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When Can a Corporation Sue for Defamation in Queensland?

The recent Queensland Supreme Court decision of Jones v Aussie Networks Pty Ltd [2014] QSC 126 provides guidance on whether a corporation can be defamed when its share capital is owned by another corporation in a fiduciary capacity, namely as trustee for a trust.

It is a common misconception that corporations are unable to sue for defamation. Whilst it is true that large corporations are generally prohibited from bringing an action for defamation in Queensland, a corporation will be entitled to bring an action in defamation if they are an ‘excluded corporation’.

Section 9 of the Defamation Act 2005 (Qld) provides that a corporation will be an excluded corporation if:

  • the objects of the corporation do not include obtaining a financial gain for its members; or
  • it employs fewer than 10 persons and is not related to another corporation.

The decision in Jones concerned an application by the plaintiff (“Jones”) to join a corporation (Australian Shareholder Centre Pty Ltd (“ASC”)) as a co-plaintiff on the basis that it too had been defamed by the defendants. All of ASC’s 100 ordinary shares were held by another company, Torque Securities Pty Ltd (“Torque”). Importantly those shares were held by Torque in its capacity as trustee for the Jinx Trust.

Jones’s application was opposed by the defendants on the basis that ASC was not an excluded corporation because, whilst ASC appeared to have less than 10 employees (although this had not been conclusively proved), ASC was related to its sole shareholder, Torque.

To determine whether or not a corporation is related to another corporation, the Defamation Act 2005 adopts the definition of related bodies corporate contained in the Corporations Act 2001. On this basis, a corporation will be related to another where the corporation is:

  1. a holding company of another corporation;
  2. a subsidiary of another corporation;
  3. a subsidiary of a holding company of another corporation.

There was no suggestion that ASC was a holding company of another corporation. In order to determine whether ASC was a subsidiary of Torque, it is necessary to consider various provisions of the Corporations Act 2001.

Section 46 of the Corporations Act 2001 provides that the first body (ASC) will be a subsidiary of another body (Torque) if:

  • the other body:
    • controls the composition of the first body’s board; or
    • is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
    • holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
  • the first body is a subsidiary of a subsidiary of the other body.

Whilst (b) would have had no application (a subsidiary of a subsidiary), a casual reading of the Defamation Act 2005 and the Corporations Act 2001 would suggest that the defendants were correct, that ASC was indeed a subsidiary of Torque, as ASC triggered each of the sub-paragraphs to (a) because Torque, as the sole shareholder of ASC:

  1. controlled the composition of ASC’s board;
  2. was in a position to cast and control more than 50% of the votes at any general meeting of ASC; and
  3. held more than 50% of the issued capital in ASC.

However, as was submitted by the applicant Jones (and as was ultimately accepted by the Court), section 48(2) of the Corporations Act 2001 contained an important qualification that any shares held, or power exercisable, by the other body [Torque] in a fiduciary capacity are treated as not held or exercisable by it. Further, it was specifically acknowledged that section 48 applied when determining whether a body corporate is a subsidiary of another.

In applying section 48 of the Corporations Act 2001, the Court acknowledged that Torque held the ASC shares as trustee and therefore in a fiduciary capacity. The resulting determination was that Torque’s shareholding of ASC must be disregarded when determining whether ASC was its subsidiary. Accordingly, ASC was not a subsidiary of, or related to, another corporation, and therefore satisfied the definition of ‘excluded corporation’.

The information contained in this article is general in nature only and should not be relied on. You should always seek legal advice about your individual circumstances.

Posted in: Commercial Litigation News at 10 May 16