Scott v Stevens - [2021] WASC 479

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
CITATION:   SCOTT -v- STEVENS [2021] WASC 479
CORAM:   KENNETH MARTIN J
HEARD:   13 DECEMBER 2021
DELIVERED          :   23 DECEMBER 2021
FILE NO/S:   CIV 1962 of 2021
BETWEEN:   GRAEME SCOTT
Plaintiff
AND
ALISTAIR DAVID JOHN STEVENS
First Defendant
JULIUS LUKE MATTHYS
Second Defendant
NORMAN MEL ASHTON
Third Defendant
RICHARD CHARLES HENFREY
Fourth Defendant
QUINTIS (AUSTRALIA) PTY LIMITED
Fifth Defendant
SANDALWOOD PROPERTIES LTD
Sixth Defendant
QUINTIS HOLDCO PTY LIMITED
Seventh Defendant

Catchwords:

Application to strike out statement of claim - Failing to disclose reasonable cause of action - Chase tripartite taxonomy - Partial success on strike out application - Leave to amend statement of claim on the basis of legal embarrassment made out

Legislation:

Nil

Result:

Application in respect of SOC subpar 13.1 dismissed.
Application in respect of SOC subpar 16.5 upheld.

Representation:

Counsel:

Plaintiff	:	R J Anderson QC (via videolink) & J Di Lena
First Defendant	:	A Willinge
Second Defendant	:	A Willinge
Third Defendant	:	A Willinge
Fourth Defendant	:	A Willinge
Fifth Defendant	:	A Willinge
Sixth Defendant	:	A Willinge
Seventh Defendant	:	A Willinge

Solicitors:

Plaintiff	:	Law One (WA) Pty Ltd
First Defendant	:	Ashurst Australia
Second Defendant	:	Ashurst Australia
Third Defendant	:	Ashurst Australia
Fourth Defendant	:	Ashurst Australia
Fifth Defendant	:	Ashurst Australia
Sixth Defendant	:	Ashurst Australia
Seventh Defendant	:	Ashurst Australia

Case(s) referred to in decision(s):

Chase v News Group Newspapers Ltd [2002] All ER (D); [2002] EWCA Civ 1772
Favell v Queensland Newspapers Pty Ltd [2005] HCA 52; (2005) ALR 56
Lewis v Daily Telegraph Ltd [1964] AC 234
Lewis v The Daily Telegraph [1964] AC 234
Maher v Nationwide News Pty Ltd [2013] WASC 254
Shah v Standard Chartered Bank Ltd [1999] QB 241

KENNETH MARTIN J:

Introduction

I am dealing with a pleading strike out application brought against the statement of claim in a defamation action.
The defamation action sees the plaintiff, Mr Scott, pursue the seven defendants over a number of publications that are identified in the plaintiff's statement of claim filed 11 October 2021. By that statement of claim, the plaintiff complains of being defamed under three defamatory publications (the first through third matters as identified there in). It is only the first matter and second matter publications that are relevant to the present strikeout application advanced by the defendants.
The present strike out application is advanced under the defendants' application of 9 November 2021, which seeks relevantly that pars 13.1 and 16.5 of the statement of claim be struck out.
I turn to evaluate the defendant's arguments as regards each of these impugned pleas in turn.

Paragraph 13 of the statement of claim: The First Matter

Paragraph 13 of the statement of claim contends that several defamatory imputations arise from natural and ordinary meanings of a first matter communication of 26 May 2021. This communication was sent by letter to ASIC under the subject line 'Concerns Relating to Potential Grant of AFSL to Agri Management (WA) Ltd (ABN 24 642 501).
A redacted copy of that letter to ASIC of 26 May 2021 is found as attachment A to the statement of claim. However, for the purposes of the present strike out application, the defendants' lawyers provided the court (by consent) with an unredacted hard copy of that communication (on a confidential basis). The present strike out application is therefore to be determined by reference to the unredacted content of the first matter communication of 26 May 2021 sent by the Quintis Group to ASIC. Emerging from the unredacted terms of that communication (at page 2) is a further reference to an annexure C, which was provided to ASIC under the cover of that First Matter communication. The reference to annexure C within the First Matter communication read:
In late 2018, Allens Linklaters, acting for the then Receivers and Managers of Quintis, prepared advice setting out 'Potential causes of action against Frank Wilson' ('Allens' Advice') (Annexure C). We understand the Receivers shared Allens' Advice with ASIC in late 2018. This identified a number of potential 'claims for contravention of the Corporations Act's insider trading and market manipulation provisions' against Mr Wilson.
Notwithstanding some inevitable later defence issues around qualified privilege which will emerge concerning a complaint to a corporate regulator, the plaintiff, Mr Scott, contends for four natural and ordinary meanings arising out of that first matter publication of 26 May 2021 which, under par 13 of his statement of claim, he contends were defamatory of him.
Of the four popular or false innuendos there seen, it is only in effect the contended imputation of guilt arising under the imputation plea by subpar 13.1, that is presently complained about.
Contextually however, it is helpful to see that Mr Scott also complains (in the alternative) of a lesser level degree of imputation under the ensuing subpar 13.2 of his statement of claim.
I set out below subpar 13.1 and subpar 13.2 - which manifest under their common chapeau as follows:
13.In its natural and ordinary meaning the First Matter contained the following defamatory imputations (or imputations that do not differ in substance) of and concerning the Plaintiff that he:
13.1engaged with Frank Wilson in 2016 in market manipulation of Quintis Limited, a publicly listed company, by deliberately creating a fake transaction to artificially increase its share price;
13.2alternatively to paragraph 15.1 [sic] behaved in such a way as to give rise to reasonable grounds to suspect that he had engaged with Frank Wilson in 2016 in market manipulation of Quintis Limited, a publicly listed company, by deliberately creating a fake transaction to artificially increase its share price;
...
The significant challenge against par 13.1 which is the subject of the present strike out application, is detailed in the defendants' written outline of submissions filed 3 December 2021 (folio 11). At root, the challenge put against par 13.1 in terms of it failing to disclose any reasonable cause of action, is straightforward.
The challenge simply contends that the higher level meaning of 'guilt' contended for under par 13.1 - does not arguably arise upon the natural and ordinary meaning of the First Matter communication of 26 May 2021 (see par 3 of the defendants' submissions).
Without unnecessarily traversing over all the published components of the First Matter communication, the content of the communication that is most directly supportive, textually, of the plaintiffs' defamatory contentions emerges at page 3 of that communication. A component of the second dot point there (which is found at attachment A to the statement of claim) is redacted - on the basis the plaintiff obtained his copy of that communication from ASIC and either he or his lawyers received it then in that redacted form.
However, the present application can proceed upon the full content of the communication - which the defendants' lawyers have provided in hard copy for the purpose of determining this application. Relevantly then, the second dot point reads as follows, under its chapeau:
Over the past 3 years, Quintis has provided ASIC with the following information:
·...
·The Allens Advice alleges that [with that opening phrase then formally redacted but now disclosed for the purposes of the present application] Mr Scott may have participated with Mr Wilson in market manipulation by creating a sham transaction that artificially increased Quintis' share price in 2016 ... (my emphasis in bold)
Another four dot points follow on below which it is unnecessary to set out. The section concludes however, with the following:
On any basis, Mr Scott does not have the attributes of good character, diligence, honesty, integrity and judgment and has a conflict of interest that creates a material risk that he will fail to properly perform his role.
In the defendants' written submissions, a degree of emphasis was directed at the phrase 'may have', seen as preceding the verb 'participated', in the second dot point statement. The phrase 'may have' is contended to signify to the ordinary reasonable reader that this information was being provided to ASIC only upon the basis of potentiality, rather than as actuality. Hence it is said that a contended higher level meaning of guilt contended for by par 13.1 - is simply not sustainable on a fair reading of the text by a lay reader (see par 7 of the defendants' written submissions).
During the hearing, counsel for the defendants directed further emphasis at the formerly redacted component of the second dot point
- in its now revealed reference to 'Allens' Advice' and to the word 'alleges', as suggesting a reinforcing of the same point - namely that this information was passed across to ASIC in the nature of potentiality. Senior counsel for the defendants also emphasised the fact that the information was given bearing in mind ASIC's function as an investigatory body - essentially as the regulator able to utilise the information as it saw fit, towards a potential issue of an Australian financial services licence (AFSL). The information must be viewed, it is argued, from the perspective of the defendant corporation, Agri Management (WA) Pty Ltd (Agri) - who was at that time seeking an ASFL to be granted to it by ASIC - on the basis of Mr Scott being the 'Responsible Manager' of Agri (ts 5 to 6).
I would also observe at the present time that the defendants' strike out application directed against the subpar 13.1 imputation is not directed at the alternative plea under subpar 13.2 (ie, the plea of reasonable grounds to suspect vis‑à‑vis an engagement in 2016 with Frank Wilson, that the plaintiff had engaged in market manipulation of Quintis Ltd). The defendants accept, in effect, that they will need to engage against that lesser level defamatory imputation on its merits at an ensuing defamation trial.

The 'Chase' taxonomy for misconduct imputations

Juxtaposing subpars 13.1 and 13.2 of the statement of claim calls to mind the 'Chase' tripartite taxonomy of misconduct seriousness - as was articulated by Lord Justice Brooke in Chase v News Group Newspapers Ltd [2002] All ER (D); [2002] EWCA Civ 1772 (Chase). After earlier referring to the well remembered observations by Lord Devlin in Lewis v Daily Telegraph Ltd [1964] AC 234 at 283 - 284, Brooke LJ came to observe at [45], as follows:
The sting of a libel may be capable of meaning that a claimant has in fact committed some serious act, such as murder. Alternatively, it may be suggested that the words mean that there are reasonable grounds to suspect that he/she has committed such an act. A third possibility is that they may mean that there are grounds for investigating whether he/she has been responsible for such an act.
Those observations by Brook LJ in Chase have given rise to the terminology of Chase Level 1 (most serious) through to Chase Levels 2 and 3 (less serious) degrees of seriousness for a conduct defamatory imputation vis-à-vis a claimant committing a serious act of offence.
Having discussed those well recognised tiers of characterisation, Lord Justice Brooke returned to cite again the speech of Lord Devlin in Lewis v Daily Telegraph (at page 282 of the appeal case report where Lord Devlin had further observed):
I do not mean that ingenuity should be expended in devising and setting out different shades of meaning. Distinct meanings are what should be pleaded; and a reasonable test of distinctness would be whether the justification would be substantially different. In the present case, for example, there could have been three different categories of justification - proof of the fact of an inquiry, proof of reasonable grounds for it, and proof of guilt.
With a particular resonance to the arguments put by the defendants (as applicants) seeking to strike out the contended imputation at subpar 13.1 as essentially unarguable given its textual use of the phrase 'may be', it is perhaps timely to recall some further observations from Lord Devlin's speech also cited by Lord Justice Brooke at [39] of the Chase decision. Lord Devlin had continued (at pages 283 - 284 of the appeal case report):
... you cannot escape liability for defamation by putting the libel behind the prefix such as 'I have been told that ...' or 'It is rumoured that ...' and then asserting that it was true that you have been told or that it was in fact being rumoured. You have ... to prove that the subject matter of the rumour was true.
Such observations would extend logically and equally to a deployment of the word 'may' preceding a serious allegation. The prophylactic utility of the word's deployment is not automatic. Everything depends on the surrounding context and an excitable and more casual non‑lawyer reader may well display some leaps of logic towards a darker shade of meaning.
In Chase, the so-called 'repetition rule' was explained (at [30]) by reference to observations made in Shah v Standard Chartered Bank Ltd [1999] QB 241.:
Having now exposed the Chase taxonomy, I turn to expose the legal threshold as regards evaluating a pleading strike out application.

Legal threshold applicable to a strike out challenge

The threshold applied by the court towards evaluating whether a contended defamatory imputation should be struck out is not in dispute. The defendants' written submissions refer to my earlier observations rendered in Maher v Nationwide News Pty Ltd [2013] WASC 254 at [27] in this respect.
The strike out threshold is one of potential arguability in terms of an arguable derivation of the imputation from the source material or materials. The issue must be evaluated upon the template of the hypothecation of the ordinary reasonable reader - who is not avid for scandal, but who is prepared on occasions to make leaps of logic whilst undertaking a casual (not a legalistic) assimilation of the material complained of.
The High Court of Australia addressed this evaluation task in Favell v Queensland Newspapers Pty Ltd [2005] HCA 52; (2005) ALR 56 (Favell) and, in the process, also endorsed some observations of Lord Devlin in Lewis v Daily Telegraph [1964] AC 234. The plurality (Gleeson CJ, McHugh J, Gummow J and Heydon J) in Favell said this at [11]:
Lord Devlin pointed out, in Lewis v Daily Telegraph Ltd that whereas, for a lawyer, an implication in a text must be necessary as well as reasonable, ordinary readers draw implications much more freely, especially when they are derogatory. That is an important reminder for Judges. In words apposite to the present case, his Lordship said:
'It is not ... correct to say as a matter of law that a statement of suspicion imputes guilt. It may be said as a matter of practice that it very often does so, because although suspicion of guilt is something different from proof of guilt, it is the broad impression conveyed by the libel that has to be considered and not the meaning of every 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; but it can be done. One always gets back to the fundamental question: what is the meaning that the words convey to the ordinary man: you cannot make a rule about that. They can convey a meaning of suspicion short of guilt; but loose talk about suspicion can very easily convey the impression that it is a suspicion that is well founded.' (footnotes omitted)
In Favell, the plurality in the High Court of Australia continued at [12]:
A mere statement that a person is under investigation, or that a person has been charged, may not be enough to impute guilt. If, however, it is accompanied by an account of the suspicious circumstances that have aroused the interest of the authorities, and that point towards a likelihood of guilt, then the position may be otherwise. There is an overlap between providing information and entertainment, and the publishing of information coupled with a derogatory implication may fall into both categories. It may be that a bare, factual, report that a house has burnt down is less entertaining than a report spiced with an account spiced with an account of a suspicious circumstance. At this preliminary stage of the proceedings, the respondents have not yet had an opportunity to indicate why it was considered relevant to the story about the fire to link it with the development application. For that matter, the occasion has not yet arisen for a jury to decide what meanings the article would convey. We are concerned only with the anterior question of what the article is capable of conveying. (my emphasis in bold)

Evaluation - the first matter

The careful submissions put on behalf of the defendants at the hearing by counsel, pointed to a number of textual indicators locatable within the 26 May 2021 First Matter communication and in its surrounding context beyond the considerations which I have now mentioned. For instance, counsel pointed to the commencing reference on page 1 of the First Matter communication to a bringing to ASIC's attention of information that the Quintis Group 'believes should be of interest to ASIC ...'.
It was argued that the content of the letter to ASIC is couched more in the terms of a submission, rather than as any emphatic declaration as to the accompanying facts as stated, or as to events giving rise to conduct in the nature of a market manipulation of shares in publicly listed companies. Various other contextual evaluative considerations were mentioned as bearing against the arguability of the higher level guilty meaning under subpar 13.1 (see ts 6 to 11).
It may be that the contextual considerations as they were assembled by the defendants could ultimately prevail at the trial, as the defendants contend, by negating then the plaintiff's allegation that the ordinary reasonable reader would, on the balance of probabilities, be satisfied that the First Matter communication carried the higher level Chase imputation above that of the lesser Chase level 2 reasonable grounds to suspect imputation that is put alternatively by subpar 13.2 of the statement of claim.
At this interlocutory stage, however, I am not at the end persuaded that the level 2 outcome is so overwhelmingly likely to be the case that the higher level imputation seen under subpar 13.1 must be cast aside now as simply untenable.
There are, as the plaintiff's submissions demonstrate, some counter considerations to be weighed. Not the least of these is the overall pejorative tone of the four page First Matter communication sent to ASIC. The concluding paragraph (on page 3 of the communication) as cited above is also relevant - following the dot point observations assembled against Mr Scott in terms of him not meeting the fit and proper person criteria to be a Responsible Manager for the proposed AFSL licence holder granted by ASIC. In particular, that concluding paragraph carries negative observations which are expressed there in unqualified terms. Together, these considerations, viewed in context, may be evaluated at trial as inconsistent with mere factual potentiality and the lesser level of seriousness characterisation which the defendants advocate towards the meaning of what was said about Mr Scott under the second dot point on page 3 relating to his participation in market manipulation.
Consequently, I am not at the end persuaded to summarily dismiss the subpar 13.1 higher level Chase imputation of guilt at this stage, as being completely untenable. By my rival assessment, that is a question for the judge or a civil jury at the trial to resolve, rather than one suitable for an interlocutory rejection.

Paragraph 16 of the statement of claim: the Second Matter

A second tier of challenge under the defendants' application is to strike out a plea under par 16.5 of the statement of claim.
The plea is another imputation grounded upon a contended natural and ordinary meaning of the Second Matter communication of 4 June 2021, which again is attached, albeit redacted in part, as attachment B to the statement of claim.
The Second Matter communication was sent by McMahon Clarke - a law firm said to be acting on behalf of the fifth to seventh defendants. Again, the communication is one that was despatched to an officer of ASIC (Mr Paul Eastment).
There are five natural and ordinary meanings contended as being popular defamatory innuendos arising from this Second Matter communication. Relevantly, only the last under subpar 16.5, is presently complained of - on the basis of it either being untenable or as being legally embarrassing.
Subparagraph 16.5 seen under its chapeau, reads as follows within the statement of claim:
In its natural and ordinary meaning the Second Matter was defamatory of the Plaintiff and carried the following defamatory imputations (or imputations not different in substance) that he:
...
16.5is a person who, despite being a responsible manager for an Australian Financial Services Licence holder, would not comply with the financial services laws.
The defendants' arguments marshalled against this plea, point to its inconsistency with an earlier subparagraph plea, found in the statement of claim at subpar 1.10, which in turn reads (vis-à-vis the plaintiff being):
...a proposed Responsible Manager in respect of an application for an Australian Financial Services Licence (AFSL) on behalf of Agri Management (WA) Ltd (Agri).
Essentially, the defendants point to an irreconcilable conflicting of different tenses submission concerning Mr Scott - being at subpar 1.10 a 'proposed Responsible Manager' - measured inconsistently against the following plea seen under subpar 16.5, particularly by use of the words 'despite being', which are seen to be cast there in the present tense.
The source of this contended imputation complained about emerges out of what is found at page 2 of the McMahon Clarke 4 June 2021 communication, which reads:
Quintis strongly believes the people standing behind Agri are not fit and proper or competent and are not capable of discharging the grave responsibilities which come with the grant of an AFSL. The sole purpose of Agri's application for an AFSL is to enable it to become a responsible entity of various managed investment schemes which collectively have thousands of investors, including Quintis. There is enormous potential for loss on a significant scale to many Mum and Dad investors if the responsible entity is not capable or willing to comply with the onerous financial services laws designed to protect investors' interests. In Quintis's submission, the individuals standing behind Agri do not understand, nor are they likely to comply with, the financial services laws, making investor loss almost inevitable ...
During the course of verbal submissions, it was contended in response by senior counsel for the plaintiff, that the plea under subpar 16.5 was essentially clear enough once its context was considered (ts 23). Nevertheless, it was said that if the court were to consider the plea problematic, the plaintiff would be content for an amendment to be made which excised the words 'despite being' and replaced them with the text, 'if he were to be' within that plea (see ts 24). There was no suggestion from the defendants as applicants that should their challenge succeed as framed, that there should not be given leave to amend the statement of claim in any event to remedy the concern.

Determination on Second Issue

On my assessment, there is indeed an unacceptable level of inconsistency evident by reason of the conflicting tenses seen used -juxtaposing the plea under subpar 16.5, against the earlier plea under subpar 1.10 of the statement of claim.
The underlying Second Matter material also suggests that the use of a future tense, rather than using the present tense - is the more logical and appropriate in all the circumstances. I agree with that assessment. I am of the view that the plea under subpar 16.5 as it presently stands is somewhat inconsistent and unclear and so, legally embarrassing. This ought to be corrected.
Leave should be given for subpar 16.5 to be amended by the suggested excision and by the introduction of the replacement words identified above.

Conclusions

Consequently then, the defendants' application will be resolved upon the basis that the strike out application directed against subpar 13.1 fails, but succeeds against subpar 16.5 of the statement of claim on the basis of legal embarrassment in the current plea.
There should be leave for the plaintiff to amend to correct subpar 16.5 in the manner outlined above at [43].

Costs

Those outcomes then lead to a question as to the appropriate order as to costs.
On my prima facie assessment, the significant component of the argument (approximately two-thirds) was concerned with the arguments directed against the Chase level 1 plea under subpar 13.1 of the statement of claim. That challenge has ultimately been assessed to fail. Under such circumstances, I am of the view, prima facie, that the plaintiff should receive two-thirds of his taxed costs incurred in resisting the defendants' strike out application, to be taxed if not agreed.
As the substantially successful party, the plaintiff's lawyers should submit for conferral with the defendants' lawyers, a minute of orders giving effect to these reasons within a period of seven (7) days of publication. If there is an agreed minute, then it can be submitted to my Associate for orders in those terms to issue.
If there are any residual issues left between them after that, then those issues can be resolved under a brief exchange of written submissions on the papers under a timetable submitted to the court for approval.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RC
Associate to the Honourable Justice Martin
23 DECEMBER 2021