New South Wales Supreme Court CITATION : Movieco Australia Limited & Anor v John Fairfax Publications Pty Ltd [2000] NSWSC 1186 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 20476/00 HEARING DATE(S) : Friday, 8 December 2000 JUDGMENT DATE : 15 December 2000 Movieco Australia Limited (1st Plt) PARTIES : Timothy Benjamin (2nd Plt) John Fairfax Publications Pty Limited (Def) JUDGMENT OF : Levine J COUNSEL : T S Hale SC (Plt) T Blackburn (Def) SOLICITORS : Michael Osborne & Associates (Plt) Freehills (Def) CATCHWORDS : Imputations - capacity - form LEGISLATION CITED : Defamation Act 1974 CASES CITED : Ma Ching Kwan & Anor v John Fairfax Publications Pty Ltd[1998] NSWSC 321 30 July 1998 (Court of Appeal) DECISION : See para 23 DLJ:1 (CAV) [2000] NSWSC1186 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DEFAMATION LIST No.20476/00 JUSTICE DAVID LEVINE FRIDAY, 15 DECEMBER 2000 MOVIECO AUSTRALIA LIMITED & ANOR (Plaintiff) v JOHN FAIRFAX PUBLICATIONS PTY LTD (Defendant) JUDGMENT (Imputations - capacity - form) 1 HIS HONOUR: On 1 September 2000 the plaintiffs instituted these proceedings against the defendant claiming damages for defamation. 2 The newspaper in which was published the article said to give rise to the imputations under scrutiny happens to be unidentified. There is no reference in either of the Statements of Claim hitherto filed or in the schedules, to the particular newspaper published by the defendant. It may be "The Financial Review" or it may be "The Sydney Morning Herald". The photocopy of the article handed up during the course of argument contains no internal evidence identifying the journal and I will not embark upon speculation based upon type face, format and the like. The rules, SCR Pt 67 r 12(1)(a), provide for particulars of publication; no doubt this oversight will be attended to. 3 What I understand to be the matter complained of, that is the published material, is appended hereto. 4 The plaintiff contends that this matter carries the following imputations: "4(a) That the first plaintiff, as promoter and manager of 'The Wiggles Movie' was so inept in the deals it negotiated with film distributors that the investors in the film most most of their investment. 4(b) That the first plaintiff, as promoter and manager of 'The Wiggles Movie' failed to account to film investors for their entitlements from the film's cinema receipts and video sales when it had an obligation to do so. 4(c) That the first plaintiff, as promoter and manager of 'The Wiggles Movie' was reasonably suspected by investors in the movie of misappropriating money from cinema receipts and video sales which it should have paid to the investors. 4(d) That the first plaintiff, in a prospectus issued to the public inviting investment in films, represented that it had expertise in the commercial aspects of producing and distributing films which it did not have. 5(a) That in his promotion and management of 'The Wiggles Movie' the second plaintiff was so inept in the deals he negotiated with the film distributors that investors in the film lost most of their investment. 5(b) That in his promotion and management of 'The Wiggles Movie' the second plaintiff failed to account to the investors in the film for their entitlements from the film's cinema receipts and video sales when he had an obligation to do so. 5(c) That in his promotion and management of 'The Wiggles Movie" the second plaintiff was reasonably suspected by investors in the movie of misappropriating money from cinema receipts and video sales which should have been paid to the investors. 5(d) That the second plaintiff caused or permitted the first plaintiff in a prospectus issued to the public inviting investment in films, to represent that the first plaintiff had expertise in the commercial aspects of producing and distributing films, which the first plaintiff did not have." 5 Pursuant to SCR Pt 31 r 2, by consent, a separate trial has been conducted as to capacity; questions of form also have arisen. 6 Imputations 4(b) and 5(b) have been changed from the form originally pleaded which wrongfully included the word "wrongfully". See Ma Ching Kwan & Anor v John Fairfax Publications Pty Ltd [1998] NSWSC 321 30 July 1998 (Court of Appeal). 7 For the defendant it is submitted that upon the application of the usual tests applied to the reader, namely the fundamental one of reasonableness, and avoiding strained or forced interpretations, that reader could come to the conclusion the article says no more than that the investors have not had the return on their investments that they would have wished because of the ordinary uncertainties that always attend investment and films in Australia. It is repeatedly stated in the matter complained of that the film, although in some respects successful, did not attract the revenue that would have enabled a profitable return to investors. Film investment is an uncertain business and investors frequently do not receive a return on their original investment. Making money on investments in films in Australia is difficult and that films with even larger box office takings had returned little to investors. In other words the article is no more than a report of the production of a film, investment in it, unrealised returns and reasons therefor explicable not in terms of disparagement of the plaintiffs but rather by reference to the usual exigencies attending such an enterprise. 8 For the plaintiffs it is contended that themes emerge from the article. Movieco as the production company, promoter and manager of "The Wiggles Movie". Mr Benjamin is the only person within Movieco named in the article who apparently has authority to speak. Inferentially, on a reasonable basis, if he is not the only guiding mind and hand of Movieco he is certainly a principal. Evidence (in the article) suggests that "The Wiggles Movie" has been financially very successful. The article states what the box office brought in upon release, the popularity of the film as a video and that investors "should" have received $4.75 million from video sales alone. Reference is made to the tax deductibility of 90 percent of the investment. 9 For the plaintiffs the argument goes on that despite the success, the investors far from receiving a return on their investment have largely lost their investment. How can that arise? The answer is said to be, on a reasonable reading of the matter, that Movieco's conduct as production company promoter and manager was such that investors have instructed solicitors to obtain Queen's Counsel's opinion as a precursor to commencing legal action. Investors are unhappy with deals Movieco negotiated with Fox and Beyond. Movieco, and Mr Benjamin as the principal, have recognised the force of the criticism made against them and have offered to resign as manager of the movie if that is what the investors wish. 10 It is then asked why were the investors so critical of the agreements Movieco negotiated? The figures are set out in the matter complained of. How did it come about that the investors were in this position? It is argued that on the one hand Movieco said it had the expertise in the area but on the other it is said that the article says they have no money and the film sales were not what they expected, despite what are described in submissions as assurances that had been given to investors and the prospectus and subsequently. Further there had been delay in recouping money from overseas distributors and its transferring to Australia. It is also argued that the article suggests that Movieco and Mr Benjamin have failed to fulfil their obligations with urgency. 11 The article speaks of concern about the conduct of Movieco apparently founded in suggestions that film and video sales have been very successful; the investors were told on the prospectus that they were entitled to fifty percent of the proceeds of the exploitation of the film, with the other fifty percent being paid to the production company, but only after investors received returns totalling an amount of 100 percent of their investment. From gross video sales alone investors "should" have received $4.75 million but in fact there was "returned" to investors only $219,000. The concern is such that they have sought senior counsel's opinion and intend to commence legal proceedings against Movieco. 12 If the matter complained of is capable of imputing acts or conditions in relation to the corporation it is equally capable of imputing acts and conditions, in my view, of Mr Benjamin. His status is made clear. 13 As to imputations 4(a) and 5(a) I am satisfied that the matter complained of is capable of carrying them for the purpose of a capacity argument. The availability of these imputations flows not from any morbid or suspicious mind, or as a result of a strained approach but from the impression gained from the matter complained of particularly with reference to the deals done by Movieco with Fox and others, the figures mentioned and the statement that investors were concerned with those deals entered into. 14 Imputations 4(a) and 5(a) will go to the jury. 15 As to imputations 4(b) and 5(b) it was first argued for the defendant that these were bad in form by reason of the ambiguity flowing from the rewording after the abandoning of "wrongfully". I am not persuaded that the imputations are bad in form by reason of ambiguity. I am however, persuaded that the matter complained of is incapable of carrying them in its natural and ordinary meaning. 16 It cannot be argued in my view, on a reasonable basis, that because the investors estimated that apart from the local box office, gross video sales "should" have bought in a further $4.75 million, that that sum in fact had been received and not accounted for when there was an obligation to do so. The material in the matter complained of is incapable of giving rise to any such meaning in my view. Imputations 4(b) and 5(b) will not go to the jury. 17 As to imputations 4(c) and 5(c). On a reading of this long, and as Mr Hale SC said complex article, on no reasonable basis can the suggestion of "misappropriation" be drawn from it. The mere fact that the investors are seeking legal opinion and have expressed the view as to what the earnings "should" have been for video sales for example is insufficient to lay such a high pitched meaning. Imputations 4(c) and 5(c) will not go to the jury. 18 As to imputations 4(d) and 5(d). Again I am of the view that this is an imputation pitched at a level that is incapable of being carried by the matter complained of. 19 In the article (see line 55) specific reference is made to the prospectus in relation to the Wiggle film. It does state that the relevant parties that had considerable business experience as well as expertise in the commercial aspects of producing and distributing films. The matter complained of goes on however to say that the same prospectus made no undertakings as to the commercial prospects of the film. The article, an analysis of which is fairly set out in the defendant's submissions, deals with an unsuccessful investment. The most that it points to is what the plaintiffs have described as "ineptness". The article is incapable in my view of conveying any imputation that reflects misappropriation or dishonesty. It is concerned with competence or the lack of it or ineptitude in the management of this particular project with respect especially to the deals done with Fox and others. Imputations 4(d) and 5(d) will not go to the jury. 20 Accordingly of the imputations to be relied upon by the plaintiff only the first in respect of each plaintiff will go to the jury. 21 The defendant pursuant to s 7A (2) of the Defamation Act is entitled to a verdict in respect of imputations 4(b) (c) and (d) and 5 (b) (c) and (d) as set out in the amended Statement of Claim filed on 6 November and as further amended in relation to elimination of the word "wrongfully". 22 Being presently of the view that the plaintiffs in imputations 4(a) and 5(a) have captured all that is capable of being carried in a disparaging way of them, I do not propose automatically to grant leave further to amend. If the plaintiff is so advised, leave of the court by Notice of Motion will have to be sought. 23 The formal orders are: (1) Imputations 4(a) and 5(a) are capable of being carried and of being defamatory. (2) Verdict for the defendant in respect of imputations 4(b) (c) (d) and 5 (b) (c) (d). (3) Plaintiff to pay the defendant's costs. (4) If the plaintiff is so advised, an application further to amend is to be by the filing of a Notice of Motion. (5) Matter listed for directions on 2 March 2001. ********** HEADING: "TASTE OF FILM NOIR FOR MOVIE INVESTORS" INTRODUCTION: "AS 30 JUNE SPARKS THE USUAL RUSH OF INTEREST IN TAX-EFFECTIVE SCHEMES, INVESTORS IN THE WIGGLES MOVIE HAVE A LESS-THAN-ENTERTAINING EXPERIENCE TO RELATE. ANNE LAMPE REPORTS." 5 There's been more wriggling than wiggling for a group of 50 investors who sank more than $1.6 million into the making of The Wiggles Movie in 1997. The investors have been questioning the promoter and manager ever since, and are still waiting for answers. They fear they will have to kiss goodbye to most of their investment 10 despite the movie being distributed in Britain and the US and enjoying strong video sales. To date they have received back about 13 per cent of what they invested. One investor, Trevor King, whose personal superannuation fund sank $125,000 into Wiggles in 1997, has seen only $16,000 come back. 15 The official accounts for the film to the end of June 1999 say investors have received $219,395 in distributions, "representing a 13.5 per cent return on their original investment". When asked about this, Christopher Coote, the subscribers' representative, acknowledged that it was a 13.5 per cent return of the investment; in other 20 words, the investors were still to see the other 86.5 per cent of their money, let alone any return on top. "It is [the] way – in film investment, if you get any money back, you are lucky," Coote said. "It is regarded as a return and it is basically a return of their original investment." 25 The investors have instructed solicitors to obtain Queen's Counsel opinion as a precursor to commencing legal action against the production company, promoter and manager of the movie, Movieco Australia Ltd, and the producer, Gladusaurus Productions Pty Ltd. They also may take action against the distributor, Twentieth Century Fox Film Corporation, which skimmed 30 per 30 cent off cinema receipts, 30 per cent of advertising accessory income and took 35 per cent of TV rentals. Fox charged a 17.5 per cent home video distribution fee and $14,896 to manufacture videos plus a further $3,747 to market them. The international distributor, Beyond Films, charges a 20 per cent 35 commission on overseas cinema receipts. Beyond says it has received $1,266,666 from international distributions, for which it will receive $85,000 in commission. These figures have not pleased some investors who are unhappy with the deals with Fox and Beyond negotiated by Movieco. King and one other investor invested the largest amounts, $125,000 apiece. 40 Other individual investments varied from $10,000 to $105,000. The Wiggles Movie was released during the 1997 Christmas School holiday period and made $2.625 million at the box office. It ran at 163 cinemas until the end of January 1998. 45 The movie then went to cinemas in the US and Britain and into video sales in Australia, where it has consistently been one of the most popular videos selected by children. Investors were told in the prospectus that they were entitled to 50 per cent of the "proceeds of the exploitation of the film", with the other 50 per cent being paid to the production company "but only after investors receive returns totalling an amount equal to 100 per cent of their investment". 50 The investors estimate that apart from the local box office, gross video sales should have brought in a further $4.75 million. The investment also carried a tax deduction of 96 per cent of the investment. 55 King said he was not attracted by this; rather he wanted his personal superannuation fund to invest in the film. Movieco, the manager and representative, is described in the prospectus as having "considerable business experience as well as expertise in the 60 commercial aspects of producing and distributing films". However, the prospectus says no undertakings are given as to the commercial prospects of the film. A director of Movieco, Tim Benjamin, said of the investors' complaints "We've got no money here. The results of the sales have not been what we expected them to be. But some of the investors are taking this rather poorly. 65 "The film has not done as well as they hoped it would. That does not mean it has not been managed properly. There are lots of reasons why films don't do well. "They thought they were on a sure-fire winner because of the wonderful 70 success of The Wiggles as a band, and they thought they would make lots of money out of the movie. But it just did not turn out that way." Movieco has offered to resign as a manager of the movie if investors wish that to happen. Movieco is entitled to a continuing administration fee on gross proceeds received from the film. 75 Hilton Fatt, a director of Gladusaurus and a brother of the purple Wiggle, Jeff Fatt, said Wiggles was his first movie. "We didn't get the box [takings] that we hoped to get." He said investors were confusing gross takings with the net figure. "It's like saying you have all this money in the till [in a shop] but forget about the cost of sales, rent and electricity." 80 An audit of the Twentieth Century Fox takings would give a clearer picture, Fatt said. He said he had performed his side of the contract and had completed the movie within budget and on time. Film investment was "a bit like betting on the next race at Randwick". Making money out of films in Australia was 85 difficult, he said, pointing out that even films with much larger box office takings had returned very little net to investors. Benjamin said a report was being prepared for investors and should be sent in the next few days. An audit, however, would cost the investors money – between $6,000 and $30,000, depending on whether the audit was done 90 locally or in the US, where Fox is based. The investors say they've parted with enough money and are not prepared to part with any more. According to Benjamin, part of the problem was the delay in recouping money from overseas distributors and delays in transferring money from cinema chains to distributors and back to Australia. 95 He said overseas box office receipts were spread over 18 months and that period had commenced in January this year. "There is nothing wrong. I am shocked that they [the investors] have done this. I am preparing a report now. It is a difficult and complicated report to prepare. Yes, I am a few months late with the report, and I express my apologies for that. But that is all it is. I have 100 delayed sending the report out purely through pressure of work. I have nothing to hide." Benjamin is also director of Content Capital Ltd which, along with Macquarie Film Corporation Ltd, aims to raise up to $40 million concessional capital under the Federal Government's Film Licensed Investment 105 Company scheme. Under the heading "directors and management", Content Capital's prospectus says: "The three executive directors, Greg Smith, David Court and Tim Benjamin, have extensive experience in the financing of film industry projects and ancillary matters. They have already conducted a fee-based 110 business in the area of film production funding, including executive production, deal structuring and negotiation, advising and documentation." Deeper in the prospectus, Benjamin is described as executive director – business and legal affairs. "He was closely involved in the creation and legal documentation of the Lilian's Story Film Fund and The Wiggles – The Movie [sic] Film Fund, both public offers via a registered prospectus." a Heading on page 38: "TASTE OF FILM NOIR FOR MOVIE INVESTORS" Photo on page 38 and caption under photo "Big-screen debut … "The Wiggles Movie" was released during the 1997 Christmas holiday period." Quote on page 38, in bold and in larger print ""Yes, I am a few months late with the report, and I express my apologies for that … I have delayed sending the report out purely through pressure of work. I have nothing to hide."" Last Modified: 01/03/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.