Whitlam v National Roads and Motorists' Association Limited

Whitlam v National Roads and Motorists' Association Limited - [2006] NSWSC 766 - NSWSC 2006 case summary — Zoe

[13]

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.

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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.

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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

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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.

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(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 him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application in relation to any such proceedings in which relief is under this Code granted to him by the Court. 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: As presently drafted, s. 237 would not permit indemnification where a director settles an action, because the director must have a judgment rendered in his favour, be acquitted or obtain certain relief under the Companies Code . It may be argued that s. 237 undercuts the social policy of settling disputes outside of courts by encouraging litigation in circumstances where settlement may be more desirable. 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.

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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".

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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: A master, while at a foreign port with a homeward bound vessel, incurred expenses in defending himself against a charge of murder maliciously brought by two of the crew, whom he had censured for misconduct. The master was tried and acquitted, and bound over in the sum of 10 l . to prosecute men for perjury. He forfeited the 10 l. in order to return with the vessel to England:- Held , on a motion to review the report of the registrar in a suit for disbursements, 1st , That the master was entitled to the expenses of his defence, on the ground that the charge originated directly from the performance of his duty to his owners in chastising the men. And, 2ndly, the Court allowed 10 l . forfeit, as it was for the interests of his owners that the master should not be delayed in returning with the vessel. 76 His Lordship said at 281: That case undoubtedly goes a long way; but when I look at the reason for the decision, I find that it is put on that the peculiar circumstances affecting trading vessels which may be absent from this country for a year or more in foreign parts, and it is observable that the reason particularly given for the indemnity to the master was not that he was entitled to protect his own neck at the expense of the employers, but that it would have been inconvenient to his employers if he had been imprisoned or incarcerated and have therefore been unable to bring his vessel back to England; and in the same way the 10 l . forfeit which he had incurred through a breach of the local law was justified on the same grounds as being something incurred to the benefit of his employers.

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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.

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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.

[115]

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.

[116]

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.

At a glance

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Judgment (117 paragraphs)

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Legislation Cited (3)

Cases Cited (3)

Cited By (3)