Smith v Marshall [No 2] - [2015] WASC 62

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: SMITH -v- MARSHALL [No 2] [2015] WASC 62

CORAM: KENNETH MARTIN J

HEARD: ON THE PAPERS ON SUBMISSIONS RECEIVED BETWEEN DECEMBER 2014 - 30 JANUARY 2015

DELIVERED : 17 FEBRUARY 2015

FILE NO/S: CIV 2505 of 2013

BETWEEN: EDWARD SCOTT SMITH
Plaintiff
AND
BROOKE MARSHALL
First Defendant
JOHN LLOYD KANE MARSHALL
Second Defendant

Catchwords:

Defamation - Pleading issue - Challenges to the arguability of imputations as failing to disclose arguable causes of action - Turns on own facts

Case management - Initiation of interlocutory application by document filed rather than by chamber summons

Legislation:

Defamation Act 2005 (WA)

Result:

Three of four impugned imputations struck out

Category: B

Representation:

Counsel:

Plaintiff:     No appearance
First Defendant             :     No appearance
Second Defendant         :     No appearance

Solicitors:

Plaintiff:     Lavan Legal
First Defendant             :     Bennett + Co
Second Defendant         :     Bennett + Co

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

Favell v Queensland Newspapers Pty Ltd [2005] HCA 52; (2005) 79 ALJR 1715
Findlay v Grimmer [2013] WASC 234
Gillick v Brook Advisory Centres [2001] EWCA Civ 1263
Gumina v Williams [No 1] (1990) 3 WAR 342
Heugh v Askin [2014] WASC 30
Jones v Skelton [1964] NSWR 485
Lewis v Daily Telegraph Ltd [1964] AC 234
Maher v Nationwide News Pty Ltd [2013] WASC 254
Sergi v Australian Broadcasting Commission [1983] 2 NSWLR 669
Shea v News Ltd [2015] WASC 1
Smith v Littlemore (1996) 15 WAR 289
Smith v Marshall [2014] WASC 185
Taylor v Jecks (1993) 10 WAR 309
The Australian Medical Association (WA) Inc v McEvoy [2012] WASC 50
Wakley v Healey, in Error (1849) 7 CB 591

KENNETH MARTIN J: This is an interlocutory strikeout application in a defamation action (CIV 2505 of 2013) pursuant to which the defendants challenge four of the 13 natural and ordinary meaning imputations pleaded in par 3 of the plaintiff's amended statement of claim of 25 November 2014.
The popular or false innuendos which are the subject of par 3 of the plaintiff's pleading are said to arise out of a publication on or about 15 October 2012 by the defendants to the Australian Shareholders' Association (the ASA), as well as to three other persons by an open letter - which is said to be of and concerning the plaintiff and defamatory of him. The open letter complained of has been attached, as schedule 'A' to the amended statement of claim.
Some background to the despatch of that letter to the ASA and to the three other named persons may be found within my previous interlocutory reasons for decision in this same action: see Smith v Marshall [2014] WASC 185.
The strikeout application of 9 December 2014 had challenged five imputations under par 3.6, par 3.8, par 3.10, par 3.12 and par 3.13 of the amended statement of claim. However, the defendants' submissions in response of 30 January 2015 (at par 7) advised the challenge against par 3.8 was 'no longer pressed'.
Accordingly, the four remaining challenged imputations by this application are:
3.In their natural and ordinary meaning, the words set out in the Matter Complained Of meant and were understood to mean that:
…
3.6the plaintiff, in his management of a company, Carpathian Resources Limited, was suspected, on reasonable grounds, of wasting his shareholders' money;
…
3.10the plaintiff is making statements defamatory of EOG [meaning the no liability corporation Empire Oil & Gas].
…
3.12the plaintiff is a violent person; and
3.13the plaintiff participates in schemes to steal money from the public.
The defendants attack these imputations essentially from a two-fold perspective. First, and primarily, the challenge is that they are manifestly groundless or untenable meanings - when assessed by reference to the content of the publication of 15 October 2012 that is complained of as being defamatory. I do not discern that the defendant would assert that the four false innuendos, if they are found to arise, are not arguably defamatory. Second, and from a subsidiary perspective, some of the meanings are challenged on a basis that from a pleading perspective, they are legally embarrassing for one reason or another.
Clearly, the defendant must surmount a high threshold in seeking to demonstrate that the defamatory meanings contended for by the plaintiff arising out of the 15 October 2012 publication are untenable. There is no disagreement between these parties concerning the rigours of the test that is applied. It is unnecessary in this area to retraverse well-established legal principles. They were canvassed at some length, particularly in the written submissions of the plaintiff of 12 January 2015, then amended on 27 January 2015. Those submissions make reference to the significant leading authorities, including Favell v Queensland Newspapers Pty Ltd [2005] HCA 52; (2005) 79 ALJR 1715; Jones v Skelton [1964] NSWR 485, 491; Lewis v Daily Telegraph Ltd [1964] AC 234, 285 (Lord Devlin); Gumina v Williams [No 1] (1990) 3 WAR 342, 346; Smith v Littlemore (1996) 15 WAR 289; Taylor v Jecks (1993) 10 WAR 309, 319; The Australian Medical Association (WA) Inc v McEvoy [2012] WASC 50 [6], incorporating by reference the observations of Eady J in Gillick v Brook Advisory Centres [2001] EWCA Civ 1263 [7] and my own decision in Heugh v Askin [2014] WASC 30. See as well my further decisions in Findlay v Grimmer [2013] WASC 234 and Maher v Nationwide News Pty Ltd [2013] WASC 254.
With those interlocutory pleading principles in mind, I will in due course proceed to evaluate the four imputations under challenge. Before that, however, I must note that the plaintiff has also made a plenary submission challenging the basis upon which the defendants have initiated this strikeout application, effectively contending that the application should have been begun by chamber summons, rather than by lodging the document of 9 December 2014 that identifies the paragraphs under challenge and the nature of the orders required. There is no merit in that plenary challenge.
I note at the outset that the potential for a strikeout application was anticipated. On 24 September 2014 I made consent orders on the papers making case management directions as to a potential strikeout application, which were subsequently amended by consent orders on the papers on 12 November 2014.
This is, of course, a defamation action to be closely case managed in the CMC list. But even outside the CMC list the provisions of Rules of the Supreme Court 1971 (WA) O 4A r 17(1) and r 17(2) provide:
(1)A party to a case may at any time ask the case manager for any or all of the following -
(a)for an interlocutory order that the case manager has jurisdiction to make;
(b)for a case management direction to be made under this Order;
(c)to have a case management direction amended or cancelled.
(2)The request must be made by giving a letter that details the order or direction wanted to the associate to the case manager, or if the case manager is not known, the Principal Registrar.
Reference in O 4A r 17(2) to the request for an interlocutory order or a case management direction being made by 'letter' is of some significance. I mention also O 4A r 4, which provides as regards inconsistencies with other rules that:
If a provision in this Order [ie, Order 4A] is inconsistent with these rules or the Supreme Court Corporations (WA) Rules 2004 the provision in this order prevails.
See also Consolidated Practice Direction 4.1.2 par 18, par 19, par 20, par 21 and par 28.
Effectively then, the plenary submission of the plaintiff is that the requirements of O 59 r 3 and r 4 prescribe the mandatory filing of a chamber summons to accord with form number 77, in order to advance any interlocutory content in a defamation action case managed in the CMC list. That proposition is most surprising given modern day case flow management principles. I reject that proposition.
I can advance then to the substance of each application indicating that, in my view, the challenge against the imputation pleaded under par 3.6, must be upheld on the grounds that the imputation is misconceived as formulated, insofar as it would seek to contend for what is, in effect, a Chase level 2 imputation of a suspicion on reasonable grounds for the allegation of wasting shareholders' money.
I would also strike down as embarrassing the imputation under par 3.10 as regards statements defamatory of Empire Oil & Gas NL (EOG). That contention is, as formulated, unacceptably confusing. It does not capture the essence of the grievance complained of, which looks effectively, to be an imputation that the plaintiff had been circulating false statements as illegitimate criticisms of EOG's business reputation.
I also uphold the challenge against par 3.12, as regards the contention against the plaintiff that he is a violent person. In my view, that imputation is not arguable arising out of an underlying incident years earlier, as referred to in the publication complained of.
However, as regards the imputation under par 3.13, namely that the plaintiff participates in schemes to steal money from the public, I will allow that imputation to proceed to a trial evaluation.
I elaborate upon each of those conclusions below.

Imputation 3.6: suspicion on reasonable grounds of wasting shareholders' money

It is obviously the case that the entirety of the words complained of need to be evaluated, rather than some piecemeal, lawyerly dissection of different aspects of a complete article (or letter, in this case). Nevertheless, it is apparent that imputation 3.6 raises a grievance concerning Mr Smith's alleged management of one particular corporation, Carpathian Resources Ltd (Carpathian). There is one specific bullet point within the 15 October 2012 publication addressing Carpathian, which obviously must be closely evaluated itself and then in the context of the whole publication. This bullet point concerning Mr Smith and Carpathian (which is the sixth bullet point on page 2 of the 15 October 2012 communication) reads as follows:
In 2004, Smith called an EGM and spilled the Board of Carpathian not long after shareholders had upheld to keep its directors. Smith used affiliated companies to back his bid for the Board. At the time he was accused of invalid requisitions and wasting shareholders [sic] money. The founding directors launched legal action for a breach of management which went to the Supreme Court.
By its amended submissions of 27 January 2015 the plaintiff points as context as well to the first bullet point on page 2 and the phrase 'destroying shareholder value'. Likewise, he draws my attention to the last bullet point on page 1 of the 15 October 2012 publication and the reference there to another company (Kalrez), which is said to have 'never recovered from Smith's involvement'.
Those extra matters in the publication are identified by the plaintiff as being antecedent further relevant context surrounding the sixth bullet point at page 2 of the 15 October 2012 publication. It is then contended (par 17, plaintiff's amended submissions) that
[t]hose instances concerning the plaintiff's asserted conduct form part of 'the compiled information' in the [15 October 2012 publication] that feeds into the overall character assassination of the plaintiff towards the end of the [15 October 2012 publication], all of which is said to be 'extremely disturbing' (last full paragraph page 2 [of the 15 October 2012 publication]) and which ground [Mr Smith's] 'extremely dubious history with companies' and his 'extremely poor lack of judgment' (third last paragraph, page 3 [of the 15 October 2012 publication]).
On my assessment, imputation 3.6 needs to be chiefly evaluated by reference to Mr Smith's involvement with the corporation that has been explicitly identified in the imputation, namely Carpathian. The par 3.6 imputation identifies a criticism concerning Mr Smiths 'management' of that corporation. But a basis for a management criticism of that character as constructed does not emerge, on my assessment of the sixth bullet point on page 2, even when evaluated in the context of the extra material and publication as a whole.
The sixth bullet point refers to a requisitioning of an extraordinary general meeting of shareholders of Carpathian - at which the board of Carpathian had been 'spilled'. Mr Smith appears to be criticised under that bullet point for making a bid for the board. Subsequently, it is said, the founding directors launched a legal action for 'a breach of management'.
As constructed, the sixth bullet point on page 2 presents as somewhat imprecise and garbled. But it seems overall the essence of the criticism against Mr Smith centres upon an accusation of 'invalid' requisitions and 'wasting shareholders [sic] money'. Presumably, that is a reference to his requisitioning of an extraordinary general meeting of shareholders and a spilling of the board of Carpathian 'not long after shareholders had upheld to keep its directors'. But these matters do not raise, even arguably, management grievances, as regards the board because axiomatically Mr Smith is not then a board member, but is trying to achieve that result.
The par 3.6 imputation as regards wasting shareholders' money in Mr Smith's management of Carpathian presents to me to be lacking any arguable foundation within the sixth bullet point on page 2. Mr Smith was not then a board member. Nor, on my assessment, is any arguable (mis)management foundation (concerning the corporation, Carpathian) to be found in the attempts of the plaintiff to invoke earlier or subsequent parts of the 15 October 2012 publication. Hence, the imputation is defective as failing to disclose an arguable cause of action, in terms of there presenting any legitimate derivation for this false innuendo from the natural and ordinary meaning of the words complained of.
There are further problems with this imputation, as regards the contention as to Mr Smith being 'suspected' on reasonable grounds of wasting the shareholders' money. First, that attempted suspicion formulation lacks any foundation within the matter complained of. There is no reference to suspicion or reasonable suspicion within the words of the publication complained of. But even beyond that, this attempt to formulate what looks to be something akin to a Chase level 2 inspired imputation (ie, of suspicion on reasonable grounds) is conceptually misconceived. The underlying contention of par 3.6 as regards wasting of shareholders' money suggests the bad management of the company by Mr Smith as a member of its board of directors. But a management or performance criticism, by itself, does not raise a contention of criminal or even quasi criminal conduct as a member of Carpathian's board of directors. Some aspect of alleged criminality, in my view, is necessary in order to properly found a Chase level 2 imputation of reasonable suspicion: see my observations in Shea v News Ltd [2015] WASC 1. Moreover, as regards this passively framed imputation, there is no identification as to a person or persons or agency that actually holds the asserted suspicion on reasonable grounds concerning Mr Smith, as regards a wasting of Carpathian's shareholders' money: see Sergi v Australian Broadcasting Commission [1983] 2 NSWLR 669 and Shea v News Ltd [68(e)]. In this particular context, the passively framed par 3.6 imputation requires, in my view, an identification of a governmental or quasi‑governmental agency actually holding such a reasonable suspicion, in order for it to be arguably actionable.
Accordingly, imputation 3.6 must be struck out as failing to disclose an arguable cause of action and as being, in its formulation, legally embarrassing.

Imputation 3.10: making statements defamatory of Empire Oil & Gas NL

The 15 October 2012 publication contains specifically, as regards the plaintiff, the two bullet points below (which are the 12th and 13th, respectively, on page 2):
•Smith has been heavily involved with dissident shareholders, the leader a Mr Darren Watson, who has a criminal record for assault and alcohol. Both have been involved [sic] and endorsed on-going slander of the company and have rung shareholders saying vocally that the MD of Empire, Craig Marshall, is a drunk, incompetent, and useless and that he should be replaced with Mr Smith.
•Additionally, Smith has been endorsed on HotCopper, Sharescene, Facebook, and Topstocks by EMPOSA members, using Smith's name and illegally defaming the company. Empire is now in litigation with EMPOSA members, Mr Watson and Mr Smith for defamation. (my emphasis in bold)
No doubt the observable references to 'slander' in the first bullet point above and then to 'defaming' in the second, are invoked to sustain this innuendo meaning as is contended for, concerning Mr Smith making defamatory statements about EOG. In its amended submissions, the plaintiff points out that in Gatley on Libel and Slander (12th ed) 2.28 (footnote 244), longstanding English cases support a proposition that it is defamatory to assert that someone is an habitual libeller (the repeated nature of which goes to character) - including Wakley v Healey, in Error (1849) 7 CB 591.
The defendants' challenge is that a publicly listed corporation such as EOG is now incapable at law of being defamed. That legal consequence arises in Western Australia, by reason of s 9(1) of the Defamation Act 2005 (WA), which is in the following terms:
A corporation has no cause of action for defamation in relation to the publication of defamatory matter about the corporation unless it was an excluded corporation at the time of the publication.
By reference to what is a narrow definition of an 'excluded corporation' in s 9(2), it is plain that EOG as a publicly listed no liability corporation, will not meet the s 9(1) description of being an excluded corporation. Nor is it contended that it would.
The essence of the defendants' attack is expressed in par 14 of its written submissions in these terms:
The imputation cannot be defamatory in circumstances where EOG … a publicly listed company on the ASX, is incapable of being defamed. Empire is not, for example, an excluded corporation.
Submissions in response by the plaintiff contend that the defendants have fallen into a trap of applying on overly-technical defamation lawyer's interpretation of the 15 October 2012 publication and, further, that s 9(1) of the Defamation Act merely provides that a non-excluded corporation has no cause of action in relation to the publication of defamatory material about it, not that material cannot be defamatory of it: see pars 23 - 25A of the plaintiff's amended submission.
I accept that it may be defamatory of a person to say that they have published defamatory matter about another, by reference to old case authorities as collected in the 12th edition of Gatley at footnote 244. But my somewhat distinct conceptual difficulty is that the par 3.10 imputation presents as being less than clearly formulated by its invoking the word 'defamatory' towards remarks made by Mr Smith concerning a publicly listed corporation which is by law not capable of advancing a cause of action for the common law tort of defamation. This imputation is hence confusing and, in that sense, legally embarrassing.
This is so in the context of the uniform defamation laws across Australia of 2005 - which dramatically narrowed the scope for bringing a defamation action by corporations to essentially only a very narrow group of corporations (ie, excluded corporations).
The clarity problem is that using the word 'defamatory' does not, in this sphere of criticism, clearly capture the essence of the sting of what is sought to be extracted as the relevant 'poison' from the words of the publication.

There are some words or phrases, of course, which do precisely capture the essence of a wrong. But that is not the position here. Essentially, the grievance appears to be the assertion that the publication defamed Mr Smith by suggesting that he had been publicly deprecating the business reputation of EOG without any legitimate justification.
Bearing in mind that imputation 3.10 might ultimately come to be evaluated by a jury, my assessment is that, as currently formulated, it is legally embarrassing by its use of the word 'defamatory' and requires a significant reformulation.

Imputation 3.12: the plaintiff is a violent person

The defendants say that the only possible bullet point of relevance to support this plea within the 15 October 2012 publication, is the third last bullet point at page 2, which says:
I've also been told that Mr Smith was involved with unions, fighting and protests in the 1970s at Alcoa's Pinjarra refinery.
Paragraph 18 of the defendants' submission attacks that imputation as not even arguably arising, because:
The above sentence, read as a whole, must be understood to mean that the 'fighting' described is in the context of the fight of the unions with Alcoa in respect of the Alcoa refinery. Unions and protests are not necessarily violent, nor is 'fighting'. People 'fight' by contending with or against in any manner … [reference to the online Macquarie Dictionary].
The plaintiff responds and says at par 29 of its amended submissions that the words at this bullet point, are
arguably capable of conveying a meaning that the plaintiff had been involved in physical fighting perhaps during protest marches and activities by unions during the 1970s at the refinery. It is plain that an assertion that someone who has been involved in fights carries a meaning that they are a violent person.
I disagree with the confidently expressed, but problematic, proposition in the last sentence above. I do not accept that someone who had been involved in a fight or fighting, particularly some incident or incidents of fighting that occurred over 40 years ago, is necessarily capable of thereby being described as 'a violent person'. The proposition is an unsupportable sweeping generalisation.
People might have in their lives become involved in fighting incidents for a diverse multitude of reasons, none of which would necessarily support the sweeping nature of a characterisation that as a personal character trait, they are therefore 'a violent person'.
This imputation as formulated is misconceived. It will be struck out as failing to disclose an arguable cause of action.

Imputation 3.13: the plaintiff participates in schemes to steal money from the public

The 15 October 2012 publication complained of, at various points makes reference to a 'Ponzi' scheme or schemes. In particular, bullet point 6 on page 1 refers to the plaintiff as being
[r]esponsible for backing Joe Mercorella for the MD position of Kalrez (quoted in the media and ASX). This person went on to conduct a Ponzi scheme stealing $2.8 million from the public while on the board with Smith. He was later investigated by ASIC and jailed for five years in ASIC's scam of the year.
The essence of the defendants' attack against par 3.13 is that an imputation about the plaintiff's participation in the Ponzi schemes of other persons simply does not arise. I disagree, at least whilst evaluating that issue at the level of arguability, in the context of this interlocutory strikeout application.
The plaintiff's answering submissions point to further relevant words within the publication, in particular to a third bullet point at page 2 concerning Tacnas Pty Ltd. The transaction there referred to is said to still be under investigation by the creditors 'of the Ponzi scheme'. The second non-bullet pointed paragraph at page 3 is also relied upon by the plaintiff. It mentions the plaintiff 'is involved with a minority shareholding group that have criminal contacts and criminal records'.
Significantly, however, to my end evaluation, is the content of the third non-bullet pointed paragraph at page 3. It refers to Mr Smith as having had a 'dubious history within companies', to his extremely poor lack of judgment, then the vital words
[I]nvolvement with bikies, Ponzi schemes, ASIC and Federal Court investigations. (my emphasis in bold)
The phrases above, 'involvement with' and 'Ponzi schemes' (plural), read in a context of earlier references to Ponzi schemes (on page 1 at bullet point 6, page 2 at bullet point 3), then to Mr Smith's involvement with 'a minority shareholding group that have criminal contacts and criminal records' (in the second non-bullet pointed paragraph on page 3), is all together enough to persuade me that at this point the par 3.13 imputation as to his involvement with Ponzi schemes is arguable.
I reject the contention of the defendants that it is not arguable that the plaintiff 'participated in or was in any way knowing of the conduct attributed to Mr Mercorella in Ponzi schemes or the stealing of money from the public': see the defendants' submissions, par 22.
The imputation of stealing money from the public in this fashion does not require that this meaning be pleaded as a true innuendo - based upon a need to show specialised knowledge in readers of their understanding of the nature of a Ponzi scheme. In my view, there is sufficient general community knowledge of Ponzi schemes as being essentially fraudulent scams to obtain money illegitimately. That is particularly so after the saturation of international publicity afforded the notorious activities of convicted American Ponzi scheme fraudster, Bernie Madoff. Such general knowledge about the unlawful nature of a Ponzi scheme can be assumed in ordinary readers.

Conclusion

Accordingly, the imputations pleaded by the plaintiff under par 3.6, par 3.10 and par 3.12 will be struck out for the reasons given. The attack against the imputation in par 3.13 fails.
As regards costs, I will, if necessary, hear the parties after they have conferred following their receipt of these reasons. My prima facie view as to costs, however, is that the defendants have been successful in this particular case in their attack against three of the four impugned imputations and should receive three‑quarters of their taxed costs of the application.
The parties should now confer and the defendants should provide my Associate with a minute of proposed orders giving effect to these reasons within 14 days.