Directors of large corporates, particularly listed corporates with disclosure obligations, are regularly faced with deciding what information should be published, or can safely be published, in the event of internal disputes regarding allegations of misconduct by directors, executives or third parties.
The recent Western Australia Supreme Court decision in De Kauwe v Cohen(1) contains a useful guide on the potential pitfalls for company directors, officers and third-party contractors when communicating internal company matters with shareholders and/or the public.
The plaintiff, Dr Brendan de Kauwe, was the chair and one of six directors of the listed entity eSense Lab Ltd. By early 2018, the relationship between de Kauwe and his co-directors had deteriorated to the point where it was described by one director, the first defendant Haim Cohen, as being "at war". De Kauwe sued his five codirectors, as well as eSense's company secretary and an external media consultant, over multiple allegedly defamatory publications. These included letters written by eSense directors to him, but copied to third parties, and two Australian Securities Exchange (ASX) announcements.
The Court found that these publications conveyed a number of defamatory imputations (or meanings), including unlawful use by de Kauwe of an eSense credit card, a lack of propriety on his part sufficient to warrant examination by an independent auditor and allegations of extortion and blackmail. De Kauwe was awarded A$530,880 for defamation, including aggravated damages and special damages (financial loss).
In reaching this outcome, questions for the Court included:
- What are the circumstances in which a defendant, who is not the author of a defamatory publication, can nevertheless be treated as a "publisher" and thus incur liability?
- What is the potential availability of the defence of qualified privilege to communications of this kind?
While the 270-page judgment is fact specific, there are several useful lessons for boards and, in particular, public company boards.
The Court's decision is a warning for directors, company officers and anyone providing services to a company of the very broad test for incurring liability as a publisher of a defamatory content. Anyone who plays a role in the communication of defamatory matter – even if they would not regard themselves as the author – can find themselves jointly liable for the consequences of a wrongful publication.
The key learnings of this judgment are set out below.
Not just author of defamatory content who is liable to be sued
The application of this principle led, in this case, to the company secretary being treated as jointly liable with the directors for the publication of a defamatory ASX announcement. The Court found that he had authorised and approved the publication, which was enough to make him personally liable as a publisher.
Similarly, an external media consultant retained by eSense was held to be a publisher of one of the ASX announcements on the grounds that he had commented on earlier drafts of that document. He had also been provided with a copy of the final version and had not asked for his name to be removed as a person to be contacted for further information. The fact that he had raised concerns about defamation risk and encouraged the defendant eSense directors to get legal advice was of no assistance in avoiding liability.
Limits of qualified privilege defence
A central question was the extent to which the defendants could successfully rely on the defence of qualified privilege to avoid liability for their defamatory publications.
While the defence of qualified privilege has different expressions in common law and under statute, broadly it applies when a statement is made on an occasion where one person has a duty or interest to make a statement and the recipient has a corresponding duty or interest to receive it. It is commonly referred to as "duty/interest qualified privilege". The defence fails if the plaintiff can show that the publication was motivated by malice; that is, any improper motive or purpose that induces the defendant to use the occasion of qualified privilege to defame the plaintiff.
There are three important takeaways from this case when it comes to the availability of this defence.
Beware when making public statements
First, while there are many circumstances in which communications between directors, as well as communications between a company and its shareholders, will be protected by qualified privilege, this defence will rarely apply when the communication is to the world at large.
By way of illustration, the Court found that one of the two ASX announcements would have been protected by qualified privilege had it just been published to shareholders but it lost this protection when it was published to the world at large. There was no duty to publish this information to persons other than shareholders, and persons other than shareholders had no requisite interest in receiving the information.
Lodging statement with ASX can lead to liability for publication to world at large
Secondly, lodging a statement with the ASX will generally result in the persons responsible for that limited publication also being liable for the broader publication by the ASX to the general public. The defendants argued that it was not them but the ASX who had published the statement to the wider public and that they should not be treated as having any liability for this broader publication. The Court rejected this argument. The fact that it is the "natural and probable consequence" of a listed company lodging an announcement with the ASX that the ASX will then make the publication available to the general public is enough to give rise to liability as a publisher of that broader communication.
Ensure that motivations are pure
Thirdly, the motivation in publishing defamatory material is of central importance. If a publication is found to have been motivated predominantly by a desire to injure the plaintiff, the defence will fail. In this case, the Court found that several of the publications sued on had been published with the predominant motive of causing harm to de Kauwe. Had the Court found that these publications had been published on an occasion of qualified privilege, the defence would have been lost on the grounds that the publications were actuated by malice.
Beware of cc'ing when making allegations of misconduct
Several of the publications involved in this case were communications from directors to de Kauwe that were also copied to third parties. While it is not possible to defame a person to themselves, a communication to the defamed person can become legally actionable if it is copied to third parties.
Be careful with language
Finally, it should not be assumed that it is possible to use words like "apparently", "prima facie" and "seemingly" to seek to qualify what would otherwise be a defamatory statement and thus avoid liability. When assessing the meaning of a communication, the courts will construe the "natural and ordinary" meaning of the words as they would be understood by ordinary, reasonable people. Applying that principle, the judge in this case noted that "the words 'apparently', 'prima facie' and 'seemingly' do not detract from the meaning conveyed that Dr de Kauwe is guilty of 'theft of the company's funds'".
For further information on this topic please contact Andrew Salgo or Anne Flahvin at Baker McKenzie by telephone (+61 2 9225 0200) or email ([email protected] or [email protected]). The Baker McKenzie website can be accessed at www.bakermckenzie.com.