Weston v Favretto & Ors [1999] NSWSC 358

New South Wales Supreme Court CITATION : Weston v Favretto & Ors [1999] NSWSC 358 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 20337 of 1998 HEARING DATE(S) : 9 April 1999 JUDGMENT DATE : 21 April 1999

MALCOLM JOHN WESTON (Plaintiff)

v

FRANK FAVRETTO PARTIES : (First Defendant)

COMS21 LIMITED 057 864 876 (Second Defendant)

JOHN FAIRFAX PUBLICATIONS PTY LIMITED (Third Defendant) JUDGMENT OF : Levine J

P Gray (Plaintiff)

COUNSEL : R Lancaster (First & Second Defendant)

T Blackburn (Third Defendant) Verekers (Plaintiff)

SOLICITORS : Watson Mangioni (First & Second Defendants)

John Fairfax Publications Pty Limited (Third Defendant) CATCHWORDS : Imputations - capacity - form DECISION : See paragraph 15

DLJ : 1 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DEFAMATION LIST

No. 20337 of 1998

JUSTICE DAVID LEVINE

WEDNESDAY 21 APRIL 1999

MALCOLM JOHN WESTON (Plaintiff)

v

FRANK FAVRETTO (First Defendant)

COMS21 LIMITED 057 864 876 (Second Defendant)

John Fairfax publicationS PTY Limited ACN 003 357 720 (Third Defendant)

JUDGMENT (Imputations - capacity - form) 1 By an Amended Statement of Claim the plaintiff sues the first and second defendants in respect of a publication on 26 August 1998 in the following terms: "Schedule A The Board of directors of Coms21 Limited has decided to stand down its General Manager, Mr Mal Weston, pending receipt of an explanation from him as to where he's been, what company business he has been on and what authority he has had to do it. The decision was taken because Mr Weston has been absent from his duties for much of the time since Mr Graeme Green of Felscot Pty Limited announced his intention to launch a takeover for Coms21". 2 The plaintiff contends that this matter complained of in its natural and ordinary meaning conveys the following defamatory imputation of him: "6(a) the plaintiff deceitfully absented himself from his duties as General Manager of the company in order to give clandestine assistance, on the Company's time, to persons who were seeking to take over control of the Company contrary to the best interests of the Company; (b) the plaintiff was derelict in his duties as General Manager of the Company in that he had, without the knowledge or authority of the Company, absented himself from his duties at a time when the Company was the subject of a takeover bid". 3 The plaintiff sues the third defendant as the publisher of " The Australian Financial Review " in respect of a matter published on 27 August 1998 as follows: " Schedule B The boardroom tussle at smartcard and gaming group Coms21 Limited escalated yesterday when the largest shareholder called for the removal of all directors except founder and chief executive Mr Graeme Green. Felscot Pty Limited, a company owned by Mr Green and his brother James, is believed to have requested a shareholders meeting to consider the removal of executive chairman Mr Frank Favretto, acting chief executive Mr Rodger Mortleman, Mr Keith Cullen and Mr Mike Hale. The Australian Financial understands that Felscot has nominated Mr Jim Green, Coms21 general manager Mr Mal Weston and Sydney businessman Mr Roger Brewitt as directors. Felscot owns a 14.68 per cent stake in Coms21. The move follows the decision by Coms21's board to temporarily stand down Mr Weston on Tuesday, just days after taking the same action against Mr Graeme Green. The boardroom has been split since mid-August when the board advised shareholders to ignore a $71 million cash bid by Felscot and instead accepted a rival scrip offer by Florida-based Atlantic International Entertainment. The AFR revealed last week that Coms21's board had temporarily stood down Mr Green until his bid for gaming and smartcard group is concluded. Earlier yesterday, Mr Favretto confirmed the board had decided to stand Mr Weston down 'pending receipt of an explanation from him as to where he's been, what company business he has been on and what authority he has had to do it'. He said the decision was taken because Mr Weston had been absent from his duties for much of the time since Mr Green announced his intention to launch a takeover for Coms21. Felscot yesterday said Mr Weston had been concluding his own investigation into the Atlantic bid and had concerns about the board's due-diligence progress, the information provided in Atlantic's Part A statement, and the Coms21 Part B response. It is understood Mr Weston met with the Australian Securities and Investment Commission yesterday and handed over some documents". 4 This second matter complained of, it is contended, in its natural and ordinary meaning conveys the following defamatory imputations of the plaintiff: "10(a) the plaintiff had deceitfully absented himself from his duties as General Manager of the Company in order to give clandestine assistance, on the Company's time, to persons who were seeking to take over control of the Company contrary to the best interests of the Company; (b) the plaintiff was derelict in his duties as General Manager of the Company in that he had, without the knowledge or authority of the Company, absented himself from his duties at a time when the Company was the subject of a takeover bid". 5 It is also pleaded that the imputations set out above in respect of each matter complained of arise by reason of a reader knowing the following fact, namely that a person holding the position of General Manager of a public company owes legal and ethical duties to the company to act in good faith towards the company and in the best interests of the company (paragraph 11 of ASC). 6 Pursuant to SCR Pt 31 r 2 and by consent the defendants have applied for rulings in relation to the capacity of each matter complained of to carry the pleaded imputations. 7 It was agreed that no impediment to the determination of the issues on the application arises from the pleading of the extrinsic fact said to found the imputations as true innuendos. 8 I am of the view that imputations 6(b) and 10(b) easily can be disposed of, as each contains the same flaw. The imputation, in each case, refers to the plaintiff being absent " without the knowledge " of the company. Each matter complained of cannot reasonably give rise to any suggestion that the plaintiff's absence was " without the knowledge " of the company. Indeed, in each case it is made perfectly clear that the plaintiff's absence was known to the company. 9 Imputations 6(b) and 10(b) will not go to the jury; the plaintiff will have leave to amend. 10 Imputations 6(a) and 10(a) are very problematical. First, there is the ambiguity acknowledged to arise from the application of the phrase " contrary to the best interests of the company " either to the absence of the plaintiff or to the takeover. Accepting, for the moment, the resolution of the ambiguity by applying the phrase to the takeover (as Mr Gray indicated was the intention), the real problem arises from the use of the words " deceitfully" and " clandestine ". 11 With respect to the first matter complained of Mr Lancaster argued that there is nothing in it to support the pejorative connotation of deceit. It seems to me that what the first matter complained of is really speaking about at the very least, is coincidence. The plaintiff was known to have been absent from the time the takeover offer was made. What was not known was what the plaintiff was doing in terms of company business and whether he had any authority therefor, and where he had been. In respect to this first matter complained of I am persuaded that there is nothing in that matter complained of that would give rise to the notion of deceit relied upon by the plaintiff (based upon the Macquarie dictionary), namely, " concealment of the truth for the purpose of misleading". I am not persuaded that the brief piece sued upon is capable of giving rise to a legitimate course of inference drawing as opposed to suspicious speculation. In any event, I am further unpersuaded that the use of the word " deceitfully " adds anything, either with respect to motive or method, to the use of the word " clandestine". Imputation 6(a) is embarrassing in form and will be struck out. 12 As to the second matter complained of, in the end, the same considerations apply. " Deceitfully" and the meaning relied upon adds nothing, in my view, to the use of the word " clandestine " which, according to the Macquarie Dictionary, involves itself a notion of deception. 13 The second matter complained of is however, by reason of its greater length, capable of giving rise to disparagement of the plaintiff in the area sought to be encompassed by imputation 10(a). What is made clear in The Financial Review piece is the connection between the plaintiff and the company launching the takeover in the context of a Board split in the target company. This is clear particularly from the third paragraph. If there is any " deception " at all it cannot be in relation to Mr Weston's absence: that was open, known and subject to inquiry. What this matter complained of arguably is capable of pointing to is something more than the mere coincidence suggested in the first matter complained of by reason of the link between the plaintiff and the hostile forces. Shortly stated, the plaintiff was absent, his absence was known to the company of which he was General Manager, the reasons for his absence and the nature of any of that company's business to which he had been attending and under what authority were not known and, it turns out, he has been nominated by the "opposition " to be a Member of the Board of the target company. 14 Imputation 10(a) will be struck out as bad in form with leave to amend. 15 The formal orders are: 1. Imputations 6(a) and 10(a) are struck out. 2. Imputations 6(b) and 10(b) will not go to the jury. 3. The plaintiff has leave to file an Amended Statement of Claim within 14 days. 4. Within 14 days of the filing of an Amended Statement of Claim the parties have leave to file, by consent, orders and directions for the further conduct of the matter in the Defamation List. 5. Otherwise, at the expiry of 28 days the parties have liberty to restore the matter to the Defamation List on 3 days notice. 6. The plaintiff is to pay the defendants' costs. **********