Shift2Neutral Pty Ltd v Fairfax Media Publications Pty Ltd

1. [1]

   McCOLL JA: I agree with Basten JA's reasons and the orders his Honour proposes.

2. [2]

   BASTEN JA: In July 2007 the second appellant, Mr Brett Goldsworthy, incorporated the first appellant, Shift2Neutral Pty Ltd (“Shift”). The appropriate characterisation of the company’s business was a matter of dispute in the proceedings the subject of this appeal. Relevantly, it claimed to conduct “environmental audits”, and to “issue certificates representing credits under a carbon offset scheme”.

3. [3]

   On 8 April 2011 The Sydney Morning Herald, published by the first respondent, Fairfax Media Publications Pty Ltd, published an article prepared by Mr Ben Cubby, the second respondent, which commenced with the following paragraph:

4. [4]

   On 14 April 2011 the newspaper published a second article, by the same author, which commenced:

5. [5]

   The appellants brought proceedings for defamation against the respondents. With respect to the first article, the company alleged the following defamatory imputations, namely that it: [1]

6. [6]

   The imputations pleaded by Mr Goldsworthy were that he controlled a company which had conducted itself in the manner pleaded above. [2] (There was one additional imputation specific to Mr Goldsworthy, namely that he was “a liar about the value of carbon credits issued by his company”. [3] )

7. [7]

   The imputations pleaded with respect to the second article were, on the part of the company, that it: [4]

8. [8]

   In addition to pleading imputations to the effect that he controlled a company which acted in the manner alleged by it, [5] Mr Goldsworthy also pleaded a number of further imputations, namely that he: [6]

9. [9]

   It is sufficient to outline the imputations in the abbreviated form set out above [7] because the trial judge, Nicholas AJ, found that each imputation referred to was conveyed and that each was defamatory. [8] Those findings (as opposed to the reasoning supporting one specific finding) were not challenged on the appeal.

10. [10]

    Rather, the focus of the appeal was the defence of justification, pursuant to s 25 of the Defamation Act 2005 (NSW). The respondents thereby pleaded that each of the imputations was substantially true. That defence was upheld with respect to all the imputations relied on by the appellants, with the result that judgment was given for the respondents. [9]

11. [11]

    The notice of appeal contained four grounds. Grounds 3 and 4 stated, in formulaic terms, that the judge erred in finding that each of the imputations was substantially true and that he ought to have found that none of the imputations was substantially true. Grounds 1 and 2 were a little more revealing, but not much:

12. [12]

    The focus of the appeal lay in ground 2, which involved an implicit assertion that the judge had reversed the onus of proof with respect to the defence. The ground required a detailed factual assessment by the trial judge of the evidence relating to a significant number of carbon credit certificates; determination of the appeal requires consideration of the manner in which the judge dealt with that evidence. The appellants’ “fundamental complaint” as outlined in their written submissions and identified as a reversal of the onus of proof, was explained in the following terms:

13. [13]

    The submissions then alleged that the “incorrect process of reasoning” was exemplified in 18 specified paragraphs in the judgment below, without much elaboration as to how the passages supported the allegation. In fact, only one of the paragraphs, on consideration, could be said to provide any support for the complaint. The written submissions did not condescend to the level of particularity required to make good the appellants’ case.

14. [14]

    A somewhat more sophisticated argument was developed in oral submissions, the detail of which must now be addressed.

Nature of business

1. [15]

   The appellants’ business involved the assessment of projects (both activities and inactivity) which reduced the release of carbon dioxide into the atmosphere. An assessment involved the calculation of a “carbon credit”, each unit of which equated to the removal of one tonne of carbon dioxide or other greenhouse gas from the atmosphere. The reduction in carbon emissions thus calculated could be notionally offset against the release of greenhouse gasses by other activities, either of the same business, or by selling “carbon credits” to another business. [10]

2. [16]

   As to the concept of a “carbon credit”, the trial judge summarised Mr Goldsworthy’s evidence in terms which were not the subject of challenge:

3. [17]

   The respondents tendered in support of the defence of justification certificates issued by the company in respect of two projects, documentation which provided some background to the creation of the certificates, together with evidence of the use to which the certificates had been put. The evidence focused on two particular projects.

(a) Borneo Highlands Resort – Old Rainforest

1. [18]

   By an agreement dated 4 August 2009, Shift was appointed an “exclusive carbon credits and environmental partner” by an entity known as “Borneo Highlands Resort and Mines Golf City” (although the company seal bore neither of those names). The Malaysian entity was referred to by the initials BHRF, presumably standing for Borneo Highlands Resort Forest (or perhaps Borneo Highlands Rainforest). Shift was also authorised to “certify” the resort and land “for carbon credits.” It was authorised to sell each certified carbon credit on behalf of BHRF for the sum of $US7.50.

2. [19]

   On 16 October 2009 Mr Goldsworthy advised the owner of “Country Heights Holdings Group” (not a body identified in the agreement) that various aspects of the properties had been certified. Relevantly for present purposes, the Borneo Highlands Resort old growth forest (covering 1,417 hectares) was allocated 117,611 carbon credits “on a per annum basis”. On 18 October 2009 Mr Goldsworthy wrote again to the same officer of the BHRF, identifying the “final carbon credit certification amount” and stating that Shift had “successfully placed for sale all your carbon credits, and we are glad to inform a buyers [sic] receipt of funds transfer is expect [sic] this coming week.”

3. [20]

   On 28 October 2009 the owner of the Resort provided a document addressed merely “to whom it may concern” in the following terms:

4. [21]

   A document bearing the name and address of Shift and headed “Shift2Neutral Carbon Credit Certification Standard – Certificate of Authenticity” gave as the name of the client “Borneo Highlands Resort – Old Rainforest”. It then listed “Reg. Numbers”, each commencing with the letters BHRF and the year, and containing numbers running from 1 to 117,611. The document included such numbers for each of 20 years, from 1990 to 2009, though not into the future.

5. [22]

   Also tendered were three documents bearing the Shift logo and signed by Mr Goldsworthy, each certifying that a particular organisation was the legal owner of a specified number of carbon credits “in accordance with Shift2Neutral’s Certified Carbon registry.” There followed a reference to the total number of credits for Borneo Highlands Rainforest and “Reg Numbers BHRF”, which were then specified. However, each certificate specified numbers which fell outside the range 1-117,611. Certificates in that form were issued to PGA of Australia, [11] GRG International Pty Ltd, the Sydney Turf Club, K&D Plumbing Pty Ltd and Oakhill College.

6. [23]

   The findings of the trial judge in respect of this material was set out at [44], in the following terms:

7. [24]

   The judge then referred severally to each of the transactions by which the certificates were issued. With respect to Oakhill College, he reached the following conclusions:

8. [25]

   Similar findings were made with respect to each of the other transactions.

(b) Giant Star– Pyrolysis Waste Management

1. [26]

   The subject-matter of the second group of certificates, although purportedly the subject of certification and allocation of carbon credits, was more obscure. “Certificates of Authenticity” were issued to PGA of Australia, the Sydney Turf Club and Asia Golf and Resort Management Pte Ltd in respect of an activity known as “Pyrolysis Waste Management South Korea”. The numbers of the certificates bore the initials SKGS. The certificate of authenticity bore the statement “Certification of Giant Star Co Ltd – Pyrolysis Waste Management company”, and gave an address in Seoul, South Korea. By implication “SKGS” stood for “South Korea Giant Star”. Each of the certificates commenced with a number being either “2000” or “2001”. Given the form of the Borneo Highlands Resort certificates, which were in the same form, it might properly be inferred that the first numbers related to a year.

2. [27]

   Apart from the certificates themselves, there was no identified “register” held by Shift, nor was there evidence of certification, nor of an agreement allowing Shift to sell such carbon credit certificates. The only document relating to this project was one apparently produced by Giant Star Co Ltd, a Japanese company, which stated in the introduction:

3. [28]

   On the basis of this material, the appropriate inference to be drawn was that the pyrolysis waste management system was not commercially operational before its date of patent in 2004 and that, accordingly, certificates which related to activities in 2000 and 2001 were false. A further inference from this material was that Shift had no entitlement to sell certificates with respect to any aspect of this process in any event.

4. [29]

   Mr Goldsworthy gave evidence about the Giant Star plant in the course of cross-examination. It was put to him that the patent having been granted in about 2004 the process of pyrolysis commenced thereafter. Mr Goldsworthy asserted that it started before that date. [12]

5. [30]

   He agreed that in December 2007 he had made a proposal to “Giant Star Waste Management Co” to carry out an environmental audit of its processes, with the intention of identifying possible generation of carbon credits from the waste management plants. It appears that did not occur, although the cross-examiner established that by February 2007 a company in which Mr Goldsworthy was involved had obtained the assets of the Giant Star Co. The cross-examination then returned to the date when the pyrolysis plant commenced operating. Mr Goldsworthy agreed that, according to the statement set out above, it commenced in 2004. [13] He said, however, that although it was written in the document, that was not the case. He was asked if it was a brochure produced by the Giant Star Co and responded:

6. [31]

   He was then cross-examined about the carbon credit certificates: [14]

7. [32]

   The significance of the years 2008 and 2009 was that they were the times when the carbon credit certificates bearing the letters SKGS were issued. The trial judge identified them as certificates which had been issued with respect to the Giant Star pyrolysis plant, noting that there was “no evidence that any audit or certification was conducted by Shift.” The reasoning continued at [69]:

(a) reversal of onus – BHRF

1. [33]

   The first argument presented by the appellants, supposedly in support of the proposition that the primary judge had reversed the onus of proof with respect to the defence, had a somewhat different focus, in respect of the primary proposition, namely that the Borneo Highlands Resort certificates were valueless. The argument commenced with the proposition that there were, in accordance with what purported to be the register, 117,611 credits available for each of 20 years. That the certificates issued did not fall within the numerical ranges given in the only document which could be identified as a register did not mean that they were valueless. That inference would depend upon demonstration, so it was submitted, that all the available carbon credits had been disposed of. There was no evidence to support that proposition.

2. [34]

   That submission cannot be accepted. In respect of a market wholly unregulated except by such general laws as prohibit fraud and misleading and deceptive conduct, the existence of a valuable product required a method of identifying and recording that which is the subject of a commercial transaction. That was the basis upon which the transactions were documented and the trial conducted. Thus the trial judge noted that Mr Goldsworthy had originally accepted that the document which purported to record the registration numbers for credits which could be issued in the future was what it appeared to be. [15] The judge then stated at [34]:

3. [35]

   Mr Goldsworthy also said it was a “draft document” prepared for the company’s auditors.

4. [36]

   The judge did not accept that evidence, stating at [35]:

5. [37]

   There was no challenge to the findings based on the credibility of Mr Goldsworthy. However, nor could it be said that the reasoning set out above involved a reversal of the onus of proof. Rather, as the trial judge stated expressly, the documents spoke for themselves. The scheme required a registry of available carbon credits: Shift was authorised to sell identified carbon credits in accordance with its own assessment as recorded by it; it had no authority to sell carbon credits which did not fall within the terms of its assessment and records. The availability of carbon credits which it might have sold, but did not, provided no answer to the proposition that what it purported to sell was valueless.

(b) reversal of onus – SKGS

1. [38]

   With respect to the certificates bearing the notation SKGS, a more limited challenge was raised. It was submitted that the absence of evidence of any audit or certification conducted by Shift and the absence of evidence of certified carbon credits available to Giant Star was insufficient to support an inference that the carbon credits certified were valueless.

2. [39]

   This submission cannot stand in the context of a scheme with the structure already outlined. What was sought to be conveyed was a “carbon credit certificate of authenticity”, which identified the purchaser as the legal owner of carbon credits, “in accordance with Shift2Neutral’s Certified Carbon registry.” There was no challenge to the proposition that that which was purported to be transferred by a legally effective process should have value. If there were no register operated by Shift in respect of the specific carbon credits the subject of the certificate, nothing of value was transferred. The suggestion that the credits were identifiable by reference to particular “Reg Numbers”, which in the context could only indicate numbers contained on a register, was also a false statement. Mr Goldsworthy’s suggestion that the register was kept by Giant Star was rejected by the trial judge and there was no challenge to that finding of fact. However, regardless of Mr Goldsworthy’s evidence, the documentation was sufficient to demonstrate that Shift did not keep a register.

3. [40]

   In these circumstances, the letters and numerals used on the registered number are of little consequence. However, the obvious inference that the first four numbers related to a year in which the carbon credits were generated must itself have been false, at least with respect to the first year, as the evidence demonstrated that the pyrolysis process was not in existence in 2000. Even Mr Goldsworthy did not suggest that it was. Accepting Mr Goldsworthy’s evidence that the process was operating on a non-commercial basis in 2001 (the second apparent date of the certificates) his evidence did not suggest that Shift had purported to undertake an environmental audit of the value of any operation conducted in that year.

4. [41]

   Absent Mr Goldsworthy’s evidence, the inevitable conclusion would have been that the certificates were false and valueless. The judge was obliged to consider whether some different inference would be drawn, based on his evidence: his conclusion that it should be given no credence was not only unchallenged but readily explicable from a reading of the transcript.

5. [42]

   Although the appellants submitted that the allegations were tantamount to allegations of fraud, which would not readily be accepted absent clear and convincing evidence, the material before the trial judge nevertheless warranted a conclusion at that level of satisfaction.

(c) specific imputations

1. [43]

   The third basis of challenge alleged that the judge “leapt from the finding that the particular impugned certificates were ‘valueless’ to the conclusion that all the elements of all the imputations were justified.” This challenge was directed to three pairs of imputations (in each case, one involving the company and one involve Mr Goldsworthy).

2. [44]

   The first was imputation 6(a), asserting that the company was “a fake company which shifts paper certificates instead of saving forests and cutting greenhouse emissions”. [16] That imputation, it was submitted, had not been shown to be false because Shift had genuine carbon credits available to it, being those assessed with respect to the Borneo Highlands Resort forest, namely 117,611 credits for each of 20 years.

3. [45]

   The nature of this challenge was selective. The language of the imputation was itself colloquial: the appellants did not suggest, understandably, that the term “fake company” implied that the company did not exist or that it had no business. The phrase is to be read in the context of the whole of the imputation which referred to the creation and transfer of valueless certificates, which were valueless because they did not reflect environmental consequences which they purported to reflect. However, once it is accepted that the imputation was not that the company or its business was non-existent, the fact that it may have had something to sell was no answer to the proposition that what it did purport to “shift” was valueless. Accordingly, the findings made by the judge directly addressed the truth of the imputations.

4. [46]

   The second pair of imputations said not to have been justified was that the company (and Mr Goldsworthy through the company) “deceived investors by falsely informing them that its certificates for carbon offsets had value and represented a real reduction in greenhouse emissions”. [17] This challenge was based upon the proposition that the publication distinguished between “investors” (in Shift itself) and recipients of certificates. One investor, it was noted, who had been referred to in the article, was not called, nor did any other investor give evidence that he or she was deceived.

5. [47]

   It is true that the publication referred to one person who had invested in Shift, although it did not say how; it also stated that the publisher had “spoken to many former investors and businesses that have dealt with shift2neutral.” However, the article also contained the following passage:

6. [48]

   Furthermore, the imputation immediately preceding that the subject of the present challenge was that the company and Mr Goldsworthy “made wild and false claims about carbon credits in order to persuade investors to buy them.”

7. [49]

   In their appeal submissions of 21 November 2014, the appellants referred to both imputations generically, stating that “there was no evidence that Oakhill or any investor was deceived by the appellants.” Oakhill was, as noted above, the recipient of certificates, rather than a person who had in some other way invested in Shift and its business. Indeed, it was quite unclear on the evidence who might have been considered an investor who was not the recipient of a certificate. Evidence was called to establish that Shift was an excluded corporation within the terms of s 9 of the Defamation Act. The evidence demonstrated that the shares in Shift were all held by a company, Goldsworthy Nominees Pty Ltd, which was a trustee company for the Goldsworthy Family Trust.

8. [50]

   This issue was not raised as a distinct point until senior counsel for the appellants handed up a document at the commencement of the hearing of the appeal suggesting that the reference to investors was distinct from a reference to the recipients of the certificates.

9. [51]

   It is clear that this issue was not raised below, and for a good reason. The first task undertaken by the trial judge was to determine in respect of each imputation if it were conveyed and if conveyed, whether defamatory. With respect to imputation 6(d), the judge accepted (inevitably) that the reference to “investors” was to those who were persuaded to buy carbon credits. [18] When he turned to imputation 6(e), he noted the submission by the publishers that “the only investor the victim of deception was Mr Hicks, but he was not described as an investor in the carbon credits which Shift sells or provides.” The judge rejected that submission, stating:

10. [52]

    When this point was identified in the course of oral argument on the appeal, senior counsel for the appellants said that he sought to challenge that reasoning with respect to the scope of the imputation.

11. [53]

    The challenge to the approach adopted by the trial judge with respect to the imputation must raise a fresh question as to whether the imputation should be allowed to stand on some more limited basis. The judgment of Nicholas AJ was delivered on 18 February 2014, the trial having been conducted in December 2013. Although, at the heel of the argument on the appeal, on 4 May 2015, senior counsel foreshadowed an application to amend the notice of appeal to challenge the finding in question, no formal document (beyond a further submission filed on 18 May 2015) was proffered. The further submission, and a reply by the respondents to the oral submissions, resulted in conflicting statements to the effect that the imputation would or would not have been sustained absent the broader construction given it by the trial judge. In these circumstances, the appellants should not be permitted to raise what is an entirely fresh argument so long after the time for filing the notice of appeal and the submissions had passed without any hint that such a challenge was on foot.

12. [54]

    The appellants also submitted that, in any event, the appeal should succeed with respect to the imputation regarding investors on the ground that there was no evidence that the recipients of the certificates had been misled or deceived because none had been called to give evidence to that effect.

13. [55]

    That submission should not be accepted. With the possible exception of Oakhill College, which Mr Goldsworthy stated received its certificates by way of donation, each of the recipients of certificates provided valuable consideration. It is a reasonable inference that each was deceived into believing that it had received something of value. In the absence of evidence, it would be quite inappropriate to infer that the recipients were willing to obtain the benefit of the certificates, not caring whether they were genuine or not.

14. [56]

    When asked why the certificates were given to Oakhill College, Mr Goldsworthy responded that he wished to help the College because he felt it was of benefit to the College. [20] It was a significant part of his claims in chief as to distress and embarrassment caused by the publications that he had been accused of “ripping-off a school”. [21]

15. [57]

    In cross-examination he had given evidence of assessing the carbon footprint of Oakhill College and providing offset carbon credits to render the College “carbon neutral”. [22] Although not at first willing to accept the conclusion, he eventually agreed that “[i]f the carbon credits that have been provided were not genuine, or didn’t have value, then they couldn’t have been used by Oakhill to render Oakhill College carbon neutral”. [23]

16. [58]

    The proper inference is that if Mr Goldsworthy held that view, Oakhill College would also have held that view. A finding that the certificates were not genuine and were valueless therefore demonstrated that Oakhill College had been deceived.

17. [59]

    It follows that the imputation was properly found to have been justified.

18. [60]

    The remaining pair of imputations challenged were to precisely the same effect, addressing specifically the question of deceiving Oakhill College, being the imputation derived from the second article. [24] The foregoing conclusion with respect to the second pair of imputations, which dealt with deception generally, also applies with respect to Oakhill College specifically. Accordingly, the final challenge should be rejected.

Conclusion

1. [61]

   For these reasons, the appellants have failed to demonstrate error on the part of the trial judge in upholding the respondents’ defence of justification. The appeal should be dismissed: the appellants must pay the respondents’ costs in this Court.

2. [62]

   SIMPSON J: I agree with Basten JA.