Setback for Fairfax in Chinese spy legal battle

• THE AUSTRALIAN
• 12:00AM MAY 30, 2016

• Chris Merritt

  

  Legal Affairs Editor

  Sydney

  

Businesswoman Helen Liu

Fairfax Media has suffered a devastating setback in its marathon legal battle to protect the identity of the person who persuaded the publisher to run articles about ­Chinese spies based on documents that are alleged to be forgeries.

A ruling by the NSW Court of Appeal has rejected a last-ditch ­attempt by the publisher to maintain the secrecy of its source and has confronted some of its star ­reporters with a dilemma.

If they comply with court ­orders and reveal their source, they will breach the journalists’ code of ethics.

But if they uphold the code of ethics, they will be impeding independent testing of the legitimacy of their reports and will be unable to dispel concerns that they have been duped.

While the orders are against three Fairfax reporters they also name the company itself, which risks being the subject of sequestration orders if it fails to comply.

The articles at the heart of the case, by Richard Baker, Phillip Dorling and Nick McKenzie, had alleged that Chinese-Australian businesswoman Helen Liu paid federal Labor frontbencher Joel Fitzgibbon $150,000 as part of a “campaign to cultivate him as an agent of political and business ­influence”.

Those reports, published in 2010, raise the same issue that came to light this month when doubts emerged about the source behind another Fairfax exclusive by McKenzie, who is a Walkley Award-winning reporter.

Hedley Thomas, who is also a Walkley Award winner, revealed in The Australianthat reports by McKenzie and a team of reporters in March and April about bribery allegations involving Unaoil followed an extortionist’s threats to take documents to the media unless the oil company paid $5 million in untraceable bitcoin.

There is no suggestion that Fairfax knew about the extortion attempt, and Fairfax has said it had many sources, and the primary source, who remains secret, never asked the publisher for money.

In the litigation over the ­Chinese spy stories, Ms Liu has ­argued in court documents that Fairfax’s secret source tried to sell documents to the publisher for $200,000 and eventually supplied photocopies of forgeries.

Those photocopies formed the basis for articles in The Age, The Sydney Morning Herald and The Canberra Times.

Mr Fitzgibbon has denied the allegations in those articles and Ms Liu wants to sue Fairfax and its source for defamation.

Fairfax has not disputed Ms Liu’s claim that because it only had photocopies and not original documents it was impossible for the legitimacy of its material to be verified by handwriting experts before the articles were published.

In an earlier skirmish, the ­Supreme Court found in 2012 that some handwritten documents published by Fairfax against the wishes of its source “may well have been falsely attributed to the plaintiff”.

Fairfax has also acknowledged that it obtained translations of two letters written in the Chinese language and then changed the wording of one of them. The original version of the translation ­referred to the fact that Mr Fitzgibbon had become a federal minister.

The date of the letter is illegible, but the Supreme Court found in 2012 that its terms and the context in which it had been received by Baker “evidently suggested to him that the description of Mr Fitzgibbon as a federal minister was ­factually incorrect at the time the letter was written”.

In the article published on the front page of The Age, the quote from the translated letter was changed so it read: “Joel Fitzgibbon has become a federal MP ... The money we pay him is worthwhile.”

In the latest ruling, the Court of Appeal struck down a stay order on May 20 that was the last impediment preventing Ms Liu exercising a court order for preliminary discovery of the name of the source. But the Court of Appeal also subjected Fairfax to an extraordinary barrage of criticism over the tactics it used against Ms Liu.

After she won an order for preliminary discovery in 2012, Fairfax tried and failed to have that order overturned by the Court of Appeal and was refused special leave to appeal by the High Court.

The publisher then went back to the Supreme Court and won a stay order against the earlier order for preliminary discovery. It won that stay in return for abandoning one of its defences — a tactic denounced by the Court of Appeal as “a substantial injustice”. It meant that after all avenues of appeal had been exhausted, Fairfax was trying to change the goalposts to suit itself and “relight the battle it had lost, one already fought at great length and, no doubt, at great cost”, according judge Ruth McColl.

Fairfax had flouted one of the key principles of litigation by failing to put forward its best case at an early hearing, and had failed to discharge its duty to ensure litigation is just, quick and cheap.

It had also caused an “enormous waste of judicial time and resources”, the judge said.

Media lawyer Andrew Stewart said the protection of confidential sources was one of the central tenets of journalism. “This case highlights the great difficulty the media can get in to in attempting to protect sources but ultimately being ordered to disclose those sources,” said Mr Stewart, who is a partner with Baker & McKenzie.

“This forces media into a difficult choice, but also highlights the fact that when you have a confidential source and you wish to maintain that confidentiality it’s critical in the development of a story, and prior to publication, to make sure you can independently verify the material that the source is providing.

“Otherwise you end up in exactly this kind of situation. It’s also very hard to see in this case how Fairfax will be able to resist the court’s orders.”