MTQ Holdings Pty Ltd v Lynch
[2005] WASC 162
MTQ HOLDINGS PTY LTD -v- LYNCH & ORS [2005] WASC 162
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 162 | |
| Case No: | CIV:2557/2004 | 6 MAY 2005 | |
| Coram: | MASTER NEWNES | 25/07/05 | |
| 11 | Judgment Part: | 1 of 1 | |
| Result: | Statement of claim struck out in part | ||
| 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 imputation capable of being conveyed Turns on own facts |
Legislation: | Nil |
Case References: | Gumina v Williams (No 1) (1990) 3 WAR 342 Harding v Essey [2005] WASCA 30 Jones v Skelton [1963] 1 WLR 1362 Lewis v Daily Telegraph Ltd [1964] AC 234 Taylor v Jecks (1993) 10 WAR 309 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 imputation capable of being conveyed - Turns on own facts
Legislation:
Nil
(Page 2)
Result:
Statement of claim struck out in part
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):
Gumina v Williams (No 1) (1990) 3 WAR 342
Harding v Essey [2005] WASCA 30
Jones v Skelton [1963] 1 WLR 1362
Lewis v Daily Telegraph Ltd [1964] AC 234
Taylor v Jecks (1993) 10 WAR 309
Case(s) also cited:
Nil
(Page 3)
1 MASTER NEWNES: This is an application by the defendants 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 meaning pleaded or any defamatory meaning.
2 The plaintiff pleads that it is and was at all material times a substantial shareholder in the second defendant. The first, second and third-named first defendants are and were each directors of the second defendant. The fourth-named first defendant is and was an alternate director of the second defendant.
3 The plaintiff pleads in par 6 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%.
RCR has experienced significant growth in the current environment of a strong resources sector, high infrastructure
(Page 4)
- 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.
…"
4 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
5 In the course of argument, counsel for the defendants tendered a copy of the letter to shareholders from the second defendant. The letter refers to the placement and says, so far as relevant:
(Page 5)
- "The purpose of this letter is to urge all shareholders to join with us and VOTE AGAINST THE PLACEMENT so that 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
(Page 6)
- existing shareholders are given the first opportunity to participate.
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
…
(Page 7)
- If you support our campaign to stop the Company unnecessarily diluting our interests just when we are benefiting from a rising share price. Please sign, sign your name and address, tick your preference for Resolution 3 and RETURN THE PROXY FORM AS SOON AS POSSIBLE. [emphasis in original]
…"
7 The principles to be applied in determining whether the defamatory imputations alleged are capable of being conveyed by the words complained of were discussed in the well-known passage from the judgment of the Privy Council in Jones v Skelton [1963] 1 WLR 1362 at 1370 - 1371:
"In deciding whether words are capable of conveying a defamatory meaning the court will reject those meanings which can only emerge as the product of some strained or forced or utterly unreasonable interpretation. In Capital and Counties Bank v George Henty & Sons [1882] 7 AC 741, 745 Lord Selborne LC said:
'The test, according to the authorities, is, whether under the circumstances in which the writing was published, reasonable men, to whom the publication was made, would be likely to understand it in a libellous sense.'
The ordinary and natural meaning of words may be either the literal meaning or it may be an implied or inferred or an indirect meaning: any meaning that does not require the support of extrinsic facts passing beyond general knowledge but is a meaning which is capable of being detected in the language used can be a part of the ordinary and natural meaning of words. See Lewis v Daily Telegraph Ltd [1963] 2 WLR 1063; [1963] 2 All ER 151 HL(E). The ordinary and natural meaning may therefore include any implication or inference which a reasonable reader guided not by any special but only by general knowledge and not fettered by any strict legal rules of construction would draw from the words. The test of
(Page 8)
- reasonableness guides and directs the court in its function of deciding whether it is open to a jury in any particular case to hold that reasonable persons would understand the words complained of in a defamatory sense."
8 The person to whom it is alleged the words were spoken will be assumed to be a reasonable person, not unusually suspicious or unusually naive, nor avid for scandal. In Lewis v Daily Telegraph Ltd [1964] AC 234, Lord Reid said at 258:
"There is no doubt that in actions for libel the question is what the words would convey to the ordinary man: it is not one of construction in the legal sense. The ordinary man does not live in an ivory tower and he is not inhibited by knowledge of the rules of construction. So he can and does read between the lines in the light of his general knowledge and experience of world affairs."
9 In that case, Lord Devlin said:
"When an imputation is made in a general way, the ordinary man is not likely to distinguish between hints and allegations, suspicion and guilt. It is the broad effect that counts and it is no use submitting to a judge that he ought to dissect the statement before he submits it to the jury … it is the broad impression conveyed by the libel that has to be considered and not the meaning of each word under analysis. A man who wants to talk at large about smoke may have to pick his words very carefully if he wants to exclude the suggestion that there is also a fire …"
10 Moreover, as Holroyd Pearce LJ said in the Court of Appeal in the same case, reported at [1963] 1 QB 340 at 374:
"When persons publish words that are imprecise, ambiguous, loose, fanciful or unusual, there is room for a wide variation of reasonable opinion on what the words mean or connote. The publisher can hardly complain in such a case if he is reasonably understood as having said something that he did not mean"
11 It was submitted on behalf of the defendants that no reasonable reader would have understood the words complained of in any defamatory sense, much less to mean that the plaintiff had lied in the statement to shareholders. In its letter to shareholders, the plaintiff had said, in substance, that the plaintiff opposed the placement, at least in part,
(Page 9)
- because the effect would be to dilute shareholders' equity in the company and it had decided not to participate in the placement because it regarded it as unfair to other shareholders to do so. Counsel for the defendants argued that there was nothing in the words complained of which was inconsistent with what the plaintiff had said in its letter to shareholders, much less was there anything that was defamatory of the plaintiff.
12 It was submitted on behalf of the plaintiff that in its letter the plaintiff had expressly based its opposition to the placement on three grounds. First, that it believed such acquisitions should be funded through a mix of equity and debt and that it was unhealthy to have the self-imposed limitation on gearing. Secondly, that the proposed share placement would not only dilute the shareholding of existing shareholders, but it would be at a substantial discount to market, which represented a significant shift in value to clients of Hartley Poynton. While the plaintiff had been offered an opportunity by the second defendant to participate in the placement, to maintain the plaintiff's current percentage interest, the plaintiff had declined the offer, regarding it as unacceptable preferential treatment because it was not being offered to all existing shareholders. Thirdly, that sustained growth in the price of the shares of the second defendant could only be achieved by consistent earnings growth, not buy placing shares with institutions, institutions that may "unload" the shares onto the market.
13 Counsel for the plaintiff submitted that the thrust of the plaintiff's letter was that the plaintiff opposed the placement on proper economic grounds and with a regard for the interests of all shareholders, whereas the defendants asserted, in effect, that the plaintiff's opposition was based simply on a selfish concern for its own commercial interests.
14 Accordingly, a person who had received the plaintiff's letter, and subsequently read the words complained of, would understand the latter to mean that in its letter the plaintiff had been dishonest or at least lacking in frankness.
15 It was submitted by counsel for the plaintiff that if it were found that the words complained of were not capable of conveying an imputation that the plaintiff had lied to shareholders, the words were capable of conveying an imputation to the effect that the plaintiff had not been honest or had not been frank with shareholders. Accordingly, the action should not be struck out and the plaintiff should have an opportunity to replead.
(Page 10)
16 It is clearly established that on an application of this sort the Court will be cautious in denying the plaintiff the opportunity to proceed to trial. It is important to bear in mind that on such an application the question to be determined is not what the words mean, but whether it is arguable that a reasonable reader would understand the words complained of to bear the meaning pleaded by the plaintiff.
17 I do not consider that the imputation that the plaintiff lied to shareholders is arguably open on the words complained of. In my view, such an imputation goes beyond any meaning that the words are capable of conveying to the average reasonable reader. But I do not consider that at this stage it can be said that the words complained of are incapable of conveying a meaning defamatory of the plaintiff and I would give the plaintiff an opportunity to replead.
18 The defendants also raised an objection to the form of par 9 of the statement of claim. In par 6, the plaintiff pleads that the first defendants published the words complained of by posting a copy to each of the shareholders of the second defendant and by publishing them on a website maintained by the second defendant. In par 9, the plaintiff pleads, so far as presently relevant, that the second defendant is and was vicariously liable for the publication by the first defendants in that first, the publication was forwarded to shareholders on the second defendant's letterhead, and secondly, the publication was published on the website maintained by the second defendant. The defendants argued that the essence of vicarious liability is tortious conduct committed during the course of employment or agency, and neither was pleaded. It did not follow that because a majority of the directors issued a circular that they acted as agents of the company.
19 The plaintiff proposed, before the hearing, that the plea in par 9 be amended to read:
"The Second Defendant is and was liable for the publication by the First Defendants in that:
(a) the Publication was republished by the Second Defendant on the website maintained by the second defendant … ; and
(b) the Second Defendant is vicariously liable for the publication by the First Defendants in that the First Defendants forwarded the publication to shareholders of RCR Tomlinson Limited during the course of their
(Page 11)
- engagement as Directors of the Second Defendant as a publication to its shareholders on RCR Tomlinson Ltd letterhead."
20 On the hearing of this application counsel for the defendants argued that the proposed plea was still defective because, in respect of subpar (a), a republication requires repetition, and counsel referred to the decision of the Full Court in Harding v Essey [2005] WASCA 30, per McLure J (with whom Steytler J agreed) at [49]. In this case, the proposed plea in subpar (a) is not of a republication but of the original publication. It was argued in respect of subpar (b) that where directors act as such within the scope of their actual or ostensible authority, their acts are the acts of the company and no question of vicarious liability arises. If they do not so act, the company is not liable and again no question of vicarious liability arises. Counsel for the defendants accepted that in each case the defects complained of were curable by amendment.
21 Counsel for the plaintiff accepted the objection to subpar (a), and in respect of subpar (b) submitted that the acts of directors acting within the scope of their authority do not always constitute acts of the company, for instance where directors are required to make a recommendation and there are different recommendations by different directors. In circumstances of that nature, a company could be vicariously liable for assisting or facilitating a publication by directors. I understood the plaintiff's counsel, however, to accept (rightly in my view) that the proposed plea was not sufficient as it stood.
22 I would therefore strike out pars 7 and 9 of the statement of claim, with leave to the plaintiff to replead. I will hear the parties on the time within which any amended statement of claim should be filed, and on costs.
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