DHR International, Inc a company incorporated in Delaware in the United States of America v Challis

HIS HONOUR: The plaintiff, DHR International Inc (“DHR”), seeks an interlocutory injunction in the following terms:

DHR is a US corporation. I was told and infer from its evidence that it is in the business of providing services for the recruitment of executives. There was no direct evidence as to the nature of its business, nor as to how its business is carried on. Nor was there evidence as to the geographical reach of its business, as distinct from businesses that might be conducted by subsidiaries.

DHR complains about an internet blog. It says the defendant, Mr Challis, is responsible for the establishment and maintenance of the blog. He has made no admissions, but there is a strong prima facie case that it will be established at trial that Mr Challis is the user of an anonymous email address through which the blog was established and maintained. The blog targets DHR.

Mr Challis was the chief executive officer of an Australian subsidiary of DHR. He had a minority shareholding in the subsidiary. He was employed as CEO from April 2010 to September 2012. The chairman of the board of DHR, Mr David Hoffmann, deposed:

Mr Challis claims to be owed $252,422 in unpaid commissions, superannuation, annual leave and in respect of other matters. A company of which he is said to have been a former director, HDRN Pty Limited, has submitted a proof of debt in the liquidation of the Australian subsidiary for more than $2 million.

A blog has been established through numerous websites around the world to which anonymous messages have been posted. Although there is no direct evidence that Mr Challis is the author of all or many of the messages posted to the blog, there is a strong prima facie case that he has published the messages, both those of which he may be the author, and those authored by others (Godfrey v Demon Internet Limited [2001] QB 201; Byrne v Deane [1937] 1 KB 818; Kaplan v Go Daddy Group [2005] NSWSC 636 at [33]).

The blog was first published on 12 December 2014. It is highly critical of DHR and its directors. Many of the messages posted contain little more than general abuse. DHR is accused of lying, of lacking ethics, of being dishonest, of being comprised of a bunch of individuals who are unscrupulous, of being a house of cards, and so on. But many of the messages posted condescend to greater particularity. DHR’s principal complaints on this application concern allegations of “churning” of consultants and the posting of photographs in what has been called in one post a “wall of shame”.

Mr Hoffmann says that he founded the company in 1989 and was CEO from 1989 to 2012. He addressed a message posted on 8 October 2015 under the heading “Massive consultant churn at DHR International”. The post listed hundreds of names that were said to have been “Consultants who have left DHR International in recent years”. In introducing the list the anonymous person who posted the information to the blog stated:

Mr Hoffmann deposes that the list “… significantly overstates the total number of consultants that have left DHR, let alone the number that have left ‘over recent years’”. He deposes that “many” of the names listed were never “Consultants” at DHR and gave two examples. He said that one entry was for an entry-level research associate, not a Consultant, and the other was a researcher associate and principal and not a Consultant. He said that the misrepresentation of DHR’s turnover rate had damaged its reputation in the industry because top candidates tend to prefer working for a business that has a lower, rather than a higher, turnover of consultants.

In the absence of express evidence as to what a “Consultant” is or does, I infer that he or she is engaged either as an employee whose remuneration includes commission, or as an independent contractor, either to provide clients looking for executives to employ, or providing potential recruits for executive positions, or both.

Whilst Mr Hoffmann and other witnesses gave evidence as to the damage done by the allegations of “churn”, DHR did not otherwise adduce evidence to attempt to show that the rate of turnover of consultants depicted in the blog was materially false. The blog itself acknowledged that it was based on incomplete information and that the author had “tried to exclude” associates (researchers) and others who were not “client-facing consultants”. Thus the post recognised that amongst hundreds of names listed there might be some which were not “Consultants”. The identification of two such persons by the plaintiff does not demonstrate material falsity in the statements made.

A second complaint concerned postings about what is said to be DHR’s acquisition of parts of a recruitment company called CTPartners. Mr Hoffmann deposed that in July 2015 DHR acquired a portion of the recruitment firm CTPartners. He said that:

Mr Hoffmann cited a posting dated 9 October 2015 that stated:

The posting made detailed statements under the heading “CTPartners consultants who have joined DHR International since July 1, 2015” by regional location. DHR International did not attempt to address whether the details stated were accurate or not.

The reference to a “Wall of Shame” appears in an anonymous post on an earlier version of the article lodged on 25 June 2015 in which the author said:

There is evidence that numerous potential candidates declined to joined DHR because of the negative statements about it in the blog. Thus a Ms Priya Patel gave evidence of a telephone “exit interview” with a Mr Quinton on 12 October 2015 in which he said that the blog was:

The blog contains a lot of other material. Thus in a post of 10 July 2015 the author states that he or she had identified at least 24 lawsuits over the last few years where DHR had been involved. These were listed by what was said to be the names of the parties to the litigation. The purpose was to accuse DHR of being excessively litigious and unethical. Thus in the following post on 11 July 2015 the author said that according to publicly available information in the lawsuits some consultants were on an annual commission plan where commissions are paid in April of the following year. The author said that where disputes arise they tend to happen in the lead-up to the commission payment in April and DHR would get to keep over a year’s worth of commissions. It was said that very often DHR and a consultant would end up in a dispute as shown by the number of court cases.

A solicitor for the plaintiff, Richard Gunningham, said he reviewed the blog and identified a “sample of assertions through the blog that I believe are relevant to these proceedings”. He summarised those assertions as follows (page references are to a 446-page exhibit being the contents of the blog from time to time):

It may be noted that a number of these statements are defamatory of at least Mr David Hoffmann. He is not a party. The passages extracted contain a number of allegations of fact which should be capable of being proved or disproved. Apart from responding to the general charge that employees or officers of DHR lied or were unethical DHR has not attempted to refute allegations made insofar as they were made with sufficient particularity that they could be refuted if untrue. This is surprising because in a number of cases the author sought to support his or her accusations with some detailed facts. Thus the first quoted accusation (page 101) is part of a post made on 26 March 2015 headed “Discrimination at DHR International: a Principal sues DHR in Silicon Valley”. The post stated that a former (unnamed) principal had sued DHR. It said that the principal was set to receive her yearly bonus and her pay cheque from DHR on 11 April 2014 (sic) but on the afternoon of 5 April 2015 she noticed that her company iPhone was wiped and removed for content and her corporate email also did not work on her laptop. The author of the post said that DHR fired the principal without showing her the decency of telling her face to face but locked her out of their systems owing her at least $43,000. It said that Priya Patel told the principal that “DHR would not pay her the remaining salary, bonus, commissions and expense that she was owed” and that they had not done so. Neither Priya Patel nor Mr Hoffmann addressed the circumstances of the case or sought to establish the falsity of the report. The quote from page 104 extracted above was a comment on this article.

The passages quoted from pages 116 and 153-154 of the exhibit as extracted above refer to “Hoffmannitis”. The author of the blog uses this word frequently to describe alleged cases of misrepresentation. Thus in a post of 16 April 2015 the author accused DHR of misrepresenting the scale of its international operations. He or she said:

In a post on 28 April 2015 the author claimed that DHR had published on its website a claim that the firm was “now the fifth largest executive search firm in the United States … as ranked by Executive Search Review”. The blog continues at some length to seek to establish that this claim was wrong, that it was ranked sixth, not fifth, and that the ranking was in any event based upon inaccurate figures, at least as to the number of consultants. In the post of 14 June 2015 (at pages 153-154) the author lists 10 specific cases in which it is claimed that DHR or Mr Hoffmann have lied. DHR has not addressed the particular alleged lies.

In relation to the acquisition of assets of CTPartners, according to a blog post of 22 July 2015 CTPartners ceased doing business as at 30 June 2015 and its bank sold certain of its assets to DHR pursuant to its security. The blog asserted that on its website DHR had stated that “DHR International agrees to terms of acquisition of CTPartners”. This was said to be a lie because DHR did not acquire the company, but bought only certain of its assets not from the company but its lenders. The author of the blog stated that DHR only hired some of CTPartners’ staff and “Like buzzards, DHR picked through the rotting flesh of CTPartners”. DHR was accused of unethical behaviour in, so it was asserted, announcing an intention to buy the company as a whole, obtaining inspection of its books, and then doing a deal with the lenders to CTPartners to acquire only certain assets. Again, DHR did not address the specific accusations made in the blog.

One of the more serious accusations made in the blog was at page 353. The message was posted on 29 September 2015 as the extracts quoted by Mr Gunningham stated (see para [17] above). The author of the blog stated that:

The author of the blog went on to assert examples of the alleged behaviour. He or she said:

Similar accusations had been made in respect of the Australian subsidiary in a post published on 1 June 2015 in which the author summarised what was said to have been contained in an article in the Sydney Morning Herald. The author of the blog stated:

The Australian subsidiary is called DH International Pty Limited (in liq). Administrators were appointed to it by Mr Hoffmann on 25 June 2013. In their report to creditors the administrators stated that at the time of their appointment the company was insolvent. On 30 July 2013 the creditors resolved that the company be placed in liquidation. The administrators have been appointed as liquidators. In their report to creditors dated 22 July 2013 the administrators reported that the only assets of the company available to them was cash at bank of $53,433. There were outstanding employee entitlements of $157,420 and other claims of unsecured creditors. In their report dated 4 December 2014 the now liquidators stated that the Australian Government Department of Employment had paid $89,369 for outstanding entitlement claims of employees under the Fair Entitlements Guarantee. In their first report the administrators stated that according to the company’s MYOB accounts as at 31 December 2012 the company had a surplus of current assets over current liabilities of $348,005. This was after payment of a fully franked cash dividend in the financial year ended 31 December 2012 of $550,000. A balance sheet as at 30 April 2013 in the company’s own MYOB accounts referred to the existence of certain debtors and other receivables and of fixed assets. According to the administrators neither receivables nor fixed assets was included in Mr Hoffmann’s Report as to Affairs. According to them, his Report as to Affairs stated that $41,051 was owing to unsecured creditors. The administrators reported that as at 22 July 2013 they were aware of unsecured claims totalling $738,618.

The moneys left in the company’s bank account were insufficient to fund the liquidators’ pursuing inquiries, or making claims against third parties. However, they reported that on 4 December 2014 HDRN Pty Limited and Mr Challis had proposed a funding arrangement to conduct public examinations with a view to ascertaining whether any recovery action should be initiated. The liquidators recommended that the proposed funding agreement be approved by creditors. There was no evidence as to whether or not that approval was given.

The administrators/liquidators’ reports might provide a reasonable basis for the comments in the blog of 1 June 2015. DHR did not address the accusations made in the message posted to that blog, nor in the message posted on 29 September 2015.

DHR did not submit that it would be entitled to sue Mr Challis for defamation. Section 9 of the Defamation Act 2005 (NSW) relevantly provides:

DHR did not submit that it was an “excluded corporation” within the meaning of s 9(2). Rather, it submitted that it was entitled to sue Mr Challis for the tort of injurious falsehood and for misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law.

The elements of the tort of injurious falsehood were considered by the High Court in Palmer Bruyn & Parker Pty Ltd v Parsons [2001] HCA 69; (2001) 208 CLR 388. All members of the Court were agreed that a necessary element of the tort is that the defendant publish a statement which is false. There was no unanimity on the second element. The false statement must concern “the plaintiff’s goods or business” (per Gummow J at [52]) or “the plaintiff or its property” (per Kirby J at [114]) or be made in reference to “the [plaintiff], its property or business” (per Hayne J at [154]) or concern “the plaintiff or his or her property” (per Callinan J at [192]).

The third element of the tort is that the statements be published maliciously. Brereton J summarised this element in AMI Australia Holdings Pty Ltd & Anor v Fairfax Media Publications Pty Ltd [2010] NSWSC 1395; [2011] Aust Torts Rep 82-077 at [31]-[32]):

The fourth element is that the maliciously false statements be calculated in the ordinary course of things to produce and do produce actual damage, such damage being wilfully and intentionally caused by the defendant’s publication (Ratcliffe v Evans [1892] 2 QB 524 at 527 to 528; Ballina Shire Council v Ringland (1994) 33 NSWLR 680 at 692 to 694; Palmer Bruyn & Parker Pty Ltd v Parsons at [1], [52], [57], [114], [154] and [192]). An injunction can lie to restrain the commission of a tort to prevent such damage (Swimsure (Laboratories) Pty Ltd v McDonald [1979] 2 NSWLR 796 at 802).

In the present case there is prima facie evidence that allegedly false statements in the blog were published by the defendant, that they concern the plaintiff or its business, that they are calculated in the ordinary course of things to produce actual damage, and that such damage would be wilfully and intentionally caused by the defendant’s publication. If there were a serious question to be tried from the evidence adduced by the plaintiff that the statements in the blog were materially false, then I would accept that there would also be a serious question to be tried that the blog was published by the defendant maliciously and not just to provide assistance to potential recruits. What is lacking is evidence that the statements published in the blog are materially false. The only evidence adduced by DHR directed towards the falsity of specific allegations in the blog related to the allegations of “churn”. But its evidence did not show any material falsity in what was stated in the blog.

This is not to say that the statements in the blog should be accepted as true. Rather, the evidence adduced by the plaintiff on the application for an interlocutory injunction has not shown that there is a serious question to be tried that the statements in the blog are materially false. The plaintiff has not sought a limited injunction to restrain the defendant from publishing statements concerning the rate of “churn” of its consultants. Instead it has sought a mandatory injunction to require the defendant to remove the blogs. The blogs contain many allegations about the defendant’s conduct which, on this application, DHR has not attempted to show are false.

In defamation cases an interlocutory injunction is only granted in very clear cases and with caution lest the grant of an interlocutory injunction interfere with the right of the community in general to discuss in public matters of public interest and concern (Chappell v TCN Channel Nine Pty Ltd (1988) 14 NSWLR 153 at 163-164). In Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57 (a defamation case) Gleeson CJ and Crennan J said (at [32]):

The same caution is not necessarily shown in cases of an application for an interlocutory injunction to restrain an injurious falsehood, at least where questions of public interest, free speech and liberty to press are not involved (AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd at [39]-[41] and cases there cited and discussed). Nonetheless, the “exceptional caution” applied to an application for an interlocutory injunction to restrain the publication of defamatory matter (Australian Broadcasting Corporation v O’Neill at [31]-[32]) is relevant in this case where in substance the Court is asked “to exercise the powers of a censor” (Fleming v Newton (1848) 1 HL Cas 363 at 371; 9 ER 797 at 801, cited in Australian Broadcasting Corporation v O’Neill at [31]).

It is unnecessary to pursue this issue because DHR has only attempted to demonstrate that a small number of the statements published in the blog critical of it are false. An injunction requiring the defendant to remove the blog could not be sustained on the ground that it sought an injunction to restrain the repetition of injurious falsehoods.

For the same reason, the injunction in the terms sought could not be granted to restrain misleading or deceptive conduct.

I should add that in any event it is doubtful that the evidence shows a triable issue that the publications were made “in trade or commerce” within the meaning of s 18 of the Australian Consumer Law. Counsel for DHR asserted that the publication was made in the course of a competing executive recruitment business carried on by Mr Challis. The administrators’ report to creditors of 22 July 2013 stated that Mr Hoffmann had provided a summary to the administrators in relation to the history of the Australian subsidiary, which summary included a statement that in December 2012 Mr Challis and another man started a competing firm. There was no other evidence that Mr Challis carried on or was involved in a competing business. Mr Hoffmann gave no evidence about it. It is unnecessary to pursue this question.

DHR submitted that faced with the need to move urgently to obtain interlocutory relief after it had obtained satisfactory evidence that Mr Challis was the publisher of the blog, it could not be expected to adduce evidence to establish that there was at least a serious question to be tried that allegations of particular facts in the blog were false. It submitted that the matter would be appropriately dealt with by the making of the second order set out at para [1] above, that is, that the defendant be restrained from publishing or causing or authorising others to publish false statements regarding DHR International, its related bodies corporate, directors officers or employees that were intended to cause or would or would be likely to cause damage to the business of DHR International.

I do not accept that it would be appropriate to make an order in those terms. In Commodore Business Machines Pty Ltd v Trade Practices Commission (1990) 92 ALR 563 the Full Court of the Federal Court said (at 575) that:

Although it has been said to be a counsel of perfection rather than a mandatory standard that an injunction be granted in clear and unambiguous terms so that the person subject to it is in no doubt as to what he or she is required to do or not to do (Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 348-349), that does not mean that the defendant should be forced to defend claims that he has committed and is committing the tort of injurious falsehood by publishing false statements concerning the plaintiff’s business which are calculated to cause injury to the plaintiff, and to defend claims that he has engaged in misleading or deceptive conduct in trade or commerce, under threat of fine or imprisonment if his defence fails.

The plaintiff’s evidence does not show a serious question to be tried that the claims in the blog which descend to some particularity are false, or at least materially false. That being so it would not be appropriate to require the defendant to remove the blog. Nor would it be appropriate to grant the second form of injunction sought.

The parties had agreed to a timetable for pleadings and service of evidence. DHR sought an order requiring the defendant to preserve documents relating to the establishment and maintenance of the blog. Counsel for Mr Challis said that such an order was unnecessary having regard to Mr Challis’ obligations not to destroy potential evidence. However, I think it better to make the order sought so that he is not left in doubt as to his position. In taking that course I bear in mind that Mr Challis has sought to protect himself by the veil of anonymity. That could reasonably raise in the plaintiff’s mind a concern that relevant documents might not be preserved. I think it better to deal with the matter expressly.

In submissions the plaintiff’s counsel suggested that if injunctive relief were refused on the ground that the plaintiff had not adduced sufficient evidence to establish a real issue as to the falsity of much of the material published on the blog, it could be necessary for the plaintiff to make a further application once necessary evidence had been marshalled. I express no view on whether it would be open to the plaintiff to make a further application for interlocutory injunctive relief.

For these reasons I refuse the plaintiff’s application for the interlocutory injunctive relief sought as set out at para [1]. I will hear the parties on costs.