Kazal v Thunder Studios Inc (California)

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FEDERAL COURT OF AUSTRALIA

Kazal v Thunder Studios Inc (California) [2023] FCAFC 174  

Appeal from:

Thunder Studios Inc (California) v Kazal (No 5) [2017] FCA 1572

Thunder Studios Inc (California) v Kazal (No 7) [2018] FCA 996

Thunder Studios Inc (California) v Kazal (No 9) [2020] FCA 846

Thunder Studios Inc (California) v Kazal (No 10) [2020] FCA 16

Thunder Studios Inc (California) v Kazal (No 12) [2022] FCA 110
File number(s): NSD 276 of 2022
Judgment of: WIGNEY, WHEELAHAN AND ABRAHAM JJ
Date of judgment: 3 November 2023
Catchwords:

PRACTICE AND PROCEDURE — appeal and new trial – apprehended bias – where some time prior to trial the primary judge found the second appellant guilty of contempt of court and sentenced him to a term of imprisonment – where before trial the appellants made an application to the judge that he disqualify himself from further hearing the proceeding on the ground of apprehended bias – where the primary judge refused to disqualify himself – no application by the appellants for leave to appeal at the time – not reasonable for the appellants to save up apprehended bias point as a ground of appeal from the primary judge’s final orders – point given up by the appellants.

PRACTICE AND PROCEDURE — appeal and new trial – apprehended bias – where the primary judge made findings in the final judgment adverse to the appellants and beneficial to the respondents – where the appellants appealed on the ground that the conduct of the trial and the primary judge’s findings disclosed a reasonable apprehension of bias – no apprehended bias established.

PRACTICE AND PROCEDURE — appeal – where the first appellant failed to comply with orders to provide verified answers to interrogatories – where against that background, the primary judge made a self-executing order that the first appellant’s defence be struck out if he did not provide verified answers to interrogatories by 15 September 2017 – where the first appellant failed to comply with that order – where the primary judge refused an application to extend time to comply with the self-executing order – interlocutory application for leave to appeal interlocutory orders dismissed – whether appellate jurisdiction of the Court exhausted – whether decision to refuse extension of time affected the final result – whether House v The King errors affected the judge’s refusal to extend time – no error shown.

STATUTORY INTERPRETATION – practice and procedure – where prior to trial an interlocutory application to stay the hearing of the proceeding was made to the primary judge on the ground that other proceedings in the docket of another judge of the Court gave rise to a risk of inconsistent findings – where neither appellant had a defence on foot – where the primary judge refused the interlocutory application, inter alia, because there was no substantive risk of conflicting judgments – no error by the primary judge in reaching that conclusion – where the primary judge concluded on the interlocutory application that…

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Details
Case
[2023] FCAFC 174
Decision Date

CaseChat Overview and Summary

The appeal arose out of a defamation and misleading and deceptive conduct proceeding in the Federal Court. The respondents, Thunder Studios Inc and Mr David, sought damages and injunctive relief against the appellants, Adam Kazal and Charif Kazal, for defamatory publications made by the appellants on the internet. The respondents also alleged contraventions of s 18 of the Australian Consumer Law (ACL) in relation to the defamatory publications. The primary judge found in favour of the respondents and made orders for damages and permanent injunctive relief against the appellants. The appellants appealed against the findings of the primary judge on various grounds.

The appeal raised several issues, including whether the primary judge was correct to refuse to disqualify himself on the ground of apprehended bias, whether the conduct of the trial and the primary judge’s findings disclosed a reasonable apprehension of bias, whether the primary judge erred in striking out the first appellant’s defence for failing to provide verified answers to interrogatories, whether the primary judge erred in refusing to extend time to comply with the self-executing order, whether the primary judge erred in refusing to stay the hearing of the proceeding on the ground of apprehended inconsistent findings, whether the primary judge erred in finding that the first matter conveyed a meaning and representation that doing business with the respondents ran the risk of physical injury, whether the primary judge erred in finding that the first respondent ceased to be an “excluded corporation” within the meaning of s 9(2)(b) of the Defamation Act 2005 (NSW), whether the primary judge erred in finding that the impugned conduct occurred “in trade or commerce” within the meaning of s 18 of the ACL, whether the primary judge erred in finding that the second appellant engaged in, or sanctioned, conduct in the United States that aggravated damage to the respondents, whether the primary judge’s awards of damages were excessive, whether the primary judge erred in refusing to permit cross-examination of the second respondent on matters said to go to mitigation of damage, and whether the primary judge erred in finding that the Kazal website and Twitter publications constituted misleading and deceptive conduct in contravention of s 18 of the ACL.

The Full Court dismissed the appeal. The Full Court held that the primary judge did not err in refusing to disqualify himself on the ground of apprehended bias, as the appellants had not made an application to disqualify the primary judge at the appropriate time. The Full Court held that no apprehended bias was established, as the primary judge’s findings and orders were based on the evidence and the law. The Full Court held that the primary judge did not err in striking out the first appellant’s defence or in refusing to extend time to comply with the self-executing order, as the first appellant had failed to comply with the orders and there was no error in the primary judge’s exercise of discretion. The Full Court held that the primary judge did not err in refusing to stay the hearing of the proceeding, as there was no substantive risk of conflicting judgments. The Full Court held that the primary judge did not err in finding that the first matter conveyed a meaning and representation that doing business with the respondents ran the risk of physical injury, as the primary judge’s finding was supported by the evidence. The Full Court held that the primary judge erred in finding that the first respondent ceased to be an “excluded corporation” by 11 October 2013, but this error was not material, as the same conduct constituted a breach of s 18 of the ACL and the same award of damages for such contravention of the ACL was not limited by whether the first respondent was an “excluded corporation”. The Full Court held that the primary judge did not err in finding that the impugned conduct occurred “in trade or commerce” within the meaning of s 18 of the ACL, as the impugned conduct arose out of commercial disputation and was intended to have commercial effects. The Full Court held that the primary judge did not err in finding that the second appellant engaged in, or sanctioned, conduct in the United States that aggravated damage to the respondents, as the conduct in aggravation of damage as a result of a tort did not itself have to be unlawful. The Full Court held that the primary judge’s awards of damages were not excessive, as the errors of the primary judge were minor in the broad context and the Full Court would assess damages in sums no less than those assessed by the primary judge. The Full Court held that the primary judge did not err in refusing to permit cross-examination of the second respondent on matters said to go to mitigation of damage, as the primary judge exercised his discretion correctly. The Full Court held that the primary judge did not err in finding that the Kazal website and Twitter publications constituted misleading and deceptive conduct in contravention of s 18 of the ACL, as the primary judge’s finding was supported by the evidence.

The appeal is dismissed. The appellants pay the respondents’ costs of the appeal. Either the appellants or the respondents may seek a variation of the order for costs by filing and serving a written submission, in which event the other parties may file and serve a responding written submission. Any application for variation of the order for costs will be determined on the papers.

Orders

Orders of the court

1. The appeal is dismissed.

2. Subject to paragraphs 3 and 4, the appellants pay the respondents’ costs of the appeal.

3. Either the appellants or the respondents may seek a variation of the order in paragraph 2 by filing and serving by 4.00 pm on 13 November 2023 a written submission of no more than three pages, 1.5 spacing, 12 point font, in which event the other parties may by 4.00 pm on 20 November 2023 file and serve a responding written submission of no more than three pages, 1.5 spacing, 12 point font.

4. Subject to further order, any application for variation of the order for costs will be determined on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

I will set out some more background before identifying the array of issues that arise out of the grounds of appeal.Further background The proceeding has a lengthy history. The matters the subject of the respondents’ claims were first published in June 2013. The proceeding was commenced in August 2014. Prior to trial there were a number of interlocutory decisions, and there were findings of contempt of court against Adam Kazal: Thunder Studios Inc (California) v Kazal [2016] FCA 1598 (Judgment No 1, or J1). These findings resulted in an order by the primary judge that Adam Kazal be sentenced to concurrent terms of imprisonment, the longest of which was 18 months: Thunder Studios Inc (California) v Kazal (No 2) [2017] FCA 202 (Judgment No 2, or J2). Four of six findings of contempt were upheld by the Full Court, which re-exercised the sentencing power, imposing a total effective sentence of 15 months’ imprisonment, which Adam Kazal served: Kazal v Thunder Studios Inc [2017] FCAFC 111; 256 FCR 90. The interlocutory background and the contempt proceedings were referred to by the primary judge at J12 [7]-[23]. Three interlocutory decisions of a procedural nature are also the subject of this appeal. In addition, the appellants challenge an interlocutory decision of the primary judge not to disqualify himself on the ground of apprehended bias which was said to arise from his Honour’s findings of contempt against Adam Kazal. The course of this proceeding is set against the context of a wider field of disputation and acrimony between the appellants, the respondents, and corporations with which they have been associated leading to what his Honour described at one point as a “farrago of litigation across the world”. The wider disputation was referred to by the primary judge at J12 [109]-[150], and aspects of it are summarised below.The Emergent joint venture and the initiation of a proceeding in the Cayman Islands In 2006, Mr David was living in Sydney and working in property development and construction. It was about this time that he was introduced to Charif Kazal. In early 2008, Mr David and Charif Kazal agreed to participate in a joint venture in the UAE. They incorporated Emergent Capital Limited (Emergent) in the Cayman Islands as a vehicle through which to pursue the joint venture. Emergent had two corporate shareholders, which were also incorporated in the Cayman Islands: RAAL Ltd, controlled by Mr David, and KTC, which was controlled by Charif Kazal and at least one of his brothers, Mr Tarek Kazal, known as “Tony” Kazal. The share capital of Emergent was 50,000 shares of US$1 each. The issued capital comprised 100 shares, held in equal proportions by RAAL Ltd and KTC. I will refer to RAAL Ltd’s participation in the venture as the David side of the venture and to KTC’s participation as the Kazal side of the venture. The relationship between the two sides disintegrated over time. Ultimately, there were disputes, inter alia, as to the nature of the joint venture and the obligations of the relevant parties, the performance or otherwise of those obligations, and allegations of shareholder oppression regarding Emergent. The David side of the venture claimed that the Kazal side had only provided about AU$600,000 of funding contra the approximately AU$5.8 million the David side asserted it had contributed. The Kazal side claimed that the David side was responsible for its oppression in the context of shareholding in Emergent. It was said that on 28 January 2010, Mr David convened a board meeting of Emergent. Another board member, Mr Nick Mavromanolakis, had provided the Kazal side notice of the meeting on 22 January 2010. Only Mr David and Mr Mavromanolakis attended the board meeting at which it was resolved that 49,000 shares in Emergent would be issued to RAAL Ltd at US$1 each, with a correlative reduction in RAAL Ltd’s loan to Emergent. This was said to have been a deliberate ploy by the David side to gain control of Emergent. These allegations led to the matter being litigated before the Grand Court of the Cayman Islands. A proceeding was commenced by the Kazal side in March 2010 in which the winding up of Emergent was sought on the just and equitable ground.Events in the UAE

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Following trial, judgment was given for the respondents against the appellants for damages, and orders in the nature of permanent injunctions were made. The primary judge’s reasons for judgment on liability issues and damages following the trial are published: Thunder Studios Inc (California) v Kazal (No 12) [2022] FCA 110; 403 ALR 698 (Judgment No 12, or J12). His Honour subsequently gave reasons for granting permanent injunctions, reasons in respect of the extent of joint liability of the appellants, and reasons in relation to costs, which were awarded to the respondents on an indemnity basis: Thunder Studios Inc (California) v Kazal (No 13) [2022] FCA 256 (Judgment No 13, or J13). The first and second of the four matters were published on a website titled the Kazal Family Story to which the judge referred as the Kazal website. His Honour held that these matters were defamatory of the respondents. His Honour also held that these matters were published maliciously and conveyed imputations that were false, and which had caused actual financial damage, thereby also giving rise to liability for injurious falsehood. Thunder Studios and Mr David also alleged that the publication of the first and second matters on the Kazal website constituted conduct in the course of trade or commerce that was misleading and deceptive in contravention of s 18 of the Australian Consumer Law (ACL), which is Sch 2 of the Competition and Consumer Act 2010 (Cth), and by operation of s 131 of the Act has effect in relation to the conduct of corporations. Section 18 of the ACL is given extended effect by operation of s 6(3) of the Act to persons who are not corporations where the conduct involves the use of postal, telegraphic or telephonic services. The respondents relied on the extended operation of s 18 of the ACL¸ and this did not appear to be in issue at trial, and it was not in issue on the appeal. The primary judge did not make any specific findings in relation to whether the website publications contravened s 18 of the ACL, but his Honour must be taken to have found that those representations that were found to have been conveyed by the first and second matters engaged s 18 of the ACL, because his Honour referred to contraventions of s 18 of the ACL when assessing damages, and granted a permanent injunction in relation to them pursuant to s 232 of the ACL in terms to which the parties agreed: see J12 [354], [360] and J13 [3]. No point was taken on appeal in relation to the adequacy of findings in relation to the first and second matters. Each of the appellants also had Twitter accounts. The publications on the Twitter accounts comprised the third and the fourth matters. The primary judge held that from about May 2013 the appellants published thousands of tweets on their respective Twitter accounts that purported to include links to headlines and news stories, but which instead took anyone who clicked on the links to the Kazal website which contained matter that was defamatory of the respondents. The judge held that the effect of readers being taken to the Kazal website was to drive up traffic, and consequently to raise the search engine optimisation ranking of the Kazal website when persons searched the internet for information about Mr David. The judge held that these Twitter publications constituted conduct in trade or commerce that was misleading and deceptive in contravention of s 18 of the ACL.

Ratio Decidendi

Legal Principle Established

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