Case: Sydney Refractive Eye Surgery Centre Pty Ltd v Beaumont [2004] NSWSC 164
Outcome: discussed
There is no dispute as to the primary facts. A chronology of the relevant events is set out below. &#8226; SRSC was incorporated on 28 May 1996. At all material times, it carried on a business which included performing laser eye surgery. &#8226; Three specialist ophthalmologists, Dr Lawless, Dr Rogers and Dr Sutton conducted their practices through SRSC, using procedures known as photorefractive keratectomy (' PRK ') and, later, laser assisted in situ keratomileusis (' Lasik '). &#8226; In April 1998, Dr Beaumont, an experienced ophthalmologist who had conducted certain forms of laser surgery for many years, gave an interview to a representative of Seven. In the course of the interview, Dr Beaumont made a number of serious imputations against SRSC and Dr Lawless. These included allegations of unethical behaviour by misleading patients about the risks of eye surgery, and deceitful behaviour by securing patient consents to procedures through trickery. This was the first publication of defamatory material concerning SRSC. &#8226; On 4 May 1998, HSV telecast in Victoria a program called ' Today Tonight '. This program discussed laser eye surgery and reported on practices allegedly adopted by SRSC and Dr Lawless in advertising their services, recruiting patients for laser eye surgery and conveying information to prospective patients. This program was later found by a jury to have contained defamatory imputations in relation both to SRSC and Dr Lawless. This was the second defamatory publication. &#8226; On 5 May 1998, STS telecast a program in New South Wales with substantially similar content to the HSV telecast. This was the third defamatory publication. &#8226; On 21 August 1998, SRSC, Dr Lawless, Dr Rogers and Dr Sutton commenced proceedings in the Supreme Court of New South Wales. Each plaintiff sought damages in respect of the defamatory imputations conveyed by the three publications. &#8226; At a trial conducted in February 2001 pursuant to s 7A of the Defamation Act 1974 (NSW), a jury found that the matters complained of ' carried many grave imputations ' against both SRSC and Dr Lawless. The jury rejected the claims made by Dr Rogers and Dr Sutton. &#8226; The hearing on liability and damages took place over 30 hearing days before Studdert J, during the period 15 September 2003 to 1 December 2003. His Honour delivered judgment on 18 March 2004: Sydney Refractive Eye Surgery Centre Pty Ltd v Beaumont [2004] NSWSC 164. He rejected defences of truth and fair comment and assessed the total damages payable to SRSC at $844,624.00. Studdert J recognised that SRSC might be liable to capital gains tax on the award of damages, but thought that justice could be done by reserving leave to SRSC: 'to apply for additional damages referable to capital gains tax considerations should [SRSC] be found liable to pay such tax'. &#8226; The Sum was paid to SRSC during the 2004 year. It is not clear from the material available to me whether amounts comprising the Sum were paid by each defendant in the proportions specified in the orders made by Studdert J, or whether the defendants bore responsibility among themselves for payment of the damages award in some other way. Nothing, however, turns on this. 15 The imputations the jury found had been made out were conveniently recorded by Studdert J in a chart reproduced below ( SRSC v Beaumont , at [3]): 'SRSC: Imputations Summary Imputation Beaumont Beaumont Broadcasts: Broadcasts: Interview: Interview: SRSC Dr Lawless SRC Dr Lawless (a) unethical misleading &#9679; (b) deceitful scheme to &#9679; &#9679; &#9679; &#9679; trick with video (c) disgrace to profession &#9679; &#9679; in that recommends surgery (d) irresponsible eye &#9679; &#9679; &#9679; &#9679; surgeon (e) no patient gone blind &#9679; &#9679; &#9679; &#9679; (f) throw away spectacles &#9679; &#9679; &#9679; &#9679; (g) absurdly inflated costs &#9679; &#9679; (h) false advertisements &#9679; 16 Studdert J rejected the defences pleaded by the defendants. In particular, he rejected the defence of truth, finding that the defendants had not established the truth of any of the imputations found by the jury. His Honour also rejected the defence of comment, either because the imputations related to matters of fact rather than opinion, or because the opinion was not based on proper material or was not an opinion genuinely held by the person expressing it. 17 Studdert J first considered Dr Lawless' claim for damages. His Honour observed (at [259]) that: '[i]t is relevant to heed the circumstance that [SRSC] makes a claim which encompasses the alleged economic loss of [SRSC] by reason of the impact of these publications. [Dr Lawless] was at all relevant times pursuing his professional activities through [SRSC] and as a shareholder will directly benefit from any award of damages to [SRSC] and will thus be compensated in [SRSC's] claim for any loss of income occasioned by the television broadcasts'. 18 When turning to the assessment of damages to be awarded to SRSC, Studdert J said this (at [294]-[295]): '[SRSC], of course, has no claim for harm to feelings available to it, but it is entitled to maintain a claim for harm to its trading reputation. The way the case has been presented by [SRSC] has been to make a claim for loss of business, and it has sought to quantify that claim and also to quantify a claim for loss of good will. The issue in this case, subject to proof of [SRSC's] entitlement to damages at all, has been the quantification of loss.' 19 Studdert J recorded (at [297]) that the number of laser procedures performed by SRSC dropped from 2,390 for the year ended 30 June 1998 to 1,617 for the year ended 30 June 1999. He found that SRSC had ceased to trade beyond 30 June 1999 and thus performed no procedures at all beyond that date. His Honour also found (at [316]) that it was unlikely that a potential patient would have been deterred, after 1 July 2000, from undertaking surgery because of any continuing impact of the television broadcasts. 20 SRSC advanced at the trial three methods of assessing the loss it had suffered in consequence of the defamatory broadcasts. &#8226; The first was to determine the profits that SRSC had lost during the period from 6 May 1998 to 30 June 1999. SRSC put forward various calculations, based on different assumptions as to the number of procedures that would have been conducted had the defamatory broadcasts not taken place. &#8226; The second was to determine the profits that SRSC had lost during the period from 6 May 1998 to 30 June 2001. Once again, SRSC supported this hypothesis with various calculations based on different assumptions as to the number of procedures that would have been carried out had the defamatory broadcasts not taken place. &#8226; The third was to determine the reduction in the value of SRSC's business which had occurred by 30 June 1999 in consequence of the reduction in the number of laser procedures it had conducted during the preceding year. 21 The first and second methods were presented as alternatives to each other, with SRSC contending for the first. SRSC presented the third method as an alternative to the first two. 22 Studdert J first addressed SRSC's claim that its damages claim should extend to losses incurred by it after 30 June 1999. His Honour held (at [319]) that this claim was ' fundamentally flawed '. SRSC had simply ceased to carry on its business from 1 July 1999. It had made no attempt to mitigate its loss, for example by changing its name. In these circumstances, SRSC was not entitled to maintain a claim for economic loss beyond 30 June 1999. 23 Studdert J next considered SRSC's ' reduction in value ' claim. His Honour noted SRSC's expert had acknowledged that in the absence of any sale of SRSC's business, it was inappropriate to include a loss of capital value in the assessment of damages. SRSC simply ceased to offer procedures to the public and the doctors through whom it earned its income thereupon provided their services to another corporate entity. There was no evidence that SRSC had any contractual entitlement to retain the services of those doctors. It followed that the claim had to be rejected. 24 Studdert J then considered the evidence bearing on the reduction in laser procedures during the period from 6 May 1998 to 30 June 1999 that could be attributed to the defamatory broadcasts. His Honour accepted neither the estimate of Dr Callaghan, called by the plaintiffs, nor that of Dr Beaton, called by the defendants, as to the number of procedures that would have taken place but for the broadcasts. His Honour decided that the best approach was simply to take the average number of laser procedures for the twelve months prior to the publications and to use that average figure as a guide for estimating the procedures that would have occurred during the post publication period up to 30 June 1999, in the absence of the defamatory publications. He reduced the figure so calculated by ten per cent to take account of the adverse effect of the broadcasts, independently of the defamatory imputations contained in them. 25 On this basis, Studdert J found that but for the adverse impact of the defamatory broadcasts, SRC would have performed 2,814 laser procedures during the period from 6 May 1998 to 30 June 1999. SRSC in fact performed 1,928 procedures during that period. After making the allowance of ten per cent already referred to, his Honour concluded that in the eight weeks immediately before 30 June 1998, SRSC had lost 82 laser procedures by reason of the defamatory broadcasts. The corresponding figure for the year ending 30 June 1999 was 715 procedures. 26 Studdert J calculated SRSC's loss of revenue as follows: &#8226; Year ended 30 June 1998 82 procedures, at an average loss of revenue of $2,113.70 per procedure = $173,323.40 . &#8226; Year ended 30 June 1999 715 procedures, at an average loss of revenue of $1,991.18 per procedure = $1,423,693.70 Total Lost Revenue 27 From the gross figure of $1,597,017.10 his Honour deducted: &#8226; laser cost savings of $204.49 per procedure (797 x $204.49 = $162,978.53 ) and &#8226; labour cost savings of $143.43 per procedure (797 x $143.43 = $114,313.71 ). This produced a total costs savings of $277,292.24 . 28 Accordingly, SRSC's lost net profit before tax attributable to the defamatory imputations was $1,319,724.96 ($1,597,017.10 - $277,292.14 = $1,319,724.96). 29 Studdert J recorded that the question of whether SRSC's award of damages would attract a taxation liability had been a matter of strenuous debate. However, it appears that the debate before Studdert J focussed on whether SRSC would be liable to pay capital gains tax in respect of the Sum. I was informed that there had been no substantial dispute between the parties as to whether the Sum would constitute a receipt of income in SRSC's hands and, for that reason, would form part of its assessable income. Both SRSC and the defendants in the defamation proceedings apparently took the view that the Sum would not be income according to ordinary concepts in SRSC's hands. Accordingly, they considered that, subject to the capital gains argument, it was appropriate for Studdert J to reduce the damages award to take account of the income tax that SRSC would have had to pay on the net revenue lost in consequence of the defamatory broadcasts.