'Of all the models put up at the time, Winepros was one of the most ambitious because they believed people who pay to get content,' said Mr Mezrani, who is now concentrating on his property developments.
Mr Geoff Dahlsen, managing director of WineRobot, an internet company that sources the best online wine prices for customers, also cast doubt on the group's business model.
'Winepros has always been a romantic notion - people aren't prepared to pay for content that other retailers give away for free. They've struggled from the start.'
Mr Dahlsen also said that with research indicating 80 per cent of wine in Australia is bought for consumption within 24 hours, demand for premium wine content advising drinkers of the best drop to cellar, for example, was low."

2 The plaintiff alleges that the article conveyed the following imputations which were defamatory of him:

(a) The plaintiff had established a dishonest scheme involving an online liquor group, Winepros Limited, whereby he was paid $920,000.00 and $250,00.00 per annum for doing nothing.
(b) The plaintiff had deliberately misled shareholders of Winepros Limited for personal gain.
(c) The plaintiff had cheated the shareholders of Winepros Limited by deliberately running down the business of that company and then closing it down.
(d) The plaintiff misappropriated $17.6 million (ie $25 million minus $7.4 million) in Winepros Limited.
(e) The plaintiff managed the business of Winepros Limited in an incompetent manner so as to lose much of its funds.

3 The defendant objects to each imputation, asserting either that they do not arise or they are bad in form. I will deal with each imputation in turn.

Imputation (a)

4 It is convenient to repeat the imputation. It is:

(a) The plaintiff had established a dishonest scheme involving an online liquor group, Winepros Limited, whereby he was paid $920,000.00 and $250,00.00 per annum for doing nothing.

5 Such an imputation, according to the defendant, is incapable of arising for two reasons. First, nothing in the article suggests dishonesty on the part of the plaintiff. Secondly, the article is not reasonably capable of suggesting that the payments were made "for doing nothing".

6 The article, the defendant points out, must be read as a whole. When the whole article is read it becomes plain, according to the defendant, why the venture failed. It was an ambitious project, but a bad idea. The defendant emphasised the commentary upon the demise of the business by a wine professional towards the end of the article. That commentary included the following:

"'Winepros has always been a romantic notion - people aren't prepared to pay for content that other retailers give away for free. They've struggled from the start.'"

7 Another comment, important to an understanding of why the business had failed, according to the defendant, is the following:

"Mr Dahlsen also said that with research indicating 80 per cent of wine in Australia is bought for consumption within 24 hours, demand for premium wine content advising drinkers of the best drop to cellar, for example, was low."

8 It was hardly surprising, therefore, that demand was poor and that the business had failed. According to one of their competitors, as stated in the article, the business model used was of doubtful validity.

9 The plaintiff responded to these arguments by drawing attention to the headline. It was written in what was described as a "poisonous snide and sneering tone". The headline was in these terms: "Len Evans' Net Offering Corked".

10 The word "corked" literally means "gone off or rotten". There was also, the plaintiff suggested, the metaphorical meaning of those words. In this context, it meant something which the plaintiff was offering. It was once good, but has gone bad.

11 The whole article (and especially the opening paragraphs) was, according to the plaintiff, written with irony and sarcasm. The overwhelming impression was of easy money, a million dollars, made with sleight-of-hand, a conjurer's trick. Mr McClintock SC, for Mr Evans, said this, in the course of argument: (T 7)

"... The ordinary reasonable reader who is told that the person in control of a company, like Mr Evans is said to be here, has taken $250,000 in circumstances where the company has gone broke in two years, or closed down in effect in two years, causing huge losses to the shareholders when he has made a huge profit, is a dishonest thing to do. Any reasonable person would think it is a dishonest thing to do. It is a betrayal of the shareholders, and that is a dishonest thing."

12 It was also necessary, according to the plaintiff, to pay close attention to the words used by the article. The huge losses suffered by shareholders were to be "played down", that is concealed or buried. That, it was suggested, connotes dishonesty. There was a reference to a "scenario" suggesting, according to the plaintiff, that Mr Evans had engineered the situation, which was a dishonest thing to do.

13 The test ultimately is reasonableness (Amalgamated Television Services Pty Ltd v Marsden (1998) 43 NSWLR 158, per Hunt CJ at CL at 165). The article must be read as a whole. It must not be read with a morbid or suspicious mind. Strained or unlikely meanings cannot be regarded as reasonable.

14 Applying this test, at first I had my doubts that the words used imputed dishonesty. However, I am persuaded that they are capable of suggesting sleight-of-hand, and certainly "easy money". They are, in my view, capable of suggesting dishonesty.

15 Two matters trouble me, however, concerning the present formulation of the imputation. The first is the use of the word "established" in the context of the scheme. I think it is more accurate to speak of the plaintiff being "a party to" a dishonest scheme, rather than having establishing the scheme. The text rather suggests that others established the scheme and induced Mr Evans to join in.

16 Secondly, like the defendant, I have misgivings about the concluding words "doing nothing". The plaintiff points to the opening paragraphs as justifying those words. Those paragraphs, however, refer to consulting fees and running a webside, although one with minimal sales. I think it more accurate to refer to the plaintiff as doing "little or nothing", an expression which conveys the sense of easy money, which I believe does arise.

17 The plaintiff has leave to amend imputation (a). That imputation, as amended, should go to the jury.

Imputation (b)

18 Imputation (b) was as follows:

(b) The plaintiff had deliberately misled shareholders of Winepros Limited for personal gain.

19 The defendant asserts that the imputation is not capable of arising, and, even if it were, does not differ in substance from other imputations ((a) and (c)).

20 The plaintiff points to the opening passages from the article, and especially the following:

"Play down the fact that of the $25 million they tipped in, there's only $7.4 million left. And hope they don't notice that, as the majority shareholder, you're entitled to $920,000 - more than 12 per cent of the kitty."

21 To "play down", according to the plaintiff, is to mislead. Misleading the shareholders was done for a reason, according to the article. It was therefore quite deliberate. The motive suggested by the imputation is personal gain.

22 However, I do not believe it can reasonably be suggested, based upon the article, that Mr Evans' motive was personal gain. He was entitled, as the owner of 6.25 million shares, to $920,000. His motive, according to the article was, rather, the concealment of that entitlement, presumably because it may leave a sour taste in the mouths of shareholders who, unlike him, had paid $1 a share for their shareholdings.

23 At first I also thought that to suggest that Mr Evans had deliberately misled shareholders may be reading too much into the words "play down". However, I am persuaded that, in context, the article is capable of suggesting Mr Evans had deliberately misled shareholders.

24 I believe that imputation (b) is different in substance from imputation (a). The plaintiff has leave to replead. As repleaded, imputation (b) should go to the jury.

Imputation (c)

25 Again, it is convenient to repeat imputation (c) in order to appreciate the argument:

(c) The plaintiff had cheated the shareholders of Winepros Limited by deliberately running down the business of that company and then closing it down.

26 The defendant objected to this imputation, primarily because of the word "cheat". On the defendant's submission, no dishonesty was imputed to Mr Evans. However, I believe, as I have said, that the article is capable of suggesting sleight-of-hand and dishonesty.

27 The plaintiff said that it was perfectly clear from the first three paragraphs that the business had been run down, and that shareholders had therefore been cheated. The plaintiff again pointed to the headline, and the sarcastic tone, as well as the disparity between what Mr Evans did and what he received.

28 However, I am not persuaded that imputation (c) is reasonable. The article does not suggest that Mr Evans had been deliberately running down the business. Rather, the business attracted minimal sales. Mr Evans was a shareholder. It was as much against his interests, that the business be allowed to run down, as it was against the interests of other shareholders. Imputation (c) should not go to the jury.

Imputation (d)

29 Imputation (d) was as follows:

(d) The plaintiff misappropriated $17.6 million (ie $25 million minus $7.4 million) in Winepros Limited.

30 The defendant described this imputation as "fanciful". It was quite unreasonable, it suggested, to extract the meaning that the plaintiff had misappropriated the difference between the $25 million subscribed and the $7.4 million remaining.

31 The plaintiff sought to defend the imputation by saying that the ordinary reasonable reader must wonder what happened to the money. The flavour of the article, according to the plaintiff, was that the business was an "Evans family rort". He was rewarded handsomely in fees, and provided with a substantial share of the residual assets. His daughter was employed throughout as the manager.

32 However, I accept the defendant's argument. The imputation is unreasonable. Imputation (d) should not go to the jury.

Imputation (e)

33 Imputation (e) is as follows:

(e) The plaintiff managed the business of Winepros Limited in an incompetent manner so as to lose much of its funds.

34 The defendant again asserted that the article provided very clear reasons why the business failed. It was a bad idea. It struggled from the outset. It used the wrong business model. People were not prepared to pay for something which other retailers gave away. There was nothing, the defendant said, which suggested incompetence in the management of the business.

35 The plaintiff again responded to these arguments by pointing to the headline and the opening paragraphs. Also, the business had sales of $37,000 for the quarter, and expenses of $811,000 in the same period. Yet it had been allowed to operate for 18 months before voluntary liquidation. In the meantime, shareholders' funds had been depleted from $25 million to $7.4 million. The inference of incompetence, it was suggested, is readily available.

36 I am persuaded that imputation (e) is capable of arising. It should go to the jury.

Order

37 I therefore make the following orders:

1. The plaintiff has leave to amend imputation (a). As amended, it should go to the jury.

2. The plaintiff has leave to amend imputation (b) As amended, it should go to the jury.

3. Imputations (c) and (d) should not go to the jury.

4. Imputation (e) should go to the jury.

5. Balancing wins and losses, the defendant should pay 60% of the plaintiff's costs.

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Last Modified: 04/23/2002