Whitlam v NRMA [2007] HCATrans 484 (31 August 2007)

Last Updated: 13 September 2007

[2007] HCATrans 484

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S208 of 2007

B e t w e e n -

NICHOLAS RICHARD WHITLAM

Applicant

and

NATIONAL ROADS AND MOTORISTS ASSOCIATION LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 31 AUGUST 2007, AT 11.31 AM

Copyright in the High Court of Australia

MR J.T. GLEESON, SC: May it please the Court, I appear with MR N.J. OWENS for the applicant. (instructed by DLA Phillips Fox)

MR R.M. SMITH, SC: If it please the Court, I appear with my learned friend, MR G.K.J. RICH, for the respondent. (instructed by Corrs Chambers Westgarth)

GLEESON CJ: Yes, Mr Gleeson.

MR GLEESON: If your Honours would permit me to identify four findings of fact which we submit were made by the trial judge and remain undisturbed and make the case a suitable vehicle to consider the question of law. The first finding of fact appears on page 45 between lines 5 and 25. It is a finding that the actions of Mr Whitlam were done with authority on behalf of his company and in the capacity as chairman and director, not in a private capacity. So that the finding as to capacity and authority.

GLEESON CJ: In attending the interview?

MR GLEESON: In attending the interview. The second finding is that there was a direct connection or linkage between the attending of the interview and the preferring of the charges against him which attacked his conduct as director. That is also on page 45 between lines 25 and 35 and is also seen on page 44 at the beginning of paragraph 90. Accordingly, based on those two matters, we have a case where an agent in the course of representing his principal suffers a charge – we would say a false charge – concerning the manner in which he performed his duties as principal.

The third matter is, so that we have some context for the nature of the false charges, if your Honours were to go to page 8, the three imputations which were found by the jury in the 2GB matter between lines 15 and 30 where, firstly, that he had lied on the program itself concerning his defence of counsel appointed by the NRMA. That is number 1 and numbers 2 and 3 are that he had caused contracts to be awarded to his cronies without a proper tender process. So the charges which were preferred against him which he claimed were false concerned what he did on the interview itself as manipulated into the television program, plus what the television program portrayed through the interview as being his earlier conduct as director in awarding contracts. That is the third matter.

Your Honours, the fourth matter is that the harm which was caused by the preferring of the false charge was a harm suffered both by Mr Whitlam, because it impaired his ability to perform as a director, and the harm suffered by the company. That can be seen from the fact that both Mr Whitlam and the company commenced separate defamation allegations essentially attacking the false charges on the same basis. If your Honours were to go to page 6, we see between lines 5 and 30 that a process of cooperative endeavour emerged between Mr Whitlam and his company. At line 20 he was told by the company secretary that they had “both been defamed by the same program”, and the same at line 30.

We then see in the next paragraph the NRMA proceedings. If your Honours were to look at imputation (i) at the foot of the page, it was an imputation that the company “had become the instrument of” Mr Whitlam “in that its activities were conducted in the interests of himself and his cronies” et cetera. So the central charge which the NRMA claimed lowered its repute was a charge that it allowed Mr Whitlam to control it to the benefit of his private gain. Your Honours will have seen from that the close overlap between that charge and the imputations found in the 2GB program and, finally in that regard, on page 9 the imputations Mr Whitlam pleaded against Channel 9 included the same matter.

So the third main fact we point to, which is undisputed, is that the actions of Mr Whitlam, in the course of office, leading to false charges concerning his performance of office, had a tendency to harm both him and his company in a direct sense. The fourth matter is that the actions of Mr Whitlam in bringing the defamation proceedings were properly to be viewed as a defensive measure against that charge which had been preferred against him and was injuring the company. Your Honours will see that characterisation of Mr Whitlam’s actions in two places. Firstly, on page 46 in paragraph 94 the trial judge, when considering the deed, was of the view that the defamation proceedings were an act of defence against the imputations which had been made against him as an officer. Her Honour also found that his actions were reasonable in so defending himself. That is page 50 at paragraph 101.

The only matter of fact which arose separately in the Court of Appeal was that he obtained a settlement of his proceedings against Channel 9 between the trial and the Court of Appeal. Your Honours, against those facts we would submit that the question arising at general law in this case poses two very starkly different views of the indemnity. Mr Whitlam’s contention is that, where an agent does an act in the course of representation of the principal which results in a third party preferring a charge against the agent of wrongdoing in the course of office, it is properly incident to the agent’s duty that the agent will defend himself against that charge including, if appropriate, by incurring costs of litigation.

GLEESON CJ: Mr Gleeson, I understand how the facts that you have explained would make it a proper use of company funds for the company to agree to indemnify him in respect of the costs of his defamation proceedings, but that is not the issue, is it? The issue is whether, absent such an agreement, he is entitled to look to the company to reimburse him.

MR GLEESON: Your Honour, there are two issues. In respect to the agreement itself, the issue there is seen on page 10 of the book at line 50, which is that he obtained an agreement “to the full extent permitted by law against all Liabilities incurred by the Officer as an officer”. “Liabilities” were defined on page 15 in the broadest of senses to include “loss, liability, cost, charge or expense”. The reason that we failed on that claim before the Court of Appeal – and we submit the trial judge was correct – was that he incurred these expenses as an officer for the reason I have mentioned from the facts, namely, that it was properly incident to his duty as an agent to take defensive measures to repel the charges which had been made against him arising out of his performance of office and concerning his performance of office.

The difference between the Court of Appeal and Justice Bergin, which we submit is an important point of law and, in fact, underpins both sides of the argument, can be seen from what Justice Campbell ruled on this question of what it means to incur the costs as an officer. If I could complete that point by inviting your Honours to look at page 112 at paragraph 74, particularly between lines 50 and 60. The Court of Appeal has ruled that you only get a cover under the deed if the charge that is being preferred against you is capable of maturing into a legal obligation either to pay money or, it is said, to suffer a detriment. Consequent upon that, it is said, the only reason you get your costs and expenses is if they are a mitigatory step designed to improve your chances of avoiding a liability to another party.

That is the Court of Appeal’s characterisation of why it is that you can get costs and expenses. We see it there. Their concept of liability is seen earlier on page 109 between lines 30 and 40, that the contractual cover only protects you for liabilities where they have the common characteristic of relating “to a payment actually made, or a payment or other incurring of a detriment” that you sustain “as a matter of legal obligation”. So “incurred as an officer” means you only get costs if you are defending a claim which can lead to a legal liability in that sense.

GUMMOW J: How do you say 2.1 on page 11 works?

MR GLEESON: Your Honour, 2.1 works in this sense, that in a case - - -

GUMMOW J: You have gone to great pains in drawing this instrument to provide the notification with an opportunity for the company itself to take over conduct of the matter.

MR GLEESON: Yes.

GUMMOW J: Does that not apply, in your interpretation, to this particular circumstance?

MR GLEESON: It would, your Honour; and that is exactly what, with respect, Justice Bergin found. From the moment the assertion was made against Mr Whitlam, the false charge, her Honour’s reasoning was that the first step was that there was a claim. “Claim” is defined on page 15 at line 35. There was an allegation against him.

GUMMOW J: Why do you keep using this word “charge”, by the way? You try to get some colour out of “liability”, do you? It occurs in the definition of “liability” but it obviously is - - -

MR GLEESON: It is a claim in the sense of it is an allegation. An allegation would include a charge, as I have submitted. What happens under clause 2.1 is that this is an allegation, therefore a claim, which involves or may involve a liability for which he may seek indemnity in the sense that it may involve the incurring of costs to take steps by legal action to defend himself against that allegation. Justice Bergin found correctly that from that moment the deed was triggered and the NRMA had the right, if they chose, under clause 2.2 to assume conduct of the defence of the claim and, if they wished, assumed in effect the positive control of the prosecution of the action by which he is defending himself.

GUMMOW J: It says “conduct of defence”.

MR GLEESON: Yes, and her Honour’s approach was that, because she could view the allegation or the claim as a charge against him, a proper step to defend that charge would be in this case the bringing of this very action. Her Honour dealt with that matter on pages 49, particularly at paragraphs 99 and 100. So that within that approach he had a contractual right because the costs were being incurred as an officer in the sense that he was taking steps to remedy or seek to defeat the charge.

That is one answer to your Honour’s question. The other answer to your Honour’s earlier question was, at general law it is not enough that it be permitted, there must be an obligation imposed by the general law to meet it. In respect to that area, we rely upon authority in two areas; firstly, trustee and, secondly, agency to indicate that the step of incurring costs to repel a false charge is recognised as being properly incident to either the trust or the agency relationship and thereby is recoverable under the indemnity.

The cases we have given your Honours in the bundle to establish that proposition are, in the area of trust it is the authority of this Court at tab 8 in the decision of Barnes in 1941 which laid down that proposition. Barnes is an important case because the argument put against the indemnity in that case can be seen at page 275 point 5 as being that it is not enough that the trustee successfully defend a false allegation made against him but he must independently show benefit to the trust estate from the successful defence of the action.

GUMMOW J: They sued.

MR GLEESON: They were sued in that case.

GUMMOW J: The members sued.

MR GLEESON: Yes, and so the defensive action in that case was to defend the action successfully. The costs were then recoverable from the trust estate without need to show independent benefit. In respect to the area of agency, if I can give your Honours the other best authorities that we have, at tab 5 the decision in Famatina Development Corporation was one of the English Court of Appeal where the agent was employed to make a report upon the conduct in the Argentine of the managing director. He made a report which angered the managing director and led to defamation proceedings.

The agent ultimately succeeded in defeating those proceedings and claimed the costs from his principal. He lost before Justice Sargant at first instance on two grounds which were that he could not prove that he received a direct order to make the report and that he could not prove independent benefit to his principal by defending the proceedings. Indeed, it is hard to see what benefit there was to the principal other than the presumptive benefit that he was defending a false charge preferred against the agent.

GLEESON CJ: How far does this go? Suppose that your client’s response to these allegations had been to engage the services not of a lawyer but of a public relations consultant and instead of commencing a law suit he had taken out some advertisements in a newspaper repelling the allegations, could he have obliged the NRMA to pay for the advertisements?

MR GLEESON: The answer to your Honour’s question is that one first identifies the category of action and the category of resultant cost or expense which it has engendered to see whether it is one that has been recognised as falling within the indemnities of agent or trustee and the costs of litigation has been well-established as a category of - - -

GLEESON CJ: The costs of defensive litigation, Mr Gleeson.

MR GLEESON: Defensive litigation. In this case we have her Honour’s finding that the substance and purpose was a method of defence. The second answer to your Honour’s question is that there is always a requirement of reasonableness of the action and in many cases one may fail in respect to establishing the reasonableness of the link. The critical finding we had, which the Court of Appeal did not disturb, with respect, was that, faced with that charge which imperilled his ability to perform as director and which hurt the company, he had two choices.

The first was that he would simply allow that charge to remain preferred against him, which would effectively end his ability to perform as director and harm the company. You cannot have a public company with allegations being spread and repeated through the entire media over a year – which is what happened here, they kept repeating it – that the company is being run by cronies. So his first option was to do nothing and allow the charge to be preferred. His second option was to take steps to defend that charge.

Your Honours, there are various ways one can defend the charge. A defamation action provides one method of defence. As your Honours have analysed in Dow Jones, it is a method of defence where you have to tender your reputation, you have to prove imputations and you have to expose yourself to the risk of truth or justification. He took that on and he was vindicated in the burden. So there may be other sorts of proceedings that could be brought. In some cases there might be the costs of a proceeding before ASIC to attempt to clear one’s name. So that would be judged by just a category of expense and to reasonableness of purpose.

GLEESON CJ: But what about costs of a newspaper publicity campaign?

MR GLEESON: No case has recognised that that sort of step is within the indemnity, so that would be a new area to be considered as to reasonableness and purpose, your Honour.

GLEESON CJ: Thank you, Mr Gleeson. Yes, Mr Smith

MR SMITH: Your Honours, the two special leave questions relied upon by the applicant do not arise for two reasons. The first is, the applicant’s case is that he can succeed on a general law indemnity even if the Court of Appeal’s construction of the indemnities provided by the 2002 deed is correct. That is on the basis that the contention is that the general law indemnity contended for is wider than the indemnities provided under the 2002 deed. So much was submitted or conceded on the applicant’s submissions at paragraph 44.

Rule 159 of the NRMA’s constitution, which appears in the application book at page 95, granted directors an indemnity and, by virtue of section 140(1)(b) of the Corporations Act, bound the applicant. The 2002 deed was entered into to give effect to that indemnity and recital B of the deed makes that plain. Our first point is this, that the terms of that deed exclude the wider, general law right of indemnity for which the applicant contends even if he was correct about its existence, which he is not.

There would be no commercial purpose to this deed if it did not state the precise scope of the indemnity granted. By the deed, the parties agreed on the scope of the indemnities, in the face of that agreement, a wider and thus inconsistent general law right to indemnity is not available however one characterises the juridical source of that right, whether it is said to be an incident of the relationship between the parties, as the applicant now contends, and the term of a contract implied by law or arises in equity.

The applicant contends that the general law indemnity was not “expressly or by necessary implication” cut down. One sees that in appeal ground 3 of the proposed notice of appeal. The Court of Appeal did not find the general right of indemnity which the applicant contends for and therefore did not have to deal with the question of whether or not the existence of the 2002 deed was inconsistent with and thus prevented the general right arising.

The applicant contends in written submissions that the Court of Appeal held that the general law right was not excluded. That appears at paragraph 44 of the written submissions at page 148. Alternatively, it is submitted that the Court of Appeal did not find that the terms of the 2002 deed were inconsistent with the general law right. We submit that however the applicant puts its case, the 2002 deed is inconsistent with the general law right for which the applicant now contends, even if it existed.

The second point is that general law indemnity is not established by existing authority. My learned friend conceded that, in effect, before the Court of Appeal. If one goes to the judgment at application book 118 at paragraph 93 of the Court’s judgment where Mr Justice Campbell records:

Mr Gleeson submits that, while the case law so far has all been concerned with a situation where an indemnity applies to a legal liability incurred to a third person, or to an action taken in the actual performance of an office, there are –

he records the argument –

“no reasons to think that the operation of the general principle should be limited to that narrow class of loss”.

That submission was rejected at paragraph 94 and that rejection was correct. In the Chief Justice’s argument or observation of my learned friend, the proposition was put, well, would the indemnity extend to a press campaign? The width of the general law contention for which the applicant contends was rejected by the Court of Appeal’s involving a radical alteration of the civil law, and that is correct. There is no principle of justice which would require that extension for the simple reason that a director wronged by a third party in the course of performance of his duties, whether it be defamation or some other tortious act, as a cause of action against that third party. There is no need for an indemnity from the principal in those cases. The justice of the case is quite different where a director is liable to a third party for what he has done while acting in the role of director.

I come back to the first point. Your Honours will see that these deeds were a formal agreement on the product of professional draftsmanship. The content of the indemnities was drawn with an appreciation of the limitations on the scope of those indemnities imposed, firstly, by section 241 of the Corporations Law in the case of the first deed, the 1999 deed, and section 199A of the Corporations Act in the case of the 2002 deed. The terms of each of those deeds reflect the interaction between those legislative limitations and the indemnity provided by rule 159. The obvious intention of the deed was to precisely state the content of the indemnity granted so that it would operate no more widely than the legislative permission.

If one goes to application book 91, one sees where the Court sets out the terms of the 1999 deed. If your Honours go to page 90, recital A refers to the rule, wrongly as it turned out. In fact, there was only rule 159. Recital B:

This deed confirms the basis on which NRMA will:

•	indemnify and insure the Officer –

Then one sees in 1.2 at page 91 a whole series of provisions as to the scope of the indemnity. Paragraph (e) reflects an obvious appreciation on the part of the draftsperson of the limitation on the scope of the indemnity by the then section 241. Then over the page at 94, clause 6.6, the “Entire agreement” clause, which says:

This deed:

(a) constitutes the entire agreement . . . and

(b) . . . supersedes any prior understanding, deed or agreement between the parties –

One goes to the scope of the general law indemnity which is recorded in paragraph 20 of the applicant’s submissions, it is an indemnity in these terms:

an indemnity with respect to all losses suffered, and liabilities incurred, by a director as a result of the due performance of his or her office.

That indemnity is wider in three important respects than the indemnity provided by the 2002 deed. First, the deed does not indemnify against losses suffered. Second, the deed does not indemnify against losses which are not a Liability, as defined, which is incurred and, third, the deed adopts a much more limited causal connection between a liability incurred and the availability of indemnity. A liability is indemnified if it is one which the officer incurs as an officer.

The relevant liability in my learned friend’s case on the second limb of the argument before the Court of Appeal was the liability for the costs. The Court of Appeal held that that liability was not incurred as an officer. It was costs expended by Mr Whitlam vindicating or seeking to vindicate his reputation. The Court of Appeal pointed out, if I may negative any implication in my learned friend’s argument, that somehow the proceedings taken by Mr Whitlam were not for the benefit of NRMA. At page 114 of the application book the Court of Appeal characterised the position as follows:

When Mr Whitlam incurred the costs of the defamation actions, he was seeking to redress consequences of actions he had taken as an officer, but in incurring those costs, he was not, then and there, acting as an officer. In those circumstances, when Mr Whitlam incurred legal costs in connection with the defamation action, his commencement of those defamation actions was not part of his duties as an officer of NRMA. Nor, when he had specifically asked whether NRMA would meet any costs he incurred concerning the defamation action, and was told that NRMA would not meet those costs, could he have been of the impression that NRMA regarded itself as liable to pay for the costs of that litigation.

There is a finding that:

In those circumstances, the incurring of the costs was not in his role as an officer of NRMA.

The applicant’s special leave questions pose the proposition that the general law indemnity operates independently of intention, either actual or presumed, and is a right existing as an incident of office or it is alternatively described as a freestanding right to indemnity. For the purpose of this application, let it be assumed that there is a general law indemnity of the width contended - - -

GUMMOW J: You would have to wonder then, what would happen to any successful damages recovery? Who would retain that?

MR SMITH: Yes. You get all the questions which clause 2.1 of the deed were intended to solve.

GUMMOW J: But it is easy in the trust situation that Mr Gleeson was putting to us because you would think that that would be in a question to the trust.

MR SMITH: Yes.

GUMMOW J: But we are not in that area. If you were bargaining about it and drawing up this indemnity to have this effect which he says the text already has, you would wonder why the company would not want to think about that.

MR SMITH: The answer to the observation is our first point, I think.

GUMMOW J: Unless they are asked to fund litigation, they have no recoupment in the proceeds if they are successful.

MR SMITH: They have the liability but none of the protections which were carefully drafted and incorporated into 2.1 which was a part of the commercial bargain that, if NRMA was liable to indemnify, it could take action to control and affect the ultimate cost. Can I come to the this point. We are submitting that, whether the indemnity arises by implication of terms or by some general law principle, it is well-established that the general law indemnity can be modified by agreement whether express or implied.

Our simple point is that the 2002 deed is such a modification. There is no point to that deed if this freestanding right, operating more widely than the deed, was intended by the parties to operate inconsistently with the rights carefully, the subject of that bargain. So, in our respectful submission, there is no special leave question because the question as posed concedes the point that one can modify such rights and there was such a modification here by the 2002 deed.

The second point is this. There is no case in which a director who claims to have suffered loss of reputation by the tortious conduct of a third party has been held to be indemnified by the company for that loss. No case was put before the Court of Appeal and no case is pointed to here, apart from some general principle which is sought to be extended to different facts. The width of the principle which is now sought to be relied upon is inconsistent, as the Court of Appeal pointed out, with the learning governing employers’ duties of care to employees. An employer only has an obligation to take reasonable care for the safety of its employees.

On the principle now being put, in effect, an employer would be an indemnifier because any employee who was injured doing something requested by the employer would recover loss. If this proposition was accepted, it would have startling consequences that all corporations were liable to indemnify directors and any other agent for any defamatory statement or other tortious conduct committed by third parties over whom they had no control and where that conduct conferred no corporate benefit on the corporation. There is no reason to extend the principle because the civil law has imposed a limit on the scope of the indemnity as it currently exists by providing a wrong director with a cause of action against the third party wrongdoer. Loss to reputation is compensated by cause of action. That cause of action is personal to the director and is a remedy for the wrong done.

Your Honours really have to deal with this proposition. What principle of justice requires an extension of a company’s liability to indemnify a director against loss suffered by the wrongful act of a third party where the wrong does not benefit the company, may have an exiguous connection with the company’s business and where the law only provides the director with a remedy? For those reasons your Honours would not, with respect, find that there was a special leave question. The question of the Court of Appeal’s construction is not a special leave question. In any event, in our respectful submission, it was correct and is not sufficiently attended with doubt to warrant the special leave. Those are our submissions.

GLEESON CJ: Thank you, Mr Smith. Yes, Mr Gleeson.

MR GLEESON: The answer to the last question is that the company has obtained the benefit of the director representing the company with the outside world, has obtained the benefit of the director being liable to show care and loyalty to the company in the course of the performance of that function, being a fiduciary duty and the correlative burden is that, if that task conferred on the director has exposed the director to an allegation being made against the director of breach of duty, a fortiori if that could harm the company through the allegation, it is a proper step for the director to take to take the steps of defending the allegation. Can I just mention three other matters.

GUMMOW J: Defending the allegation to the point that the declarations made by the primary judge here of recovering for his own benefit a settlement or a verdict, not for the benefit of the company.

MR GLEESON: The direct answer to your Honour’s question is if there is a verdict, yes, he recovers the verdict. The reason is that the purpose of the defamation action is to repel the false charge. It may do that in different ways. With 2GB he did not get a verdict but he got a jury verdict and he got a public apology. That was the vindication, that was the repelling of the false charge. With Channel 9 he obtained a confidential settlement. The critical aspect is whether the costs that he is expending in attempting to repel that false charge are properly spent as director.

In the light of your Honour’s question, could I just offer your Honour again, in our bundle, what Dr Lushington said in The James Seddon, which is at tab 7. The critical part is on page 65 where the unfortunate master of the ship who had chastised some employees suffered the fate that those employees brought a false charge of murder against him, Dr Lushington said at the middle of the page:

The very cause which originated the charge against the master was the performance of his own duty in correcting these very men for their misconduct, and the false charge emanated instantly from it, and there were no intervening circumstances –

the charge took –

the shape of a prosecution . . . What is that but defending himself against the consequences of the performance of his own duty, and which, if he had not performed, he would have been greatly to blame?

In that case your Honour will note over on the next page at about point 6 that in fact there was both defence and offence because the master had to take steps to then prosecute his accusers for perjury and he incurred a sum of money in the positive defence of that action which he then forfeited when the ship left the port. So it is an instance of offence. Could I also indicate that much of Mr Smith’s argument concerns his proposed notice of contention. We in fact have a finding against his argument at page 119. In paragraph 96 the argument he put that the general law indemnity was excluded by the deed failed.

Finally, could I just proffer to your Honours that, over on the facing page in paragraph 94, the proposition that a director facing a false charge can only pursue his company in tort we submit is itself novel and wrong.

GLEESON CJ: We will adjourn for a short time to consider the course we will take in this matter.

AT 12.11 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.20 PM:

GLEESON CJ: On the question of construction of the deed of indemnity we think that the decision of the Court of Appeal was correct. On the question of the general law indemnity we think that there are insufficient prospects of success of an appeal to warrant a grant of special leave. The application is dismissed with costs.

AT 12.20 PM THE MATTER WAS CONCLUDED