William John Jeffries v Indigenous Land Corporation

Supreme Court of NSW|2015-10-09|Before: Rein J

JUDGMENT

The plaintiffs, William Jeffries ("Mr Jeffries") and David Baffsky ("Mr Baffsky") are former directors of the defendant, the Indigenous Land Corporation ("ILC"). Mr CRC. Newlinds SC, with Mr RA. Yezerski, appears for the plaintiffs. Ms S. Pritchard SC, with Mr DH. Hughes, appears for ILC.
On 16 February 2012 Mr Jeffries and Mr Baffsky each executed separate agreements with ILC headed 'Deed of Access, Indemnity and Insurance' ("the Deeds"). The substantive terms of the Deeds are identical.
For the purpose of the proceedings, and pursuant to s 191 of the Evidence Act 1995 (NSW), the plaintiffs and the defendant agreed on the following facts: "1 The plaintiffs, William Jeffries and David Baffsky, are former directors of the defendant, the Indigenous Land Corporation. Mr Jeffries was a director of the defendant from 2004 to October 2013. Mr Baffsky was a director of the defendant from 1999 to October 2013. 2 On 16 February 2012, each of the plaintiffs entered a deed, in relevantly identical terms, with the defendant, copies of which will be tendered (Deeds). 3 On 27 February 2015, the defendant's solicitors, acting on the instructions of the defendant, wrote separate letters to each of the plaintiffs (the 27 February Letters). 4 Other than in relation to the details of the persons to whom they are addressed, the 27 February Letters are in identical terms. 5 The 27 February Letters are marked "Without prejudice save as to costs". 6 The 27 February Letters are expressed as having been written "pursuant to Part 2 of the Civil Dispute Resolution Act 2011 (Cth)". 7 The 27 February Letters assert that, during the period in which they were directors of the defendant, the plaintiffs breached certain statutory and common law duties of care and diligence owed to the defendant (including the duty imposed by s 22(1) of Commonwealth Authorities and Companies Act 1997 (Cth)) in connection with the defendant's acquisition of Ayers Rock Resort (the Alleged Breaches). 8 The 27 February Letters assert that the defendant has suffered loss as a result of the Alleged Breaches, and state that the defendant holds the plaintiffs liable for that loss. 9 The 27 February Letters invite the plaintiffs, should they have any insurance that would respond to a claim, to pass the 27 February Letters on to their insurer and provide the defendant's solicitor with the insurer's details. 10 The 27 February Letters state that the defendant reserves all its rights. 11 The plaintiffs have asserted since 9 March 2015 that they are each presently entitled to be indemnified by the defendant pursuant to clause 6.2 of the respective Deeds against any liability for legal costs (on a full indemnity basis) incurred by each plaintiff following receipt of the 27 February Letters. 12 The defendant denies that the plaintiffs are presently entitled to any indemnity under clause 6.2 of the Deeds. 13 As at the date of these agreed facts, the defendant has neither commenced any proceedings against the plaintiffs, nor notified the plaintiff and the Court that it does not intend to commence such proceedings."

The no other indemnity point

The plaintiffs accept that they have the onus of establishing that they are "not otherwise entitled to be indemnified" and are not "actually indemnified" by some other indemnity. They contend that they have discharged that onus. Mr Baffsky deposed in his affidavit that "9 Other than the Deed, I do not have any insurance policy or other contract which provides for any insurance or indemnity in respect of my activities as a director of the ILC which would operate to cover an action brought by the ILC. To the best of my knowledge, I do not have any rights to indemnity or insurance in respect of my activities as a director of the ILC which would operate to cover an action brought by the ILC, other than as provided for by the Deed, and I have not been indemnified in respect of those activities by any person. 10 To the best of my knowledge, other than the indemnity provided for under the Deed, I am not otherwise entitled to be indemnified and am not actually indemnified for the legal costs incurred by me in responding to and defending the ILC action foreshadowed in and constituted by the 27 February Letter.
Mr Baffsky was cross examined. His evidence that he has not actually been indemnified by anyone to date was not challenged. The cross examination established that Mr Baffsky has deeds of indemnity from some other companies of which he is a director. He said on his oath that he has no directors and officers insurance, he never having taken out one: T34- 35. He accepted that the companies which have granted him an indemnity (other than ILC) might have obtained protection in respect of those indemnities from an insurer and that, to that extent, he might benefit from such a policy (ie because the company has insurance). He was not aware that any such policies contained clauses "in relation to outside directorship": see T34.24 and he was not himself aware of the availability of such extensions. No evidence was led concerning the existence of such extensions, how they operate or as to their ubiquity in the market. There was a faint suggestion in the submissions on behalf of ILC that I could take judicial notice of the existence of such clauses. I am unaware of the supposed content of such clauses and quite unable to take judicial notice of their existence, content or ubiquity, since their content is not 'notorious' or so generally known that every person may be presumed to be aware of it: see Holland v Jones (1917) 23 CLR 149 at 153 per Isaacs J with whom Barton ACJ concurred.
Mr Baffsky agreed that he did not know whether or not he was the beneficiary of a policy taken out by another company of which he was a director providing an indemnity in respect of his activities as a director of ILC: T34 - 33.50 and that an investigation could have been carried out to see whether that was the case, but his evidence is that he is not aware of any such policy.
It was open to ILC to subpoena copies of insurance policies effected by companies of which Mr Baffsky was a director to seek to establish that policies effected by those companies granted cover to Mr Baffsky in respect of his role in ILC but they have not done so. I agree with Mr Newlinds' submission that Mr Baffsky's evidence discharged the onus placed upon him so that without more the conclusion on the balance of probabilities is that he has no other indemnity.
In my view the prospect that a corporation in effecting insurance to protect itself in respect of an indemnity granted to a director would arrange and pay for insurance that granted indemnity for activities of that director not as a director of that company but as a director of other companies is remote. That other company would have no reason to seek or pay for insurance of anything beyond the obligations incurred by them under the indemnity given by them nor any interest in incurring and paying for liability to a director for activities unconnected with that company. I am persuaded on the balance of probabilities that there is no other indemnity available to Mr Baffsky.

Mr Jeffries

Mr Jeffries deposed in identical terms to Mr Baffsky that he has no other indemnity and no insurance policy. Again, his evidence that he has actually been indemnified by anyone other than ILC was not challenged. He was cross examined at T20- T25. Mr Jeffries said he presumed that he had directors liability in respect of his work as director of the National Centre of Indigenous Excellence: T21.18. He could not recall if there was a policy in relation to directors of Indigenous Environmental Service Pty Ltd but he did not think it did: T22.4- 8. He could not recall whether Reconciliation Australia of which he is or was a director had a directors insurance policy.
Mr Jeffries agreed that he had not examined any directors and officers policies effected by companies of which he was a director at the relevant time which leaves open the possibility that a policy taken out by a company of which he was a director other than ILC might have taken out cover for him in his role as a director of ILC. His evidence is that he is not aware of any policy covering him.
It is true that Mr Jeffries' evidence does not exclude the possibility that another corporation of which he was a director did effect insurance covering not only his role as a director of that corporation but of other corporations as well, but what I have said in [22] and [23] in relation to Mr Baffsky above applies equally to Mr Jeffries' position.
I conclude on the balance of probabilities that neither Mr Baffsky nor Mr Jeffries held indemnity or policies entitling them to indemnity in respect of their role as directors of ILC, from anyone other than ILC.

The "no indemnity pending finding" point

I turn now to the "no indemnity pending finding" point.
The plaintiffs point to a number of matters favouring the construction for which they contend: 1. in all subclauses of cl 6 "the criterion of operation for the exception in question is some judicial determination on the merits, and not merely the existence of an accusation of liability" 2. the construction contended for accords with the analysis in authorities construing s 199A of the Corporations Act 2001 (Cth) (which is in very similar terms to s 27(4) of the Cth Act): Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited [2010] FCAFC 16 and Note Printing Australia Ltd v Leckenby [2015] VSCA 105 3. cl 6.6(c) of the Deeds supports this construction 4. the construction advanced by the defendant, it is contended, gives the clause a commercial and businesslike construction. In Leckenby, Tate JA observed (at 66): "Furthermore, the judge's construction of the Deed is also supported by the need for a businesslike approach to be adopted in the interpretation of a commercial contract. It would be apparent to a reasonable person in the position of NPAL and 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, Leckenby could incur significant liability for those costs in a manner that could be potentially compromising of his defence. As Callinan J said, in the context of construing an exclusion in an insurance policy, which indemnified a director of a company against loss arising from a claim by reason of a wrongful act, as limited only to those circumstances where there was an admission of misconduct, or a curial finding of misconduct: [T]he adoption of the construction for which the respondents contend would mean that in a real and practical sense they would become the final arbiters of the extent of their obligations because their insureds will frequently lack the means to defend themselves adequately against the charges levelled against them unless they are put in funds to do so. It would not have been a difficult matter for the respondents to have insisted upon a policy that put beyond doubt their right to postpone payment of defence costs until the outcome is known had they so wished."
ILC: 1. contends that any liability to indemnify the plaintiffs does not arise until such time as a Court adjudicates the claim against the plaintiffs (ie in this case by ILC) in favour of the plaintiffs. ILC claims that cl 6.3 and not cl 6.2 provides the mechanism for an advance of funds to allow a former director to defend proceedings of the kind identified in cl 6.2(a) to (e) which funds will not be repayable if the director is successful in his defence of the proceedings 2. calls in aid the following principles of construction: 1. where open to more than one interpretation the clause should be construed in favour of the person granting the indemnity: Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 2. the Court should take into account the statutory background 3. the Court should avoid interpreting the contract so that a particular clause is treated as nugatory or ineffective 4. when a contract uses a legal term of art the Court will give that term its legal meaning: Brett v Barr Smith [1919] HCA 4; (1919) 26 CLR 87, 93 Gutheil v Ballarat Trustees, Executors & Agency Co Ltd (1922) 30 CLR 293, 302-5 and Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 at [169]. The legal terms of art here are said to be "Indemnity for legal costs" in cl 6.2 and "advance for legal costs". Reference was also made to "irrevocable" in cl 6.5(i) 5. construction by a Court as to the words of one contract are no precedent for the construction or similar words in another contract between different parties 1. submits that the interpretation advanced by the plaintiffs is uncommercial
It might be thought surprising that a corporation would agree to indemnify a director in respect of costs he incurs in defending a claim by the corporation itself but it is not asserted by ILC that the Deed is not intended to provide protection to directors who are sued by the corporation itself. An argument of that kind was run by the trustee in Rickus and accepted at first instance but rejected on appeal: see Rickus [47] to [56].
ILC's argument placed considerable weight upon the existence of cl 6.3. I enquired of Ms Pritchard as to whether, in absence of cl 6.3, there would be any basis for resisting the plaintiffs' claim to indemnity (leaving entirely to one side the "no action" point). Ms Pritchard was not able to provide me with any reasons that would support the defendant's position if cl 6.3 was absent (see T48.20- T49.1).
Cl 6.3 does provide a mechanism for assistance to directors who are sued whether by third parties or ILC. The clause requires provision of a QC/SC opinion and the payment of interest on the advance and the provision of such security as ILC shall determine. There is something incongruous in the director having to provide a QC/SC's opinion to the very party who brings the suit against them but that anomaly exists both on the plaintiffs' construction and ILC's construction. Importantly, however, cl 6.3 commences with the words: "To the extent that the Director is not presently entitled to be indemnified against a liability for legal costs pursuant to clause 6.2" and Mr Newlinds contends that that form of wording requires, as a first step, consideration of whether the director is presently indemnified under cl 6.2 without any regard to the contents of cl 6.3. I accept this contention and also the contention that as a consequence cl 6.3 cannot be used to read down cl 6.2.
Given the absence in cl 6.2 of any qualifying words about indemnity given by cl 6.2, in my view it follows that ILC has agreed to indemnify the director in relation to any liability incurred by the director "in defending an action" provided the liability in question is one alleged to have been incurred as a director of ILC.
I am unable to accept ILC's contention that the question of whether indemnity should be provided is dependent on a 'positive' finding in favour of the director. The reverse is true- the director is entitled to an indemnity until such time as the director is found to have a liability for which he could not be indemnified under cl 6.1. If such a 'finding' were made, any money received by the director by reason of the indemnity under cl 6.2 would lead to the director being required by virtue of cl 6.6(c) to repay the amounts so received within 30 days of receipt of the details of payment.
I do not regard cl 6.2 as ambiguous and accordingly there is no scope for the principle found in Andar Transport Pty Ltd.
I accept that this approach leaves cl 6.3 limited scope since it would operate only when the director has in fact been found liable and hence where the director wishes to launch an appeal. Cl 6.3 would apply because there having been a finding that the director is not entitled to indemnity the director could not obtain indemnity by virtue of cl 6.2 and could apply through cl 6.3 for a loan (subject to complying with the terms of cl 6.3). I do not accept that the approach contended for by the plaintiffs renders 6.3 nugatory.
In Rickus the plaintiff was the chairman of the board of directors of an industry superannuation fund trustee. Claims were brought against Mr Rickus including claims relating to documents which he had provided to APRA. Mr Rickus sought, by way of cross claim, declarations as to his entitlement to indemnity in respect of his costs of defending the proceedings (including costs incurred before the proceedings were commenced). The trustee abandoned its claims against Mr Rickus before the hearing.
Flick J ordered the trustee to pay Mr Rickus' costs of defending the proceedings on an indemnity basis, but that order did not extend to costs incurred before the commencement of proceedings. The deed used the phrase "any liability incurred". The Full Court, Jacobsen, Siopis and Foster JJ held that the Deed of Indemnity (and Article 88 of the Corporate Constitution) provided the right of indemnity to the director. The Full Court held, contrary to the trial Judge, that the indemnity did apply to claims brought by the trustee itself against the director not just the claims by third parties: see [49]- [53] and [58].
As the trustee had abandoned its claims against Mr Rickus there was a question as to what was to be determined on the cross claim (ie the claim for indemnity). The Court did not accept that any finding concerning a breach by Mr Rickus was relevant to whether or not he was entitled to indemnity in accordance with his cross claim. This was because it was only in the trustee's proceedings in which that would be determined and those proceedings had been abandoned.
In the course of considering whether the trial Judge's conclusion that the deed only applied to claims by third parties and not claims by the trustee, the Full Court said of s 199A(3) of the Corporations Law on which cl 2.2 of the deed was based (similar to cl 6.2): "The effect of this provision is that a corporation is prohibited from indemnifying an officer of that corporation in respect of legal costs incurred by him in defending proceedings brought by that corporation against that officer if there is a finding in those proceedings that the officer is liable to that corporation. But, for the prohibition to bite, there must be a finding to that effect and that finding must be made in the very proceedings in respect of which legal costs are being claimed by the officer under his or her indemnity. [42] The prohibition contained in s 199A(3)(a) does not apply if the officer successfully defends the proceedings brought by the indemnifier. Nor does it apply if those proceedings are settled or abandoned without any finding of liability being made in those proceedings against the relevant officer."
In Leckenby the Chief Executive Officer of NPAL was charged with conspiring to bribe foreign officials to secure bank note printing contracts for the benefit of NPAL. Mr Leckenby sought to recover under a Deed of Indemnity granted to him by NPAL. NPAL refused to indemnify Mr Leckenby on the basis that NPAL was not permitted at law to indemnify Mr Leckenby until it was known whether or not he is found guilty in criminal proceedings. NPAL offered to lend Mr Leckenby money subject to his providing NPAL with sufficient security.
Cl 2.2 of the deed had a clause which was similar to cl 6.2 because it provided that NPAL: "indemnifies the Officer against each and every liability for legal costs and expense the Officer may incur or for which the Officer may become liable in defending an action for a liability incurred as such an officer of NPAL unless such costs and expenses are incurred: (a) in defending or resisting proceedings in which the Officer is found to have a liability for which he or she could not be indemnified pursuant to clause 2.1…" (emphasis added)
Tate JA stated: "[38] With respect to the importance of the statutory language, Leckenby submits that NPAL ignores the plain meaning of the word 'found' which requires that there has been, in the future, a finding of guilt. The prohibition in s 199A(3)(b) is expressed in the future perfect tense. So too is the exception in cl 2.2(b) of the Deed. This is a conditional tense that is used to indicate that an action will have been completed (or 'perfected') at some point in the future. Thus, unless and until a finding of guilt occurs (that is, will have occurred in the future), the obligation on NPAL to 'indemnify' Leckenby for his legal costs and expenses subsists. [39] I agree. [40] A person, including an officer of a corporation, cannot be 'found' guilty until a verdict of guilty has been arrived at. At all relevant times before a verdict has been reached, a person charged with an offence is not a person who has been 'found guilty' of that offence. An obligation to indemnify a person charged with an offence for all his or her legal costs and expenses during the course of defending criminal proceedings until and unless he or she is, in the future, 'found' guilty is, in my view, consistent with the prohibition in s 199A(3)(b)." and speaking of Rickus said: "[48] Thus, not only was it necessary that there be a finding of liability before the prohibition in s 199A(3)(a) had any impact but, a fortiori, it was necessary that the finding be made in the very same proceedings as that in respect of which the claim for indemnity was being made. This emphasised the Court's construction of s 199A(3)(a), relied upon here by the judge, that 'for the prohibition to bite, there must be a finding to that effect'. [49] The Court reiterated that, under s 199A(3)(a), there is a present entitlement to an indemnity up until the time the relevant finding is made and that entitlement will not be defeated by a finding in a separate proceeding from that in respect of which the costs are being claimed, or by supposition as to what findings could have been arrived at hypothetically: By the time the primary judge came to hear and determine [Rickus'] cross-claim, the trustee's proceedings had been discontinued. The claimed indemnity pursuant to cl 2.2 was, in terms, confined to legal costs incurred in defending the trustee's proceedings and in resisting the trustee's claims before those proceedings were commenced. Although it may have been the case that, had the trustee pressed its proceedings to finality, [Rickus] would have been found liable to it as alleged, that is not how events unfolded and no finding of liability was ever made in the trustee's proceedings. For these reasons, the indemnity provided to [Rickus] pursuant to cl 2.2 of the deed was enlivened when [Rickus] made his claim pursuant to that clause and was not precluded either by the clause itself or by s 199A(3)(a) of the Corporations Act. The cross-claim is not a proceeding which [Rickus] defended or resisted and is thus not within the preclusions laid down in cl 2.2(a) of the deed and in s 199A(3)(a) of the Corporations Act. [50] As the judge here recognised, it is clear that analogous reasoning can apply to the prohibition in s 199A(3)(b) so that it does not preclude an entitlement to an indemnity arising when a claim is made by a person in respect of 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, until and unless the officer is found guilty. As the High Court recognised in Farah Constructions Pty Ltd v Say-Dee Pty Ltd, comity between intermediate appellate courts is a matter of great importance. Indeed, with respect to the interpretation of Commonwealth legislation, as here, there are more stringent obligations: Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong. [51] The Full Court in Rickus was not interpreting the section of the Act with which this appeal is concerned, s 199A(3)(b). However, it was interpreting a closely related section of the same piece of Commonwealth legislation, s 199A(3)(a) of the Act, and the judgment of the Full Court dealt expressly with the question of when the prohibition 'bites'. Moreover, its answer, namely, not until and unless the finding of liability has been made, has obvious and direct application to the question of when the prohibition under s 199A(3)(b) 'bites', namely, not until and unless the finding of guilt has been made. Far from considering the interpretation of the Full Federal Court to be plainly wrong, with respect I agree with their Honours and find their reasoning convincing. Irrespective of whether I am strictly bound to adopt an interpretation of s 199A(3)(b) that is analogous to their Honours' interpretation of s 199A(3)(a), I consider that I should adopt such an interpretation as correct."
I accept, with respect, the conclusion of Rickus and Leckenby that payment of funds prior to any finding of the type described as a carve out does not involve any breach of relevant legislation, in this case s 27M, and indeed ILC did not contend that cl 6.2 read as the plaintiffs contend would infringe s 27M. The plaintiffs accept that construction by a Court of the words in one contract is not a precedent for construction of similar words in another contract: see Commonwealth of Australia v Chubb Security Australia Pty Ltd [2004] NSWCA 77 at [11] per Palmer J with whom Handley JA and Beazley JA as her Honour then was concurred: see Sir Kim Lewison and David Hughes 'The Interpretation of Contracts in Australia' (2012, Thomson Reuters) at 4.09 for a detailed discussion of this area. Whilst the interpretation of words used in one contract does not provide authority for what similar words in another contract between different parties mean, the close interplay between legislative provisions and indemnities and the similarity of context do provide some guidance, and I find the reasoning in Rickus and Leckenby persuasive.
Further, although involving a different wording in a different document between different parties, the approach taken in Rickus and Leckenby is, in my view, precisely the same as that taken in Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522. I have set out the passage in Leckenby in which Tate JA made reference to what was raised by Callinan J in Wilkie at [52]. That case concerned an exclusion clause in a directors and officer insurance policy by which the insurer would not be liable for defence costs arising out of dishonest, fraudulent or malicious acts or any breach of legislation or contract where such conduct had been admitted to have occurred or subsequently established to have occurred "following the adjudication of any court, tribunal or arbitrator" with the plurality commenting in the course of discussing the exclusion: "The evident purpose of the concluding words of exclusion 7 (and the corresponding words in exclusions 5 and 6) is to deprive the insured of an entitlement to indemnity only where there has been a curial finding of misconduct of a kind specified. Where, by hypothesis, there has been no such finding, a necessary element of the exclusion is missing." (see [42])
In my view cl 6.2 does not operate only after there has been a hearing in which the director obtains a positive finding in his favour. Rather the director is entitled to indemnity until there has been a finding that he is not entitled to be indemnified.
ILC made submissions relying on the explanatory memorandum to the Corporate Law Economic Reform Program Bill 1998 para 6.16 which is in the following terms: "One of the concerns about the operation of the indemnity provisions has been that a person is not entitled to an indemnity until the outcome of the relevant proceedings is known. Substantial liability may be incurred (for example, on‑going legal costs) during the course of a proceeding, which are unable to be paid to the indemnified officer, until the outcome of the proceedings is known. To address this, as indicated in Note 2 to proposed section 199A, the company may be able to give a person a loan or advance in respect of legal costs. Once the outcome of the proceedings is known, the person would be either obliged to pay back the loan or advance, if not entitled to an indemnity, or may retain the loan moneys as the indemnity to which the person is now entitled." The Court is currently concerned with the interpretation not of s 199A of the Corporations Act 2001 (Cth) or even s 27M of the Commonwealth Authorities and Companies Act 1997 (Cth), but rather cl 6.2 of the Deeds. Cl 6.2 does not speak of a loan or advance (whereas cl 6.3 does) but rather indemnity. As I have noted, there is no suggestion that cl 6.2 is void because it infringes s 27M (or any other legislative enactment). In my view what is said in the explanatory memorandum in relation to the Corporations Act has no bearing on how cl 6.2 is to be read.
So far as the 'term of art' point is concerned, it seemed to be suggested by the defendant that cl 6.2 by using the phrase 'indemnified' in contrast to the use of the word 'advance' of amounts in cl 6.3 the parties must have intended what is normally understood by indemnity, that is a payment which cannot be recovered from the recipient. This is a theme that was discussed in Leckenby because the Full Court drew attention to the fact that Sifris J the trial Judge (at [59] of [2014] VSC 538) had regarded the indemnity, which was repayable, as not a traditional indemnity. Tate JA held that the trial Judge was correct to find that the payment was otherwise than a strict indemnity loan or advance: see [64] but that did not mean that the deed infringed the prohibition found in s 199A(3)(b) (and replicated in s 27M(4)(b)). Her Honour said "The judge was correct to recognise that an arrangement that requires the refund of any payment made, upon the satisfaction of a condition, is not a traditional indemnity because it does not hold the promisee harmless against loss despite any relevant contingency. Whatever particular label is given to this type of agreement is of little consequence; what is important is that a proper construction of s 199A(3)(b) demonstrates that payments can be made up until, and unless, a guilty verdict is reached providing that there is an obligation to repay any such payments in the event of a guilty verdict and that the Deed provides for just such an arrangement."
Given the terms of cl 6.6 which expressly recognises that the director might have been paid an amount under cl 6.2 (or cl 6.1) but is "not subsequently entitled to an indemnity in relation to the liability" he must repay it, I do not think it is open to construe cl 6.2 (or cl 6.1) as not providing for an indemnity in different terms to that which might normally prevail. A promise to indemnify subject to a condition subsequent is still, in my view, a promise to indemnify and I do not think that cl 6.2 can be treated as using 'indemnified' without regard to another clause of the Deed. I regard the word 'irrevocable' in cl 8 as meaning that the indemnity (with its attendant qualifications) could not be revoked and I do not think that repayment in accordance with the terms of the indemnity amounts to revocation of the indemnity.
As for commercial interpretation, I see no lack of commerciality if the Deed works as providing an indemnity for costs to a director unless and until he is found not to be entitled (ie because he has been found to have a liability for which he cannot be indemnified under cl 6.1) and that thereafter he is entitled to a loan on which he must pay interest and for which he must provide security which he will have to repay if he loses his appeal.
I do not think it is incongruous that the director should not have to pay interest or provide security at any time before a finding is made and it makes sense that after a finding has been made against him that he has to pay interest and provide security in respect of the loan to fund his appeal. It does not strike me as absurd, as Ms Pritchard contended (see T54.10), that a director should, as it were, pay a higher price for assistance, once a finding against him has been made.
It follows in my view that the plaintiffs are entitled to indemnity as soon as they have incurred a liability of the type described in cl 6.2. I therefore need to deal with the third question.

Action

Ms Pritchard has referred the Court to definitions of the word 'action' in various legal dictionaries and made reference to Nilant v Macchia (2000) 178 ALR 371 at [49] in which a passage in Black's Law Dictionary to the effect that the term 'proceeding' is more comprehensive than the term 'action'. I accept that 'action' in cl 6.2 is referring to a proceeding in a court of law or tribunal commenced against a director and that this is so notwithstanding that the phrase 'legal proceedings' and 'proceedings' are also used in the clause. It is clear that no proceeding in a court or tribunal has been commenced against either of the plaintiffs.
However, the question for determination is not whether a proceeding has been commenced but rather whether the plaintiffs have taken steps which have led them to incur liability for legal costs in defending an action. In my view steps can be taken to defend a proposed action before it is commenced. A publisher who arranges for an author to be interviewed by media outlets prior to publication is taking steps to sell the book even though the book has not yet been published. A student who purchases texts for next years course is expending money for the purpose of the course even though the course has not commenced. The question which needs to be addressed is whether the words 'defending an action' requires the action to have been commenced rather than only threatened. It is not necessary to determine whether the 27 February Letters constitute a 'demand', rather the question is whether by their very nature the letters are likely to prompt incurral of legal fees in determining the appropriate response and preparation for a foreshadowed action. The words "in full and final settlement" are important since they point to a full and final settlement of the action threatened.
In my view it must have been envisaged that a director who receives a letter from a company of which he was a director and which: 1. asserts that he breached his duties as a director 2. asserts that those breaches have caused loss to the company 3. seeks the payment of $50 million in full and final settlement would be likely to seek legal advice concerning a prospective defence to those foreshadowed proceedings and as to what steps he can take to ensure that his legal costs in so doing are met. Once a letter of the kind written by the ILC has been sent I do not see any good reason for treating the indemnity for the legal liability for costs to be limited to steps taken in defending the foreshadowed action the subject of the letter to only those taken after proceedings have been commenced.

Conclusion

It follows in my view that the plaintiffs are entitled to the relief sought in their Summons and set out at para 4(1)-(5).

Costs

The plaintiffs have been successful and the defendant should pay the plaintiffs' costs on a full indemnity basis because that is what they are entitled to under the Deed. 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. Decision last updated: 02 November 2015

Authorities and Companies Act 1997(Cth)

At a glance

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Judgment (7 paragraphs)

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Legislation Cited (5)

Cases Cited (14)

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