Case Law, Australia: Jones & Australian Shareholder Centre PL v Aussie Networks PL & Eiby, Share trader’s defamation claims collapse – Justin Castelan

18 11 2018

The first defendant owned and ran an internet forum, Aussie Stock Forums, used to discuss topics related to the stock market and investments. The second defendant was its sole director and shareholder. He left a comment on the forum in response to a request for information about Australian Shareholder Centre PL (ASC), who, together with its owner, Mr Jones, ultimately sued him and the website owner for defamation, injurious falsehood and misleading or deceptive conduct in contravention of the Australian Consumer Law.

The defendants

The relevant posts were uploaded on 18 June 2013, the first being a request from “Steve” for information about ASC and the defendants’ reply that came around 7 hours later, and appeared under the name “stockGURU”. The reply about ASC included the following:

  • A list of red flags including that:
    • The domain privacy was enabled to hide ownership details of the domain name;
    • A person could not view the website without entering their name and mobile phone numbers;
    • The company was registered and run out of the Gold Coast;
    • There was no upfront information about the cost of services;
  • The post then went through a short history, essentially claiming that ASC was a phoenix of some previous organisations that had closed and “The victims start showing up”;
  • My opinion: Stay far away from ASC…. There is something very shady going on here. My guess is that Active Traders received a lot of complaints and they have set up a new company and website (ASC) to shift the business. It looks like the exact same offering, just a new company name, website and phone number. My guess is that its only a matter of time until the victims of ASC start showing up on forums telling their stories. Don’t be one of them!

The plaintiffs sued. They claimed that they suffered severe losses in terms of a downturn in its profits of around $1 million. This was based on a claim that between January 2013 and January 2014, there were 831 views of the thread, however that could not have necessarily meant that they all read the post.

As it happened, although the defendants had done a lot of research, parts of the information posted about the chain of companies that the plaintiffs were allegedly spawn from were wrong, and the defendants never asked the plaintiffs for their version of events before publishing.

Defamation

The case was tried by in the Queensland Supreme Court.  Judgment was given on 2 October 2018 by Douglas J ([2018] QSC 219 [pdf]).

Firstly, although Jones, the first plaintiff, was not named in the post, Justice Douglas found that he had been identified, even if the evidence was by an extremely limited number of people. The Judge agreed that the post conveyed the following imputations:

  1. in the course of carrying on the business of a stock broker and financial adviser, ASC had engaged in unscrupulous conduct with the intention of escaping legitimate claims of aggrieved customers.
  2. In the course of carrying on the said business, ASC had engaged in a dishonest scheme to hide the true identity of those behind it;
  3. In the course of carrying on the said business, ASC deals dishonestly with its customers so as to give them cause to complain;
  4. In the course of carrying on the said business, ASC had sought to entice prospective clients by posting a false testimonial of its services under the name of Chris Harris;

Turning to the defences, the defendants firstly claimed honest opinion under s.31 of the Defamation Act. Justice Douglas found that the honest opinion defence was made out. The material was comment not fact and it was based on proper material. The fact of an error in the material relied on did not detract from the balance of the facts that were relied on, that were substantially true.

The defendants also relied on qualified privilege under s.30 of the Act. Justice Douglas was satisfied that the recipients of the information had an interest or apparent interest in having information on the subject and that the matter was published in the course of giving information on that subject – the very purpose of the internet forum. However, the remaining question for that defence was that the defendants needed to prove that their conduct was reasonable. They failed in that regard, because the defendants had not given the plaintiffs a proper chance to respond, before uploading the post. So the qualified privilege defence failed. The defendants did not seem to have run a qualified privilege defence at common law, which might have faired better because it does not have the reasonableness requirement.

In any event, Justice Douglas went on to assess damages, in the event of an appeal. For the corporate plaintiff, it had to establish actual damage. To do so, it called evidence from a forensic accountant, who concluded that ASC’s sales were increasing from Jan 2013 until May 2013, with the exception of March 2013. Using a mathematical linear regression technique, which the defendants might have contended was Latin for “Pie in the sky”, he concluded that based on the prior trading of ASC during those five months, the upward sloping trend would have continued for a month and ASC would have sustained membership income at that level into the future, if not for the publication. He assessed ASC’s loss at slightly more than $1 million pre-tax.

To be fair, it seemed a small sample size. The defendants pointed to the fact that these were the first few months of a start-up business, and did not take any account of what happened in or after June 2013. It produced a line that was unrealistically steep. For instance, the accountant concluded that in June 2013, ASC would have made $543,000, but did not take account of the first 18 days of that month before publication, which in reality had totalled $231,000 for ASC – to make the $543,000 predicted figure from that point was highly improbable. After other criticisms, the defendants contended that the process was simply too unreliable and was not evidence of loss. Justice Douglas agreed to a large extent and taken together with the plaintiffs’ failure to discover its own customer relationship management database records, concluded that if some loss was caused, it would have been far more conservative, and assessed at no more than $100,000.

As for the individual plaintiff, his damages would have been minor, and Justice Douglas assessed that those damages would have been $10,000.

Injurious falsehood

This claim failed because, even though the defendants were mistaken about a predecessor selling its customers to an entity that ultimately related to ASC, this was a genuine mistake and not evidence of malice. There was no improper purpose or improper motive. Although the defendants had called the plaintiffs “absolutely vicious, amoral, horrible, Gold Coast snake-oil salesmen… bottom feeders…  parasites…people who victimise others… ratbags… Complete and utter scumbags in every sense of the word”, that was not evidence of malice, because by that time the litigation had been running for almost two years and the defendants had spent in excess of $100,000 in legal costs.

The injurious falsehood claim failed for lack of malice and lack of proof that the defendants’ conduct caused a loss.

Australian Consumer Law (ACL)

The significant issue here was that Justice Douglas concluded that the defendants “carried on a business providing information”. This meant that under section 19 of the ACL, it is exempt from any claim for misleading or deceptive conduct. So that claim failed too.

Interestingly, section 19 of the ACL has always traditionally been relied on by mainstream media to defeat claims against them under the ACL and previous trade practices legislation. This is the first time that a superior court has concluded that an internet forum can also rely on the exception. No doubt the raft of internet forums that exist in Australia will benefit from this decision, and as will Google.

So the plaintiffs’ claims were all dismissed. Justice Douglas also refused applications for injunctions and noted that ASC was no longer trading. Hopefully for the defendants, they obtained an order for security for their costs….

This post originally appeared on the Defamation Watch blog and is reproduced with permission and thanks

 


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