Seafolly v Madden – or the ramifications of a Facebook rant


The Full Court of the Federal Court has recently handed down its decisions on an appeal that highlights the dangers of making unsubstantiated social media comments. The court found that personal Facebook posts constituted misleading or deceptive conduct.

How does it affect you?

  • 'Personal' Facebook statements may still be made in 'trade or commerce' and 'in connection with the supply of goods or services'.
  • In assessing what meaning a statement conveys for the purposes of the laws of defamation or misleading or deceptive conduct, the question is not determined by evidence of those who may have actually read the statement, but is ascertained by applying an objective test of what hypothetical 'ordinary' reasonable readers would have understood as the meaning.
  • A finding of fact that a person acted recklessly in leaping to a conclusion without making reasonable enquiries and in making a statement which the person is convinced is true but which is ultimately found to be false, is not the same as a finding that the person was reckless as to whether or not the statement was true or that the person knowingly made a false claim.
  • An entity in a corporate group that does not own the trademark rights to the relevant brand (which are owned by another entity in a corporate group) may still claim damages to its business reputation as a result of misleading or deceptive conduct. In this case, the entity had the relevant brand as part of its corporate name and traded under that name in Australia.

The appellant, Leah Madden (whose label is White Sands), and the respondent, Seafolly Pty Ltd, are competitors in the Australian ladies' swimwear market.

Originally, Seafolly sued Madden for misleading or deceptive conduct under Sections 52 and 53(a) of the Trade Practices Act 1974 (Cth) (superseded by the Competition and Consumer Act 2010 (Cth)), injurious falsehood and copyright infringement in respect of three publications, being a publication made by Madden on her personal Facebook page, a publication made by Madden on the Facebook page of White Sands, as well as a publication made in emails sent by Madden to certain media outlets. In particular, Seafolly alleged that the publications conveyed three meanings:

  • that Seafolly had copied Madden's designs, which appeared in photographs that Madden had posted of certain White Sands garments;
  • that Seafolly was not the creator of certain designs that appeared in photographs that Madden had posted of certain Seafolly garments; and
  • that Seafolly had used underhanded means (by sending in an employee to pose as a buyer) to obtain pictures of the White Sands garments to create the Seafolly garments from those photographs.

The meanings conveyed were false and, in particular, some of the Seafolly garments complained of were released into the market earlier than the corresponding White Sands garments.

Madden cross-claimed for misleading or deceptive conduct and defamation in respect of two press releases made by Seafolly in response to her statements.

The primary judge, Justice Tracey, found for Seafolly on the misleading or deceptive conduct claim and dismissed Madden's cross-claim. Seafolly was awarded A$25,000 in damages (Seafolly Pty Ltd v Madden ([2012] FCA 1346)).

The main issues on appeal were:
  1. In respect of Seafolly's misleading or deceptive conduct claims, whether the judge erred in, among other things:
    • determining what a 'reasonable member' of the class to which a publication was directed would reasonably understand it to convey, because he had determined, or had been assisted in determining, the meaning of the publications by reference to the actual understanding of unidentified persons who may have read the publications (eg, people who posted Facebook comments, journalists who received the relevant emails sent by Madden and readers of two trade journals in which the allegations were made, none of whom gave evidence at the trial);
    • mischaracterising Madden's representations as statements of fact rather than statements of opinion;
    • determining that Madden's 'personal' Facebook statements were made 'in trade or commerce' for the purposes of the Trade Practices Act; and
    • determining that Madden's statements were made in connection with the supply of goods or services within the meaning of Section 53(a) of the Trade Practices Act.
  2. In respect of Madden's cross-claim:
    • whether the judge erred in finding that Seafolly had made out the defence of justification; and
    • whether Seafolly had made out the defence of qualified privilege.
  3. Issues of damages and costs.

Most of the substantive issues on appeal were decided in favour of Seafolly (Madden v Seafolly Pty Ltd ([2014] FCAFC 30) and Madden v Seafolly Pty Ltd (No 2) ([2014] FCAFC 49)).

In particular, the judges found in respect of Seafolly's misleading or deceptive conduct claims, among other things, that:

  • An ordinary reasonable reader of Facebook posts would have read the newest posting in the context of those immediately below them on the same topic. Further, the way the ordinary reasonable person reads Facebook posts is unlikely to be the same as the careful and analytical way in which he or she would read a document of great significance to him or her.
  • Although the primary judge referred to what journalists who received the relevant emails sent by Madden and readers of trade journals would have understood to be the meanings conveyed by the publications, ultimately he correctly identified those meanings. The question of what is the natural and ordinary meaning conveyed by the publication is ascertained by applying an objective test of what ordinary reasonable readers would have understood as the meaning.
  • The dates of Seafolly's garments going onto the market were facts, not opinions – and Madden got the dates wrong. Her statements were misleading or deceptive because she got the critical facts, from which she drew certain conclusions, wrong.
  • There was no error in the conclusion of the primary judge that the Facebook posts were made 'in trade or commerce'. Madden was the principal of White Sands, which is a trade competitor of Seafolly. The statements related to the manner in which Seafolly conducted its business. Madden alleged that Seafolly had engaged in conduct that was improper to the detriment of Madden's business. Accordingly, she sought to influence the attitudes of customers and potential customers of Seafolly. In addition, a substantial number of people who made comments on Madden's personal Facebook page were in the fashion industry and she posted comments using both her own name and the name 'White Sands Swimwear Australia'.
  • There was no error in the conclusion of the primary judge that the Facebook posts were made in connection with the supply or possibly supply of goods or services and the promotion by any means of the supply of goods. Madden was stating to her correspondents that they should purchase her swimwear rather than Seafolly's.

On the cross-claim, Madden enjoyed some success, with the judges finding that Seafolly's press releases conveyed the meaning that Madden acted 'maliciously', in the ordinary English sense of setting out deliberately to injure or damage Seafolly, by making the publications. This defamatory meaning was not met by the defence of justification (which allows a publisher to plead the truth of another imputation than that relied on by the applicant where both imputations have a common sting), because while Madden may have been reckless in jumping to conclusions without making reasonable enquiries, she was not reckless as to whether or not the claims were true. On the contrary, she was convinced that the claims were true and therefore she could not have intentionally set out to harm Seafolly knowing the claims were false.

However, ultimately the cross-claim for defamation failed because Seafolly was able to make out its defence on the ground of qualified privilege. Qualified privilege arises where there is an occasion supporting both the publication itself and its being published to the persons in the audience to whom it is made. What is required is a reciprocity of interest and duty between a publisher and the persons to whom the publication is made in receiving the publication. Given Madden published her statements to as wide an audience as she could reach, Seafolly was justified in making its press releases to the public. Madden's contention that Seafolly went too far by speculating about her motives was rejected. Seafolly was entitled to impugn Madden's reliability, veracity and motives. The question is one of fact and degree and whether the riposte is commensurate with the occasion (which the court decided it was).

As a consequence of the finding that Seafolly had failed to make out the facts supporting a defence of justification for the defamation claim, Madden's appeal in respect of her cross-claim for misleading or deceptive conduct (in that Seafolly had made a false representation that Madden knowingly made a false claim) was allowed.

As for damages:

  • The award of damages to Seafolly was reduced to A$20,000, because only the two Facebook publications contained all three of the meanings allegedly conveyed, while the last publication, being the emails, was found to have contained only two out of the three meanings allegedly conveyed. While the trademark SEAFOLLY was owned by another company in the group, Seafolly had the word as part of its corporate name under which it traded in Australia. Its reputation was not dependent on the intellectual property or ownership of the intellectual property. It was likely to have suffered some real damage to its business reputation by Madden's misleading and deceptive conduct (which was a serious attack by a commercial competitor which attracted not insubstantial publicity). As it was not possible to assess the damages by way of any precise calculation, the court estimated a sum to compensate for the damage.
  • The assessment of Madden's damages in respect of the cross-claim for misleading or deceptive conduct was remitted to the primary judge.

Finally, in respect of costs, given most of the substantive issues were resolvedly adversely against Madden, it was held that Madden should pay 85% of the costs of the appeal.

Given the small amounts involved in what was undoubtedly a fairly costly exercise (with the Full Federal Court commenting that the circumstances should have promoted a common sense resolution, rather than the protraction of the parties' hostilities), the case serves as a cautionary tale for what could result from a simple 'click and post'.

Miriam Stiel and Tracy Lu, Allens, Sydney 

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