MTQ Holdings Pty Ltd v Lynch
[2006] WASC 53
MTQ HOLDINGS PTY LTD -v- LYNCH & ORS [2006] WASC 53
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 53 | |
| Case No: | CIV:2557/2004 | 21 FEBRUARY 2006 | |
| Coram: | MASTER NEWNES | 31/03/06 | |
| 11 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | MTQ HOLDINGS PTY LTD (ACN 104 520 934) RAYMOND JOHN LYNCH JOHN JOSEPH LINDEN CHARLES JUSTIN BRIAN BIRMINGHAM JOHN LEEDERT NOORDHOEK RCR TOMLINSON LTD (ABN 81 008 898 486) |
Catchwords: | Defamation Application to strike out statement of claim Whether imputations capable of being conveyed by words complained of Turns on own facts |
Legislation: | Nil |
Case References: | Buckeridge v Walter [2006] WASCA 22 Chakravarti v Advertiser Newspapers Ltd (1998) 193 CLR 519 Favell v Queensland Newspapers Pty Ltd (2005) 79 ALJR 1716 Lewis v Daily Telegraph Ltd [1964] AC 234 MTQ Holdings Pty Ltd v Lynch [2005] WASC 162 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
RAYMOND JOHN LYNCH
JOHN JOSEPH LINDEN
CHARLES JUSTIN BRIAN BIRMINGHAM
JOHN LEEDERT NOORDHOEK
First Defendants
RCR TOMLINSON LTD (ABN 81 008 898 486)
Second Defendant
Catchwords:
Defamation - Application to strike out statement of claim - Whether imputations capable of being conveyed by words complained of - Turns on own facts
Legislation:
Nil
(Page 2)
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr M L Bennett
First Defendants : Mr D M Stone
Second Defendant : Mr D M Stone
Solicitors:
Plaintiff : Bennett & Co
First Defendants : Williams & Hughes
Second Defendant : Williams & Hughes
Case(s) referred to in judgment(s):
Buckeridge v Walter [2006] WASCA 22
Chakravarti v Advertiser Newspapers Ltd (1998) 193 CLR 519
Favell v Queensland Newspapers Pty Ltd (2005) 79 ALJR 1716
Lewis v Daily Telegraph Ltd [1964] AC 234
MTQ Holdings Pty Ltd v Lynch [2005] WASC 162
Case(s) also cited:
Nil
(Page 3)
1 MASTER NEWNES: This an application to strike out the statement of claim as disclosing no reasonable cause of action or, alternatively, as being embarrassing. The defendants contend that no reasonable reader of the words complained of, having knowledge of the extrinsic facts pleaded, would understand the words to bear the meanings pleaded or any defamatory meaning.
The plaintiff's claim
2 The matter has previously come before me on a similar application when it was ordered that the defamatory imputation pleaded by the plaintiff be struck out: MTQ Holdings Pty Ltd v Lynch[2005] WASC 162.
3 I will, however, for convenience, set out again the publication complained of and the relevant extrinsic facts.
4 The plaintiff pleads in par 6 of the statement of claim that, on or about 25 November 2004, the first defendants published of and concerning the plaintiff, by posting to each of the shareholders of the second defendant and by publishing on a website maintained by the second defendant, the following words:
"Dear Shareholder
GENERAL MEETING – FRIDAY 3 DECEMBER 2004
MTQ Holdings Pty Ltd ('MTQ') is a shareholder of RCR Tomlinson Ltd ('RCR' or 'the Company') and is a wholly owned subsidiary of Singaporean based MTQ Corporation Limited, the same company that offered 25 cents for your shares your [sic] last year. MTQ has written to RCR shareholders requesting you to vote against the resolution at the General Meeting on 3 December 2004 in respect of the proposed capital raising by the Company.
MTQ's motivation in making this request is their decision not to participate in the proposed placement of new shares and thereby diluting their equity in the Company.
MTQ wants your Company to increase its borrowings and debt gearing levels to in excess of 50% while the majority of the directors want to fund the recently announced acquisitions from new equity and maintain gearing at what the directors regards as a more commercially sound 32%.
(Page 4)
- RCR has experienced significant growth in the current environment of a strong resources sector, high infrastructure spending and a strong Australian economy, in particular in Western Australia and Queensland.
Our clearly enunciated strategy has been to grow by making acquisitions of higher margin related businesses, reducing bank debt and hence interest payments and increasing dividends to shareholders.
We are pleased that this strategy has been successful and has resulted in the ability of the Company to attract new institutional shareholders through the proposed placement which in turn has led to a re-rating of the company's share price and a significant increase in its market capitalisation. Since the Stelfrom acquisition was announced the RCE share price has risen by approximately 30%.
Every shareholder has benefited from this strategy by seeing the value of their holding in the Company increase significantly.
The majority of the Board believes that the increase in value of your shareholding is more important than your percentage interest in the Company and that the combination of the rights issue and placement is the best way to maximise this value. This belief has been vindicated by the performance of the share price since the placement rights issue announcements were made. [emphasis in original]
If you have already submitted your proxy in favour of the resolution and have not returned MTQ's proxy you need to [sic] nothing more.
…"
5 The plaintiff alleges that to recipients of an earlier letter from the plaintiff to shareholders of the second defendant, the words complained of meant and were understood to mean that the plaintiff had lied to the shareholders of the second defendant. The earlier letter from the plaintiff refers to the placement and says, so far as relevant:
"The purpose of this letter is to urge all shareholders to join with us and VOTE AGAINST THE PLACEMENT so that
(Page 5)
- existing shareholders, rather than clients of Hartleys Ltd, are given the opportunity to benefit fully from the prosperity of RCR [emphasis in original] …
…
MTQ's OBJECTIONS TO THE PLACEMENTS
1. We believe that the two acquisitions should be funded through a mix of equity and debt
Both Stelform Engineering and Laser & Allied are profitable businesses. Stelform Engineering recorded a profit before tax of $2.2 million in the year ended 30 June 2004 and Laser & Allied recorded an EBITDA of A$2.07 million in the same period. We are of the view that the acquisition of such profitable businesses should be prudently funded through a combination of a rights issue and debt.
New borrowings of A$5.5 million will increase RCR's annual borrowing costs by approximately A$0.5 million, assuming an interest cost of 9%. Based on the above figures, we believe that the operations are able to finance any incremental interest costs and subsequent principal payments over a relatively short time span.
Some members of the Board have stated to us that they believe RCR should fund the acquisitions through equity in order to cap the Company's gearing at approximately 30%. Such a self-imposed limitation is unnecessarily restrictive and denies RCR any flexibility in exploiting further growth opportunities for the benefits of existing shareholders with the prudent use of debt.
2. Existing shareholders should be given the first opportunity to participate in any capital raising
The majority of the board has adopted a different view on the optimum gearing level and opted to fund the acquisitions entirely through new equity. In these circumstances, such capital raising should be in the form of a rights issue so that existing shareholders are given the first opportunity to participate.
(Page 6)
- The proposed share placement is detrimental to the interests of existing shareholders in that it will significantly dilute their shareholdings. Shareholders are being asked to participate in a rights issue that will account for only 30 per cent of the total proposed fundraising. Therefore, shareholders who want to maintain their percentage interests in the company will not be able to do so.
…
In an attempt to obtain the support of MTQ, RCR offered MTQ the opportunity to participate in the placement to maintain its current percentage interest. This is not acceptable to us as this opportunity is not being given to all shareholders. At the Company's recent AGM, queries were raised in relation to a previous placement as to why MTQ had been offered preferential treatment to other shareholders. MTQ appreciates the sentiments underpinning these queries.
The total fee payable to Hartleys for the proposed capital raising is in the region of A$0.6 million, which is approximately 1 year's incremental interest cost. This could be reduced significantly if the placement is aborted.
3. Sustained growth in share price can only be achieved through consistent earnings growth
Some members of the Board have adopted the view that the market will re-rate RCR shares with the introduction of institutional investors. We are of the view that this is purely speculative, as there is no evidence to support such a re-rating. There is also no certainty that the placees will not unload the shares and create an overhang of RCR shares in the market. Sustained growth in share price, on a long term view, will hinge on earnings per share growth as well as market sentiment.
THE PROPOSED PLACEMENT IS TANTAMOUNT TO A HIJACK OF THE RIGHTS AND BENEFITS THAT BELONG TO EXISTING SHAREHOLDERS
…
If you support our campaign to stop the Company unnecessarily diluting our interests just when we are benefiting from a rising
(Page 7)
- share price. Please sign, sign your name and address, tick your preference for Resolution 3 and RETURN THE PROXY FORM AS SOON AS POSSIBLE. …" [all emphasis in original]
6 The plaintiff pleads in par 7 of the statement of claim that by way of innuendo the words complained of meant and were understood to mean, to persons having knowledge of the plaintiff's letter, that the plaintiff:
"(a) was not frank with the shareholders of the second defendant;
(b) further, was misleading shareholders of the second defendant."
7 As I have said, the defendant contends that neither of those imputations is capable of being conveyed by the words complained of and, in addition, that par 7(b) is embarrassing because it is not clear if the intended meaning is that the plaintiff deliberately misled shareholders.
The principles to be applied
8 The relevant principles to be applied on an application of this sort are well established and were not in dispute on this application. They are set out in my earlier decision and have more recently been referred to by the High Court in Favell v Queensland Newspapers Pty Ltd (2005) 79 ALJR 1716 at 1719 - 1720 per Gleeson CJ, McHugh, Gummow and Heydon JJ. Their Honours also specifically referred to the statement of Lord Devlin in Lewis v Daily Telegraph Ltd [1964] AC 234 at 277, that ordinary readers draw implications from a text much more freely than lawyers, especially when the implications are derogatory, and observed that that was "an important reminder for judges".
9 In Buckeridge v Walter [2006] WASCA 22, the Court of Appeal of this Court discussed the basis upon which an imputation will be struck out. The Court of Appeal said:
"It is also settled that an imputation will be struck out only if it is plainly incapable of being conveyed by the words complained of or, to use the words of Hunt J in Monte v Mirror Newspapers Ltd [1979] 2 NSWLR 663 at 675, if the imputation is 'so clearly untenable that it cannot possibly succeed': Taylor v Jecks (1993) 10 WAR 309 at 313. In Favell, Gleeson CJ, McHugh, Gummow and Heydon JJ, at 1719 [6], approved the following
(Page 8)
- extract from the judgment of McPherson JA in the Queensland Court of Appeal:
'Whether or not [the pleading] ought to and will be struck out [as disclosing no cause of action] is ultimately a matter for the discretion of the judge who hears the application. Such a step is not to be undertaken lightly but only, it has been said, with great caution. In the end, however, it depends on the degree of assurance with which the requisite conclusion is or can be arrived at. The fact that reasonable minds may possibly differ about whether or not the material is capable of a defamatory meaning is a strong, perhaps an insuperable, reason for not exercising the discretion to strike out. But once the conclusion is firmly reached, there is no justification for delaying or avoiding that step [at] whatever stage it falls to be taken.' "
"I should add … my respectful endorsement of the comments made by Kirby J in Favell at 1722 to the effect that courts should discourage, or minimise, the impediment to a fair trial presented by the process of 'trial by interlocutory ordeal', which is especially prevalent in defamation proceedings."
11 To the same effect, see also Pullin JA at [22].
The defendants' submissions
12 It was submitted by counsel for the defendants that the imputation in par 7(a), that the plaintiff was not frank with the shareholders, was essentially to the same effect, albeit perhaps in a less pejorative way, as the imputation that the plaintiff had lied to the shareholders, which had previously been struck out that. Both imputations have, as their essence, the meaning that the plaintiff has not been honest in the statement it made. It followed that this imputation must also be struck out.
13 It was submitted that the imputation that the plaintiff was "misleading shareholders" was embarrassing because it is not clear whether it is intended to mean that the plaintiff was deliberately misleading shareholders.
14 If it is intended to plead that the plaintiff was deliberately misleading shareholders, it is not distinct from the imputation that the plaintiff was
(Page 9)
- not frank with the shareholders. It is, in any event, not being capable of being conveyed by the words complained of.
The plaintiff's submissions
15 Counsel for the plaintiff said that the intended meaning of the imputation in par 7(b) was that the plaintiff was intentionally misleading shareholders. An amendment to add the word "intentionally" or "deliberately" would be made to make that clear.
16 It was argued on behalf of the plaintiff that there was a distinct difference between deliberately misleading shareholders and not being frank with shareholders. A person may not be frank – that is, not open or not unreserved or not candid – without being deliberately misleading. Equally, a person may deliberately mislead someone without lying to them. Neither of the imputations was to the same effect as the imputation that had earlier been struck out and each was sufficiently distinct in meaning.
17 It was submitted that a reasonable reader of the words complained would clearly understand them to mean that the plaintiff in its earlier letter had not been frank and that it was deliberately misleading shareholders as to its motive for opposing the proposed capital raising.
18 In its letter to shareholders, the plaintiff had said that the acquisition should be prudently funded through a combination of a rights issue and debt and it opposed the proposed capital raising on the basis that it was unnecessary and would result in the dilution of the shareholding of all shareholders. The plaintiff had said it had refused an offer for special treatment that would have avoided dilution of its shareholding because the offer was not extended to all shareholders.
19 In the words complained of, the defendant said that the plaintiff's motivation in opposing the proposed capital raising was its decision not to participate in the proposed placement, thereby diluting its equity in the company. In other words, it was an entirely selfish attitude. The clear imputation was that the plaintiff had not been frank as to its motivation and that it was intentionally misleading shareholders by claiming to have altruistic motives that it did not in fact have.
Are the imputations arguably capable of being conveyed?
20 I consider that the imputation that the plaintiff had not been frank with shareholders is capable of being conveyed by the words complained of. The plaintiff in its letter to shareholders said it opposed the placement
(Page 10)
- because it did not "think it is in the interests of shareholders". It said it considered that the proposed acquisitions to be funded by the capital raising could prudently be funded through a combination of a rights issue and debt, and that the self-imposed limitation of the Board to cap the company's gearings at approximately 30 per cent was unnecessarily restrictive and denied the company flexibility in exploiting further growth opportunities. The plaintiff said that the proposed share placement was detrimental "to the interests of existing shareholders in that it will significantly dilute their shareholding". The plaintiffs went on to say, "In an attempt to obtain the support of MTQ, RCR offered MTQ the opportunity to participate in the placement to maintain its current percentage interest. This is not acceptable to us as this opportunity is not being given to all shareholders".
21 In the words complained of it was said that the plaintiff's motivation in requesting shareholders to vote against the proposed capital raising was the plaintiff's decision not to participate in the proposed placement of new shares and thereby diluting its equity in the second defendant.
22 In my view, it is arguable that a reasonable reader would conclude from the words complained of that the plaintiff had been less than frank in its letter to shareholders in relation to its motive for opposing the share placement. It is, of course, neither necessary nor appropriate on this application to reach any view as to whether in fact a reasonable reader would reach such a view. It is sufficient that it is arguable.
23 I also consider that the second imputation is arguably capable of being conveyed. It is arguable that a reasonable reader, who reads between the lines and draws derogatory implications much more freely than a lawyer's construction of the words would allow, would understand the words complained of to mean that the plaintiff had set out to mislead shareholders as to the reason for its opposition to the share placement in order to encourage other shareholders to vote against the placement.
24 The further question is whether the imputations are sufficiently distinct. It is well-established that distinct imputations should be pleaded and not fine nuances or shades of the same meaning. The test for distinctiveness is whether the evidence required to justify each meaning would be substantially different: Chakravarti v Advertiser Newspapers Ltd (1998) 193 CLR 519 at 543; Lewis v Daily Telegraph Ltd at 282.
25 On balance, I think that in the present case the imputations are sufficiently different. The question of whether the plaintiff was less than
(Page 11)
- frank is not necessarily the same as the question of whether the plaintiff had deliberately misled shareholders. The former involves a failure to be entirely open or candid, but that seems to me in the present context arguably to involve something different from a deliberate intention to deceive. I would not strike out either imputation.
Conclusion
26 I would dismiss the application to strike out the statement of claim. I will hear the parties on the question of costs.
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