Australian Securities and Investments Commission v Schlaepfer

1. [1]

   THE COURT: On 19 September 2017, the Court heard an application for leave to appeal from an interlocutory decision of a Judge of the Common Law Division (Garling J). His Honour made an order pursuant to s 56A of the Limitation Act 1969 (NSW) (Limitation Act) extending the limitation period for the first respondent (Mr Schlaepfer) to commence an action in defamation against the applicants, the Australian Securities and Investments Commission (ASIC) and Mr Yanco. [1] Mr Yanco at the relevant times was a senior compliance officer at ASIC.

2. [2]

   The application for leave to appeal was heard concurrently with argument on the appeal. At the conclusion of the argument the Court dismissed the application for leave to appeal, with costs. The Court stated that reasons would be delivered later. These are the Court’s reasons.

The proceedings

1. [3]

   Mr Schlaepfer and two corporations of which he is the principal, namely Select Vantage Incorporated (SV) and Merlito Securities Company Limited (Merlito), commenced proceedings against the applicants in the Common Law Division on 11 October 2016. The three plaintiffs (the respondents to the applicants’ summons seeking leave to appeal) claimed damages for defamation and injurious falsehood. The claims arose out of statements allegedly made by Mr Yanco in a series of telephone conversations which took place on 21 November 2014.

2. [4]

   The matter complained of in Mr Schlaepfer’s defamation claim is pleaded in par 5 of the statement of claim as follows:

3. [5]

   The particulars of extrinsic facts include the following (par 18):

4. [6]

   The particulars of identification alleged, among other things, that between 2003 and 2009 Mr Schlaepfer was a trader at a firm that traded through Swift Trade Inc, a limited market dealer in Canada and that in September 2011 he became a director and president of SV (par 8).

5. [7]

   The statement of claim alleges that the matter complained of was defamatory of Mr Schlaepfer (par 11). It pleads that the matter complained of conveyed a number of defamatory imputations, including that Mr Schlaepfer was such a dishonest trader that he deserved to be compared with the “disgraced Peter Beck”, the former principal of Swift Trade Inc (par 16).

6. [8]

   The statement of claim alleges that Mr Yanco made the telephone calls in the course of his employment with ASIC (par 6). The telephone calls are said to have been made by Mr Yanco to:

7. [9]

   It will be seen that the Common Law proceedings were commenced nearly two years after the alleged publications. The lapse of time is not material to the cause of action founded on injurious falsehood. However the delay in commencing proceedings created a difficulty for Mr Schlaepfer’s cause of action in defamation because of s 14B of the Limitation Act, which provides as follows:

8. [10]

   The respondents filed a motion in the Common Law proceedings pursuant to s 56A of the Limitation Act, seeking an extension of the limitation period for commencing an action in respect of the matter complained of as pleaded in par 5 of the statement of claim.

9. [11]

   Section 56A of the Limitation Act provides as follows:

10. [12]

    Section 56D of the Limitation Act provides that an order for the extension of a limitation period, and an application for such an order, may be made under s 56A even though the limitation period has already expired.

11. [13]

    The primary Judge made the orders sought by the respondents. His Honour was satisfied that it was not reasonable for the respondents in the circumstances, to have commenced proceedings for defamation within the twelve month limitation period. [2] Accordingly, s 56A of the Limitation Act required the Court to extend the limitation period. Although the order made by his Honour does not say so explicitly, the intention is clearly to extend the limitation period in respect of Mr Schlaepfer’s cause of action in defamation until 11 October 2016, the date the statement of claim was filed. [3]

12. [14]

    The applicants’ draft notice of appeal contains two grounds, as follows:

Background

1. [15]

   Prior to 21 November 2014, Merlito had a brokerage relationship with Macquarie Securities (Australia) Ltd (Macquarie). On 21 November 2014, Macquarie terminated that relationship with immediate effect.

2. [16]

   On 25 November 2014, ASIC published on its website a document entitled “ASIC Market Supervision Update Issue 53” (Update 53). Update 53 made certain statements about the respondents.

3. [17]

   On 3 December 2014, the respondents’ then solicitors wrote to ASIC complaining that Update 53 contained serious allegations of criminal misconduct against SV and defamatory imputations about Mr Schlaepfer. The letter sought a correction to Update 53.

4. [18]

   ASIC, through its Chief Legal Officer, denied that Update 53 was misleading or defamatory and also denied that ASIC (as the respondents alleged) had made threats to Macquarie concerning its dealings with the respondents.

5. [19]

   On 15 December 2014, after further correspondence between ASIC and the respondents’ solicitors, ASIC agreed to issue a clarification to Update 53 in “Market Supervision Update Issue 54” (Update 54). In return, the respondents agreed to release ASIC from any claims arising out of Update 53. ASIC duly published the correction in Update 54.

6. [20]

   Towards the end of 2014, ASIC commenced an investigation into SV and its market dealings.

7. [21]

   On 15 May 2015, the respondents’ solicitors wrote to ASIC referring to the agreement reached in December 2014. The email included the following:

8. [22]

   ASIC responded on 18 May 2015 as follows:

9. [23]

   Approximately one year later, on 25 May 2016, Deutsch Miller, another firm of solicitors retained by the respondents, applied under the Freedom of Information Act 1982 (Cth) (Freedom of Information Act) for the release of any written communications between ASIC and market participants in Australia and overseas concerning the respondents.

10. [24]

    On 2 June 2016, ASIC informed Deutsche Miller that the investigation into SV’s trading in 2014 had been completed and there were no further issues ASIC wished to address.

11. [25]

    On 24 June 2016, Deutsche Miller wrote to ASIC requesting a meeting between ASIC and Mr Schlaepfer. The letter contained the following paragraph:

12. [26]

    On 30 June 2016, a Mr Shalabi, who was apparently employed by Credit Suisse, forwarded to Mr Schlaepfer an electronic copy of an email written on 21 November 2014 by Mr Couper of Credit Suisse (Couper email). The Couper email was sent to a total of nine addressees, all of whom were officers of Credit Suisse. The Couper email was as follows:

13. [27]

    On 8 July 2016, Mr Schlaepfer, while in Sydney, consulted Mr O’Brien of Mark O’Brien Legal for advice. Although the proceedings were not commenced until 11 October 2016, there was no dispute before the primary Judge that the lapse of time between 30 June 2016 and the commencement of proceedings was not unreasonable having regard to the inquiries Mr O’Brien was obliged to make. [4]

14. [28]

    On 5 August 2016, Mr O’Brien wrote to ASIC making a series of demands on behalf of the respondents. The letter included the following:

15. [29]

    On 29 August 2016, the solicitors for ASIC denied that the respondents were entitled to the relief sought on their behalf in the letter of 5 August 2016. The letter also stated that Mr Yanco denied that the conversation on 21 November 2014 was in the terms alleged in Mr O’Brien’s letter.

Primary Judgment

1. [30]

   The primary Judge quoted a passage from Carey v Australian Broadcasting Corporation [5] in which Beazley JA explained the operation of s 56A of the Limitation Act as follows: [6]

2. [31]

   The primary Judge pointed out that the test posed by s 56A is not satisfied merely by showing that it was not unreasonable to have not commenced proceedings within one year: [7]

3. [32]

   The primary Judge, before recounting the facts, recorded the following: [10]

4. [33]

   Section 75 of the Evidence Act 1995 (NSW) provides that:

5. [34]

   The primary Judge identified four circumstances on which the applicants relied to support their contention that his Honour could not be satisfied that it was not reasonable for the respondents to have commenced an action within one year of the defamatory publications. Only three are relevant for the purposes of the present application. They can be summarised as follows:

6. [35]

   The primary Judge considered that Mr Schlaepfer’s belief in April and May 2015 that ASIC had made telephone calls was not at all relevant to the reasonableness of his failure to commence proceedings within twelve months of 21 November 2014. [11] The correspondence referring to Mr Schlaepfer’s belief related to statements allegedly made later than the matter complained of in the proceedings and reflected Mr Schlaepfer’s complaint that the statements were made in breach of the 2014 agreement between ASIC and the respondents. Moreover, in view of ASIC’s response that it was unaware of any such statements it was not at all unreasonable for Mr Schlaepfer not to have pursued further inquiries. [12]

7. [36]

   Secondly, his Honour was satisfied that Mr Schlaepfer first became aware of the Couper email on 30 June 2016. Mr O’Brien had given evidence to this effect on information and belief and the email itself showed the date it had been received. [13] His Honour was also satisfied that Mr Schlaepfer first became aware on 30 June 2016 of the telephone call to Credit Suisse. Those were Mr Schlaepfer’s instructions to Mr O’Brien and were recorded in Mr O’Brien’s letter of 5 August 2016. Mr O’Brien’s affidavit in combination with the letter demonstrated that Mr Schlaepfer became aware of the telephone calls when he received a copy of the Couper email. [14] His Honour noted that there was nothing in the email sent by Mr Shalabi to Mr Schlaepfer to indicate that there had been any previous communications between them. [15]

8. [37]

   Thirdly, in his Honour’s view, there was no basis in mid-2015 for the respondents or their lawyers to have a reasonable suspicion or expectation that ASIC or its officers would have been telephoning participants in the market place, particularly those with whom the respondents had no commercial dealings, to inform them of the information the substance of which subsequently appeared in Update 53: [16]

9. [38]

   The primary Judge reminded himself that rejecting the applicants’ submissions did not demonstrate that the respondents had satisfied their onus of proving that it was not reasonable for them, in the circumstances, to have commenced proceedings within twelve months of the publication of the defamatory material. [17] However, his Honour accepted the respondents’ submission that the principal circumstance supporting a finding that they satisfied the statutory test was that Mr Schlaepfer first knew of Mr Yanco’s 21 November 2014 telephone call on 30 June 2016. Because the complaint related to an oral slander, it was reasonable for Mr Schlaepfer to wait until he received documentary corroboration of the telephone call. [18] There was no reason for him to make inquiries about the existence of the defamatory publication until he had some indication that it had been made. [19]

10. [39]

    The primary Judge expressed his conclusion as follows: [20]

Principles governing the application

1. [40]

   The principles governing an application for leave to appeal from a decision to grant an extension of time for the commencement of proceedings were stated by Ward JA in Dagg v Davis [21] in uncontroversial terms:

Reasoning

1. [41]

   In determining whether this was a matter suitable for a grant of leave to appeal, the Court bore a number of matters in mind.

2. [42]

   First, the applicants did not suggest that the primary Judge misconstrued s 56A of the Limitation Act nor that his Honour failed to refer to the relevant authorities construing the provision.

3. [43]

   Secondly, the primary Judge did not reverse or fail to apply the onus cast on the respondents by s 56A of the Limitation Act. His Honour made it quite clear that the applicants had no onus of proof and that Mr Schlaepfer had to prove that it was not reasonable for him, in the circumstances, to have commenced defamation proceedings within the twelve month period. His Honour also made it quite clear that he considered the applicants’ arguments first simply as a matter of convenience and only for the purpose of determining whether their contentions should be taken into account in determining whether the respondents satisfied the statutory test.

4. [44]

   Thirdly, the affidavits sworn by Mr O’Brien, which contained material based on instructions given to him by Mr Schlaepfer, were read without objection. [22] Nor was objection taken to the annexures to Mr O’Brien’s affidavits, including his letter of 5 August 2016 to ASIC. The applicants accepted that in these circumstances the affidavits and the correspondence, insofar as they were based on information and belief, were admissible pursuant to s 75 of the Evidence Act to prove the truth of the representations made by Mr Schlaepfer to Mr O’Brien and recorded by him. [23]

5. [45]

   Fourthly, Mr O’Brien in his first affidavit stated as follows:

6. [46]

   Mr O’Brien was not cross-examined. Thus he was not asked questions about these paragraphs of his affidavit or the statement in his letter of 5 August 2016 that Mr Schlaepfer first became aware on 30 June 2016 of Mr Yanco’s telephone call to Credit Suisse on 21 November 2014.

7. [47]

   Fifthly, the applicants served notices to produce on the respondents well before the scheduled hearing before the primary Judge. Apparently because the vacation intervened, the applicants did not call on the notices to produce until the outset of the hearing. Mr Tobin QC, who appeared for Mr Schlaepfer before the primary Judge, [24] produced some documents in response to the call. However, he informed the Court that because of the number of documents covered by the notices to produce and Mr Schlaepfer’s absence from Australia (he resided in Canada), more time would be required to respond fully.

8. [48]

   The primary Judge asked Senior Counsel for the applicants whether they wished to make a further application. This invitation clearly referred to (or included) an application to adjourn the hearing pending the respondents making a full response to the notices to produce. Senior counsel told his Honour he was content to proceed on the basis that the respondents’ answer was “not produced”.

9. [49]

   It is fair to infer that the notices to produce sought production of documents evidencing, among other things, any communications between Credit Suisse or officers of Credit Suisse pre-dating 30 June 2016. By electing not to seek an adjournment and press for a full response to the notices to produce, the applicants forewent an opportunity to explore whether Mr Schlaepfer had sources of information available to him concerning the contents of the Couper email long before June 2016.

10. [50]

    It was submitted that Ground 2 of the proposed notice of appeal did the “heavy lifting” in the applicants’ case. In substance, the applicants submitted that the primary Judge should not have made the critical finding that Mr Schlaepfer did not learn of Mr Yanco’s conversation with Credit Suisse until 30 June 2016. The applicants contended that his Honour should not have made that finding without Mr Schlaepfer giving evidence personally and thus exposing himself to cross-examination. It was submitted that there were some issues that could have been pursued with Mr Schlaepfer, such as whether he had any indication during the twelve month period after 21 November 2014 that ASIC may have contacted market participants other than Macquarie to express concerns about Mr Schlaepfer’s probity.

11. [51]

    The applicants submitted that the question of principle justifying a grant of leave to appeal concerned the weight that should be given to evidence given in an interlocutory hearing on information and belief. The applicants referred to Howley v Principal Healthcare Finance Pty Ltd (Howley). [25]

12. [52]

    In Howley the issue was whether evidence given by a solicitor on information and belief provided an explanation for the applicant’s delay in commencing workers’ compensation proceedings. McColl JA accepted that the applicant in that case was required to lead evidence appropriate to give the Court a satisfactory understanding of why it was that proceedings were not commenced in time. However, her Honour explained that this requirement: [26]

13. [53]

    There is nothing in Howley to suggest that the applicants’ submissions in this case raise any genuine issue of principle. Nor are the observations of Gleeson CJ in Russo v Aiello [27] , to which the applicants also referred, pertinent to the present case. His Honour’s observations were directed to a case in which a claimant for compensation was required to provide a “full and satisfactory explanation for the delay in making the claim”. Gleeson CJ’s remarks were directed to the failure of the claimant to address a matter of which he had personal knowledge, thus producing a lacuna in the explanation offered to the Court.

14. [54]

    The primary Judge made the critical finding of fact on the basis of evidence that, as the applicants accepted, was admissible and probative of the fact ultimately found. The evidence could have been challenged by the applicants, even in the absence of evidence from Mr Schlaepfer himself. For example, the applicants could have insisted on a full response to the notices to produce and examined the material produced with a view to challenge the truth of the instructions conveyed to Mr O’Brien. The applicants could have issued subpoenas to those entities or individuals who, so they suggested, might well have imparted information to Mr Schlaepfer long before June 2016 concerning any communications by ASIC with market participants in 2014. The applicants could also have elected to cross-examine Mr O’Brien in order to test whether Mr Schlaepfer provided Mr O’Brien with material that cast doubt on the accuracy of the instructions recorded by Mr O’Brien in his affidavit. (It is unlikely that a claim of client legal privilege, if made, would have succeeded having regard to the fact that Mr O’Brien’s affidavit disclosed otherwise privileged information.)

15. [55]

    Perhaps, as the applicants submitted, there were grounds for suspicion as to whether the instructions conveyed to Mr O’Brien were entirely accurate. Perhaps these matters could have been explored further at the hearing. But none of this established that the primary Judge erred in finding, on the uncontradicted evidence before him, that Mr Schlaepfer had proven on the balance of probabilities that he was not aware of Mr Yanco’s communications with Credit Suisse until he received a copy of the Couper email on 30 June 2016.

16. [56]

    The application for leave to appeal did not raise any question of principle. Nor did the applicants establish that refusing to grant leave to appeal would result in significant injustice to them.

17. [57]

    For these reasons the Court dismissed the application for leave to appeal.