Case: Whitlam v National Roads and Motorists' Assoc Ltd [2006] NSWSC 766 , 202 FLR 153
Outcome: considered
For the purposes of resolving the Cross-Claim , it may be accepted that indemnities protecting directors against liabilities incurred whilst performing their duties, including indemnities protecting directors of public companies, are of importance in ensuring that highly qualified and experienced people are attracted to assume the responsibility: cf Whitlam v National Roads and Motorists' Assoc Ltd [2006] NSWSC 766 at [82] , 202 FLR 153 at 176 per Bergin J. Noted: 'Young P W, Corporations: Director's Indemnity Rights ' (2006) 80 ALJ 720. 18 The source of the right to claim an indemnity being advanced by the First Respondent may be traced back to the Constitution of the Trustee. 19 That Constitution provides in cl 88(5) that " the Company may enter into an agreement or deed " to indemnify an officer of the company. 63 Section 199A of the Corporations Act provides as follows: Indemnification and exemption of officer or auditor Exemptions not allowed (1) A company or a related body corporate must not exempt a person (whether directly or through an interposed entity) from a liability to the company incurred as an officer or auditor of the company. When indemnity for liability (other than for legal costs) not allowed (2) A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities incurred as an officer or auditor of the company: (a) a liability owed to the company or a related body corporate; (b) a liability for a pecuniary penalty order under section 1317G or a compensation order under section 1317H or 1317HA ; (c) a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith. This subsection does not apply to a liability for legal costs. When indemnity for legal costs not allowed (3) A company or related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against legal costs incurred in defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred: (a) in defending or resisting proceedings in which the person is found to have a liability for which they could not be indemnified under subsection (2); or (b) in defending or resisting criminal proceedings in which the person is found guilty; or (c) in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established; or (d) in connection with proceedings for relief to the person under this Act in which the Court denies the relief. Paragraph (c) does not apply to costs incurred in responding to actions taken by ASIC or a liquidator as part of an investigation before commencing proceedings for the court order. (4) For the purposes of subsection (3), the outcome of proceedings is the outcome of the proceedings and any appeal in relation to the proceedings. This section is effective as from 1 July 2005. The evolution of s 199A , it may be noted, has been helpfully traced by Her Honour Justice Bergin in Whitlam v National Roads and Motorists' Association Ltd [2006] NSWSC 766 at [40] [56], 202 FLR 153 at 165 71. 64 In the absence of any constraint sought to be imposed upon Mr Rickus by the Authority in respect to the disclosure to the Trustee of those documents embraced by the s 255 notice, the contention advanced on behalf of the Trustee was that it was incumbent upon Mr Rickus to make available to the Trustee copies of those documents provided by Mr Rickus to the regulator -- at least upon a request being made. It was contended that a duty to act in the best interests of the company was a duty which embraced the obligation to keep the Trustee informed as to those matters which may be of relevance to the position of the regulator. In the absence of any statutorily imposed obligation of confidence, or perhaps an obligation of confidence sought by the regulator by agreement, the contention of the Trustee was that Mr Rickus was to keep the board fully informed as to those matters which had been placed before the regulator so that the board could properly respond to such concerns as may be raised by the regulator and even modify its own practices -- even in the absence of any concern being raised by the regulator. 65 Indeed, in the absence of further explanation, it would seem surprising if a director was not obliged to bring to the attention of his board a request (for example) made of him by the present Authority to produce documents of immediate relevance to the affairs of his company; a request made of him by the Commissioner of Taxation for access to books pursuant to s 263 of the Income Tax Assessment Act 1936 (Cth); or a request made of him by the Australian Competition and Consumer Commission pursuant to s 155 of the Trade Practices Act 1974 (Cth) for the production of documents. An exercise of such statutory powers may be the precursor to a regulator imposing upon a company a variety of sanctions perceived by the regulator to be warranted. A company may wish to challenge the validity of a statutory demand made upon one of its directors. Even if no challenge is to be made, a company may wish to consider whether any further documents should also be provided to a regulator to assist it in the discharge of its responsibilities or to make submissions in respect to that material already in the possession of a regulator. In the absence of knowing the terms of any notice requiring the production of documents and having a copy of documents produced, it is difficult to see how a company could properly address such concerns as a regulator may have.