Whitlam v National Roads and Motorists' Association Limited

NJ Owens - Plaintiff COUNSEL : RM Smith SC/ V Kerr - Defendant (22 August 2006) Ms A Beardow - Defendant (1 September 2006)

SOLICITORS : Phillips Fox - Plaintiff Corrs Chambers Westgarth - Defendant

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

50185/04 NICHOLAS RICHARD WHITLAM v NATIONAL ROADS AND MOTORISTS' ASSOCIATION LIMITED JUDGMENT 1 I delivered my reasons for judgment in this matter on 3 August 2006: Whitlam v National Roads and Motorists' Association Limited [2006] NSWSC 766 (the judgment). On 22 August 2006 and 1 September 2006 I heard argument in relation to: (1) the declarations and orders that should be made in the matter consequent upon the judgment; and (2) the orders in relation to the costs of the proceedings. The defendant requested that I give further reasons in relation to these aspects of the matter and it is convenient to use the same terminology in these reasons that was utilised in the judgment. 2 There is no issue in relation to the declarations and orders to be made in respect of the indemnity in relation to the 2GB proceedings, however the parties are at issue in respect of the declarations and orders that should be made in respect of the discontinued proceedings against Nine and the proposed proceedings against Nine. The parties are also at issue in respect of the orders that should be made in respect of the costs of the proceedings. The plaintiff seeks an order for indemnity costs and resists any order that he pay the defendant's costs thrown away by reason of the abandonment on the second day of the trial, 30 May 2006, of some of his claims for relief. The defendant resists an order for indemnity costs and seeks an order that the plaintiff pay its costs thrown away by the abandonment of his claims. Declarations and orders 3 The plaintiff submitted that on the basis of the judgment, he is entitled to an indemnity for costs incurred in the discontinued proceedings against Nine and costs to be incurred in the proposed proceedings against Nine, subject to an obligation to repay such costs if he is not vindicated by way of apology, settlement, verdict or judgment in his favour. The defendant submitted that on the basis of the judgment, the plaintiff is only entitled to indemnification after the result of the proposed proceedings is known. It is submitted that the indemnity is subject to the plaintiff "first" being vindicated in the proposed proceedings against Nine. 4 The relevant paragraphs of the judgment upon which the parties relied in support of their respective submissions are as follows: 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.

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. … 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. 5 The plaintiff submitted that the reasons for judgment make clear that the defendant is to pay the plaintiff an amount equal to the amounts he paid in respect of the discontinued proceedings, subject to an obligation to repay such amounts in the event that the plaintiff is not relevantly vindicated in the proposed proceedings. It was also submitted that the defendant is required to pay amounts that the plaintiff may incur in the proposed proceedings against Nine subject to the same obligation. 6 The plaintiff submitted that the defendant's construction, that the plaintiff must "first" establish vindication prior to indemnification, would frustrate the indemnity to which the plaintiff was found to be entitled. The plaintiff notified his claims and sought indemnification from the defendant (see pars 27-31 of the judgment). The defendant declined that indemnification and although the basis for the declination is not detailed in the letter of 8 December 2004 it is apparent from the response and the defendant's defence in these proceedings that it made a decision pursuant to clause 2.5 of the Deed that there was "no reasonable basis" that indemnity would be required under the Deed. Clause 2.5 of the Deed provides as follows: 2.5 Advances to Director Subject to this deed, if a Claim is notified under clause 2.1, and NRMA considers on a reasonable basis that indemnity will be required for the Claim under this deed, NRMA may advance money to the Officer prior to any resolution of the Claim to meet any costs or expenses of the Officer relating to the Claim. Any such advance will be on such terms as NRMA thinks fit, including any terms as to interest, repayment or security. 7 An issue that was litigated was whether there was a reasonable basis that indemnity for the Claim was required under the Deed. That was decided in the plaintiff's favour but on a limited basis. In the Deed the parties limited the indemnity that the plaintiff was entitled to receive in relation to costs of criminal proceedings. The intention of the parties in respect of the indemnity for defending an allegation amounting to a defamatory imputation was gleaned, in part, having regard to that limitation. This was referred to in the following passages of the judgment: 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. 8 As I said there is no issue as to the declarations and orders that should be made in relation to the indemnification for the costs of the 2GB proceedings. The plaintiff was vindicated in those proceedings by the apology issued by 2GB.

9 As indicated in the judgment, when the plaintiff commenced the discontinued proceedings against Nine in December 2002 he was in the following position: (a) there had been publication of material containing allegations capable of conveying defamatory imputations of the plaintiff which amounted to a Claim made against the plaintiff arising out of and in the course of his duties; (b) the defendant had not responded to the plaintiff's notification letter of 26 August 2002 and had not accepted that the plaintiff was entitled to indemnity under the Deed; (c) adverse findings had been made against the plaintiff at first instance in the ASIC proceedings; (d) the defendant had commenced its proceedings against Nine in the ACT Supreme Court and various imputations (similar to those made of and concerning the plaintiff that he wished to defend himself against) had survived a preliminary challenge; and (e) the limitation period within which the plaintiff could commence proceedings in the ACT had expired. 10 As indicated in the judgment, the plaintiff is presently entitled to indemnity for the costs of the discontinued proceedings against Nine, subject to a requirement to repay any amounts for costs in relation to any defamatory imputations in respect of which he is not vindicated in the proposed proceedings (pars 103 and 105 of the judgment). The defendant declined to indemnify the plaintiff in respect of those proceedings and thus chose not to assume "the defence of the Claim" under clause 2.2 of the Deed in respect of the discontinued proceedings. Clause 2.5 of the Deed gives a very broad discretion to the defendant as to the advancement of money to the plaintiff and the terms upon which it will advance the money. However, in respect of the discontinued proceedings, the defendant failed to accept that the plaintiff was entitled to indemnification when, in fact, he was so entitled, subject to the limitation. Thus the defendant failed to exercise any discretion under Clause 2.5 of the Deed in respect of the advancement of money because it believed it was not obliged to indemnify the plaintiff at any time in respect of the defence to the Claim. In those circumstances I concluded that in respect of the costs of the discontinued proceedings the defendant should advance the money to the plaintiff for his costs, the amount of which was to be agreed or possibly ascertained by a referee, subject to the condition in Clause 2.7 of the Deed. This, of course, was on the basis that the plaintiff brings the proposed proceedings against Nine.

11 There is a distinction drawn in the judgment between the discontinued proceedings against Nine and the proposed proceedings against Nine. In the former, the plaintiff is entitled to have his costs advanced subject to clause 2.7, in that he may have to repay the defendant the costs (and any amount of interest that has been paid on those costs) of defending himself against defamatory imputations in respect of which he is not vindicated in the proposed proceedings. In the latter, the parties are required to proceed under the Deed now that the position as to the plaintiff's entitlement to indemnity has been decided. The defendant must accept that the plaintiff has notified it under clause 2.1 and must decide whether to assume the defence of the Claim under clause 2.2 of the Deed (ie., assume the conduct of the proposed proceedings against Nine). If the defendant does not exercise its rights under clause 2.2 of the Deed, the plaintiff must comply with the provisions of clause 2.4 of the Deed in the conduct of the proposed proceedings. 12 There is no requirement that the plaintiff "first" be vindicated before the defendant advances money to the plaintiff pursuant to Clause 2.5 of the Deed. That is not a reasonable reading of the judgment. As indicated in the judgment, the parties are required to conduct themselves pursuant to the Deed and in particular pursuant to Clause 2 of the Deed. The defendant "may" advance the money "prior to the resolution of the Claim" but that is a matter for the defendant taking all the circumstances into account now that the question of the plaintiff's entitlement to indemnity has been decided. The defendant is also entitled to impose terms on which any "advance" is made under Clause 2.5 of the Deed. 13 The parties have been unable to agree on the amount of costs incurred in respect of the discontinued proceedings against Nine and that aspect of the matter will be referred to a Referee. That reference will be the subject of a separate order. There had been agreement as to the amount of the costs and interest thereon to be the subject of the orders in respect of the 2GB proceedings but on 1 September 2006, Ms Beardow, solicitor for the defendant, indicated that the defendant may submit that the costs listed in Exhibit A as costs incurred in the discontinued proceedings against Nine were in fact costs incurred, inter alia, in the 2GB proceedings. In those circumstances Mr Owens, counsel for the plaintiff, indicated that the plaintiff may need to make further application in respect of the 2GB costs. I intend to make the orders in the amounts as previously agreed in relation to the 2GB proceedings and I simply note that the plaintiff may seek leave to make an application consequent upon the report of the Referee. 14 The declarations and orders made below reflect that position. Costs of the proceedings 15 The plaintiff seeks costs on an indemnity basis as and from 9 September 2005 based on a letter forwarded to the defendant's solicitors in the following terms: We refer to Mr Whitlam's affidavits affirmed on 18 August 2005 and 1 September 2005.

Mr Whitlam's affidavits include his evidence on the following issues:

1 how he came to agree to be interviewed by John Lyons for the Sunday program, and the capacity in which he participated in that interview, part of which formed the centrepiece of the 15 March 2001 Sunday report on NRMA ( Sunday Report );

2 the damage to his reputation caused by the Sunday Report;

3 the impact the Sunday Report had on him emotionally, socially and professionally;

4 the steps he took to mitigate the loss to his reputation and earning capacity as a consequence of the Sunday Report;

5 the close cooperation he had with NRMA concerning the commencement of defamation proceedings in relation to the Sunday Report, including legal advice received by NRMA, which was provided to Mr Whitlam in his personal capacity, to the effect that he had been defamed by the Report; and

6 the costs he incurred in relation to point 4 above (including memoranda of fees and disbursements received from his solicitors and counsel).

NRMA has refused to admit that Mr Whitlman participated in the interview in his capacity as a director and President of NRMA and that he suffered loss to his reputation as a result of the Sunday Report. As you know, we do not consider there is a reasonable basis for these non-admissions and there should be no dispute on these factual elements of Mr Whitlam's claim.

We trust that Mr Whitlam's affidavits will assist you in obtaining appropriate instructions in this regard.

Having regard to the above, we are instructed to invite you to obtain instructions to resolve these proceedings on the following basis:

1 NRMA agrees to meet Mr Whitlam's legal costs and expenses incurred to date in mitigating his loss caused by the Sunday Report in the sum of $117,206.37, plus interest at the applicable court rates;

2 NRMA agrees to: 2.1 fund the reasonable legal expenses necessary for Mr Whitlam to sue Nine for defamation in respect of the Sunday Report and various updates of that report, broadcast on 18 March 2001, 15 April 2001, 9 September 2001 and 2 December 2001; or 2.2 conduct such proceedings in Mr Whitlam's name and on his behalf;

3 NRMA agrees to pay Mr Whitlam's costs of these proceedings as assessed or agreed.

If agreement is reached on funding, Mr Whitlam would be prepared to provide an estimate and make available all legal work done to date.

The offer set out above involves a very substantial concession on Mr Whitlam's part as it does not seek to have NRMA indemnify him for the damage his reputation undoubtedly suffered as a result of the Sunday Report (as opposed to seeking payment of the costs of vindicating that reputation in defamation proceedings against Nine).

We note that the limitation period for Mr Whitlam's cause of action in defamation in respect of the Sunday Report will expire on or about 11 March 2007.

If it becomes necessary, Mr Whitlam will rely on this letter and any response in these proceedings (including in any argument on costs)/any argument on costs. 16 The offer in this letter was made at a time when the plaintiff maintained his claims for the additional relief that were abandoned on the second day of the trial.

17 Mr Owens, for the plaintiff, submitted that the offer did not trespass into any of the areas claimed by the relief that was ultimately abandoned. I disagree. One of the conditions of the offer in paragraph 3 of the letter was that the defendant "agrees to pay" the plaintiff's "costs of the proceedings as assessed or agreed" thus including costs of that part of the proceedings that were abandoned. I am not satisfied that the plaintiff achieved a result equal to or better than the offer made in the letter of 9 September 2005. Accordingly, I am not satisfied that I should make an order for indemnity costs. 18 The defendant seeks an order for costs in its favour by reason of the plaintiff's abandonment of the claims for relief during the trial. I am satisfied that is an appropriate order to make. I am also satisfied that the defendant should pay the plaintiff's costs of the proceedings otherwise. Declarations and Orders 19 The following declarations and orders are made: The 2GB proceedings 1. DECLARE that the plaintiff is entitled under the Deed of Indemnity Insurance and Access made between the plaintiff and the defendant on 7 August 2002 (the Second Deed) to an indemnity in respect of costs incurred by him in bringing defamation proceedings against Harbour Radio Pty Limited t/as Radio 2GB in relation to a broadcast on 13 March 2001.

2. ORDER the defendant to pay to the plaintiff the sum of $668.65 as costs paid by the plaintiff in the defamation proceedings brought by the plaintiff against Harbour Radio Pty Limited t/as Radio 2GB in relation to a broadcast on 13 March 2001.

3. ORDER the defendant to pay the plaintiff the sum of $1,585.06 as interest on costs paid by the plaintiff in the defamation proceedings brought by the plaintiff against Harbour Radio Pty Limited t/as Radio 2GB in relation to a broadcast on 13 March 2001. The discontinued proceedings against Nine
4. DECLARE that the plaintiff is entitled under the Second Deed to an indemnity in respect of costs incurred by him in bringing defamation proceedings in December 2002 in the District Court of New South Wales against Nine Network Australia Pty Limited in relation to broadcasts on 11 March 2001, 18 March 2001, 15 April 2001, 9 September 2001 and 2 December 2001 that were discontinued in March 2003 (the discontinued proceedings) subject to a requirement to repay to the defendant pursuant to Clause 2.7 of the Second Deed money advanced pursuant to the orders to be made consequent upon the report of the Referee in relation to any defamatory imputations in respect of which the plaintiff is not vindicated in the proposed proceedings against Nine Network Australia Pty Limited by way of apology and/or settlement and/or a verdict or judgment in his favour.

5. ORDER that in respect of the costs of the discontinued proceedings, I make the Order for Reference in the Short Minutes initialled by me and dated today. The proposed proceedings against Nine 6. DECLARE that the plaintiff is entitled under the Second Deed to an indemnity in respect of costs that may be incurred by him in the proposed proceedings against Nine Network Australia Pty Limited in relation to broadcasts on 11 March 2001, 18 March 2001, 15 April 2001, 9 September 2001 and 2 December 2001 in respect of which the plaintiff is vindicated by way of apology and/or settlement and/or a verdict or judgment in his favour.

7. ORDER that in respect of the indemnity for the costs of the proposed proceedings against Nine Network Australia Pty Limited the parties are to conduct themselves pursuant to the provisions of the Second Deed and in particular pursuant to Clause 2 of that Deed. Costs of these proceedings 8. ORDER that the plaintiff pay the defendant's costs thrown away by reason of the abandonment on 30 May 2006 of the claims for relief in paragraphs 1.1, 2.1, 3, 4, 6 and 8 (except to the extent that such claims in paragraphs 6 and 8 related to the costs of the proceedings against Harbour Radio Pty Limited t/as Radio 2GB, the discontinued proceedings against Nine Network Australia Pty Limited and the proposed proceedings against Nine Network Australia Pty Limited) of the Amended Summons filed on 30 May 2006. 9. ORDER that the defendant pay the plaintiff's costs of the proceedings other than in respect of the claims for relief abandoned at trial on 30 May 2006.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.