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[2025] QCA 217
mixed. Appeal allowed in respect of paragraphs (b) and (c) of order 1 made on 19 December 2024. Paragraph (b) was set aside. Paragraph (c) was renumbered as paragraph (b) and amended by substituting “not be...
The Court of Appeal held that G8 had to advance legal costs that Hutson reasonably expected to incur in defending the relevant proceedings. The requirement was not a separate test that every expected cost had to be reasonable in isolation, but the size and character of the costs could still matter when deciding whether her expectation was reasonable. G8 could set reasonable terms about how an advance operated, but could not use those terms to delay or narrow its obligation. It could not require earlier advances to be spent first or limit consideration to monthly requests. The Court removed an overly absolute declaration about cost reasonableness, adjusted the wording of the declaration about terms, and did not decide the specific challenge to the third proposed term.
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2,293 words · generated 07/10/2026
2 cited instruments linked from this judgment.
G8 Education Ltd and Jennifer Joan Hutson had a deed of access, insurance and indemnity dated 24 March 2010. Hutson was a former director of G8 and was being prosecuted for criminal offences alleged to have been committed during her directorship. The dispute concerned whether, and on what terms, G8 had to fund her legal costs while the criminal proceedings were unresolved ([1], [8]–[16]).
The deed contained two provisions central to the appeal. Clause 2.2 provided an indemnity, to the extent permitted by law, for “any and all legal costs” in specified circumstances. Clause 4.3(a) required G8 to advance legal costs “reasonably incurred or expected to be incurred” in defending an action. Clause 4.3(b) said advances were to be on terms G8 determined to be reasonable in the circumstances. Clause 4.5 dealt with repayment if, after final determination, costs were ones for which Hutson was not entitled to indemnity, including where the statutory restriction applied ([11], [15]–[16]).
The primary judge made declarations about the operation of clause 4.3. The declarations stated, among other things, that G8 had to advance amounts Hutson reasonably expected to incur, that the advance obligation was not limited to or dependent on the reasonableness of the costs, and that terms under clause 4.3(b) had to be consistent with the clause 4.3(a) obligation. The primary judge also declared that two proposed terms were inconsistent with that obligation: first, requiring existing advances to be exhausted before further advances were considered; and second, considering further advances only month by month ([2], [6]).
G8 appealed. Hutson cross-appealed, including in relation to a third proposed condition that would require a specific monthly request, detailed task and cost information, and reconciliation against earlier estimates ([5]–[6]). Before the appeal was decided, the Commonwealth Director of Public Prosecutions advised that both indictments were being discontinued. The Court nevertheless heard the appeal because the deed remained in force and the parties considered further requests for funding theoretically possible ([3]).
The Court of Appeal allowed the appeal only in part. It set aside the declaration that the advance obligation was not limited to or dependent on the reasonableness of the costs. It amended the declaration concerning terms under clause 4.3(b), replacing “be consistent with” with “not be contrary to”. It otherwise dismissed the appeal, maintained the declarations concerning proposed terms 1 and 2, and dismissed the cross appeal ([68]–[69], [80]).
The Court began with objective contractual construction. It stated that the parties’ rights and liabilities under a commercial contract are determined by reference to the text, context, including the whole contract, and purpose, viewed through what a reasonable businessperson would understand ([56], applying Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd at [46]–[47]).
That approach required reading the advance provision alongside the indemnity and the statutory setting. Clause 2.2 provided a broad indemnity for legal costs, subject to the deed’s terms and the Corporations Act. Clause 4.3 provided a mechanism for funding costs before the proceeding had been resolved. Clause 4.5 provided for repayment if the eventual determination meant the costs could not be indemnified. The Court treated the advance mechanism as giving practical effect to the indemnity while the criminal proceeding remained unresolved, subject to statutory limits and possible repayment ([59]–[60]).
The relevant statutory provisions were Corporations Act 2001 (Cth), ss 199A and 212. Section 199A(3) restricts indemnification for specified legal costs, including costs of defending criminal proceedings where the officer is found guilty. Section 212(2) provides an exception from member approval requirements for certain advances for an officer’s legal costs, including where repayment is required if the costs become ones for which the company must not indemnify the officer. The Court said the deed’s advance and repayment provisions were designed to operate within those statutory limits ([17]–[18], [60]).
On clause 4.3(a), the Court accepted that “reasonably” applies to the incurring or expected incurring of costs. For prospective costs, the question is whether the director’s expectation that identified costs will be incurred is objectively reasonable ([62]). But the declaration made by the primary judge went further. Its absolute wording could be read to exclude the reasonableness of the amount from consideration altogether. The Court identified an example: if expected costs were exorbitant or extravagant, the expectation might be unreasonable because of the quantum itself, rather than because the proposed legal work was unnecessary. In that situation, the advance obligation might not arise ([63]–[64]).
The Court therefore distinguished between two propositions. The contract did not create a separate, general requirement that every expected cost be reasonable as an independent condition. But the cost amount could be relevant when assessing whether the expectation of incurring those costs was reasonable. Because the existing declaration was too wide, the Court set it aside rather than rewrite it to address a hypothetical extravagant-cost scenario that was not the subject of a current dispute ([64]–[65]).
For clause 4.3(b), the Court treated the provision as governing the mechanics and terms of an advance required under clause 4.3(a). It did not qualify the advance obligation. Terms could deal with matters such as how funds were paid or how invoices were provided. The Court also identified interest payable if repayment were required as a possible term ([31], [66]–[67]). The wording “consistent with” was too broad because some reasonable terms might concern matters outside the scope of the advance obligation, without undermining it. The more accurate limit was that a term must “not be contrary to” the obligation ([67]).
The judgment did not announce a new statutory rule. Its main task was to interpret this deed, applying established principles of commercial contract construction. It relied on Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd for the objective method of construction ([56]).
The judgment also discussed Note Printing Australia Ltd v Leckenby. In that case, as described by the Court of Appeal, the Victorian Court of Appeal considered a deed indemnifying an officer for legal costs of defending criminal charges and the operation of s 199A(3)(b). The Court noted that the deed in Leckenby did not contain a provision equivalent to clause 4.3 of the G8 deed. It referred to Leckenby’s reasoning that the parties could be understood to have intended maximum protection available while respecting the statutory prohibition, and that the possibility of ongoing legal costs before verdict was relevant to that construction ([57]–[58]).
The G8 Court applied that context to the deed before it, while emphasising the particular provisions here: an express advance obligation, an indemnity, and a repayment mechanism. The deed’s express commitment to unsecured advances and the five-business-day timing requirement informed the Court’s conclusion about the balance the parties had struck ([59]–[62]). The judgment does not displace the statutory limits in ss 199A or 212, and it does not say that every director indemnity must contain the same terms.
After this decision, the operative declarations were narrower and more precise. The declaration that G8 must advance costs reasonably expected to be incurred remained. The absolute statement that the reasonableness of the costs was irrelevant was removed. The rule governing terms under clause 4.3(b) became that terms must not be contrary to the advance obligation. The declarations against the exhaustion-first and month-to-month conditions remained in place ([68]–[69], [80]).
At [56], the Court stated that contract rights and liabilities are assessed objectively by reference to the contract’s text, context and purpose. In plain English, the Court did not ask what either party privately intended. It asked what a reasonable businessperson would understand from the deed as a whole.
At [62], the Court said the parties’ agreement reflected how their respective interests were balanced. G8 had accepted unsecured advances, while the deed also provided for repayment in specified circumstances. In plain English, the Court regarded the written terms as the balance the parties had agreed, rather than adding a further restriction based only on G8’s concern about exposure.
At [64], the Court explained why the declaration about cost reasonableness was too broad. An exorbitant amount may make the expectation of incurring it unreasonable. In plain English, the legal-cost amount is not automatically irrelevant: it may be part of assessing whether the expectation itself is reasonable.
At [66], the Court described clause 4.3(b) as dealing with the mechanics of the advance and said it did not qualify the clause 4.3(a) obligation. In plain English, G8 could set reasonable operating conditions, but could not use those conditions to undo or reduce the obligation to advance qualifying costs.
At [68]–[69], the Court held that the first two proposed terms detracted from that obligation. Requiring existing funds to be exhausted first or restricting requests to a month-by-month basis could prevent advances that clause 4.3(a) otherwise required. The Court therefore left the declaration against those conditions in place.
At [70], the Court referred to Hannover Life Re of Australasia Ltd v Jones for the requirement that a party forming an opinion about reasonableness must act reasonably and fairly on the material before it. This provides context for clause 4.3(b), which gave G8 a role in determining whether proposed terms were reasonable.
The decision is most directly relevant where a company deed contains provisions resembling those in this case: a broad indemnity for legal costs, an express obligation to advance costs before final determination, terms to be set by the company, and a repayment mechanism if the officer ultimately cannot be indemnified.
It is particularly relevant where the dispute is about prospective legal costs. The Court treated “expected to be incurred” as having work to do: the relevant issue is whether the expectation of incurring identified costs is objectively reasonable ([62]). The decision also identifies a possible boundary case: costs that are exorbitant or involve extravagant resources may affect whether that expectation is reasonable ([63]–[64]).
The case is also relevant to proposed conditions that regulate the timing or availability of advances. Conditions that require prior advances to be exhausted, or that impose a monthly-only limit, were found to detract from the obligation in this deed ([68]–[69]). The decision does not establish that every procedural or reporting condition is invalid. It recognises that terms concerning payment mechanics, invoice form, reporting intervals or interest may be reasonable in appropriate circumstances, depending on their operation and whether they undermine the obligation ([31], [66]–[67]).
The statutory setting matters. The deed was considered against ss 199A and 212 of the Corporations Act, including the possibility that costs may need to be repaid if the officer is found guilty and the statutory prohibition applies ([17]–[18], [60]). The judgment’s reasoning is tied to the terms of this deed and those statutory provisions. It does not determine the operation of differently worded deeds or resolve every question about director indemnities.
The supplied judgment contains no account of later decisions applying or distinguishing G8 Education Ltd v Hutson. It was delivered on 7 November 2025, and the text provided does not cite any later treatment. It would therefore be unsupported to describe a subsequent line of authority or claim that later courts have adopted a particular approach.
The judgment itself explains its relationship with earlier authorities. It cited Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd for the established method of contractual construction ([56]). It discussed Note Printing Australia Ltd v Leckenby, including the difference between the deed in that case and the express advance mechanism here ([57]–[59]). It cited Hannover Life Re of Australasia Ltd v Jones for the standard applicable where a contractual party must determine whether something is reasonable ([70]).
For research purposes, the specific propositions that later treatment would need to address are the construction of “reasonably expected to be incurred”, the boundary between an advance obligation and reasonable conditions governing its operation, and the effect of statutory repayment safeguards. This judgment alone does not show how later courts have resolved those questions in other contracts or factual settings.
The Court did not determine whether proposed term 3 was reasonable or permitted in the circumstances for which it had been proposed. That term required a specific funding request accompanied by details of the work, why it was required, who would do it and at what cost, as well as a reconciliation against previous estimates ([6]). The Court said that the associated arguments arose in the context of anticipated lengthy criminal trials that were no longer proceeding, so there was no utility in considering them ([72]). The decision therefore does not provide a final answer about that particular term.
The judgment does not set a quantitative threshold for when legal costs become exorbitant or extravagant. It gives those as examples of circumstances that might affect whether the expectation of incurring costs is reasonable, but does not decide a specific costs estimate or set a test for measuring excess ([63]–[65]).
There is also no determination of how clause 4.3(a) would apply to a concrete request where the parties disagree about the scope, timing or likely cost of particular legal work. The Court explains the contractual standard but does not decide a contested estimate after examining invoices, budgets or evidence about proposed work.
Finally, the judgment does not resolve the operation of other deed provisions beyond those relevant to the appeal, nor does it provide a general ruling on the validity of all advance arrangements under the Corporations Act. Its conclusions concern the language of this deed and the statutory provisions identified in the reasons.
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Source: Queensland Judgments (Supreme Court Library Queensland) (www.queenslandjudgments.com.au). Converted to plain text by ZoeLaw. Not the official version.
SUPREME COURT OF QUEENSLAND
CITATION: G8 Education Ltd v Hutson [2025] QCA 217
PARTIES: G8 EDUCATION LTD (ACN 123 828 553) / (appellant) / v / JENNIFER JOAN HUTSON / (respondent)
FILE NO/S: Appeal No 176 of 2025 / SC No 12263 of 2024
DIVISION: Court of Appeal
PROCEEDING: General Civil Appeal
ORIGINATING COURT: Supreme Court at Brisbane – [2024] QSC 319 (Wilson J)
DELIVERED ON: 7 November 2025
DELIVERED AT: Brisbane
HEARING DATE: 19 March 2025
JUDGES: Mullins P, Gotterson AJA and Bradley J
ORDERS: Appeal allowed in respect of paragraphs (b) and (c) of order 1 made on 19 December 2024. Set aside paragraph (b) of order 1 made on 19 December 2024. Amend paragraph (c) of order 1 made on 19 December 2024 so that it becomes paragraph (b) and the words “not be contrary to” are substituted for the words “be consistent with”. Appeal otherwise dismissed. Cross appeal dismissed. If no submissions on the costs of the appeal and the cross appeal are filed on or before 10 days after the delivery of these reasons, there will be no order as to the costs of the appeal and the cross appeal. If at least one of the parties files submissions on costs on or before 10 days after the delivery of these reasons, the costs of the appeal and the cross appeal will be reserved to be determined on the papers.
CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the respondent was a former director of the appellant – where there was a deed of access, insurance and indemnity (the deed) between the parties – where the deed provided the appellant would indemnify the respondent in respect of liabilities and legal costs incurred by the respondent during her time as director of the appellant and each related body corporate and for seven years after she ceased to be a director – where the deed provided the appellant would indemnify the respondent “to the extent permitted by law” against all legal costs incurred by the respondent in defending an action – where in clause 4.3 of the deed provided for the appellant to advance to the respondent any legal costs reasonably incurred or expected to be incurred by the respondent in defending an action – where the respondent was being prosecuted for criminal offences which were alleged to have been committed when the respondent was a director – where the appellant argued before the primary judge that clause 4.3 incorporated a requirement that the legal costs incurred or expected to be incurred be reasonable – where the primary judge rejected the appellant’s argument and declared that the appellant’s obligation under the deed was not limited to or dependent on the reasonableness of the legal costs incurred or expected to be incurred – whether the primary judge erred in the construction of the appellant’s obligations under clause 4.3(a) / CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the respondent was a former director of the appellant – where there was a deed of access, insurance and indemnity (the deed) between the parties – where the deed provided the appellant would indemnify the respondent in respect of liabilities and legal costs incurred by the respondent during her time as director of the appellant and each related body corporate and for seven years after she ceased to be a director – where the deed provided the appellant would indemnify the respondent “to the extent permitted by law” against all legal costs incurred by the respondent in defending an action – where clause 4.3 of the deed provided for the appellant to advance to the respondent any legal costs reasonably incurred or expected to be incurred by the respondent in defending an action – where clause 4.3(a) of the deed provided for the timing of the appellant’s advances on account of legal costs after the respondent provided to the appellant invoices or other relevant evidence of the costs incurred or expected to be incurred – where clause 4.3(b) provided that advances of funds under clause 4.3 were to be on terms which the appellant determined to be reasonable in the circumstances – where the primary judge declared that any term imposed by the appellant under clause 4.3(b) must be consistent with its obligations under clause 4.3(a) – where the appellant argued this declaration was premised on an incorrect conclusion as to the appellant’s obligation, failed to read the clauses 4.3(a) and (b) together and failed to give effect to the express term conferring power on the appellant to impose terms – whether the primary judge erred in the construction of the deed – whether clause 4.3 required consistency between the terms imposed under clause 4.3(b) and the appellant’s obligations under clause 4.3(a) / CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the respondent was a former director of the appellant – where there was a deed of access, insurance and indemnity (the deed) between the parties – where the deed provided the appellant would indemnify the respondent in respect of liabilities and legal costs incurred by the respondent during her time as director of the appellant and each related body corporate and for seven years after she ceased to be a director – where the deed provided the appellant would indemnify the respondent “to the extent permitted by law” against all legal costs incurred by the respondent in defending an action – where clause 4.3 of the deed provided for the appellant to advance to the respondent any legal costs reasonably incurred or expected to be incurred by the respondent in defending an action – where clause 4.3(a) of the deed provided for the timing of the appellant’s advances on account of legal costs after the respondent provided to the appellant invoices or other relevant evidence of the costs incurred or expected to be incurred – where the appellant sought to impose three proposed terms under clause 4.3(b) on advances for legal costs to be incurred – where the primary judge found that it was not open to the appellant to impose two of the proposed terms under clause 4.3(b) – where the primary judge declared that those two proposed terms were inconsistent with the appellant’s obligations under clause 4.3(a) – where the primary judge refused to find that the third proposed term was inconsistent with clause 4.3(a) – whether the primary judge erred in making the declaration in respect of two of the proposed terms and refusing to make a declaration in respect of the third proposed term – whether primary judge erred in the construction of the deed / Corporations Act 2001 (Cth), s 199A, s 212 / Uniform Civil Procedure Rules 1999 (Qld), r 766 / Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233, cited / Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, cited / Note Printing Australia Ltd v Leckenby (2015) 50 VR 44; [2015] VSCA 105, cited
COUNSEL: A M Pomerenke KC, with S D McCarthy, for the appellant / P K O'Higgins KC, with K T Grimshaw, for the respondent
SOLICITORS: Allens for the appellant / RHR Legal for the respondent
MULLINS P: The respondent is a former director of the appellant who was being prosecuted for criminal offences alleged to have been committed during her directorship. Issues arose as to the construction and application of the deed of access, insurance and indemnity made on 24 March 2010 between the parties (the deed) in respect of the funding of the respondent’s legal costs for defending the criminal charges. Those issues were determined by the primary judge: Hutson v G8 Education Ltd [2024] QSC 319 (the reasons).
The declarations made by the primary judge on 19 December 2024 (the declarations) as to the construction and the application of the deed, substituting the parties’ designations on this appeal, were as follows:
“1.The Court declares that on the proper construction of the Deed of Access, Insurance and Indemnity dated 24 March 2010 between the [appellant] and the [respondent] (the ‘Deed’):
a.subject to clauses 4.3 (b) and 4.5, under clause 4.3 (a) the [appellant] must advance to the [respondent] any amount that the [respondent] reasonably expects to be incurred for legal costs:
i.in defending an action for a Liability (as defined in the Deed) incurred or allegedly incurred by the [respondent] as an officer of the [appellant];
ii.within five Business Days (as defined in the Deed) after the [respondent] provides the [appellant] with invoices or other relevant evidence of the legal costs reasonably expected to be incurred;
b.the obligation of the [appellant] to make an advance to the [respondent] under clause 4.3 (a) is not limited to or dependent on the reasonableness of the legal costs incurred or expected to be incurred by the [respondent]; and
c.any term imposed by the [appellant] under clause 4.3 (b) must be consistent with its obligations under clause 4.3 (a).
2.The Court declares that the following proposed terms are inconsistent with the [appellant]’s obligations under clause 4.3 (a):
a.all existing advances must first be exhausted (in the payment of reasonable costs) before any further advance will be considered; and
b.any further advance will only be considered on a month to month basis.”
Grounds of appeal
The primary judge erred in finding that, on the proper construction of the deed between the appellant and the respondent: a.the appellant is obliged to advance to the respondent, under clause 4.3(a), any amount that the respondent reasonably expects to be incurred for legal costs;b.the appellant’s obligation under clause 4.3(a) is not limited to or dependent upon the reasonableness of the legal costs incurred or expected to be incurred by the respondent.
The primary judge erred in finding that, on the proper construction of the deed, clause 4.3(b) does not permit the imposition of terms that change or are inconsistent with the appellant’s obligation under clause 4.3(a).
The primary judge erred in finding that, on the proper construction of the deed, the terms imposed by the appellant (as set out in [204](a) and [204](b)(i) of the reasons) (respectively proposed terms 1 and 2) were not open to it to impose under clause 4.3(b).
The appellant seeks an order on the appeal that paragraphs 1 and 2 of the declarations be set aside and does not seek any alternative declarations. The respondent seeks to maintain the declarations and cross appeals the primary judge’s failure to declare that proposed terms 1 and 2 were not reasonable and were inconsistent with the express terms of clause 4.3(b) of the deed. The respondent also cross appeals the primary judge’s failure to declare that the additional term proposed to be imposed by the appellant under clause 4.3(b) of the deed (as set out in [204](b)(ii) of the reasons) (referred to as proposed term 3) was unreasonable and inconsistent with the appellant’s obligations under clause 4.3(a) and the express terms of clause 4.3(b).
Proposed terms 1, 2 and 3 that the appellant sought to impose pursuant to clause 4.3(b) were set out at [204] of the reasons as follows (to which identification of each of the proposed terms has been added in bold):
“(a)all existing advances must first be exhausted (in the payment of reasonable costs) before any further advance will be considered [proposed term 1]; and
any further advance will only be considered:
on a month-to-month basis [proposed term 2];
when a specific request for funding is made and that request is accompanied by:
(A)a detailed explanation of the tasks to be carried out that month, why those tasks must be carried out, by whom and for what cost; and
(B)a reconciliation against the previous estimates of costs that have been provided [proposed term 3].”
The issues
Does paragraph 1(b) of the declarations properly construe clause 4.3?
Does clause 4.3 require consistency between any term imposed under clause 4.3(b) and the appellant’s obligations under clause 4.3(a)?
Was it open to the appellant to impose proposed terms 1 and 2 under clause 4.3(b)?
Did clause 4.3(b) allow the appellant to impose proposed term 3?
The deed
The deed provides for the appellant to indemnify the respondent in respect of liabilities and legal costs incurred by the respondent during the time she held office as a director of the appellant and each related body corporate of the appellant and for seven years after she ceased to be a director on terms that endeavour to avoid infringing s 199A(3) of the Corporations Act 2001 (Cth) (Act). That provision precludes a company or related body corporate from indemnifying a person against legal costs incurred in defending an action for a liability incurred as an officer of the company if the costs are incurred in defending or resisting criminal proceedings in which the person is found guilty.
The critical clauses of the deed for the purpose of addressing the grounds of appeal are set out in full below. The recitals to the deed are under the heading “Background” and set out in [18] of the reasons. Relevantly, as recorded in clause B, the appellant agreed to indemnify the respondent “to the extent permitted by law” against certain liabilities (as defined) and legal costs incurred by the respondent as an officer of a group company (which is defined in the deed to mean the appellant and each related body corporate of the appellant). An extensive selection of clauses of the deed is set out in the reasons at [21]‑[26], [31]-[63] and [91], as some arguments before the primary judge not pursued on the appeal had regard to clauses of the deed other than the critical clauses.
Section 2 of the deed is concerned with the indemnity for liabilities and legal costs. Clause 2.1 confers the general indemnity to the extent permitted by law against all liabilities (other than for legal costs referred to in clause 2.2 incurred by the director in connection with or as a consequence of the director acting in any capacity as director of a group company).
The application before the primary judge concerned the costs indemnity found in clause 2.2 which provides:
“Subject to:
clauses 2.3, 2.4, 2.5 and 8; and
the prohibitions in section 199A of the Corporations Act;
the Company indemnifies the Director to the extent permitted by law against any and all legal costs:
incurred by the Director in defending or resisting (or otherwise in connection with) an action;
for a Liability incurred or allegedly incurred by the Director in connection with or as a consequence of the director acting in any Capacity; or
incurred by the Director in instigating proceedings to protect the interests of the Company or the Director in relation to acts undertaken in his or her Capacity with a Group Company.”
None of clauses 2.3, 2.4, 2.5 and 8 is relevant to the construction issues raised on the appeal. Clause 2.2 provides for a full indemnity in respect of “all legal costs” incurred in any of the circumstances set out in paragraphs (c), (d) and (e) of clause 2.2 and subject to paragraphs (a) and (b) of clause 2.2.
Section 4 of the deed is concerned with advances and payments in respect of the indemnity. Clause 4.1 relevantly provides:
“Any monies payable by the Company to the Director under this indemnity must … be paid within ten Business Days after the Director provides evidence satisfactory to the Company that the Director is entitled to be indemnified under this document for that amount.”
Clause 4.2 makes it clear that it is not necessary for the director to make any payment before enforcing the director’s rights under the deed.
Clause 4.3 which is headed “Advance defence costs” provides:
“(a)Subject to clause 4.5 and without prejudice to clause 8, the Company must advance to the Director any legal costs reasonably incurred or expected to be incurred by the Director in defending an action for a Liability incurred or allegedly incurred by the Director as an officer of a Group Company, within 5 Business Days after the Director provides the Company with invoices or other relevant evidence of the costs incurred.
Advances of funds under this clause 4.3 are to be on terms which the Company determines to be reasonable in the circumstances and are to be unsecured and free of interest (unless the Director ceases to [be] entitled to be indemnified for the amount under this document).”
“(a)If the Company (or any of its Subsidiaries) advances moneys to the Director under clause 4.3 or otherwise pays or reimburses the Director (or any other person) for costs in accordance with this document (‘Relevant Costs’) and upon the final determination of the Claim the Relevant Costs become costs in respect of which the Director is not entitled to be indemnified under this document, the Director must repay the amount and any accrued interest to the Company (or its Subsidiaries as the case may be) within 60 Business Days after a written request by the Company.
If the Director also receives payment in respect of some or all of the Relevant Costs under:
the D&O Policy or any other insurance policy; or
an indemnity given by a Subsidiary of the Company,
then the Director must, within ten Business Days after receiving payment under the relevant insurance policy or indemnity, pay to the Company an amount equal to the amount recovered by the Director under the insurance policy or indemnity in respect of the Relevant Costs.”
The Act
“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:
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
in defending or resisting criminal proceedings in which the person is found guilty; or
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
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.”
“Member approval is not needed to give a financial benefit if:
the benefit is for a related party who is an officer of the public company or entity; and
the benefit is the making of, or an agreement to make, a payment (whether by way of advance, loan or otherwise) in respect of legal costs incurred by the officer in defending an action for a liability incurred as an officer of the public company or entity; and
either:
section 199A does not apply to the costs; or
if section 199A applies to the costs—the officer must repay the amount paid if the costs become costs for which the company must not give the officer an indemnity under that section; and
to give the benefit would be reasonable in the circumstances of the public company or entity giving the benefit.”
The reasons
The appellant’s submission before the primary judge (recorded at [101] of the reasons) was that there was no prospective element to clause 4.3(a) and that it was only obliged to pay legal costs that were both reasonable and had been incurred. This was based on the deed operating as a loan agreement between the appellant and the respondent. It was the appellant’s alternative argument before the primary judge that, if clause 4.3(a) of the deed did require payment to be made to the respondent in advance of the costs being incurred, there was still a requirement for such costs to be reasonable.
There is no challenge to the orthodox principles of interpretation of the provisions of a commercial contract set out by the primary judge at [131] of the reasons.
The primary judge applied (at [136]-[137] of the reasons) the approach of the Victorian Court of Appeal in Note Printing Australia Ltd v Leckenby (2015) 50 VR 44 at [38]-[39] to the construction of a deed of indemnity between a company (referred to as NPAL) and its chief executive officer Mr Leckenby in respect of legal costs and expenses which he might incur as an officer of NPAL in defending an action for a liability incurred as such an officer.
The primary judge found (at [136]-[145] of the reasons) that the deed was an agreement that provided for the appellant to pay the legal costs of the respondent in defending the criminal prosecution up until, and unless, there was a guilty verdict in which case there was an obligation to repay any such payments together with any accrued interest. The primary judge concluded (at [140]) that the structure and content of the deed involved the type of transaction that s 199A(3)(b) of the Act permits.
The primary judge noted (at [147] of the reasons) that once a criminal proceeding was commenced, there were limited options as to how it could conclude and (at [149]) that the parties to the deed would therefore have anticipated that the respondent’s legal representation for the criminal proceeding would more than likely continue up to verdict. The primary judge concluded (at [149]) that “the parties deliberately ensured that the Deed had a prospective element to ensure that the [respondent] had legal representation up until a verdict”. The primary judge considered (at [154]) that this was reinforced by clause 4.3(a) expressly using the term “expected to be incurred”.
The conclusion of the primary judge on the construction of clause 4.3(a) reflected in paragraph 1(b) of the declarations is set out at [159]-[163] of the reasons:
“[159]The plain words of clause 4.3 (a) require the [appellant] to advance to the [respondent] an amount reflecting any legal costs reasonably incurred or expected to be incurred.
[160]That is, the adverb ‘reasonably’ applies to that which is ‘incurred’ or that which is ‘expected’. In the present circumstances, it is the expectation of the incurring of those costs which must be reasonable.
[161]That does not require an assessment of the reasonableness of the costs (to be incurred) but rather, the reasonableness of the [respondent]’s expectation that those costs will be incurred.
[162]Clause 4.3 (a) contemplates, by use of the past tense ‘incurred’ and the use of the future phrase ‘expected to be incurred’, both retrospective and prospective incurring of legal costs.
[163]The use of the disjunctive ‘or’ in the phrase ‘reasonably incurred or expected to be incurred’ should be understood as presenting two alternative situations where the [appellant] is required to make an advance to the [respondent]. That is:
the [appellant] must advance to the [respondent] any legal costs reasonably incurred by the [respondent]; or
the [appellant] must advance to the [respondent] any legal costs reasonably expected to be incurred by the [respondent].”
The primary judge noted (at [164] of the reasons) that there was no ambiguity in clause 4.3(a) about the two alternative situations that are contemplated by the provision. It was the second of the alternative situations that was the focus of submissions before the primary judge (as reflected by the terms of paragraph 1(a) of the declarations). The key finding for the purpose of ground 1 set out at [166] is that for the prospective situation “it is the expectation of incurring the costs that must be reasonable” and “[n]othing in the wording requires an assessment of the reasonableness of the amount of the costs to be incurred”. The primary judge found (at [168]-[172]) that there was support for that construction of clause 4.3(a) by the adoption of a businesslike approach to the interpretation of a commercial contract. In particular, the primary judge noted (at [169]) that, unless there was an agreement for ongoing legal costs to be paid prior to, and up to, a verdict, the respondent could incur significant liability for those costs in a manner that could potentially compromise her defence. The primary judge also accepted (at [171]) that a reasonable businessperson in the position of the parties would know that it was highly likely that, in defending serious criminal charges, it was necessary for funding to be provided well in advance of the services being rendered and that failing to do so would seriously prejudice the conduct of the defence. The primary judge noted (at [172](a)) that the deed “was designed to secure an indemnity as wide as possible for the [respondent], providing for protection against ‘Liabilities’ defined in almost the broadest possible terms and ‘to the extent permitted by law’”.
A further key finding was made at [173]:
“Accordingly, it is in that context that clause 4.3 (a) provides that the [appellant] ‘must advance’ the legal costs reasonably expected to be incurred by the [respondent]. The condition of ‘reasonableness’ is applied to the expectation that the identified legal costs will be incurred, and that condition is to be objectively assessed.”
“Requiring only that the reasonableness condition be applied to the expectation (and not the costs themselves) is consistent with the funding of costs in advance and with the broad indemnity in clause 2.2 (which is not subject to a reasonableness condition) and the need to ensure that proper funding is advanced so as not to compromise the defence of the criminal charges.”
“(a)clause 4.3 (a) operates to require the respondent to advance funds for any legal costs reasonably expected to be incurred;
the reasonableness of the expectation to incur legal costs can be objectively and easily assessed (for example, by reference to a costs estimate from a reputable legal advisor) in a relatively short timeframe to allow funds to be advanced and the defence conducted without delays;
the respondent’s rights to seek an assessment of costs once incurred would not be affected; and
insofar as any advance is not completely exhausted by legal costs, clause 4.5 (a) of the Deed operates to require the respondent to repay the balance of the advance to the respondent, on request.”
Under clause 4.3(a) the timing of the advance on account of “any legal costs reasonably incurred or expected to be incurred” is specified as “within 5 Business Days after the Director provides the Company with invoices or other relevant evidence of the costs incurred”. The respondent’s contention that the reference to “evidence of the costs incurred” should be construed to mean “evidence of the costs incurred or expected to be incurred” consistent with the first part of clause 4.3(a) was accepted by the primary judge (at [180] and [185]) and that finding was not challenged on the appeal. It is obvious that clause 4.3(a) should be read as if those words “or expected to be incurred” were inserted at the conclusion of paragraph (a).
The primary judge resolved the parties’ different constructions of clause 4.3 by finding that the proper construction was that contended for by the respondent, stating at [190] of the reasons:
“Prima facie, there is no ‘apparent inconsistency’ between clauses 4.3 (a) and clause 4.3 (b):
clause 4.3 (a) is expressed in mandatory terms and requires the [appellant] to advance to the [respondent] any legal costs reasonably incurred or expected to be incurred by the [respondent]. This must be done within five business days after the [respondent] has provided the [appellant] invoices or other relevant evidence of the costs incurred; and
clause 4 .3 (b) then has the effect of entitling the [appellant] to impose terms in relation to advances made under clause 4.3 (a).”
The primary judge noted (at [191] of the reasons) that any terms imposed by the appellant pursuant to clause 4.3(b) could not change the obligation or be inconsistent with the obligation to make the advances as set out in clause 4.3(a). The primary judge provided (at [192]) examples of the terms that in certain circumstances might reasonably be imposed under clause 4.3(b). They were requirements for advances to be paid directly to the respondent’s solicitor’s trust account and all invoices rendered in relation to the advanced funds to be in a particular form or to be rendered at specified intervals or provided to the appellant within a prescribed period to facilitate prompt consideration of the costs actually incurred and the options for seeking an assessment under the Legal Profession Act 2007 (Qld).
As noted by the primary judge (at [194] of the reasons), the declarations in paragraph 1 were made at the request of the appellant to reflect the proper interpretation of clause 4.3 of the deed.
The primary judge dealt with proposed term 1 at [209]-[212] of the reasons. The primary judge was of the view (at [210]) that proposed term 1 was inconsistent with clause 4.3(b) of the deed as it entitled the appellant to limit how, and when, it considers advances under clause 4.3(a) which is inconsistent with the appellant’s obligation under clause 4.3(a) to advance any legal costs reasonably expected to be incurred. The primary judge therefore did not consider the alternative bases advanced by the respondent for seeking a declaration to the effect that proposed term 1 was not permitted by the deed.
The primary judge dealt with proposed term 2 at [213]-[215] of the reasons. As proposed term 2 sought to limit the appellant’s obligation to make advances “on a month-to-month basis”, the primary judge found (at [214]) that there was no temporal limitation under clause 4.3(a) in relation to the expectation of legal costs. The primary judge therefore found (at [215]) that a term limiting advances to a month-to-month basis was inconsistent with the appellant’s obligations under clause 4.3(a). The primary judge did not consider the alternative bases on which the respondent sought the declaration in relation to proposed term 2.
The primary judge considered (at [217] of the reasons) that proposed term 3 was not necessarily inconsistent with clause 4.3(a) and refused to make the declaration sought by the respondent.
The appellant’s submissions
Ground 1(a) of the notice of appeal was directed at paragraph 1(a) of the declarations that resolved the appellant’s contention before the primary judge (set out at [101] of the reasons) that the appellant was not obliged to advance an amount on account of prospective legal costs. That contention was not pursued on the appeal. No argument in writing or orally was addressed to ground 1(a) which is therefore treated as abandoned.
Ground 1(b) of the notice of appeal was directed at paragraph 1(b) of the declarations. There are two aspects of the challenge. First, the appellant asserts the reasonableness of the legal costs incurred or expected to be incurred is relevant to the assessment under clause 4.3(a) of the deed that the legal costs incurred by the director or the director’s expectation of the legal costs to be incurred is reasonable.
It is an essential step in the appellant’s submissions that clause 4.3 operates separately from the indemnity for legal costs in clause 2.2 and is therefore characterised as an interim measure by way of advance and not indemnity. The appellant submits that it has an interest in ensuring that it is not exposed to an unconstrained obligation to make unsecured advances to a director who may not ultimately be entitled to any indemnity and who may not have sufficient resources to repay the amounts advanced. That is why the appellant argued for the constraint of the reasonableness of the costs for any advance under clause 4.3(a). The appellant concedes that this asserted interest of the appellant must be balanced with the respondent’s interest in obtaining advances to be assured of legal representation to conduct the defence to the conclusion of the trial.
Second, the appellant complains that paragraph 1(b) of the declarations expresses in absolute terms that the obligation of the appellant to make an advance under clause 4.3(a) “is not limited to or dependent on the reasonableness of the legal costs incurred or expected to be incurred” by the director which unduly constrains the operation of the term “reasonably” in clause 4.3(a). The appellant submits that the reasonableness of the costs will often be a “key factor” in determining whether the incurrence or expectation is reasonable: the question whether costs were “reasonably incurred” or “reasonably … expected to be incurred” will extend to whether the costs incurred or the subject of the expectation “were exorbitant or involved the deployment of extravagant resources”. The appellant also submits that the primary judge wrongly treats clause 4.3 as reflecting the purpose and extent of the indemnity in clause 2.2, when clause 4.3 operates differently as an interim measure, by seeking to balance the interests of the respondent and the appellant pending the outcome of the prosecution for a criminal offence. The appellant’s last complaint about the declaration in paragraph 1(b) is that it was premised on an erroneous application of Leckenby.
The respondent’s submissions
There was no error in the primary judge’s approach of construing clause 4.3 in the context of “the broad indemnity in clause 2.2 (which is not subject to a reasonableness condition)”. To the extent that the appellant asserts the primary judge wrongly adopted the reasoning in Leckenby, the differences between the deed in Leckenby and the subject deed do not affect the correctness of those elements of Leckenby that the primary judge applied to the construction of the subject deed.
The respondent seeks to uphold the primary judge’s conclusion (at [173] of the reasons) that the condition of “reasonableness” in clause 4.3(a) is applied to “the expectation that the identified legal costs will be incurred, and that condition is to be objectively assessed”.
That conclusion embraced the respondent’s submission to the primary judge where, in response to the appellant’s example of a costs estimate for a minor matter which contemplated the engagement of multiple silks and juniors with solicitors performing excessive preparatory tasks, involving significant overlap and double handling, the respondent had submitted at paragraph 22 of its written submissions in reply:
“Putting aside the likelihood of such a costs estimate being produced by a reputable legal advisor, such an estimate in that context could not support an objectively reasonable expectation of costs to be incurred in defending the action.”
The respondent argues that the appellant’s contention that the reasonableness of costs will often be a key factor in determining whether the incurrence or expectation of incurring legal costs is reasonable should be rejected as conflating reasonableness of costs with the true test imposed by clause 4.3(a) of the reasonableness of the incurrence or expectation of incurring costs.
As to the terms of paragraph 1(b), the respondent argues that it does not exclude the possibility of reasonableness of costs being a relevant factor in a particular case for determining whether the expectation of incurring costs was reasonable and the declaration makes it clear that the reasonableness of costs is not the criterion in all cases.
With respect to paragraph 1(c) of the declarations, clause 4.3(b) applies only if clause 4.3(a) has been triggered to impose an obligation on the appellant to make an advance for legal costs and clause 4.3(b) does not contemplate terms that postpone or circumscribe the obligation to make an advance under clause 4.3(a).
In relation to [214] of the reasons, the respondent accepts that circumstances may suggest a temporal element to the relevant reasonable expectation for the purposes of clause 4.3(a). The respondent submits, however, that the observation by the primary judge at [214] to the effect that there is no temporal limitation under clause 4.3(a) was made in response to the term proposed by the appellant which would limit its obligations to consider paying advances under clause 4.3(a) to a month-to-month consideration. The respondent therefore suggests that the observation should be understood to mean there was no express temporal limitation imposed by clause 4.3(a) prohibiting a reasonable expectation of costs extending beyond one month in advance and should not be understood as a rejection in all circumstances of any temporal limitation under clause 4.3(a).
The respondent disputes the appellant’s entitlement to impose a term under clause 4.3(b) before the relevant advance is made. The respondent submits that a term imposed under clause 4.3(b) applies only to an advance once the obligation to make the advance has arisen (which only arises on provision of the relevant evidence). It is therefore an error to construe clause 4.3(b) as permitting a term to be imposed on the appellant’s consideration of the relevant evidence.
Supplementary submissions
At the request of the respondent at the conclusion of the hearing of the appeal, the parties were given leave to file supplementary submissions on any suggested amendments to paragraphs 1(b) and (c) of the declarations.
Consistent with the respondent’s approach before the primary judge and on the appeal, the respondent acknowledges in the supplementary submissions that “there is no real dispute that exorbitant costs or costs that involve the deployment of extravagant resources are not (or are unlikely to be) reasonably incurred or expected to be incurred”. The respondent’s primary position is that paragraph 1(b) of the declarations is not so rigid as to not admit the possibility of exorbitant or extravagant costs being relevant to the obligation to advances to costs reasonably incurred or reasonably expected to be incurred by the director. The respondent submits that if the Court concludes that it is, it would be open to the Court to vary the declaration to reflect that possibility so that paragraph (b) would be in the following terms (where the additional words have been italicised):
“the obligation of the respondent to make an advance to the applicant under clause 4.3(a) does not include an obligation to advance legal costs that are exorbitant or that involve the extravagant deployment of resources but otherwise is not limited to or dependent on the reasonableness of the legal costs incurred or expected to be incurred by the applicant; and”
In respect of paragraphs 1(c) and 2 of the declarations, the respondent submits that paragraph (c) could be amended so that rather than using “must be consistent with”, those words be substituted with “must not be contrary to”. A similar amendment is suggested to paragraph 2 by substituting “contrary to” in lieu of “consistent with”.
The appellant contends that, if the declarations made by the primary judge are set aside, this Court should not make the alternative declarations proposed by the respondent. The appellant argues that the alternative declarations would put an “impermissible gloss” on the contractual text and be divorced from the circumstances of the case. The appellant submits that the proposed alternative paragraph 1(b) of the declaration retains the awkward extra-contractual language and only carves out the example that was conceded by the respondent on the appeal where the proposed exception is not based on any dispute between the parties.
Does paragraph 1(b) of the declarations properly construe clause 4.3(a)?
Paragraph 1(b) of the declarations reflects the primary judge’s determination of the dispute that arose between the parties as to the criterion to be applied under clause 4.3(a) of the deed to determine whether the respondent’s request for an advance for prospective legal costs was for legal costs “reasonably expected to be incurred” in defending the criminal proceeding.
The rights and liabilities of parties under a commercial contract must be determined objectively, by reference to its text, context (including the terms of the entire contract) and purpose and having regard to what a reasonable businessperson would have understood the terms of the contract to mean: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[47].
The indemnity clause for legal costs and expenses in the deed in Leckenby was subject to an exception in respect of costs and expenses incurred in defending or resisting criminal proceedings in which the officer was found guilty. Mr Leckenby was charged with Commonwealth and Victorian criminal offences arising from alleged bribery of foreign officials. Prior to the charges being heard, he called on the indemnity. The question to be determined was whether s 199A(3)(b) of the Act precluded NPAL from indemnifying the officer while the criminal proceedings were continuing. There was no clause in the deed in Leckenby equivalent to clause 4.3 of the subject deed. The deed in Leckenby did include a clause that where it was established that the officer was not entitled to be indemnified under the indemnity clause, NPAL was relieved from its obligation in respect of that claim and the officer was required to refund to NPAL all amounts incurred by NPAL under the deed in respect of that claim. The decision at first instance upheld Mr Leckenby’s present entitlement to be indemnified by NPAL for his ongoing legal costs, as s 199A(3)(b) did not deal with the question of indemnity in respect of costs prior to verdict. That decision was upheld on appeal.
It was held in Leckenby (at [66]) by Tate JA (with whom Whelan and Ferguson JJA agreed) that it would have been apparent to a reasonable person in the position of NPAL and Mr Leckenby, at the time of entering into the deed, that, in the eventuality of a criminal prosecution, unless there was an agreement for ongoing legal costs to be paid prior to verdict, Mr Leckenby could incur significant liability for those costs in a manner that could be potentially compromising of his defence. From the language of the indemnity clause and the objects it was intended to secure, Tate JA observed (at [67]) that adopting a business like approach to the language of the indemnity clause and the objects it intended to secure, “the parties to the Deed are to be taken to have intended to make an arrangement which conferred upon Leckenby the maximum protection available while respecting, in particular, the prohibition in s 199A(3)(b)”. It was also observed (at [69]) that without the obligation to refund in the event of a guilty verdict, an agreement to make payments for the legal costs incurred in defending criminal proceedings would have violated the prohibition in s 199A(3)(b) of the Act.
Does clause 4.3 require consistency between any term imposed under clause 4.3(b) and the appellant’s obligations under clause 4.3(a)?
Clause 4.3(a) of the deed provides for the timing when the appellant must advance the amount on account of legal costs sought by the respondent after the respondent provides the appellant with invoices or other relevant evidence of the costs reasonably incurred or reasonably expected to be incurred that are the subject of the indemnity under clause 2.2. The subject matter of clause 4.3(b) is the advance of funds under clause 4.3 which refers to the advance of funds which the appellant is obliged to make under clause 4.3(a). Clause 4.3(b) is concerned merely with the mechanics of the advance of funds made under clause 4.3(a) and does not in its terms qualify the obligation under clause 4.3(a). The obligation to advance the amount of legal costs under clause 4.3(a) is implemented by the making of the advance under clause 4.3(b) on terms determined by the appellant to be reasonable in the circumstances but which do not detract from the obligation under clause 4.3(a). Apart from the examples of terms that the primary judge considered might reasonably be imposed under clause 4.3(b) (set out at [192] of the reasons), an important term that might be considered under clause 4.3(b) is the interest to be paid on any advance, if repayment under clause 4.5(a) were required.
It is possible for a term to be imposed under clause 4.3(b) on the advance which is not covered by the scope of the obligation under clause 4.3(a) but is determined by the appellant to be reasonable in the circumstances of making the advance of funds which the appellant is obliged to do under clause 4.3(a). The example given above of a term imposed under clause 4.3(b) specifying the rate of the interest to be paid on any advance, if repayment under clause 4.5(a) were required, illustrates the point. The language used in paragraph 1(c) of the declarations which suggests that any term imposed by the appellant under clause 4.3(b) must be consistent with its obligations under clause 4.3(a) is not entirely apt to reflect the relationship between the obligation under clause 4.3(a) to advance funds and the imposition of terms under clause 4.3(b) on the advance of those funds. Where the proposed term is covered by the scope of the obligation under clause 4.3(a), it would be more accurately expressed that any term was not contrary to the obligation under clause 4.3(a). A small amendment only is required to paragraph 1(c) to reflect the circumstance that consistency between the term imposed under clause 4.3(b) with the obligation under clause 4.3(a) is not required where the proposed term is not covered by the scope of, and does not otherwise detract from, the obligation under clause 4.3(a). This can be achieved by deleting the words in paragraph 1(c) of “be consistent with” and replacing them with “not be contrary to”. The conclusion of the primary judge (at [190]-[191] of the reasons) as to the relationship between clause 4.3(a) and clause 4.3(b) remains intact with the slight tweaking of the wording suggested above. Because the amendment is minor, it is appropriate to exercise the discretion to make the amendment and otherwise leave paragraph 1(c) of the declaration in place.
Was it open to the appellant to impose proposed terms 1 and 2 under clause 4.3(b)?
For the reasons given by the primary judge (at [210] and [213] of the reasons), both proposed terms 1 and 2 detract from the obligation under clause 4.3(a). The construction of clause 4.3 set out above means that if the subject matter of the term proposed under clause 4.3(b) is within the scope of the obligation imposed under clause 4.3(a) and qualifies that obligation, the term cannot be imposed. It was appropriate for the primary judge to make a declaration in relation to proposed terms 1 and 2.
As the subject matter of proposed terms 1 and 2 is within the scope of the obligation under clause 4.3(a), the use of the words of “are inconsistent” in paragraph 2 of the declarations is accurate. The appellant does not succeed on ground 3 of its appeal against paragraph 2 of the declarations.
Did clause 4.3(b) allow the appellant to impose proposed term 3?
The criterion for the imposition of a term under clause 4.3(b) is that the appellant determines the term “to be reasonable in the circumstances”. Where a contract requires one party to form an opinion as to whether something is reasonable, the obligation on the party is to form the opinion acting reasonably and fairly on the material before it: Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 at [5], [9] and [64].
The issue of construction raised by the parties’ submission is whether terms proposed under clause 4.3(b) of the deed for anticipated advances can be notified by the appellant to the respondent before the obligation to pay the advances under clause 4.3(a) arises. The primary judge did not directly address this issue but implicitly did so in [192] of the reasons. The examples of terms given in [192] that in certain circumstances could be reasonably imposed by the appellant are ones that could be specified as applying to all future advances. The example given at [66] above of the interest to be paid on an advance, if repayment were required, is one that could have been notified in anticipation of any advance being made as one that would apply to all advances.
Apart from this construction issue, the other arguments raised by the parties in dealing with proposed term 3 were done so in the context of the particular requests made by the appellant for legal costs expected to be incurred in anticipation of the commencement of two lengthy criminal trials. As those trials are now no longer proceeding, there is no utility in giving any further consideration to grounds 5-7 of the cross appeal.
Other issues on the cross appeal
Grounds 1-4 of the cross appeal which concern the respondent’s complaint that the primary judge did not deal with her alternative arguments for why the appellant was not entitled to impose proposed terms 1 and 2 can be disposed of briefly.
The effect of paragraph 2 of the declarations was to preclude the imposition by the appellant of proposed terms 1 and 2 under clause 4.3(b) of the deed for inconsistency with clause 4.3(a). That declaration has been maintained on this appeal. It was not necessary for the primary judge to deal with other reasons put forward by the respondent for making a declaration that would have the same effect of precluding the imposition of proposed terms 1 and 2. It is also not necessary in those circumstances to deal with the respondent’s alternative arguments in respect of proposed terms 1 and 2 on this appeal.
Orders
The appellant’s notice of appeal seeks an order against the respondent for the costs of the appeal and the proceeding before the primary judge. The respondent’s notice of cross appeal seeks an order for the costs of the appeal and the cross appeal.
The parties provided written submissions to the primary judge on the question of the costs of the proceeding after the reasons were published. The primary judge’s decision on costs was reserved when this appeal was heard. On 23 May 2025, the primary judge ordered the appellant pay 85 per cent of the respondent’s costs of the proceeding on the standard basis to be assessed: Hutson v G8 Education Ltd [2025] QSC 107. There has been no appeal filed in respect of that order for costs. The order for costs made by the primary judge cannot be dealt with on this appeal.
The parties did not foreshadow in their written submissions for the appeal or at the hearing of the appeal that they were seeking leave to make submissions on costs after the hearing of the appeal. The usual course would be for the Court to deal with the costs of the appeal and the cross appeal at the same time as disposing of the appeal and the cross appeal.
Even though the appellant has succeeded in its argument that paragraph 1(b) of the declarations should not have been made in absolute terms, the respondent has remained largely successful on her approach to the interpretation of clause 4.3(a) of the deed. The parties have had mixed success on the remainder of the issues in the appeal. The respondent was unsuccessful in her cross appeal in respect of proposed term 3 and little time was spent on the other matters raised in the cross appeal.
In the circumstances and without having the benefit of submissions from the parties by reference to the Court’s conclusions on the various issues, I am inclined to make no order as to costs in respect of both the appeal and the cross appeal. If either or both parties wish to seek a different order, directions can be made to facilitate that opportunity.
The orders which should be made are:
Appeal allowed in respect of paragraphs (b) and (c) of order 1 made on 19 December 2024.
Set aside paragraph (b) of order 1 made on 19 December 2024.
Amend paragraph (c) of order 1 made on 19 December 2024 so that it becomes paragraph (b) and the words “not be contrary to” are substituted for the words “be consistent with”.
Appeal otherwise dismissed.
Cross appeal dismissed.
If no submissions on the costs of the appeal and the cross appeal are filed on or before 10 days after the delivery of these reasons, there will be no order as to the costs of the appeal and the cross appeal.
If at least one of the parties files submissions on costs on or before 10 days after the delivery of these reasons, the costs of the appeal and the cross appeal will be reserved to be determined on the papers.
GOTTERSON AJA: I agree with the orders proposed by the President and with her Honour’s reasons for them.
BRADLEY J: I agree with the reasons of the President and with the orders her Honour proposes.
G8 Education Ltd
Hutson [2025] QCA 217
(2015) 256 CLR 104
(2015) 50 VR 44
Appeal allowed in respect of paragraphs (b) and (c) of order 1 made on 19 December 2024. Paragraph (b) was set aside. Paragraph (c) was renumbered as paragraph (b) and amended by substituting “not be contrary to” for “be consistent with”. The appeal was otherwise dismissed and the cross appeal was dismissed. Costs were to be dealt with under the process set out in order 6 ([80]).
The appellant’s complaints about paragraph 1(c) of the declarations are that it is premised on an incorrect conclusion as to the appellant’s obligations under clause 4.3(a), fails to read clause 4.3(a) and clause 4.3(b) together, with clause 4.3(b) qualifying the whole of clause 4.3 (including clause 4.3(a)), and fails to give effect to the express term that confers upon the appellant the power to impose terms which it “determines to be reasonable in the circumstances”.
The appellant’s complaint about paragraph 2 of the declarations is that it is premised on the same erroneous construction of clause 4.3 that resulted in paragraph 1(c) of the declarations. The appellant also submits that, in any case, the declaration is incorrect in asserting that the proposed terms 1 and 2 were inconsistent with clause 4.3(a).
The appellant supports the primary judge’s rejection of the declarations sought by the respondent in respect of proposed term 3 on the basis that the quantum sought by the respondent to defend the criminal proceedings and the anticipated length of the criminal trials with the likelihood of ongoing requests for legal costs justified the respondent seeking to impose proposed term 3. The appellant submits that proposed term 3 was reasonable for the appellant to impose to protect its interests without detracting from its obligation to advance legal costs reasonably expected to be incurred by the respondent. The appellant submits that clause 4.3(b) permits a term affecting the nature, timing and content of the relevant evidence which is anterior to any obligation to advance under clause 4.3(a).
The inclusion of clause 4.3 in the deed made clear that the respondent was entitled to receive payments for her legal costs in defending the criminal proceedings prior to a guilty verdict. The appellant’s approach on the appeal to the construction of clause 4.3 does not reflect the terms of the deed or its purpose which is gleaned from clause B under the heading “Background” and the content of the deed. The operative provisions as to the entitlements of a director are set out in section 2 of the deed. Relevantly, apart from the prohibitions in s 199A of the Act, the respondent is entitled under clause 2.2 of the deed to a full indemnity from the appellant against “all legal costs” incurred by the respondent in respect of defending or resisting an action for a liability (as defined in the deed) incurred by the respondent in connection with, or as a consequence of, acting in the capacity of a director of a group company. There is no limitation of reasonableness in respect of the indemnity for legal costs under clause 2.2. Subject to the prospect of future repayments under clause 4.5, clause 4.3 provides a specific mechanism for the appellant to advance to the respondent “any legal costs reasonably incurred or expected to be incurred by the Director in defending an action for a Liability incurred or allegedly incurred by the Director as an officer of a Group Company”. Clause 4.3 would only operate as an interim measure for advancing funds for legal costs, if there were ultimately a guilty verdict. If there were not a guilty verdict, a shortfall between the advances under clause 4.3 and the full indemnity to which the director is entitled under clause 2.2 would be paid under clause 4.1 of the deed. Clause 4.3 is the means to give effect to the indemnity under clause 2.2 while the defence of the proceeding for the liability that is the subject of the claim for indemnity is unresolved.
The terms of clause 4.3 in conjunction with clause 4.5 ensure that the full indemnity that is otherwise provided by the appellant to the respondent under clause 2.2 complies with the prohibitions found in s 199A and s 212 of the Act on a company’s paying for its director’s legal costs in circumstances such as where the director may ultimately be found guilty of the relevant criminal offence when the prohibition against providing that indemnity and requirement for repayment of the amount paid on account of the director’s legal costs must then be given effect.
Even though the appellant accepts that the respondent has an interest in obtaining advances to conduct any criminal defence, it submits it has an interest in ensuring that it is not exposed to an unconstrained obligation to make any unsecured advances to a director who may not ultimately be entitled to an indemnity and that the balancing of these interests has been struck in clause 4.3.
The deed was drafted to ensure compliance with s 199A and s 212 of the Act and to that end does not provide for any security for advances of funds for legal costs under clause 4.3 and for no interest to be payable unless the event occurs which disqualifies the director from the entitlement to be indemnified for legal costs under the deed. At the time of entry into the deed, the appellant accepted the risk of the potential exposure which is the subject of the appellant’s concern in this proceeding by its agreement to make unsecured advances to the respondent by the express terms of the deed. It is also relevant to the interpretation of clause 4.3 that the obligation on the respondent to advance funds to the appellant for legal costs reasonably incurred or expected to be incurred in defending the criminal charges must be made within the short time period specified of five business days after the director provides the company with invoices or other relevant evidence of the costs incurred or expected to be incurred. The parties’ agreement embodied in the terms of the deed reflects how their respective interests were balanced. There was no error in the primary judge’s construction of clause 4.3(a) of the deed set out at [172], [173] and [176] of the reasons. The agreement by the company to advance funds on a progressive basis under clause 4.3 for the director’s legal costs of defending the criminal proceeding while the proceeding was on foot and before a verdict of guilty to which the indemnity under clause 2.2 of the deed applied favoured the director to the full extent permitted by s 199A and s 212 of the Act.
It is apparent from the respective interpretations given by the parties to paragraph 1(b) of the declarations that there is some ambiguity in how the declaration was expressed. It was intended to dispose of the appellant’s argument that the reasonableness of the expectation of incurring costs was dependent on the reasonableness of the costs expected to be incurred. It is arguable that the terms of paragraph 1(b) do not preclude the reasonableness of the expectation being affected by the reasonableness of the costs expected to be incurred as one of the factors affecting the reasonableness of the respondent’s expectation of the legal costs to be incurred. It is also arguable that the declaration precludes the reasonableness of the legal costs expected to be incurred to be considered solely by reference to the reasonableness of the costs.
In the example of costs expected to be incurred that were exorbitant or extravagant on the face of the claim, a reason the expectation of incurring those costs might not be reasonable might simply be the unreasonableness of the quantum of the costs (rather than the reasonableness of the step in the litigation proposed to be undertaken by the director). Even though the question of reasonableness would still apply to the respondent’s expectation of incurring those costs (as recognised at [174] of the reasons), the view that the respondent’s expectation was unreasonable might be solely due to the unreasonableness of the quantum of the costs expected to be incurred. The application of clause 4.3(a) of the deed to that example would not conform with the terms of paragraph 1(b) of the declarations. In that example, the obligation under clause 4.3(a) would not arise because the respondent’s expectation of incurring those costs would not be reasonable because the costs expected to be incurred were so unreasonable. This example illustrates, as the appellant submits, that the absolute terms in which the declaration is expressed are too wide. No doubt the declaration was made to reinforce the proper interpretation of clause 4.3 that was denied by the appellant before the primary judge (but is now accepted by the appellant) that the criterion was the reasonableness of the respondent’s expectation of the costs to be incurred rather than simply the reasonableness of the costs themselves. This has resulted in paragraph 1(b) of the declarations being wider than the proper interpretation of clause 4.3 warrants. In other words, paragraph 1(b) does not reflect the proper interpretation of clause 4.3(a).
The issue then arises whether paragraph 1(b) of the declarations should be amended or set aside. This Court has the power to amend the declaration made by the primary judge pursuant to r 766(1)(a) or (d) of the Uniform Civil Procedure Rules 1999 (Qld), if the Court considers amendment is required and that it is appropriate to exercise the discretion to make the declaration in amended terms. The modification to paragraph 1(b) proposed by the respondent in the supplementary submissions is merely to reflect the one example that was the subject of submissions on the appeal that showed why the terms of the declaration were too wide. The proposed amendment is not required for resolving any dispute between the parties as to an extravagant or exorbitant claim for prospective legal costs expected to be incurred by the respondent. The main contention between the parties before the primary judge on the construction of clause 4.3(a) that the advance must be made for legal costs reasonably expected to be incurred by the director was resolved by the declaration made in paragraph 1(a) of the declarations. Paragraph 1(b) should therefore be set aside rather than amended to deal with hypothetical scenarios not the subject of any current dispute between the parties.