McMahon v John Fairfax Publications Pty Ltd (No 4)

[2012] NSWSC 216

Supreme Court

New South Wales

Medium Neutral Citation:	McMahon v John Fairfax Publications Pty Limited (No 4) [2012] NSWSC 216
Hearing dates:	7-10, 13-17, 20-24, 27, 28 February 2012
Decision date:	29 February 2012
Before:	McCallum J
Decision:	Rulings on evidence
Legislation Cited:	Evidence Act 1995 Legal Profession Act 2004 Taxation Administration Act 1953 (Cth).
Cases Cited:	National Telecoms Group Limited v John Fairfax Publications Pty Ltd (No 1) [2011] NSWSC 455 Ringrow Pty Ltd v BP Australia Limited [2003] FCA 933 Ritz Hotel Ltd v Charles of the Ritz (1987) 14 NSWLR 116 Roach v Page (No. 15) [2003] NSWSC 939 Roach v Page (No. 27) [2003] NSWSC 1046
Category:	Procedural and other rulings
Parties:	Bryan McMahon (plaintiff) John Fairfax Publications Pty Limited (first defendant) Marcus Priest (second defendant) Rachel Nickless (third defendant)
Representation:	B McClintock SC, K Andronos (plaintiff) ATS Dawson, L Brown (defendants) Ardent Lawyers (plaintiff) Banki Haddock Fiora Lawyers (defendants)
File Number(s):	2008/289210
Publication restriction:	Not to be posted on the internet until after the conclusion of the jury trial that commenced on 8 February 2012

Judgment

1. These are proceedings for defamation and injurious falsehood arising out of the publication of two articles in the Australian Financial Review . The proceedings are being tried before me with a jury.

1. The plaintiff has objected to a number of documents tendered by the defendants. These are my rulings and reasons in respect of those objections.

Summary of expenditure on overseas trips

1. During his cross-examination of the plaintiff, Mr Dawson directed certain questions to the issue of the plaintiff's expenditure on overseas trips during the period from August 2004 to October 2005. In response to a relevance objection taken by Mr McClintock, Mr Dawson submitted that the questions went to two issues.

1. First, it was submitted that they fell within the scope of the defence of substantial truth pleaded by the defendants, specifically in respect of imputations (b) and (c) relied upon by the plaintiff as arising from the first article.

1. Imputation (b) is:

That the plaintiff behaved in a dishonourable way by permitting his old firm to go into administration and, on the same day, opening a new firm.

1. The particulars of truth relied upon to justify that imputation included a list of the debts the plaintiff had in the period from July to October 2007, which included debts on three credit cards totalling over $110,000.

1. In an amended defence propounded shortly before the commencement of the trial, the defendants sought to recast those particulars by characterising "the plaintiff's expenditure on credit cards" as a particular of the allegation that "the plaintiff engaged in an extravagant and expensive lifestyle, funded by his firm's revenue, which led to further financial difficulties for him and his firm and contributed to his personal bankruptcy and the collapse of his firm in early October 2007".

1. Imputation (c) relied upon by the plaintiff in respect of the first article is:

That the plaintiff cheated the staff of his firm by failing to pay the superannuation monies which they were owed.

1. The particulars of truth relied upon to justify that imputation include the allegation that, prior to 2 October 2007, the plaintiff had substantial outstanding debts including his credit card accounts.

1. The second issue to which the cross examination was directed was credit. The credit issue arose in the following way. On 2 October 2007, the plaintiff became bankrupt on his own petition. That was a "show cause event" under the Legal Profession Act 2004 (as defined in section 4 of the Act). The plaintiff adduced into evidence his statement to the Law Society Council made pursuant to section 67(2)(b) of the Act in which he sought to explain why, despite the show cause event, he considered himself to be a fit and proper person to hold a practising certificate (Exhibit R). In that document, the plaintiff said, under the heading "Lifestyle":

I do not and have not led an extravagant lifestyle. I have only had one holiday in the past two years and that was my honeymoon in October last year. This was within Australia and was for only ten days. I do not gamble and have not had significant investments. I don't believe that my drawings have been a burden on the firm.

1. By the cross examination, the defendants sought to establish (as an issue going to credit) that the letter was deliberately selective as to the period of time referred to and misrepresented the true position so far as holidays were concerned.

1. As to whether the cross examination was relevant to the truth defence, Mr McClintock complained that the particulars given in the defence went only to the aggregate level of debt and that the plaintiff was prejudiced by the failure to particularise the individual holidays as incidents of extravagant expenditure.

1. Had that been the only issue to which the cross-examination was directed, I might have contained it. I had some reservations as to the fairness of permitting the defendants to rely on individual items of expenditure having regard to the generality of the particulars to which I have referred. However, I was satisfied that the evidence could substantially affect the assessment of the plaintiff's credibility, having regard to the representations he made to the Law Society in Exhibit R. Accordingly, I determined that the cross examination was permissible in accordance with s 103 of the Evidence Act 1995. Since the basis for permitting the cross examination to proceed was that it went to the issue of credibility, I acceded to a submission put by Mr McClintock that the plaintiff should not be questioned about the specifics of the credit card and bank statements sought to be put before him by Mr Dawson except as provided by s44 of the Evidence Act (see T682-689).

1. In the cross examination that followed, it was put to Mr McMahon that he spent a total of about $29,000 on a trip to Europe and Thailand in late 2004, just under $28,000 on a trip to Hong Kong and China in early 2005 and just under $32,000 on a trip in late 2005 to Montreal, Havana, Quebec, New York, London, Paris, Bangkok and Chiang Mai. Mr McMahon accepted that he had travelled to all of those places. However, his response to the propositions as to his expenditure was that he was unable to answer without looking at the bank statements in question. Assuming the correctness of the figures, he did not agree that it was extravagant to spend $90,000 on overseas holidays within a 15-month period (T695).

1. In re-examination, Mr McMahon said that he had checked the figures and that he was "nowhere near $90,000" (T771). In those circumstances, Mr Dawson now tenders the credit card and bank statements as being admissible under s 106 of the Evidence Act . In response to a concern expressed by me as to material in those statements unrelated to the overseas trips, the defendants prepared a summary of the relevant items which it was suggested might be admissible in accordance with s 50 of the Act.

1. In opposition to the tender, the plaintiff repeated the submissions made when the cross examination began, to which I have already referred. It was further submitted that, if the documents went only to credit, it would be unfair to admit them because a bare addition of the amounts in question does not distinguish business expenses from personal expenses. Mr McMahon drew no such distinction in his evidence in re-examination that the amount in question was "nowhere near" $90,000. He did say in cross examination that two of the trips involved trips to London to see Lloyds underwriters, which he described as being a necessary part of the conduct of his practice. He said that he spent about a week to two weeks in London (T693) but did not say how much of that time was spent on business, or how much of his expenditure was attributable to business activities.

1. In light of the evidence given in re-examination, I was satisfied that the evidence was properly admissible under s 106. I determined that I would hear the plaintiff as to whether the evidence should be admitted in the form of the summary prepared by the defendants or by redacting the relevant bank statements.

Annual reports of the Commissioner of Taxation

1. Imputation (a) relied upon by the plaintiff in respect of the first matter complained of is:

That the plaintiff so failed to meet his tax obligations that he was a major scalp in a crackdown on unpaid tax by the Australian Taxation Office.

1. The particulars of truth relied upon by the defendants to justify that imputation assert that, in around 1999, the Australian Taxation Office commenced a program called the Legal Profession Project designed to crack down on the levels of unpaid tax amongst members of the Legal Profession. Further particulars of that project were provided.

1. In support of that part of the defence, the defendants tendered a series of extracts from annual reports of the Commissioner of Taxation which had evidently been downloaded from the internet. The plaintiff opposed the admission of those documents.

1. Mr McClintock took issue with the provenance of the reports tendered, since he was unable himself to access the same documents on the Internet. I do not think that would in itself have been a sufficient reason to exclude the material.

1. It was submitted on behalf of the defendants that the annual reports were admissible as business records under s 69 of the Evidence Act.

1. Mr McClintock submitted that the annual reports are not business records. He relied upon the decision of Davies J in National Telecoms Group Limited v John Fairfax Publications Pty Ltd (No 1) [2011] NSWSC 455. In that decision, Davies J determined that analysts' and brokers' reports concerning the plaintiff, which had been relied upon by an expert witness called by the defendant, were not admissible as business records: at [69]. His Honour relied upon the decisions of Sperling J in Roach v Page (No. 15) [2003] NSWSC 939 and Roach v Page (No. 27) [2003] NSWSC 1046 in which a distinction was drawn between "records" of a business and other publications such as books, reports or flyers which may record details of the business carried on but which do not amount to "records" of the business for the purpose of s 69.

1. In Roach v Page (No. 27), Sperling J said (at [11]):

The thinking behind the section is clear enough. Things recorded or communicated in the course of the business and constituting or concerning business activities are likely to be correct. There is good reason for the courts to afford such records the same kind of reliability as those engaged in business operations customarily do. The same is not true of publications made for wider dissemination, for entertainment, for advertising or for public relations purposes. Such publications are justifiably received with healthy scepticism.

1. The reports excluded by Davies J in National Telecoms Group did not appear on their face to have been prepared for the purposes of public dissemination: see [66]. However, it appears from the judgment that they recorded market analysis concerning the plaintiff by brokers and analysts. With great respect to Davies J, his Honour's conclusion that those documents did not amount to business records for the purpose of s 69 was plainly right, in my view.

1. I am less confident as to whether the same reasoning applies to the annual reports of a Commonwealth Government office. In my view, it is well open to conclude that the annual reports form part of the records belonging to the Australian Taxation Office in the course of or for the purposes of a business (noting that the dictionary to the Evidence Act defines business to include an activity engaged in or carried on by the Crown).

1. Further, as noted by Mr Dawson, the annual reports are required by statute and are thus a necessary incident of the carrying on of the business: cf Ritz Hotel Ltd v Charles of the Ritz (1987) 14 NSWLR 116 at 122E per McLelland J.

1. I nonetheless came to the conclusion that the annual reports should not be admitted into evidence in these proceedings. First, it is necessary to pay close attention to the representations sought to be proved by the tender of the reports. The hearsay rule excludes evidence of a previous representation made by a person to prove the existence of an asserted fact (a fact that it can reasonably be supposed that the person intended to assert by the representation): s 59 of the Evidence Act . Many of the representations relied upon by the defendants in the annual reports are in the form of conclusions that do not reveal the underlying facts. For example, the annual report for the year 2003/04 states:

Legal Profession Project

This year we continued our work with the legal profession and expanded our focus to ensure that solicitors throughout Australia are registered for tax purposes and meeting their lodgement and payment obligations. This supplements our previous work with barristers.

We've made significant inroads in improving compliance in the Legal Profession, and have noted positive changes in the attitudes and behaviour of barristers and solicitors towards meeting their tax obligations.

During the year we built and maintained relationships with professional and regulatory bodies in every state and territory. We explored opportunities for regulators to educate their members on how to comply with their tax obligations, and the consequences of failing to comply. We included tax compliance messages for barristers and solicitors in the publications of peak regulatory bodies.

1. Some of the conclusions expressed in the annual reports arguably consist of opinions. To the extent that any expert opinion recorded in the reports would be admissible under s79 of the Evidence Act , it could be admitted under the business records provision: Ringrow Pty Ltd v BP Australia Limited [2003] FCA 933 at [16]-[21] per Hely J. In my view, however, statements in the form of summaries or conclusions which do not articulate the underlying facts implicitly asserted in support of them are more problematic. I am inclined to think that the form of the representations relied upon is a matter that goes to admissibility but, even if that is wrong, it plainly informs the Court's assessment of the probative value of the evidence.

1. Separately, Mr McClintock's submissions persuaded me that there is a danger that the evidence might be unfairly prejudicial to the plaintiff. The evidence is adduced to sustain the allegation that the plaintiff was a "major scalp" in the Legal Profession Project established within the Australian Taxation Office. To allow that evidence to be adduced pursuant to the business records provision rather than through a witness deprives the plaintiff of the opportunity of testing the evidence in any meaningful way. As pointed out by Mr McClintock, it seems likely that the Legal Profession Project was directed at individuals who satisfied identified criteria. Mr McMahon may or may not have fallen within its scope.

1. Mr Dawson noted that the ATO is not required to disclose to a court "protected information" and so could not have been compelled to produce documents or give evidence to prove whether the plaintiff was or was not included in the Legal Profession Project: see s18, schedule 1, s 355-75 of the Taxation Administration Act 1953 (Commonwealth). It does not follow that no person could have given evidence about the project directed to establishing the likelihood or otherwise that Mr McMahon fell within its terms of reference.

1. Separately, Mr Dawson submitted that the existence of the Legal Profession Project within the Australian Taxation Office is a matter of common knowledge within the meaning of s144 of the Evidence Act. To approach the present issue in that way would entail the same risk of unfair prejudice to the plaintiff as entailed in the admission of the annual reports as business records.

1. For those reasons, I was satisfied that the probative value of the evidence was substantially outweighed by the danger that it might unfairly prejudice the plaintiff and accordingly that I should refuse to admit the annual reports into evidence.

Deloitte Report to Creditors

1. Imputation (c) relied upon by the plaintiff as arising from the second matter complained of is:

That the plaintiff so conducted himself as a solicitor and as a director of a corporation as to give rise to a suspicion that he allowed that corporation to trade insolvent in breach of the Corporations Act.

1. In support of their truth defence, the defendants tendered the Report to Creditors dated 18 October 2007 prepared by the administrators of McMahon's Management Consultants Pty Ltd (Administrators Appointed). In that report, the administrators state:

Given that the company's only liability relates to a guarantee that it provided to MNL LP, it only become insolvent when MNL LP was unable to pay it's [sic] debts. Further, was Director filed a debtors petition with ITSA on 2 October 2007 and was subsequently declared bankrupt [sic].

In this circumstance, whilst there may be a prima facie case for insolvent trading, any action is unlikely to be of any benefit to creditors.

1. The parties were in dispute as to the meaning of imputation (c) set out above. On behalf of the plaintiff, Mr McClintock submitted that proof of the substantial truth of the imputation requires attention only to the plaintiff's conduct and whether it was of such a kind as to give rise to the suspicion referred to. On behalf of the defendants, Mr Dawson submitted that the imputation could be proved to be substantially true by proof of the fact that the plaintiff's conduct did in fact give rise to such a suspicion (in the mind of the administrators).

1. In support of his contention, Mr Dawson relied on an earlier ruling given in these proceedings by the Defamation List judge, Nicholas J, in which his Honour rejected an application by the plaintiff to replace existing imputation (c) set out above with the following imputation:

The plaintiff had behaved in such a way as to deserve to and would be investigated by his firm's liquidator to determine whether he had allowed the firm's general partner to engage in insolvent trading in breach of the Corporations Act.

1. Nicholas J refused leave to amend on the basis that the matter had a lengthy history and had already seen several attempts at pleading the imputations. In those circumstances, his Honour concluded that it was simply too late for any further amendment. However, against the risk that it should later be held that he was wrong in so holding, his Honour also indicated his views as to the imputation in question (as it happened, his Honour was later upheld on appeal). His Honour said that he considered the imputation to be bad in form (presumably for rolling up two propositions) and incapable of arising in any event.

1. On the strength of those indications, Mr Dawson submitted that the existing imputation could not be construed as requiring proof that any suspicion held was held deservedly or on reasonable grounds. It followed, in Mr Dawson's submission, that the truth of the imputation could be proved by proving that a suspicion was in fact held by some person.

1. I think that is a difficult argument. Ultimately, the imputation that stands must be understood according to the ordinary meaning of the words which, in my view, make an assertion as to the nature of the plaintiff's conduct, not the objective existence of any suspicion generated by his conduct.

1. However, even if the imputation is to be understood in the sense contended for by Mr Dawson, I do not think the Deloitte report should be admitted.

1. First, it may be doubted whether the report is a business record for the purpose of s 69 of the Evidence Act, for the reasons explained by Davies J in National Telecoms Group Limited v John Fairfax Publications Pty Ltd (No 1) , discussed above.

1. In any event, even if the report is a business record, the "asserted fact" identified is that there may be a prima facie case against the plaintiff for insolvent trading. In my view, that is something very different from the existence of a suspicion in the mind of either of the administrators. In my view, it is doubtful whether the existence of such a suspicion is even open as an inference from the document but even if it is, I would exclude the document in the exercise of my discretion under s 135. In my view, it would be unfairly prejudicial to the plaintiff to permit the defendants to prove that fact by the business record provisions without calling the person who supposedly held the suspicion. Accordingly, I rejected the tender.

Decision last updated: 20 March 2012