Schlaepfer v Australian Securities and Investment Commission

[2018] NSWSC 832

Supreme Court

New South Wales

Medium Neutral Citation:	Schlaepfer v Australian Securities and Investment Commission [2018] NSWSC 832
Hearing dates:	25 May 2018
Date of orders:	31 May 2018
Decision date:	31 May 2018
Jurisdiction:	Common Law
Before:	McCallum J
Decision:	Rulings as to discovery and interrogatories
Catchwords:	DEFAMATION – interlocutory steps – no question of principle
Category:	Procedural and other rulings
Parties:	Daniel Schlaepfer (first plaintiff) Select Company Incorporated Company Registration Number (Cayman Islands) (second plaintiff) Australian Securities and Investment Commission (first defendant) Greg Yanco (second defendant)
Representation:	Counsel: M Richardson (first and second plaintiffs) J Hmelnitsky SC with M S Lewis (first and second defendants)   Solicitors: Mark O’Brien Legal (first and second plaintiffs) Ashurst Australia (first and second defendants)
File Number(s):	2016/302827
Publication restriction:	None

JUDGMENT – EX TEMPORE

1. HER HONOUR: These are proceedings for defamation and injurious falsehood brought against the Australian Securities and Investments Commission (ASIC) arising out of telephone conversations allegedly damaging the interests of the plaintiff, Mr Schlaepfer, and a company with which he is associated, Select Vantage Inc. This judgment determines a small number of disputes concerning the parties’ applications for discovery and interrogatories.

2. Broadly summarising the circumstances in which the claim is brought, in around November 2014, ASIC became concerned that trading conducted by Mr Schlaepfer and entities associated with him involved "layering" the market, a form of market manipulation. Those concerns were raised with the broker used by the plaintiffs and that was the subject of a complaint to ASIC by Mr Schlaepfer. On 21 November 2014, Mr Yanko, an officer of ASIC and the second defendant to the claim, made a number of telephone calls to other brokers raising the same matters. Those telephone conversations are the matters complained of in the proceedings.

3. Shortly after those telephone conversations, on 25 November 2014, ASIC published a market update to the market at large making reference to a concern about certain entities layering the market. That was Update 53. The plaintiffs made a complaint to ASIC about the content of that update, which they considered identified them and was defamatory of them. The complaint led to a course of negotiations between a person on behalf of the plaintiffs and Mr Conrad Grey on behalf of ASIC. Those negotiations ultimately resulted in the publication of a further update, Update 54, which was intended to withdraw any suggestion of wrongdoing on behalf of the plaintiffs.

4. The plaintiffs allege that, in the course of those dealings, the conversations with other brokers alleged to have taken place on 21 November 2014 were concealed. Further, it is alleged that the content of Update 54, which included a public statement by ASIC that it had not taken any action against Select Vantage or any of its officers or employees under the market integrity rules, was either untrue or deceptive, or else indicated that the defendants had been acting outside their powers with respect to market integrity rules, presuming including in their conversations on 21 November 2014.

5. The plaintiffs specifically allege that the defendants engaged in “clandestine and deceptive conduct” designed to deny the plaintiffs all access to the Australian share market by that conduct and a course of conduct particularised elsewhere in the statement of claim. Those particulars are relied upon as particulars of malice for the purpose of the cause of action in injurious falsehood, as particulars of aggravated damages, and are also specified in the reply as particulars in defeasance of a defence of qualified privilege. Accordingly, they assume considerable importance in the proceedings.

6. Against that background, whilst the parties mostly agreed as to the further interlocutory steps required in the proceedings, a small number of disputes were brought forward at the second listing for the Court’s determination.

7. In accordance with the expectation of the practice note which governs proceedings in this list, Practice Note SC CL 4, the parties exchanged proposed categories for discovery and proposed interrogatories. The first contest relates to discovery category 2 proposed by the plaintiff for discovery by the defendants. That category seeks the following:

“Any document brought into existence prior to 14 December 2014, evidencing or referring to any communication between the Second Defendant and any other person (who is not a servant or agent of the First Defendant) in which reference was made to the First Plaintiff and/or Second Plaintiff and/or Merlito.”

8. The defendants, in response to the allegation of publication of the matters complained of, admit in [5] of the defence that Mr Yanko made “a series of telephone calls on or about 21 November 2014” but otherwise deny the plaintiff’s allegation of publication in par 5 of the further amended statement of claim. Mr Hmelnitsky SC, who appears for the defendants, accepted that documents of the kind sought by category 2 might be relevant but only if confined to documents referring or relating to the matters pleaded as the matter complained of. Mr Richardson, who appears for the plaintiffs, responded with a rhetorical question, what would the regulator be doing talking about the plaintiffs during this critical period otherwise than in respect of the matters the subject of the proceedings. He proposed that the category be modified so as to require production only of documents brought into existence between 1 November 2014 and 14 December 2014. I am satisfied on that basis that the documents sought are appropriately relevant to the issues raised in the proceedings.

9. The next contest related to categories 10 and 11 which, broadly speaking, seek documents relating to the drafting of Update 53. It is important, however, to bear in mind that the drafting of that update is relied upon by the plaintiffs as only one step in a course of conduct which Mr Richardson contends will in combination make a case of improper purpose for any of the three purposes to which I have referred, that is, in respect of the claim in injurious falsehood, in aggravation of damages and in defeasance of the qualified privilege defence. I am satisfied that documents relating to not only what was included in Update 53 but the genesis of that public statement and any document that might shed light upon what ASIC had originally planned to say in that document is appropriately relevant to the issues in the proceedings.

10. The next contest involves categories for discovery 12, interrogatories 30 to 33 directed to ASIC and interrogatories 25 to 26 directed to Mr Yanko. All of those requests relate to the same issue, namely, the state of knowledge of Mr Grey during the negotiations which led to the resolution of Mr Schlaepfer’s complaint and the publication of Update 54.

11. Mr Hmelnitsky submitted that whatever was in the mind of Mr Grey during those negotiations cannot inform the purpose for which the matters complained of were published some time earlier, on 21 November 2014. Mr Richardson noted that, as I have already indicated, the plaintiffs rely on a course of conduct throughout that whole period. In a short supplementary submission provided after the hearing, Mr Richardson submitted that the critical particular supporting these requests is the last sentence of (g)(ix) on p13 of the amended statement of claim, which asserts:

“the plaintiffs were not told that, in addition to Update 53, market participants had received telephone calls in person from the second defendant. ASIC conducted the negotiations on an unfair basis by concealing the nature and extent of its publication of the falsehoods to potential partners of the plaintiffs among the broking houses.”

12. Also relevant in this context is particular (g)(x), which asserts that Update 54 noted “Select Vantage’s assertions that it has not been terminated by any Australian market participant for wrongdoing, that it is not affiliated with Swift and that it has implemented rigorous internal controls in order to prevent market manipulation or other market abuses.” I understood the significance of that contention to be that ASIC’s public statement in Update 54 might be thought have had less efficacy in the unknown context in which it was made.

13. It is also relevant to refer to particular (h) of the statement of claim which is in the following terms:

“In circumstances where the telephone communications of the matter complained of were made on 21 November 2014 to all key market participants capable of providing the plaintiffs with access to trading on the Australian market, that is DMA, the public statement by ASIC that it had not taken any action against Select Vantage or any of its officers or employees under the Market Integrity Rules was untrue or deceptive, alternatively the public statement by the first defendant meant that the defendants were acting outside their powers with respect to the Market Integrity Rules.”

14. In short, the course of conduct the plaintiff alleges ASIC engaged in is directed, as I would understand it, to the plaintiff’s concern that ASIC by those undisclosed conversations was, to adopt the vernacular, white-anting any attempt the plaintiffs might have made to find a replacement broker after its relationship with the original broker was terminated.

15. Whilst it is always difficult at the interlocutory stage and on the strength of pleadings and particulars alone to assess how factual issues might unfold at the hearing, it seems to me, having regard to the course of conduct particularised by the plaintiffs, that if ASIC in its dealings leading up to the publication of Update 54 concealed the earlier communications with other potential brokers, that would be a matter capable of informing the issue of the regulator’s state of mind in an institutional sense. Equally, although this is not a submission that was put by Mr Richardson on behalf of the plaintiffs, if the material produced were to reveal that Mr Grey was deliberately insulated from that information, that also might information the regulator's institutional state of mind. For those reasons, I am satisfied that category 12 and the interrogatories I have identified should be allowed.

16. Interrogatory 32 is directed to a more specific issue which, in short, is the duration of the investigation into the plaintiffs, whether it was terminated or suspended at any time and whether it was recommenced or restarted at any time. For broadly the same reasons, it seems to me that that is a relevant part of the overall course of conduct the plaintiffs seek to establish for the purposes I have identified. That category also should be allowed.

17. The final contest relates to category 7(c) for discovery by the plaintiffs. The category sought is:

“all communications related to the matter complained of between either plaintiff and: (a) either defendant; (b) any servant, agent, solicitor, barrister or other representative of either plaintiff, or (c) any other person.”

18. Mr Richardson indicated that the plaintiffs were happy to give discovery of communications with brokers but that the category as currently framed would also catch communications with lawyers and internal staff.

19. Mr Hmelnitsky indicated that he would be happy to remove any request for communications with lawyers but that it is important for the defendants to have communications internal to the plaintiffs including communications with employees. The category is important to the defendants because the plaintiffs make a substantial claim for special damages, asserting their loss to arise specifically from the matters complained of, being the telephone calls on 21 November 2014, and not due to any of the other public communications concerning the plaintiffs at that time.

20. In my view, the defendants are entitled to see those internal communications for that purpose. Category 7 should be allowed with the modifications contemplated during argument.

21. Those rulings determine the disputes as to further interlocutory steps. It is also necessary to determine an issue as to costs which relates to an order proposed in consent orders handed up by the parties at the outset of argument. The proceedings initially involved a third plaintiff, which turned out to be non-existent because it had been deregistered by the time the proceedings were commenced. In those circumstances, the plaintiffs appropriately agree to pay the defendants’ costs on an indemnity basis, but there is a contest as to whether those costs should be ordered to be payable forthwith. Mr Richardson submitted with some force that to move to a separate assessment at this stage would be impracticable, or else involve a measure of duplication of the assessment process. That may be so. However, the short point, I think, is that the proceedings at the suit of the non-existent plaintiff have come to an end and it follows that ASIC is entitled to those costs now.

22. Not to order those costs to be payable forthwith would in effect be to postpone the usual timing of payment of costs. It is not a question of the conclusion of these proceedings, but of their conclusion at the suit of the non-existent plaintiff. For those reasons, I consider that order 10 as proposed by ASIC should be made.

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Decision last updated: 06 June 2018