Whitlam v National Roads and Motorists' Association Limited - [2006] NSWSC 766

No judgment structure available for this case.

Reported Decision:
58 ACSR 370
202 FLR 153
(2006) 24 ACLC 1094

New South Wales

Supreme Court

CITATION: Whitlam v National Roads and Motorists' Association Limited [2006] NSWSC 766

HEARING DATE(S): 29 May 2006, 30 May 2006 and 1 June 2006

JUDGMENT DATE :
3 August 2006

JUDGMENT OF: Bergin J

DECISION: The plaintiff is entitled to indemnity - see paragraph 105-107

CATCHWORDS: [STATUTORY CONSTRUCTION] whether the expression "indemnity against liability to another person" in s 241(2) of the Corporations Law includes a liability for legal costs in the light of s 241(3) of the Law. [DEEDS - INDEMNITIES] whether the indemnity in the Deeds between the parties provides indemnity for the plaintiff's legal costs in defamation proceedings in respect of defamatory imputations published of and concerning the plaintiff in the performance of his duties.

LEGISLATION CITED: Corporations Act 2001 (Cth)
Companies Code
Corporations Law
Defamation Act 1974 (NSW)

CASES CITED: Australian Securities and Investments Commission v Whitlam (2002) 169 FLR 383
In Re Famatina Development Corporation [1914] 2 Ch 271
McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579
Petritsis v Hellenic Herald Pty Limited [1978] 2 NSWLR 174
Re City Equitable Insurance Fire Co Ltd [1925] Ch 407
The James Seddon L.R. 1A. & E. 62
Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559

PARTIES: Nicholas Richard Whitlam - Plaintiff
National Roads and Motorists' Association Limited - Defendant

FILE NUMBER(S): SC 50185/2004

COUNSEL: JT Gleeson SC/ NJ Owens - Plaintiff
RM Smith SC/ V Kerr - Defendant

SOLICITORS: Phillips Fox - Plaintiff
Corrs Chambers Westgarth - Defendant

- 50 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

3 AUGUST 2006

50185/04 NICHOLAS RICHARD WHITLAM v NATIONAL ROADS AND MOTORISTS’ ASSOCIATION LIMITED

JUDGMENT

1 The plaintiff, Nicholas Richard Whitlam, seeks declarations and orders that the defendant, National Roads and Motorists’ Association Limited, is obliged to indemnify him for expenses incurred (and to be incurred) in bringing defamation proceedings against Nine Network Australia Pty Limited (Nine) and for expenses incurred in defamation proceedings brought against Harbour Radio Pty Limited t/as Radio 2GB (2GB). The plaintiff claims that the defendant is obliged to indemnify him pursuant to Deeds of Indemnity Insurance and Access dated 25 November 1999 (the Deed) and 7 August 2002 (the second Deed) and under the general law.

The Parties

2 The plaintiff is a most experienced businessman. He has over 35 years experience in the banking and finance industry including having been Managing Director and Chief Executive Officer of the State Bank of New South Wales between 1981 and 1987. He has also acted as a corporate adviser to a number of multi-national companies. He was a director of the defendant from 2 December 1995 to 6 September 2002 and was the President of the defendant from 5 December 1996 to 22 July 2002.

3 The defendant is and was a motoring services association for motorists in New South Wales. NRMA Insurance Limited (NRMA) was a subsidiary of the defendant and the plaintiff, as President of the defendant, was, ex officio, Chairman of NRMA. NRMA later became known as Insurance Australia Group Limited (IAG).

Restructure

4 Prior to 2000 the NRMA Group (the Group) was comprised of two mutual organisations that were in the form of companies limited by guarantee and a number of other subsidiary companies. The two mutual organisations were the defendant and NRMA. In about 1994 there was an unsuccessful attempt to demutualise the defendant and NRMA. Once the plaintiff became a director and President of the defendant he was actively involved in designing a process to address the corporate structure issues within the Group. In April 1998 the Boards of the defendant and NRMA approved what became known as Project Outlook, a scoping study to review the Group’s structure. The preferred structure that emerged from the study was for the defendant to continue as a separate mutual to conduct the motoring services aspects of the Group and for NRMA to become a publicly listed and separate company carrying on the Group’s general insurance and financial services businesses. On 19 April 2000, at Special General Meetings of the defendant and NRMA, the preferred structure was supported by 82% of the members across both companies.

5 It is clear that the restructure process was extremely complex, challenging and controversial. At one stage the Board of the defendant was evenly divided as to what should happen in the future. The proceedings at Board meetings during this process were the subject of a great deal of interest in the media with suggestions of the leaking of confidential information and rather poisonous relationships amongst the directors.

Nine

Sunday

Program

6 On 1 December 2000 Nine invited the plaintiff, as President of the defendant, to meet with a reporter of the Sunday program, John Lyons, to discuss with him a project for a program “looking at the long road to the demutualisation of the NRMA”. The letter suggested that the first half of 2001 would be a “good time to calmly analyse quite a remarkable business story”. The letter also suggested that the plaintiff would be crucial to the story because he had steered the demutualisation through some “choppy waters”.

7 The plaintiff consulted with the Chief Executives of the defendant and NRMA, the internal media heads of each company, the Group’s Secretary/General Counsel and the Deputy President of the defendant. All of those people supported the plaintiff appearing on the Sunday program. The defendant’s external media advisers, Jackson Wells Morris (JWM), also recommended that the plaintiff appear on the Sunday program. The plaintiff was provided with advice and briefing papers from JWM and the management of the defendant and NRMA in relation to how he should deal with the various topics to be raised in the interview.

8 On 6 March 2001 Mr Lyons interviewed the plaintiff in the presence of representatives from JWM and the management of the defendant and NRMA. The Sunday program was broadcast on 11 March 2001 (the broadcast). The broadcast included excerpts from the interview and, as has been conceded by the defendant, is capable of conveying a number of defamatory imputations of the plaintiff. Nine republished part of the broadcast on 18 March 2001, 15 April 2001, 9 September 2001 and 2 December 2001.

The defendant’s defamation proceedings against Nine

9 The plaintiff discussed the broadcast with the defendant's General Counsel, Jenny Kelly, and on 12 March 2001 Ms Kelly advised the plaintiff that he and the defendant would need to “cooperate” on their respective responses to the broadcast. Ms Kelly advised the plaintiff that she would keep him informed of what the defendant was doing and the legal advice it received as to whether it should sue Nine. She expressed the opinion that the plaintiff's interests and the defendant’s interests were the same and that they had “both been defamed by the same program”. Ms Kelly advised the plaintiff that he and his lawyers would need to work closely with the defendant and its lawyers and that such process “should also keep the legal costs down”. On 23 March 2001 Ms Kelly provided the plaintiff with a copy of an advice the defendant had received from its solicitors in relation to the broadcast. That advice concluded that “many of the statements made during the broadcast are defamatory of NRMA, its directors and some executives”.

10 On 18 or 19 July 2001 the defendant commenced defamation proceedings against Nine in the Supreme Court of the Australian Capital Territory (ACT) in respect of the broadcast. It alleged that the broadcast conveyed imputations that: (a) the defendant was subject to corrupt control and management; (b) the defendant attempted to blackmail one of its directors; (c) the defendant attempted to bribe one of its directors; (d) the defendant was without stable governance; (e) the defendant was so lacking in stable governance and direction that investors should not risk dealing with it; (f) the defendant had betrayed the public's faith in it as one of Australia's most trusted companies; (g) the defendant had acted with gross negligence in failing to prevent illegal public disclosure of its commercially sensitive information; (h) the defendant was directed by an untrustworthy Board; (i) the defendant had become the instrument of its Chairman in that its activities were conducted in the interests of himself and his cronies to the detriment of its members; and (j) the defendant acted improperly in that it awarded contracts to those who served the private interests of Board members.

11 Those imputations were the subject of challenge by Nine and on 17 May 2002 Master T Connolly of the ACT Supreme Court struck out imputations (a), (e) and (f). I have not been informed what further steps were taken in those proceedings.

12 The plaintiff liaised with the defendant and awaited the outcome of the challenge to the imputations before deciding on the steps to be taken in respect of his defamation proceedings. Although a Statement of Claim was prepared and ready for filing in the ACT jurisdiction, proceedings were commenced in the New South Wales District Court because they were time barred in the ACT by the time the plaintiff decided to commence the proceedings. In this regard there were a number of matters that the plaintiff had to consider, including the impact of the commencement of proceedings against him by the Australian Securities and Investments Commission (ASIC) for breaches of civil penalty provisions of the Corporations Law (the Law) and/or the Corporations Act 2001 (the Act).

Plaintiff’s defamation proceedings against 2GB

13 On 13 March 2001 Graham Richardson, the host of a program then on 2GB, interviewed Mr Lyons in relation to the broadcast. On 18 March 2001 the plaintiff commenced defamation proceedings against 2GB in the District Court of NSW in relation to the defamatory imputations conveyed in that interview.

14 On 18 February 2002 a jury in the New South Wales District Court found that the 2GB interview had conveyed imputations defamatory of the plaintiff. On 3 May 2002 the plaintiff and 2GB settled those proceedings which included the following apology to the plaintiff, read in open court:

Mr Nicholas Whitlam has sued Radio 2GB over a broadcast on 13 March 2001. The broadcast involved an interview with Mr John Lyons from the Sunday Program which a NSW jury found conveyed the following defamatory meanings:

1. Mr Whitlam lied on television when he said that a Sydney Queens Counsel who was appointed by the NRMA to conduct an internal investigation had not done other work for the NRMA.

2. Mr Whitlam, in breach of his obligations as Chairman of the NRMA, failed to ensure that the NRMA put to tender work for which his supporters had applied.

3. Mr Whitlam created the disturbing appearance that he engaged in cronyism by failure to ensure, as Chairman of the NRMA, that the NRMA put to tender work for which his supporters had applied.

In broadcasting that interview, Radio 2GB was not intending to convey those allegations about Mr Whitlam. 2GB acknowledges that the allegations were seriously defamatory of Mr Whitlam.

Further, 2GB should not be taken to support any allegations, statements or innuendo made by the Sunday program broadcast by Channel Nine in March last year.

15 The plaintiff settled those proceedings for $668.65 less than the costs he had to pay in relation to the proceedings because the most important thing in his mind was to put the matter behind him “with an appropriate apology” that corrected the defamation.

ASIC proceedings

16 On 6 September 2001 ASIC commenced civil penalty proceedings against the plaintiff alleging breaches of his director’s duties in relation to the non-signing of proxies in 1998. Gzell J heard those proceedings in June and July 2002 and gave judgment on 19 July 2002. His Honour made findings that the plaintiff had contravened civil penalty provisions of the Corporations Law: Australian Securities and Investments Commission v Whitlam (2002) 169 FLR 383. His Honour’s judgment included findings that the plaintiff had acted dishonestly [169-170] and that his evidence was incredible, evasive and difficult to accept ([73], [84], [85] and [87]).

17 On 10 July 2003 the New South Wales Court of Appeal overturned Gzell J’s judgment: Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559. On 2 April 2004 the High Court refused ASIC’s application for special leave to appeal from the Court of Appeal’s decision.

18 The plaintiff resigned from his positions as President of the defendant on 22 July 2002 and as director of the defendant on 6 September 2002.

Plaintiff’s defamation proceedings against Nine

19 On 19 December 2002 the plaintiff filed defamation proceedings in the District Court of NSW against Nine in respect of the broadcast. The plaintiff claimed that the broadcast and the republications conveyed a number of defamatory imputations, including the following:

That he abused his position as President of the NRMA and Chairman of NIGL by arranging for NRMA work for persons and organisations solely in return for their support of the Plaintiff’s candidacy to the Board of the NRMA.

That his conduct was such that it gave rise to a reasonable suspicion that he arranged NRMA work for persons and organisations solely in return for their support for his candidacy to the Board of the NRMA.

That he behaved corruptly, in that he used his position as a director of NRMA to reward people who had helped him in his campaign to be elected to the Board of NRMA.

20 These imputations were similar to the imputations pleaded by the defendant in its proceedings against Nine in the ACT, in particular imputations (i) and (j). The plaintiff did not serve the Statement of Claim on Nine but sought to explore settlement discussions. He received advice in late November/December 2002 that there would be difficulties in pursuing the defamation action in the light of Gzell J’s findings. The settlement discussions with Nine were unsuccessful. On 17 March 2003 the plaintiff discontinued the District Court proceedings without prejudice.

The Deeds

21 On 25 November 1999 the plaintiff and the defendant executed the Deed that provides relevantly:

Recitals

A. Under Rules 159 to 161 of the NRMA Constitution, the Officer is entitled to indemnity and insurance in relation to service as an officer of NRMA Group Companies.
B. This deed confirms the basis on which NRMA will:

· indemnify and insure the Officer (including after cessation of his or her office);

· allow the Officer to access documents produced or circulated during the term of his or her office.

1 Indemnity

1.1

Indemnity

NRMA indemnifies the Officer on a full indemnity basis and to the full extent permitted by law against all Liabilities incurred by the Officer as an officer of any NRMA Group Company, including without limitation a liability for negligence and for reasonable costs and expenses, not limited to taxed costs incurred:

(a) in defending proceedings, whether civil or criminal, in which judgement is given in favour of the Officer or in which the Officer is acquitted; and

(b) in connection with an application in relation to such proceedings in which the Court grants relief to the Officer under the Corporations Law.

1.2 Extent of Indemnity

(a) is enforceable without the Officer having to first incur any expense or make any payment;

(b) is a continuing obligation and is enforceable by the Officer even though the Officer may have ceased to be an officer of the relevant NRMA Group company;

(d) applies to Liabilities incurred both before and after the date of this deed;

(1) is a liability to any NRMA Group Company unless and to the extent that the Officer may be indemnified pursuant to subsection 241(3) of the Corporations Law; or

(2) arises out of conduct of the Officer involving a lack of good faith, wilful misconduct, gross negligence, reckless misbehaviour or fraud;

(f) does not extend to and is not an indemnity against any amount in respect of which the indemnity would otherwise be illegal, void, unenforceable or not permitted by law.

2 Claims

2.1 Notification by Officer

The Officer must immediately advise NRMA in writing on the Officer becoming aware of:

(b) any circumstance which could reasonably be expected to give rise to a Claim against the Officer;

which involves, or may involve, a Liability for which the Officer may seek indemnity under clause 1.

2.2 Conduct of defence by NRMA

· assume on behalf of the Officer the conduct of the defence of the Claim under NRMA’s sole management, control and cost or permit an insurer of the Officer’s liability to do so;

· institute legal proceedings in the name of the Officer as part of that defence; or

· settle the Claim or any related legal proceedings with the consent of the Officer (such consent not to be unreasonably withheld).

In exercising its rights under this clause 2.2, NRMA must instruct its lawyers on behalf of both NRMA and the Officer to ensure as far as possible that client legal privilege attaches, for the benefit of both NRMA and the Officer, to any document produced by those lawyers.

2.3 Officer’s Obligation

· take such action or provide such information in relation to the Claim as NRMA may reasonably require;

· assist NRMA to the best of the Officer’s abilities in any action NRMA may take to avoid, dispute, defend or appeal any legal action connected with the Claim; and

· not admit any liability for, or settle any action connected with, the Claim without the prior written consent of NRMA (such consent not to be unreasonably withheld).

2.4 Conduct of Defence by Officer

Subject to any exercise by NRMA of its rights under clause 2.2, the Officer may conduct the defence of any Claim notified by it under Clause 2.1. In this event, the Officer must seek the prior consent of NRMA (such consent not to be unreasonably withheld) as to:

· the legal advisers to be used by the Officer;

· the amount of any expenditure to be incurred in respect of the Claim; and

· the terms of any settlement of the Claim.

2.5 Advances to Director

Subject to this deed, if a Claim is notified under clause 2.1, and NRMA considers on a reasonable basis that indemnity will be required for the Claim under this deed, NRMA may advance money to the Officer prior to any resolution of the Claim to meet any costs or expenses of the Officer relating to the Claim. Any such advance will be on such terms as NRMA thinks fit, including any terms as to interest, repayment or security.

2.6 Taxation

If for any reason a payment under this deed is or will be treated as assessable income of the Officer under any law relating to tax, NRMA must pay to the Officer an additional amount so that, after withholding or deducting from the total payment all tax payable in respect of the payment, the balance remaining is equal to the amount the Officer would receive if no tax had been payable.

2.7 Repayment of Amounts

The Officer must repay to NRMA any amount (including any advances) paid to, or on behalf of, the Officer under this deed:

(a) within 28 days after written demand by NRMA to the Officer, to the extent that in the reasonable opinion of NRMA the amount paid exceeds the amount to which the Officer is properly entitled under this deed;

(b) immediately, to the extent the Officer receives an amount in respect of the relevant Liability from any other person (including, without limitation, any insurer or unsuccessful claimant)

6 General

6.1 Definitions and interpretation

Expressions used in this deed have meanings given to them part 1 of the Schedule. Except where the contrary intention appears, this deed will be interpreted in accordance with Part 2 of the Schedule.

6.2 Further action

(a) use its best effort to do all things necessary or desirable to give full effect to this deed; and

(b) refrain from doing anything that might hinder performance of this deed.

6.3 Notice

(a) A party giving notice or notifying under this deed must do so in writing:

(1) directed to the recipient’s address specified above, as varied by any notice; and

(2) hand delivered or sent by prepaid post or facsimile to that address.

(b) A notice given in accordance with clause 6.3(a) is taken to be received:

(2) if sent by prepaid post, three days after the date of posting; or

(3) if sent by facsimile, when the sender’s facsimile system generates a message confirming successful transmission of the total number of pages of the notice unless, within twelve hours after that transmission, the recipient informs the sender that it has not received the entire notice.

…

6.6 Entire agreement

(a) constitutes the entire agreement between the parties as to its subject matter; and

(b) in relation to the subject matter, supersedes any prior understanding, deed or agreement between the parties and any prior condition, warranty, indemnity or representation imposed, given or made by a party.

…

6.10 Termination of previous deeds

On the execution of this deed any current deed of insurance access and indemnity between the parties in the form of the deed approved at the 1998 Annual General Meeting of NRMA is hereby terminated.

22 “Liability” is defined as “any loss, liability, cost, charge or expense”. “Claim” is defined as “any allegation, cause of action, proceeding, claim, suit or demand of any nature whatsoever” (Schedule 1, Part 1). The expressions “defence of the Claim” in clause 2.2 and “the defence of any Claim” in clause 2.4 are not defined.

23 The second Deed executed on 7 August 2002 was in identical terms but for: (a) the removal of the reference to “Rules 159 to 161” and the insertion of the reference to “Rule 159” of the Constitution in Recital A; and (b) changes to accommodate: (i) the restructure, including the changes in the nomenclature from “NRMA Group” to “Association Group”; and (ii) the enactment of the Corporations Act 2001 and its impact on the extent of the Indemnity. The parties have not suggested that there is any issue between them by reason of the fact that the parties to the Deed are the plaintiff and NRMA Limited and the parties to the second Deed are the plaintiff and National Roads and Motorists’ Association Limited.

24 Clause 1.2 of the second Deed included the following:

1.2 Extent of Indemnity

The indemnity in clause 1.1:

…

(1) is a liability to any Association Group Company unless and to the extent that the Officer may be indemnified pursuant to subsections 199A(2) or 199A(3) of the Corporations Act; or

25 It seems fairly clear that there were no Rules 160 or 161 of the Constitution as referred to in Recital A of the Deed. Rule 159 of the Constitution, referred to in both Deeds, provides:

Except as by the Law precluded, every officer, auditor or agent of the Association shall be indemnified by the Association against any liability incurred by that person in that capacity.

26 The Constitution defined “the Law” as “the Corporations Law and includes any amendment or re-enactment of it or any legislation passed in substitution for it” (r 1(i)).

Notification

27 It is clear that the plaintiff and Ms Kelly had a number of discussions commencing immediately after the broadcast in March 2001 in relation to both the plaintiff and the defendant having been defamed by the broadcast. It is also clear that there were written communications between the plaintiff and the defendant in relation to the alleged defamation including the defendant providing to the plaintiff the legal advice it received in relation to the matter.

28 On 26 August 2002 the plaintiff wrote to the defendant in the following terms:

Thank you for your facsimile of 26 August 2002. I note the Board’s resolution in relation to confidential mediation of legal proceedings and legal costs issues involving the Association and its directors and officers.

I submit for consideration and mediation on my own behalf:

1. My entitlement to indemnity from the Association in respect of legal costs arising in connection with the ASIC proceedings (NSW Equity Proceedings No. 4421 of 2001, Court of Appeal No. 40709 of 2002 and Court of Appeal No. 40710 of 2002) up to and including ultimate determination of any appeal or appeals.

2. My entitlement to the indemnity and/or compensation in respect of the D and O Policy held by the Association in relation to my positions as Director and President.

3. My entitlements to legal costs and compensation in respect of causes of action in defamation arising as a consequence of numerous defamatory publications concerning me in my role as a Director and President of the Association, in particular the Sunday Program broadcast on 11 March, 18 March and 15 April 2001.

29 On 24 September 2003 the plaintiff wrote to the defendant in the following terms:

I write further to my letters of 26 August, 27 September and 8 October 2002, and our several conversations on the one outstanding issue: my entitlements to legal costs and compensation in respect to causes of action in defamation arising as a consequence of numerous defamatory publications concerning me in my role as a Director and President of the Association, in particular the Sunday Program broadcasts on 11 March, 18 March and 15 April 2001.

I am keen to resolve this issue as soon as practicable. Last year, on 8 October, with the forthcoming SGM and the AGM in sight, we deferred the matter to a more convenient time. Those meetings were themselves then adjourned until early 2003. Then, during the year, the Court of Appeal dismissed the ASIC proceedings – albeit that ASIC is seeking special leave to appeal against some aspects of the superior court’s judgement, that leave application may not be heard until April 2004. I can understand that you may wish to defer the mediation until after the ASIC matters have been exhausted in the courts – although the defamations are not themselves linked to the ASIC proceedings – and if so, I shall acquiesce in that. My own preference is to resolve the matter without further delay.

30 On 2 December 2004 the plaintiff’s solicitors wrote to the defendant’s solicitors in the following terms:

As you are aware, we act for Mr Whitlam in respect of his claim for indemnity and reimbursement for losses arising from the ‘Sunday’ program broadcast on Channel Nine on 11 March 2001 (and the republication of the contents of part of that program on Radio 2GB).

As you are aware of the background we will not set out the full details in this letter.

Having given an interview in his capacity as a director and President of the NRMA, Mr Whitlam suffered loss in the form of damage to his reputation and consequential loss of earning capacity as a result of the program (containing excerpts from that interview) and its republication. Given that NRMA brought proceedings for its own defamation arising from the program, we assume it does not dispute that Mr Whitlam has also similarly suffered loss as described. Please let us know if our assumption is incorrect.

Mr Whitlam has incurred legal expenses in seeking compensation for the loss he has suffered. These expenses total $207,461.68 (made up of $169,131.37 of expenses and interest of $38,330.51). These expenses are set out in Annexure A to this letter.

The purpose of this letter is to request you seek your client’s instructions to agree to:

1. indemnify Mr Whitlam for the loss suffered by him, in the form of damage to his reputation and consequential loss of earning capacity, which would otherwise be compensable from those directly responsible for it, as well as the expenses of $207,461.68 which Mr Whitlam has incurred to date in seeking compensation from Nine for this loss; or

2. indemnify Mr Whitlam for the expenses of $207,461.68 which he has incurred to date and such expenses as he may reasonably incur in the future in seeking to obtain compensation from those, such as Channel Nine, directly responsible for the loss he has suffered.

If your client does not agree to the requests in 1 or 2 above, Mr Whitlam will be forced to commence proceedings against your client for breach of its obligations under the Deed of Indemnity Insurance and Access, dated 25 November 1999, between the parties and/or the general law, and this will cause further loss to him, including loss arising from the republication of the defamation.

Mr Whitlam has incurred legal expenses to date and will continue to incur such expenses to enforce his rights as a result of your client’s breach of its obligations. He will seek reimbursement for these expenses and reserves the right to do so.

31 On 8 December 2004 the defendant’s solicitors responded as follows:

Thank you for your letter dated 2 December 2004 – in respect of which we have taken instructions from National Roads & Motorists’ Association Limited (NRMA).

For the reason recorded in the second paragraph of your letter, we will not traverse, in this letter, the circumstances of Mr Whitlam’s claim upon NRMA nor the reasons why that claim is not accepted by NRMA.

NRMA does not agree to the matters recorded at numbered paragraphs (1) and (2) of your letter.

Proceedings commenced

32 These proceedings were commenced on 20 December 2004. They were heard on 29 and 30 May 2006 and 1 June 2006 when Mr JT Gleeson SC, leading Mr NJ Owens of counsel, appeared for the plaintiff and Mr RM Smith SC, leading Mr V Kerr, of counsel, appeared for the defendant.

33 During the trial the plaintiff limited his case so that the only relief he now seeks are declarations and consequential orders that under the Deed(s) or the general law the defendant is liable to indemnify him for the costs or expenses that he has reasonably incurred in the defamation proceedings against 2GB, the costs or expenses that he has reasonably incurred in the discontinued proceedings brought against Nine and the costs and expenses that he may reasonably incur in bringing defamation proceedings against Nine.

34 There were a number of issues upon which submissions were originally made that have fallen away by reason of the plaintiff’s more limited case. The defendant denies that it is liable to the plaintiff under the Deeds. It was submitted that the claims for costs for which the plaintiff sues for indemnity are not liabilities that arose from a claim by a third party suing him, for, or in respect of, an act or omission committed by him as an officer of the defendant. It was submitted that the Deeds were obviously intended to meet only that situation.

Applicable Deed

35 The plaintiff submitted that if the Law prohibits the indemnity in clause 1.1 of the Deed he is, in any event, entitled to make the claim for indemnity under the second Deed. The defendant submitted that the Deed, rather than the second Deed, is applicable and that the indemnity in the Deed is prohibited by s 241 of the Law that was in force at the time the Deed was executed in 1999.

36 The extent of the indemnity in each deed is very broad. Both deeds provide that the indemnity in clause 1.1: (i) survives the termination of the deed; and (ii) applies to Liabilities (meaning loss, liability, cost, charge or expense) incurred both before and after the date of the deeds (cl 1.2(c) and (d)). Both deeds provide that the indemnity is enforceable: (i) without the plaintiff having to first incur any expense or make any payment; and (ii) even though the plaintiff has ceased to be an officer of the defendant (cl 1.2(a) and (b)). Clause 6.10 of the second Deed provides that “any current deed of insurance access and indemnity between the parties in the form of the deed approved at the 1998 or 1999 Annual General Meetings of Association is hereby terminated”. Each deed includes clause 6.6 in the following terms:

6.6 Entire agreement
This deed:

(a) constitutes the entire agreement between the parties as to its subject matter; and

(b) in relation to the subject matter, supersedes any prior understanding, deed or agreement between the parties and any prior condition, warranty, indemnity or representation imposed, given or made by a party.

37 Although cl 1.2 of the Deed provides for the survival of the indemnity after termination, the parties agreed, by cl 6.6 of the second Deed, that the indemnity in the second Deed superseded the Deed and the indemnity in the Deed. The parties also agreed that the indemnity in the second Deed applies notwithstanding that some of the plaintiff’s Liabilities were incurred before the date of the second Deed. Accordingly the plaintiff is entitled to make a claim for indemnity under the second Deed. It is not suggested that s 199A the Act prohibits the indemnity in the second Deed. If my conclusion is wrong and the Deed, rather than the second Deed, applies there is an issue as to what provisions of the Law or the Act are applicable to the Deed. The Deed limited the indemnity for legal costs payable to any NRMA Group Company to those costs identified in s 241(3) of the Law and in the “equivalent” provisions of the Law subsequently enacted to amend, consolidate or replace s 241(3) (Sch 1 Part 2). If s 241 of the Law applies to the Deed, there is an issue as to whether s 241(3) is the only subsection under which legal costs may be indemnified and/or whether s 241(2) permits indemnification of legal costs as a “liability to another person”. Although I am of the view that the plaintiff is entitled to make a claim for indemnity under the second Deed I will give consideration to the position under the Deed.

Construction of the Deeds

38 The parties turned their minds to the plaintiff’s entitlement to indemnity under the defendant’s Constitution (Recital A). It was with that entitlement in mind that they decided to enter into the Deeds to “confirm the basis on which” the defendant would indemnify and insure the plaintiff (Recital B). The expression “confirm” in this context means that the parties decided to “verify” the basis upon which the defendant would indemnify the plaintiff pursuant to the Constitution.

39 In clause 1.1 of the Deeds the defendant agreed to indemnify the plaintiff on a full indemnity basis and to the full extent permitted by law; against all Liabilities (any losses, liabilities, costs, charges or expenses) incurred by the plaintiff as an officer of the defendant.

“full extent permitted by law”

40 The Deed was executed on 29 November 1999 and the second Deed was executed on 7 August 2002. Section 241 of the Law was in place at the time the Deed was executed and up to 12 March 2000. That section was replaced by s 199A of the Law on 13 March 2000 which then became s 199A of the Act from 1 July 2001.

41 The provenance of s 241 was the English Court of Appeal decision in Re City Equitable Insurance Fire Co Ltd [1925] Ch 407 in which the court dealt with an Article that exempted directors from loss except when resulting from “wilful neglect or default”. The Greene Committee Report suggested that such an Article gave quite unjustifiable protection to directors [Company Law Amendment Committee Report (Cmd 2657, 1926) par 46]. The predecessor to s 241 of the Law was s 237 of the Companies Code (the Code) which provided:

(1) Any provision, whether contained in the articles or in a contract with a company or otherwise, for exempting any officer or auditor of the company from, or indemnifying him against, any liability that by law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to the company is void.

42 The debate in relation to the ambit of the indemnification in s 237 of the Code included an analysis by Ian R Ramsay in Liability of Directors for Breach of Duty and the Scope of Indemnification and Insurance (1987) C & SLJ 129. Mr Ramsay raised the prospect of possible indemnification of directors in: (a) proceedings in which the director was a defendant and the proceedings were discontinued; and (b) proceedings in which the director was a defendant and the proceedings were settled. In respect of (a) Mr Ramsay suggested (at 151) that an additional provision should be included in s 237 that would provide that:

… a company may indemnify a director against legal costs incurred in defending any civil proceeding which is withdrawn or abandoned and which involved no payment by the director to the opposing party, provided that a determination is made that the proceedings were without merit and that the director acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the company.

43 In respect of (b) Mr Ramsay wrote at 152:

Companies Code

44 Mr Ramsay suggested that such argument overstated the case and expressed concerns about the encouragement of settlements in unmeritorious cases (at 152-153).

45 It is apparent that the ambit of the prohibition in s 237 on indemnifying directors was far from clear. Accordingly the matter was referred to the Companies and Securities Law Review Committee (CSLRC) for analysis and report. In the introduction to its Report No. 10, Company Directors and Officers: Indemnification, Relief and Insurance (1990), CSLRC recorded that:

The primary reason for a review of the law about indemnification of directors and officers is uncertainty in the commercial and legal communities about the scope of section 237 of the Companies Act 1981 (Cwlth), a measure that invalidates certain provisions giving protection to directors and officers. The central matter of policy behind section 237 is that shareholders and creditors should not be unfairly prejudiced by directors and officers (among others) being able to insulate themselves from liability for breaches of duty. But there is uncertainty as to the reach of section 237. Discussion of section 237 throws into focus the various ways in which liability of directors and officers for their acts or omissions may be prevented from arising or removed. The report canvasses the conditions under which it is proper for a company to provide indemnification and the processes by which it may properly be provided. Implementation of the Committee’s recommendations on those matters should remove much of the uncertainty surrounding section 237.

46 The CSLRC Report included the statement that s 237 was “a broad provision capable of upsetting various indemnifying provisions and susceptible to frustratingly varied interpretations” (par 13). The CSLRC recommended (at 161):

That directors, officers and employees of a company be given a statutory right to indemnity for the costs of a successful defence in terms similar to section 124(3) of the Canada Business Corporations Act. The duty to indemnify should extend to the case where a director, officer or employee has incurred costs of being represented in criminal or civil proceedings to which he or she is made a party by reason of being or having been a director, officer or employee of the company.

47 The Canada Business Corporations Act at the time of the Report provided relevantly:

Indemnification

124.

(a)

(b)

Indemnification in derivative actions
(2) A corporation may with the approval of a court indemnify a person referred to in subsection (1) in respect of an action by or on behalf of the corporation or body corporate to procure a judgment in its favour, to which he is made a party by reason of being or having been a director or an officer of the corporation or body corporate, against all costs, charges and expenses reasonably incurred by him in connection with such action if he fulfils the conditions set out in paragraphs (1)( a ) and ( b ).

Indemnity as of right

(a)

(b)

(a)

(b).

48 When the relevant part of the Law commenced operation on 1 January 1991, s 241 replaced s 237. In its original form s 241 provided relevantly:

Provisions indemnifying officers or auditors
241. (1) Any provisions, whether contained in the articles or in a contract with a company or otherwise, for exempting any officer or auditor of the company from, or indemnifying such an officer or auditor against, any liability that by law would otherwise attach to the officer or auditor in respect of any negligence, default, breach of duty or breach of trust of which the officer or auditor may be guilty in relation to the company is void.
(2) Notwithstanding anything in this section, a company may, pursuant to its articles or otherwise, indemnify an officer or auditor against any liability incurred by the officer or auditor:

(a) in defending any proceedings, whether civil criminal, in which judgment is given in favour of the officer or auditor or in which the officer or auditor is acquitted; or

(b) in connection with any application in relation to any such proceedings in which relief is granted under this Act to the officer or auditor by the Court.

49 The Explanatory Memorandum recorded that the proposed s 241 was based on s 237 and that:

870. Any provision, whether in the articles or in a contract, exempting an officer or auditor from, or indemnifying him against, liability for negligence, default, breach of duty or breach of trust, will be void. This will not apply to payment of legal costs incurred in successfully defending civil or criminal proceedings, nor to any insurance contract where the company or related body corporate does not pay the premiums.

50 In 1992 the successor to CSLRC, the Companies and Securities Advisory Committee (CASAC) was asked by the Ministerial Council to comment on the CSLRC’s Report. CASAC’s report, Company Directors and Officers: Indemnification, Relief and Insurance (1992) referred generally to Mr Ramsay's article referred to above and suggested that the issue of indemnification for the costs of a successful defence should be left to the discretion of the directors or should be dealt with by the shareholders by means of Articles. It recommended that there should not be mandatory indemnification for the costs of a successful defence.

51 Section 241 of the Law was amended in 1994 to provide relevantly:

(a) indemnify a person who is or has been an officer or auditor of the company against a liability incurred by the person as such an officer or auditor; or

(b) exempt such a person from such a liability.

(1A) A [memorandum, articles,] [constitution] or any other instrument, or an agreement or arrangement, is void in so far as it provides for a body corporate to do something that subsection (1) prohibits.

(2) Subsection (1) does not prevent a person from being indemnified against a liability to another person (other than the company or a related body corporate) unless the liability arises out of conduct involving a lack of good faith.

(a) in defending proceedings, whether civil or criminal, in which judgment is given in favour of the person or in which the person is acquitted; or

(b) in connection with an application, in relation to such proceedings, in which the Court grants relief to the person under this Law.

indemnify

officer

,

(a) a director, secretary or executive officer of the company; …

52 The Explanatory Memorandum in respect of the 1994 amendment to s 241 recorded that the provision had attracted extensive criticism “both because of doubts as to the scope of the prohibition and because its operation is inconsistent with appropriate commercial practices”. The Explanatory Memorandum referred to both the CSLRC and the CASAC reports and stated that the proposed amendment addressed “the issues raised” in those reports. It continued:

420. … Companies will also be able to indemnify their officers in respect of liability to persons other than the company (or a related company), provided the liability does not arise out of conduct involving a lack of good faith. The proposed reform of section 241 is not, however, intended to overturn the common law prohibition on a company indemnifying its officers against a criminal liability.

…

426. Proposed subsection 241(1) will prohibit a company, or a related body corporate, from indemnifying a person who is, or has been, an officer or auditor of a company against liability incurred by the person in that capacity. The subsection will also prohibit such a company from exempting the person from the liability.

427. Proposed subsection 241(1A) will render any instrument or agreement, whether oral or in writing, void insofar as it provides for a body corporate to indemnify or exempt a person in contravention of subsection 241(1).

428. Proposed subsection 241(2) will provide an exception to the prohibition in proposed subsection 241(1) to enable an officer or auditor to be indemnified against a liability to another person (other than the company or a related body corporate) provided the liability does not arise out of conduct involving a lack of good faith.

429. The effect of these provisions is that a company would be able, for example, to indemnify a director in a situation where he or she was negligent and caused loss to a third party in his or her capacity as a director. However, if the director acted without good faith, the indemnity would not be permitted. If the liability of an officer or auditor arose from conduct which was dishonest or otherwise illegal, an agreement to indemnify would not be effective under common law principles.
430. Proposed subsection 241(3) re-enacts in substance existing subsection 241(2). That subsection provides an exception to the prohibition in subsection 241(1) to enable an officer or auditor to be indemnified against a liability for costs and expenses incurred in defending civil or criminal proceedings in which judgment is given in favour of the officer or auditor or in which the officer or auditor is acquitted. The exception also applies in connection with an application, in relation to proceedings in which the Court grants relief to an officer or auditor under the Law (see section 1318 of the Corporations Law). However, the exception does not apply to any substantive liability which may be incurred as a result of the proceedings.

53 Apart from an amendment in 1998 to delete the words “memorandum, articles” from subsection (1A) and to insert the word “constitution” in their place, s 241 remained in that form until its replacement on 13 March 2000 by s 199A. Section 241 was repealed in 2000 when section 199A of the Law was enacted. It then became s 199A of the Act from 1 July 2001. Section 199A provides relevantly:

199A Indemnification and exemption of officer or auditor

Exemptions not allowed
(1) A company or a related body corporate must not exempt a person (whether directly or through an interposed entity) from a liability to the company incurred as an officer or auditor of the company.
When indemnity for liability (other than for legal costs) not allowed
(2) A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through and interposed entity) against any of the following liabilities incurred as an officer or auditor of the company:

(a) a liability owed to the company or a related body corporate;
(b) a liability for a pecuniary penalty or order under section 1317G or a compensation order under section 1317H or 1317HA;
(c) a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith.

This subsection does not apply to a liability for legal costs.
When indemnity for legal costs not allowed
(3) A company or related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against legal costs incurred in defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred:

(a) in defending or resisting proceedings in which the person is found to have a liability for which they could not be indemnified under subsection (2); or
(b) in defending or resisting criminal proceedings in which the person is found guilty; or
(c) in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established; or
(d) in connection with proceedings for relief to the person under this Act in which the Court denies the relief.

Paragraph (c) does not apply to costs incurred in responding to actions taken by ASIC or a liquidator as part of an investigation before commencing proceedings for the court order.
(4) [ Interpretation of outcome of proceedings] For the purposes of subsection (3), the outcome of proceedings is the outcome of the proceedings and any appeal in relation to the proceedings.

54 The Explanatory Memorandum in respect of that change included the following:

6.91 One of the concerns about the operation of the indemnity provisions has been that a person is not entitled to an indemnity until the outcome of the relevant proceedings is known. Substantial liability may be incurred (for example, on-going legal costs) during the course of a proceeding, which are unable to be paid to the indemnified officer, until the outcome of the proceedings is known. To address this, as indicated in Note 2 to proposed section 199A, the company may be able to give a person a loan or advance in respect of legal costs. Once the outcome of the proceedings is known, the person would be either obliged to pay back the loan or advance, if not entitled to an indemnity, or may retain the loan monies as the indemnity to which the person is now entitled.

55 Although there are no authorities on the ambit of s 241 in relation to legal costs and expenses, various commentators have, in effect, suggested that the “frustratingly varied interpretations” have continued. For instance, Emilios Kyrou in The Year 2000 — Implications for Indemnities and Insurance for Directors (1998) 10 ILJ 62 wrote at 65–66:

There is currently debate as to whether s 241(2) is subject to s 241(3), that is, whether s 241(3) is an exclusive statement of a company’s power to indemnify a director in respect of costs. There are three views:

· The wide view, that is, ss 241(2) and (3) are independent of each other and therefore a company may provide an indemnity in respect of costs under s 241(2). This involves reading the words “a liability to another person” in s 241(2) as including the costs incurred by a director to his or her own lawyer as well as the costs of a third party.

· The narrow view, that is, s 241(3) is an exclusive statement of a company’s power to indemnify a director in respect of costs. This involves reading the words “a liability” in s 241(2) as excluding a liability for costs.

· The intermediate view, that is, s 241(2) authorises payment of the costs of a third party but not the costs incurred by a director to his or her own lawyer. This involves reading the words “a liability” in s 241(2) as including a liability for costs and the words “another person” as excluding a director’s own lawyer.

56 Additionally AJ Black and P Wines in the chapter on Officers in Butterworths’ loose-leaf service Australian Corporations Law Volume 1 at pages 32,428 – 32,429 noted:

It was also an open question whether former s 241(2) also permitted a company to provide an indemnity in favour of a director's legal advisers against costs incurred by the director in defending legal proceedings, outside the circumstances contemplated by former s 241(3), on the basis that the director's legal adviser was a person other than the company or a related body corporate, for the purpose of former s 241(2).

57 Paragraph (c) of Part 2 of Schedule 1 of the Deed provides that unless the contrary intention appears:

(c) a reference to the Corporations Law or any of its provisions includes any regulations issued under it and the equivalent provisions of any legislation which amends, consolidates or replaces it;

58 The defendant submitted that s 199A of the Act is not an “equivalent” of s 241 of the Law. It was submitted that s 241 remains the applicable “law” as that term is to be understood in clause 1.1 in the expression “to the full extent permitted by law”. It is true that clause 1.1 does not include any express “reference to the Corporations Law or any of its provisions”. However it is clear that the parties intended that any references in the Deed to the “Corporations Law or any of its provisions” were to include provisions that were not enacted at the time the Deed was executed, so long as those provisions that were subsequently enacted were the “equivalent” of the provisions in force at the time the Deed was executed and so long as they amended, consolidated or replaced the equivalent provisions in force at the time the Deed was executed.

59 Although s 199A(3) may have subsumed aspects of liabilities for costs that s 241(2) previously permitted I am of the view that s 199A is appropriately described as a provision “equivalent” to s 241 of the Law. That means that when the Law was amended in 2000 to introduce s 199A, the reference to s 241(3) in clause 1.2(e)(1) of the Deed, was to be read as s 199A(3).

60 A further question that arises is whether the parties intended that the expression “to the full extent permitted by law” in clause 1.1 of the Deed was to include changes to the Law from time to time, or whether it was restricted to the “law” in place at the time of the execution of the Deed. The interpretation section of the Deed makes no mention of the term “law” and is quite specific in its reference to the “Corporations Law”. However I am of the view that the expression “to the full extent permitted by law” must be construed having regard to Rule 159 of the Constitution and that the purpose of the Deed was to “confirm” the basis for the indemnity in Rule 159 of the Constitution.

61 Rule 159 of the Constitution provided for indemnity “except as by the Law precluded”. Rule 1 of the Constitution defined “the Law” as the “Corporations Law” to include “any amendment or re-enactment of it or any legislation passed in substitution for it”. Although the word “law” in the expression “to the full extent permitted by law” in clause 1.1 of the Deed does not have a capital “L”, I am satisfied that the parties intended the expression “to the full extent permitted by law” to have the same meaning as the expression “except as by the Law precluded” in Rule 159 of the Constitution. If that were not so the parties would have been doing something other than confirming or verifying the basis of the indemnity in the Constitution. They would have enlarged the exception in the Constitution from that excluded by the Corporations Law as amended from to time to an exception under the Corporations Law at the time of the execution of the Deed and the general law. I am satisfied that the parties did not intend to do that. So much is clear from the terms of Recital B of the Deeds in which the parties expressly set out the purpose as confirmatory.

62 I am of the view that s 199A is a section that falls within the description in the Constitution of “any amendment or re-enactment” or “legislation passed in substitution for” s 241. Accordingly I am satisfied that s 199A applies to both the Deed and the second Deed.

63 Even if that is wrong and s 241 had applied to the Deed, the plaintiff submitted that the legal expenses incurred by him in relation to the defamation actions and negotiations are “liabilities to another person” and as such fall within the exemption provided for in s 241(2) unless the exemption in s 241(3) impliedly restricts the exemption in s 241(2). The defendant submitted that s 241(3) does restrict the exemption in s 241(2). The defendant submitted that if one does not fit within the exemption in s 241(3) then legal costs and expenses are not recoverable.

64 Section 241 imposed a prohibition on a company from indemnifying an officer against the liability incurred as such an officer. There were two exemptions from that prohibition: the first was a liability to another person, except where it arose out of conduct by the officer involving a lack of good faith (s 241(2)); and the second was for a liability for costs and expenses (a) in successfully defending civil or criminal proceedings, and (b) in connection with an application in relation to such proceedings in which the Court granted relief under the Corporations Law (s 241(3)).

65 If s 241(2) did not permit an indemnity for legal costs to the officer’s own legal representatives (as a liability to another person), then an officer who defended civil proceedings and settled them in his or her favour but without “judgment” being “given in favour” of the officer would not be indemnified for those costs. Such a settlement may include a term that the party discontinued the proceedings against the officer. The policy behind the exemptions in s 241(2) appears to have been that an officer would be indemnified for such a liability where the officer had not acted with a lack of good faith. That much is apparent from the exclusion of indemnification where the liability arose from conduct with a lack of good faith (s 241(2)).

66 It may be suggested that if s 241(2) includes legal costs there would be no work to be done by s 241(3). That is not correct. Section 241(2) only relates to liabilities to “another person”, that is, other than the company. The costs and expenses that may be owed to the company for the provision of legal services would be covered by s 241(3).

67 The short history of the amendments to s 237 of the Code and s 241 of the Law referred to above indicates that the legislature took into account the “issues” referred to in the CSLRC report and the CASAC report. By reference, the matters raised by Mr Ramsay in his article were part of the “issues” considered by those reports. One of those matters was the entitlement of directors to indemnification in matters where a settlement was reached and/or a matter was discontinued. Unfortunately the Explanatory Memorandum does not identify the specific “issues” in those reports that the legislature took into account. However the breadth of that explanation permits a finding that the legislature intended that the amendment introduced in s 241(2) allows indemnity of a director for a liability to a third party or “another person”, other than the company, so long as the liability did not arise as a result of a lack of good faith, whether that liability was for costs or otherwise.

68 Additionally, the Canadian Business Corporations Act, upon which the CSLRC Report suggested s 241 should be based, provided for indemnity “against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred” by the director “in respect of any civil, criminal or administrative action or proceeding” to which the director was “made a party by reason of being or having been a director or officer of the corporation”. The proviso to that indemnity was that the director had acted “honestly and in good faith with a view to the best interests of the company” (s 124(1)). Although there is no express mention of the settlement of an action in s 241 of the Law, it is clear from the reference in the Explanatory Memorandum to the “issues” in the CSLRC and CASAC Reports (and by reference “generally” to Mr Ramsay’s article) that this was a matter in contemplation.

69 The exemption in s 241(2) was framed in very broad terms. “Liability” was not defined and although it may be argued that it was intended that the circumstances set out in s 241(3) were the only ones in which a company was allowed to indemnify an officer for legal costs, the history of the amendments, the breadth of s 241(2), and the absence of a definition of liability, leads me to the conclusion that s 241(2) permitted an indemnity of a director for costs as a “liability to another person”.

70 It is not necessary to decide this issue because I have concluded that the second Deed applies, and even if the Deed applied s 199A is applicable, and thus the indemnity is not prohibited by the Act. However if s 241 had applied I would have found that the indemnity in clause 1.1 of the Deed was not prohibited by s 241 of the Law because s 241(2) permitted liabilities to “another person” including legal costs and expenses.

71 I should also consider the general law on the basis that the parties intended that the expression “to the full extent permitted by law” included not only the Law but also the general law. The parties have been unable to find any case in which a director or agent has sought indemnity for the bringing of defamation proceedings in relation to a defamation of the director or agent during the performance of the director’s or agent’s duties. The parties referred me to numerous cases in which directors or agents have sought indemnity from a company or principal for costs of legal proceedings bought against the director or agent. Those cases have limited relevance to the circumstances of this case, however the defendant relied upon the absence of any case in which a director/agent has been indemnified for the bringing of defamation proceedings, or any case in which such indemnification has been declined, to submit that the general law does not endorse or permit such indemnity.

72 The plaintiff submitted that In Re Famatina Development Corporation [1914] 2 Ch 271 is the closest case factually to the present case. The main object of the company in that case was to acquire from a Mr Pape (Pape), a promoter and director of the company, a large number of mining and other options in the Argentine. By agreement with the company, Mr O’Driscoll (O’Driscoll) was appointed as a consulting engineer and was required to make a visit to the Argentine to inspect the company properties. He was obliged to send written reports to the company in relation to the mines and was also obliged to use his best endeavours to promote the interests of the company and refrain from divulging the business of the company.

73 Whilst in the Argentine O’Driscoll discovered that Pape had made contracts for worthless properties, had made misleading reports and had arranged for secret commissions. O’Driscoll sent a report to the company in rather strong language detailing what he had discovered in relation to Pape. At a Board Meeting at which Pape and O’Driscoll were present the report was tabled and O’Driscoll apparently embellished the report with even stronger language. Pape issued a writ in an action in libel against O’Driscoll. After a trial, the jury delivered verdicts that the statements made in the reports were not true and found malice on the part of O’Driscoll. Damages were awarded and assessed at £3,000. An appeal was allowed and a new trial was ordered. The appeal to the House of Lords was dismissed. O’Driscoll applied and was granted security for costs of the new trial. Full security was not paid and the action was subsequently dismissed for failure to provide security. O’Driscoll was approximately £6-7,000 out of pocket for the costs he had to pay in the proceedings. The company went into liquidation and O’Driscoll made an application in the winding up to be indemnified by the company out of its assets for his costs, as costs or expenses to which he had been put in the course of his employment as a servant of the company.

74 At first instance Sargant J held that O’Driscoll was not entitled to indemnity because he was defending an action “on his own behalf” which originated out of reports made by him in an execution of a duty which he owed to his employers “but not in direct obedience to their orders” (at 281). Lord Cozens-Hardy MR (Swinfen Eady and Pickford LLJ agreeing) allowed the appeal and held at 282:

He was undoubtedly appointed to be the agent of the company for many purposes and all he had done was done in pursuance of his duties as agent. Therefore he came within the well settled rule that an agent had a right against his principal, founded upon an implied contract, to be indemnified against all losses and liabilities, and to be reimbursed all expenses incurred by him in the execution of his authority.

75 Sargant J had been referred to The James Seddon L.R. 1A. & E. 62 in support of the alleged principle that a person making a report to the company was entitled to be indemnified by the employer against the consequences of that report, such as a libel or slander action. His Lordship referred to the facts of the James Seddon case as being “rather peculiar” and extracted the headnote as follows, at 280:

l

l.

Held

l

76 His Lordship said at 281:

l

77 It is difficult to know from the report of The James Seddon whether the master had a choice in bringing the case for perjury or whether it was a requirement imposed upon him on his acquittal. The difficulty arises from the use of the expression that he was “bound over” to prosecute the case. It is probable that it was at his choice to bring the proceedings for perjury and that the expression “bound over” merely related to the condition upon which he was able to bring the proceedings. In any event, the basis of the decision does not assist in this case because it appears that the indemnification was based upon the fact that he lost the amount by reason of having to return to England, rather than on the basis that he was to be indemnified for costs of bringing proceedings against the crew.

78 The only express statement to be found on whether a director may be indemnified for defamation appears to be the following from the Restatement (Second) of Agency 440 (1958) (Restatement Second):

d.

79 I should emphasise the opening words to this extract, “unless otherwise agreed”. It is also to be noted that the Restatement Second does not refer to any authority to support the assertion in the extract in relation to defamation. The Restatement (Third) of Agency 8.14 (Restatement Third), which was published on 27 July 2006, replaced the Restatement Second 440. Restatement Third makes no mention of defamation and there are no authorities within that section in support of the assertion in the Restatement Second.

80 In Famatina there was no suggestion that Pape had sought indemnity for the bringing of the libel suit against O’Driscoll or for the provision of the security for costs. Accordingly that case is silent on whether a director may be indemnified for the bringing of such proceedings. It is authority for the proposition that a director, who is alleged whilst performing his duties to have defamed a co-director, may be indemnified for costs of the proceedings to defend an entitlement to publish the defamation.

81 I am not satisfied that the absence of a case directly on point means that the indemnity is prohibited by the general law. From all researches, this area of the law is uncertain. The development of the law in this area must take into account the development of directors’ obligations and the changes in the law to make public companies and their directors more accountable. The plethora of recent writing on good corporate governance evidences the intensity of public interest in these matters (see for instance RP Austin, HAJ Ford and IM Ramsay Company Directors: Principles of Law and Corporate Governance Lexis Nexis Butterworths 2005) as does the development of vocal associations of shareholders that scrutinise and comment upon the performance of public companies.

82 Indemnities protecting directors against liabilities incurred whilst performing their duties are an important part of a public company’s armoury to attract highly qualified and appropriately experienced officers to the Board as executive and/or non-executive directors. The modern environment of corporate life includes pursuit of directors who chair public companies by all forms of the media for commentary on matters relevant to the company’s performance. I am of the view that the general law, in this modern environment, does not prohibit an indemnity of a director to defend himself or herself against defamatory imputations published about the director arising from the performance of his or her duties.

83 The next question is whether the parties intended that the costs of the defamation proceedings and negotiations in relation to the defamation published by 2GB and the alleged defamation published by Nine (the defamation costs) were to be the subject of the indemnity in clause 1.1 of the second Deed. I will refer to the second Deed in the following section as “the Deed” unless it is necessary to differentiate it from the Deed.

The defamation costs

84 The Deed is a commercial agreement and should be given a businesslike construction: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 per Gleeson CJ at 589 [22]. That means that clause 1.1 should not be read in isolation but should be construed in the context in which it appears and in the context of the Deed as a whole, taking into account the commercial circumstances and purpose of the Deed.

85 Defamation occurs when an imputation of defamatory meaning is published or communicated of or concerning a person to someone other than the subject of the imputation. An “imputation” is an accusation or charge (Petritsis v Hellenic Herald Pty Ltd [1978] 2 NSWLR 174 at 189), or an allegation or claim, and is defamatory if it tends to lower the person’s reputation in the minds of ordinary reasonable people or right thinking members of the community. A person who is the subject of such a charge or allegation may defend it in a number of ways. One option is to obtain a public apology and/or the payment of some amount for the hurt to feelings and/or special damage by a consensual process between the defamed person and the party who perpetrated the defamation. This option may involve the incursion of legal costs notwithstanding that legal proceedings are not actually commenced.

86 Another option in defending the allegation or claim is the positive step of bringing defamation proceedings. In taking that positive step the person incurs a liability in the sense that there is an incursion of legal costs or expenses. Those proceedings may be compromised before trial or part way through the trial or may be fought to final judgment. Defamation proceedings in New South Wales applicable to the broadcast and its republication involve a process known as a “7A trial” in which a jury decides whether the particular publication in question conveys the claimed imputations and, if so, whether the imputations are defamatory of the plaintiff: Defamation Act 1974 (NSW) s 7A. If the jury finds that the publication conveys imputations defamatory of the plaintiff, then a judge sitting without a jury hears the balance of the proceedings including whether any available defences are made out and if not, the amount of damages to be awarded to the plaintiff. A defendant may raise a number of defences including justifying the imputations or put another way, proving that the imputations are substantially true and relate to a matter of public interest: Defamation Act 1974 (NSW) s 15.

87 One of the obligations imposed on the plaintiff by clause 2 of the Deed is the requirement to advise the defendant “immediately” that he became aware of any “Claim” against him which “involves or may involve a Liability” for which he may seek indemnity under clause 1 (cl 2.1). “Claim” means “any allegation, cause of action, proceeding, claim, suit or demand of any nature whatsoever” (Sch 1 Pt 1). “Cause of action”, “proceeding” and “suit” are not defined further but, in their context, they would include any legal, quasi-legal, administrative or other proceeding. The plaintiff’s obligation under clause 2.1 is to notify the defendant immediately on becoming aware of not only the existence of such proceedings against him, but also any circumstance which could reasonably be expected to “give rise” to the bringing of such proceedings against him which “involves, or may involve a Liability” for which he may seek indemnity under clause 1.

88 That part of the definition of “Claim” and clause 2.1 are consistent with what may be referred to as the traditional approach to directors’ indemnities, that is, where the director is sued by a third party. However the definition of “Claim” in the Deed is broader because it includes an “allegation … of any nature whatsoever”. That expression encompasses the concept of an assertion, complaint or charge against the plaintiff, that is, that the plaintiff has done something wrong or is guilty of some wrongdoing. The plaintiff’s obligation under clause 2.1 involves making a judgment as to whether: (a) there are any circumstances that could reasonably be expected to give rise to an “allegation” against him: and (b) whether such allegation may involve a Liability (including a cost or expense) that would be incurred by him as an officer of the defendant for which he may seek indemnity.

89 The defendant submitted that all the plaintiff did in the course of the performance of his duties was to give an interview to Mr Lyons on 6 March 2001. It was submitted that it was the conduct of Nine in manipulating the interview that caused the defamation, rather than the plaintiff having been defamed in the performance of his duties. It was submitted that the interview did not contain material defamatory of the plaintiff.

90 I am satisfied that, on balance, the allegations made against the plaintiff in the broadcast arose directly out of performance of his duties, that is, his authorised interview with Nine. The defendant knew, or ought to have known, that Nine could, and indeed it was likely it would, manipulate the interview to suit the story that it wished to publish. I am also satisfied that the defendant would or ought to have known that once it authorised the plaintiff to attend the interview with Mr Lyons the plaintiff was at risk of being criticised as the Chairman of the defendant and the defendant was also at risk of being criticised. The defendant specifically advised the plaintiff on the way in which he was to deal with topics to be raised in the interview. The plaintiff was acting on behalf of the defendant in the interview for the purposes of ensuring that the defendant’s conduct was seen in a good light. The plaintiff was not being interviewed in his personal capacity but rather as the Chairman and director of the defendant. If the defendant had not authorised plaintiff to give the interview, the broadcast would not have conveyed the specific defamatory imputations. The defamatory imputations were made against the plaintiff as an officer of the defendant and arose out of the performance of his duties.

91 The defendant’s Constitution provides for an indemnity “against any liability” incurred by the plaintiff as an officer of the defendant. In confirming the basis of the indemnity in the Constitution the Deed provided that the plaintiff was to be indemnified “on a full indemnity basis and to the full extent permitted by law” against “all” losses, liabilities, costs, charges or expenses incurred by him as an officer of the defendant. One of the examples given in the Deed is an indemnity for “a liability for negligence”. Thus, if in the performance of the officer’s duties, the officer’s negligence causes damage to a third party and the third party sues the plaintiff in negligence for damages, the defendant agreed to indemnify the officer for the amount of any verdict or judgment and costs in those proceedings.

92 The Liability “incurred” in that example arises from the entry of judgment in the proceedings. The entitlement to indemnity is based upon the fact that the negligent conduct that caused the damage was conduct in the course of carrying out duties for the defendant. That is an example of incurring a “liability” as referred to in the definition of the expression “Liability” in the Deed. In addition to the indemnification for that “liability”, the Deed also provides for indemnification for “reasonable costs and expenses, not limited to taxed costs incurred” in defending the negligence proceedings. That is an example of incurring a “cost” or “expense” as referred to in the expression “Liability” in the Deed.

93 The indemnity in the Deed is very broad and the reference to the “liability for negligence” is merely inclusory. The same can be said of the reference to the types of costs and expenses that may be incurred. These are but examples of the circumstances in which the officer is to be indemnified. This is made clear by the words “without limitation”. The only pre-requisite to the indemnification is that the “loss, liability, cost, charge or expense” has to be incurred “as an officer” of the defendant. In the negligence example, it is the officer’s conduct as an officer of the defendant that was negligent and thus the “Liability” for the judgment debt and the costs of the proceedings is indemnified.

94 The same approach applies to the plaintiff’s present position. It was his conduct as an officer of the defendant (with the authority of the defendant) – the giving of the interview – that resulted in the alleged defamation of both the defendant and the plaintiff. The plaintiff incurred the costs of defending the defamatory allegations or imputations made against him as an officer of the defendant, which included the positive step of commencing the proceedings. The defendant submitted that the parties did not intend that the plaintiff should be indemnified for expenses in rectifying damage to a personal asset – his reputation. In a Shakespearean flourish the defendant resorted to Iago’s statement in Othello: “Good name in man and woman, dear my lord is the immediate jewel of their souls” (Act 3 sc iii). Be that as it may, what is to be decided in this case is whether the parties intended that the defendant would indemnify the plaintiff for the legal costs of defending a defamatory allegation arising out of the performance of his duties as an officer of the defendant.

95 It is reasonably clear from the terms of clauses 1.1 and 2.1 to 2.4 of the Deed that the parties intended that if proceedings were brought against the plaintiff, as an officer of the defendant, and he incurred a “Liability”, for instance, costs in defending those proceedings, he would be entitled to a full indemnity under clause 1.1 of the Deed for those costs. Equally if an allegation (that amounted to a Claim) was made against the plaintiff as an officer of the defendant and he incurred a “Liability”, that is, costs in defending that allegation, he would be entitled to a full indemnity for those costs and expenses. The question is whether the bringing of proceedings for defamation is a step taken in defending a Claim.

96 The world has changed since Mr O’Driscoll went to the Argentine and reported back to the company. There is, at least in this country, the presence of a regulator that pursues directors for alleged breaches of their duties. These proceedings are heard in public and reported upon in all forms of the media. There is the development of investigative reporting, some of which has led to prosecutions of directors and the bringing of civil penalty proceedings against directors. These were all circumstances present at the time the parties executed the Deed. In particular, at the time the second Deed, was executed the plaintiff had already been pursued by ASIC for alleged breaches of civil penalty provisions of the Law/Act and was the subject of adverse findings. At the time the second Deed was executed both the plaintiff and the defendant had allegedly been defamed by Nine and a jury had found that the plaintiff had been defamed in the 2GB interview. At that time the defendant had commenced defamation proceedings against Nine and the plaintiff had settled the defamation proceedings against 2GB.

97 The examples given in clause 1.1 of the Deed provide an indication of the circumstances in which the defendant agreed that it would indemnify the plaintiff. That included any criminal proceedings that might have been brought against him in which he was acquitted. In criminal proceedings an officer is defending his own conduct in an attempt to ensure that the allegations or charges made against him are not proved beyond reasonable doubt. According to the example in clause 1.1, the officer is indemnified for his costs if he achieves an acquittal. That does not mean that the officer is prohibited from arguing for an indemnity for his costs if he were to achieve a “No Bill” in the proceedings either by way of negotiation with the prosecuting authorities before trial or, for instance, after a trial in which the jury disagrees. Much would depend on the facts of the particular case but a company ought not be required to indemnify an officer for costs of a trial in which he or she is found guilty of criminal conduct in the course of his or her duties. That is reflected in the prohibition in s 199A(3)(b) of the Act.

98 Applying this approach to the legal costs of an officer defending himself or herself against defamatory imputations, it would be appropriate to limit the indemnity to costs of proceedings in which the officer is vindicated. If the officer brings defamation proceedings to defend himself or herself against defamatory imputations made against the officer during the course of his or her duties and, for instance, the defamatory imputations are justified or proved to be true and relate to a matter of public interest, a company ought not to be held liable to indemnify a director for legal costs in such circumstances. The fact that in this instance the director is not required to answer the charge as in the case of criminal proceedings and has the choice of defending himself or herself against a defamatory imputation by the bringing of proceedings does not, in my view, detract from this conclusion.

99 Clause 2.2 of the Deed gives the defendant an entitlement to “assume” on the plaintiff’s behalf “the defence of the Claim”. As I have said earlier there is no definition of the expression “defence of the Claim”. If it had been intended that the plaintiff would only be entitled to indemnity for costs of proceedings brought against him the expression “defence of the proceedings” would have been used in this clause. The expression “the defence of the Claim” means that the defendant may assume defending the plaintiff against an “allegation … of any nature whatsoever” including a defamatory imputation.

100 I am of the view that the Deed indemnifies the plaintiff for liabilities incurred in defending an “allegation” including a defamatory imputation and that the bringing of defamation proceedings is a process by which such an allegation is defended, albeit that the director is the moving party in the proceedings. I am satisfied that the parties to the Deed intended that if the plaintiff, acting as an officer of the defendant, was subjected to an allegation that amounted to a defamatory imputation, he was to be indemnified for costs in defending it including not only by seeking an apology without bringing proceedings but also to defend himself against the defamatory imputation by bringing proceedings to vindicate his reputation which was damaged by reason of the performance of his duties. I am also satisfied that the indemnity for those costs is limited to cases in which the plaintiff is vindicated either by way of apology, settlement or verdict and judgment in his favour.

101 There is a question as to whether the plaintiff acted reasonably in discontinuing the proceedings against Nine. There is no issue that he received advice that in the light of Gzell J’s findings in the ASIC proceedings his position in the defamation proceedings may have been adversely affected. There is also no issue that the plaintiff honestly believed that his conduct would ultimately be vindicated but that the process in the courts would take some time. I am satisfied that the plaintiff’s discontinuance of the defamation proceedings was reasonable. I am also satisfied that the plaintiff’s settlement of the 2GB proceedings was reasonable. He took the very reasonable step of accepting an apology and did not incur any further costs in the proceedings by seeking to recover damages from 2GB.

102 The defendant claims that the plaintiff’s discontinuance of the Nine proceedings was in breach of clause 6.2 of the Deed and that any amount the defendant is required to pay the plaintiff by way of indemnity should be set-off by way of damages for which the plaintiff is liable to the defendant. This claim was not developed in any detail in submissions. The defendant could have assumed “the defence of the Claim” on the plaintiff’s behalf but did not do so. It was well aware of the plaintiff’s intention to defend the Claim in the manner that he did. The communications between Ms Kelly and the plaintiff and the sharing of the legal advice in relation to the alleged defamation of the defendant for the purpose of assisting the plaintiff in his proceedings suggests that the defendant was working with the plaintiff albeit not indemnifying him. The defendant has not proved any damage in these proceedings.

103 I am satisfied that the plaintiff is entitled under the second Deed to indemnification for the costs of the proceedings against 2GB and for the costs of the discontinued proceedings against Nine. The indemnification for the costs of the discontinued proceedings against Nine is subject to the outcome of the proposed proceedings to be brought against Nine. If the plaintiff is ultimately unsuccessful in relation to imputations that were the subject of the discontinued proceedings he may have to repay some amounts to the defendant pursuant to clause 2.7 of the Deed. The plaintiff is also entitled to indemnification for the costs of the proposed proceedings against Nine. That entitlement must be subject to clause 2 of the second Deed. The declaration to be made is to recognise that the parties are to conduct themselves pursuant to the provisions of clause 2 of the second Deed. It will be a matter for the defendant as to whether it exercises its rights under clause 2.2 to assume the defence of the Claim on the plaintiff’s behalf, that is, brings the proceedings against Nine, or whether it allows the plaintiff to conduct the defence to the Claim by bringing the proceedings.

104 The plaintiff made an alternative submission that if he was not entitled to indemnity under the Deeds, he was entitled to be indemnified under the general law. Having regard to my findings it is not necessary to decide this issue, however the existence of the indemnity in the Constitution and the confirmation of the basis upon which an indemnity would be granted by the execution of two Deeds seem to me to militate against a general law indemnity if the Deeds did not provide an indemnity. As I say, it is not necessary to decide that matter.

Conclusion

105 The plaintiff is entitled to be indemnified under the second Deed (the Deed) for: (i) the costs of the defamation proceedings against 2GB; (ii) the costs of the discontinued defamation proceedings against Nine subject to the defendant making any reasonable demand under clause 2.7 of the Deed consequent upon the outcome of the proposed proceedings against Nine; and (iii) for the costs of defamation proceedings to be brought against Nine to the extent that he is successful either by way of apology and/or a settlement and/or a verdict and judgment in his favour.

106 The actual amounts of the costs of the 2GB proceedings and the discontinued proceedings against Nine require some clarification prior to any Orders being made for payment of those costs. If the parties are unable to agree on those costs it may be appropriate to refer that aspect of the matter to a referee. However I will hear the parties on this matter in due course should that be necessary.

107 The parties are to prepare Short Minutes of Order containing declarations and consequential Orders together with an agreed costs order in relation to these proceedings. It will be necessary to revisit the plaintiff’s abandonment of claims for certain relief in these proceedings for inclusion of appropriate orders in those Short Minutes together with consequential costs orders. The proceedings are listed for the filing of Short Minutes on 14 August 2006 at 9.30 am or such other mutually convenient time as arranged with my Associate. If the parties are unable to agree on a costs order I will hear argument on that day.

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Citations

Whitlam v National Roads and Motorists' Association Limited [2006] NSWSC 766

Most Recent Citation

Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus (No 3) [2008] FCA 1986

Cases Citing This Decision

8

National Roads and Motorists' Association v Whitlam [2007] NSWCA 81

Cases Cited

4

Statutory Material Cited

4

Shum Yip Properties Development Ltd v Chatswood Investment and Development Co Pty Ltd [2002] NSWSC 13

Australian Securities and Investments Commission v Whitlam [2002] NSWSC 526

Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183

CITATION:	Whitlam v National Roads and Motorists' Association Limited [2006] NSWSC 766
HEARING DATE(S):	29 May 2006, 30 May 2006 and 1 June 2006
JUDGMENT DATE :	3 August 2006
JUDGMENT OF:	Bergin J
DECISION:	The plaintiff is entitled to indemnity - see paragraph 105-107
CATCHWORDS:	[STATUTORY CONSTRUCTION] whether the expression "indemnity against liability to another person" in s 241(2) of the Corporations Law includes a liability for legal costs in the light of s 241(3) of the Law. [DEEDS - INDEMNITIES] whether the indemnity in the Deeds between the parties provides indemnity for the plaintiff's legal costs in defamation proceedings in respect of defamatory imputations published of and concerning the plaintiff in the performance of his duties.
LEGISLATION CITED:	Corporations Act 2001 (Cth) Companies Code Corporations Law Defamation Act 1974 (NSW)
CASES CITED:	Australian Securities and Investments Commission v Whitlam (2002) 169 FLR 383 In Re Famatina Development Corporation [1914] 2 Ch 271 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 Petritsis v Hellenic Herald Pty Limited [1978] 2 NSWLR 174 Re City Equitable Insurance Fire Co Ltd [1925] Ch 407 The James Seddon L.R. 1A. & E. 62 Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559
PARTIES:	Nicholas Richard Whitlam - Plaintiff National Roads and Motorists' Association Limited - Defendant
FILE NUMBER(S):	SC 50185/2004
COUNSEL:	JT Gleeson SC/ NJ Owens - Plaintiff RM Smith SC/ V Kerr - Defendant
SOLICITORS:	Phillips Fox - Plaintiff Corrs Chambers Westgarth - Defendant