FEDERAL COURT OF AUSTRALIA

Motor Trades Association of Australia Superannuation Fund Pty Ltd v

Rickus (No 3) [2008] FCA 1986

CORPORATIONS – statutory demand upon director for production of documents – request by company for copy of documents provided to regulator – non–production – duty of director to provide copy – fiduciary duty – proscriptive or prescriptive – request for production – indemnity for costs – liability owed by director to company

PRACTICE AND PROCEDURE – costs – discontinuance with leave of Court – no general rule that discontinuing party should pay costs occasioned by discontinuance

Corporations Act 2001 (Cth), s 199A

Federal Court of Australia Act 1976 (Cth), s 43

Superannuation Industry (Supervision) Act 1993 (Cth), s 299  

Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 cited

Aussie Home Security Pty Ltd v Sales Systems Australia Pty Ltd [2000] FCA 498, 172 ALR 141 cited

Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261 cited

Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963, 160 FCR 35 applied

Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052, 59 ACSR 373 followed

Australian Securities and Investments Commission v Rich [2003] NSWSC 85, 174 FLR 128 cited

Australian Securities and Investments Commission v Vines [2003] NSWSC 1116, 182 FLR 405 cited

AWA Ltd v Daniels (1992) 7 ACSR 759 cited

Breen v Williams [1995] HCA 63, 186 CLR 71 followed

Clark v ING Life Ltd [2007] FCA 1960 followed

Craddock v Sweeney [2005] QSC 037 cited

Daniels v Anderson (1995) 37 NSWLR 438 cited

Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260 cited

Dover v Cory [1901] AC 477 cited

Edman v Ross (1922) 22 SR (NSW) 351 cited

Grundy v Lewis[1998] FCA 563 cited

Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700 cited

Molomby v Whitehead (1985) 7 FCR 541 cited

Motor Trades Association of Australia Superannuation Fund Pty Ltd v Australian Prudential Regulation Authority [2008] FCA 828, 169 FCR 483 cited

Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus [2007] FCA 2117 cited

Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus [2007] FCA 1878 cited

National Roads and Motorists’ Assoc v Whitlam [2007] NSWCA 81, 25 ACLC 688 applied

New Cap Reinsurance Corp Ltd v Daya [2008] NSWSC 64, 216 FLR 126 followed

O’Neill v Mann [2000] FCA 1680 considered

P & V Industries Pty Ltd v Porto [2006] VSC 131, 14 VR 1 cited

Pilmer v Duke Group Ltd [2001] HCA 31, 207 CLR 165 cited

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 considered

Smith v Airservices Australia [2005] FCA 997, 146 FCR 37 applied

Talbot v NRMA Ltd [2000] NSWSC 887, 50 NSWLR 300 applied

Whitlam v National Roads and Motorists Assoc Ltd [2007] HCATrans 484 cited

Whitlam v National Roads and Motorists’ Assoc Ltd [2006] NSWSC 766, 202 FLR 153 considered

Woolworths Ltd v Kelly (1991) 3 ACSR 431 cited

Austin R, Ford H and Ramsay I, Company Directors: Principles of Law and Corporate Governance (2005)

Young P W, ‘Corporations: Director’s Indemnity Rights’(2006) 80 ALJ 720

Dempsey G and Greinke A, ‘Proscriptive fiduciary duties in Australia’(2004) 25 Aust Bar Rev 1

Ford’s Principles of Corporations Law (13^th ed, 2007)

Sealy L S, ‘Directors’ “Wider” Responsibilities — Problems Conceptual, Practical and Procedural’ (1987) 13 Mon Univ L Rev 164

MOTOR TRADES ASSOCIATION OF AUSTRALIA SUPERANNUATION FUND PTY LIMTED (ACN 008 650 628) AND ANOR v JOHN RICKUS AND ANOR

ACD 36 of 2007

FLICK J

24 DECEMBER 2008

SYDNEY

THE ORDERS OF THE COURT ARE:

1.                  Up to 28 July 2008, each party is to bear its own costs of and incidental to leave being granted on that date to the Applicants to discontinue their proceeding.

2.                  The Cross-Claim as filed on 1 February 2008 is dismissed.

3.                  The Cross-Claimant is to pay the costs of the Cross Respondent of and incidental to the dismissal of the Cross-Claim.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     The First Applicant, the Motor Trades Association of Australia Superannuation Fund Pty Ltd (“the Trustee”) is the trustee of the MTAA Superannuation Fund (Director Co) Pty Ltd. The First Respondent, Mr John Rickus, is a former chairman and director of the Trustee. The board of directors of the Trustee resolved to remove Mr Rickus as Chairman with effect as from 10 October 2006 and to remove him as a director as from 10 December 2006.

2                     The facts which give rise to the present proceeding, and to a related proceeding, start with the issue by the Australian Prudential Regulation Authority (“the Authority”) of a notice, dated 19 September 2006, pursuant to s 255(1) of the Superannuation Industry (Supervision) Act 1993 (Cth). The notice was addressed as follows:

TO: John Rickus (Chairman) of Motor Trades Association of Australia Superannuation Fund Pty Limited (L0001069), as trustee of MTAA Superannuation Fund (R1004373) (the Fund).

The notice was issued as part of a review of the Trustee being undertaken by the Authority. Documents were produced by Mr Rickus to the Authority on 27 September 2006. Prior to giving those documents to the Authority, Mr Rickus obtained, with the concurrence of the board of the Trustee, independent legal advice.

3                     A schedule of the documents provided to the Authority was given to the Trustee at a board meeting held on 10 October 2006, but not the documents themselves or a copy of the documents. It is the non–production by Mr Rickus of a copy of the documents provided by him to the Authority which has occasioned the litigation commencing in September 2006 to the present.

4                     The Trustee sought to be provided with a copy of the documents so that it could respond to the Authority. On 24 October 2006, the then Chairman of the Trustee thus wrote to Mr Rickus as follows:

The Trustee needs to be in a position to properly and adequately address each matter identified by APRA on 10 October 2006, and I would therefore be grateful if you would provide the Board with any documents that you have previously provided to APRA or any documents provided to APRA on your behalf. You will recall that you indicated that you would do so in discussion of, and approval of, the fees you incurred in seeking legal advice.

The reason advanced by Mr Rickus for not providing the board with a copy of the documents that he had produced to the Authority was founded in his belief that the documents were confidential and he did not want those documents being made available to those directors of the board whom he considered had a conflict of interest.

5                     The concern of the Trustee was also made clear at a meeting of the board held on 22 November 2006, a meeting which Mr Rickus attended. At that meeting, the retention of Senior Counsel to advise the Trustee was discussed. The Minutes of the meeting record discussion of the documents provided by Mr Rickus to the Authority and further record that “Counsel would not be in a position to give definitive advice without seeing those documents as APRA had them and Counsel did not”.

6                     There does not appear to have been any direct response to the 24 October 2006 letter. There is, however, a letter dated 19 January 2007 from the solicitors acting for Mr Rickus responding to an earlier letter from the Trustee’s solicitors. The 19 January 2007 letter suggests that the schedule of documents was not provided to the board on 10 October but rather in November 2006. That discrepancy may be left to one side. The letter states in part:

3.1        Our client had previously advised the Trustee board at the special meeting held on 10 October 2006 that he would provide a list of the documents submitted to APRA at the next scheduled board meeting on 23 November 2006.

3.2        Our client did, in fact, table a list of such documents at the following board meeting on 23 November 2006. At that meeting, our client explained that many of the documents were in the possession of the Trustee secretariat and that many of the documents were our client’s own personal documents, notes and correspondence which he did not believe he was under an obligation to provide to the Trustee.

3.3        Our client’s understanding following that meeting was that he might expect to receive a proposal from the Trustee’s lawyers in relation to how his personal documents might be disclosed to the Trustee or the Trustee’s lawyers whilst preserving their confidentiality and any privilege.

The claim for privilege was apparently misplaced. That claim emerged later on but was not seriously pursued. There followed exchanges of correspondence.

7                     Early attempts by the Trustee to obtain access to the documents, including requests made of the Authority, proved unsuccessful. Requests made after October 2006 proved equally unsuccessful. An undertaking proffered by the Trustee to the Court in September 2006 to use the documents only for the purpose of dealing with the Authority also proved unsuccessful in securing the production of a copy of the documents.

8                     The Principal Executive Officer of the Trustee, Mr Michael Delaney, believed that a report issued by the Authority in November 2006 relied on documents supplied by Mr Rickus in reaching conclusions regarding the Trustee’s operations. Examples of apparent reliance or reference to those documents were provided. There was uncertainty surrounding precisely what material the Authority had taken into account in reaching its conclusions. It was a concern to Mr Delaney that the Authority had reached, or may have reached, a number of adverse conclusions about the operations, functioning and governance policies of the Trustee based at least in part upon the documents provided by Mr Rickus.

9                     The present proceeding seeking production of the documents or a copy of the documents was commenced by way of an Application and Statement of Claim filed on 3 September 2007. Thereafter there was an Amended Application and an Amended Statement of Claim filed on 8 October 2007. A Defence was filed in respect to the Amended Statement of Claim on 29 October 2007. At that stage the only Respondent to the proceeding was Mr Rickus. A Cross-Claim was filed on 1 February 2008. A Second Further Amended Application and a Third Further Amended Statement of Claim were filed on 23 April 2008. A Defence to the Third Further Amended Statement of Claim was filed on 16 May 2008.

10                  Even as at May 2007, Mr Rickus was still concerned as to the basis upon which copies of the documents could be made available. In a letter to the then Chairman dated 16 May 2007, Mr Rickus maintained that he “might come to an arrangement whereby I could provide the documents directly to senior counsel for the Trustee (for the purpose of counsel providing the Trustee with further advice in relation to the APRA Prudential Review Report dated 10 November 2006)”.

11                  Over time, copies of some — but not all — of the documents produced to the Authority were obtained by the Trustee. As at the date of the present hearing, only four documents have not been recovered.

12                  Two previous decisions have been given in the present proceeding. The first was on 7 November 2007 when (inter alia) orders previously made for the determination of separate questions were vacated and leave was granted to amend the then state of the pleadings: Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus [2007] FCA 2117. The Authority was also then joined as the Second Respondent. A second decision was given on 26 November 2007 when (inter alia) the Trustee was ordered to pay the costs of Mr Rickus on an indemnity basis: Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus [2007] FCA 1878.

13                  A related proceeding was also commenced by the Trustee. The Respondents to that proceeding were the Authority and Mr Rickus. In that proceeding, judicial review was sought of the Authority’s decision to refuse to return the documents produced by Mr Rickus to the Trustee. That application was dismissed: Motor Trades Association of Australia Superannuation Fund Pty Ltd v Australian Prudential Regulation Authority [2008] FCA 828, 169 FCR 483.

14                  Leave was given to the Applicants on 28 July 2008 for the discontinuance of the present proceeding. The question of costs was reserved.  

15                  Now before the Court are two issues, namely:

(i)             the resolution of the Cross-Claim filed by the First Respondent; and

(ii)           the order as to costs arising out of the discontinuance of the proceeding.

Cross-Claim: An Indemnity for Legal Costs?

16                  The Cross-Claim filed by Mr Rickus on 1 February 2008 seeks an indemnity in respect to his legal costs incurred in the conduct of this proceeding.

17                  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.

20                  Such a Deed was in fact executed on 15 February 2006.

21                  The relevant provisions of that Deed include the following definitions as set forth in cl 1:

DEFINITIONS

In this Deed except to the extent that the context otherwise requires:

…

“claim” means any demand made by a third party upon the Officer for any legal or equitable relief including payment of compensation or a monetary award or payment of a pecuniary penalty, however conveyed, including a writ, statement of claim, application, summons or other legal or arbitral process;

…

“Liability” includes any claim, action, suit, proceeding, investigation, inquiry, damage, loss, cost or expense;

…

22                  Clause 2.2 of the Deed, being the clause invoked by Mr Rickus, provides as follows:

The Company shall indemnify the Officer to the maximum extent permitted by law against any liability for legal costs incurred in respect of a Liability incurred by the Officer as or by virtue of holding office as and acting in the capacity of an officer of the Company or a Subsidiary other than for legal costs incurred:

(a)        in the circumstances set out in Section 199A(3)(a) of the Corporations Act, namely in defending or resisting proceedings in which the Officer is found to have a liability for which they could not be indemnified under Section 199A(2) of the Corporations Act as described in Clause 2.1 of this Deed;

(b)        in the circumstances set out in Section 199A(3)(b) of the Corporations Act, namely in defending or resisting criminal proceedings in which the Officer is found guilty;

(c)        in the circumstances set out in Section 199A(3)(c) of the Corporations Act, namely in defending or resisting proceedings brought by the ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established (but this Clause 2.2(c) does not apply to costs incurred in responding to actions taken by the ASIC or a liquidator as part of an investigation before commencing proceedings for the court order);

(d)        in the circumstances set out in Section 199A(3)(d) of the Corporations Act, namely in connection with proceedings for relief to the Officer under the Corporations Act in which the court denies the relief.

23                  The final provision of relevance is cl 2.5 which provides as follows:

To obtain the benefit of the indemnity under Clause 2, the Officer must:

(a)        give notice promptly to the Company of any claim against the Officer that may give rise to any claim under this deed;

(b)        take any reasonable action the Company requests to resist or defend such a claim;

(c)        not make any admission of liability with respect to the claim; and

(d)        at the Company’s request, give assistance to the Company with respect to the conduct of the claim.

24                  Although these provisions are not drafted in a manner which avoids limited ambiguity, it is not considered that the Deed confers a right to the indemnity claimed by Mr Rickus.

Indemnity: A Claim Made by the Trustee?

25                  It is not considered that the Deed, properly construed, confers a right to indemnity in respect to the legal costs incurred in an action brought by the Trustee itself.

26                  Two provisions of the Deed, it is considered, lead to this conclusion, namely:

(a)           the definition of the term “claim”; and

(b)          clause 2.5.

27                  The term “claim” is defined as meaning (inter alia) “any demand made by a third party upon the Officer”.

28                  The contrary construction of the Deed urged by Mr Rickus, however, is not without substance. His construction seizes upon the fact that the indemnity which he seeks to invoke is not confined to an indemnity in relations to “claims” that may be made; his construction seizes upon the language of clause 2.2, which confers an indemnity “against any liability for legal costs”. And, in support of that wider construction, he relies upon the fact that the definition of the term “liability” is not confined — for example — to an “action” or “suit” or “proceeding” initiated or made by a third party.

29                  Such ambiguity as may have otherwise arisen, however, is resolved by cl 2.5. In order to “obtain the benefit of the indemnity under Clause 2”, cl 2.5 provides that the officer must (for example) give notice to the Trustee and must “give assistance to the Company with respect to the conduct of the claim”. Those obligations imposed upon an officer seeking to invoke the benefit of the indemnity only sit comfortably with a construction of the Deed such that it does not confer an indemnity in respect to claims made by the Trustee itself. An obligation to give notice to the very entity making the claim, and an obligation to give assistance to the company making the claim, which Mr Rickus seeks to resist, provide a sufficient basis for confining the width of meaning which could otherwise have been ascribed to the term “liability”.

30                  The same conclusion is only further assisted by cl 7.2.3. Clause 7 provides for an officer obtaining legal advice and cl 7.2.3 provides that “where the advice is that the Officer is or may be subject to a claim… the Officer must disclose in writing to the Company the nature, extent and likelihood of the Claim and such other information as the Company requests”. If the Deed extended to the making of a claim by the Trustee against Mr Rickus, cl 7.2.3 would have the consequence that all of the legal advice he obtained for the purposes of the present proceeding should be disclosed to the Trustee.

Liability Incurred by Virtue of Holding Office & Acting in the Capacity of an Officer?

31                  Given the fact that a construction of the Deed which confines its operation to claims made otherwise than by the Trustee itself is a construction susceptible of competing arguments, it is prudent to also resolve a further construction urged by the Trustee.

32                  This alternative argument focuses attention upon the phrase in cl 2.2 that the indemnity is confined to a “Liability incurred by the Officer as or by virtue of holding office as and acting in the capacity of an officer of the Company”.

33                  That phrase, the Trustee contends, imposes a requirement to satisfy each of the two requirements, namely that the liability must be incurred by reason of Mr Rickus holding office, and also the requirement that the liability must be incurred whilst he was acting in the capacity as an officer of the Trustee. The construction of any individual deed must obviously depend upon the terms of the deed under consideration. But the construction now being advanced on behalf of the Trustee is consistent with a conclusion expressed in respect to a comparable provision in Craddock v Sweeney [2005] QSC 037 at [18].

34                  In the present proceeding, the Trustee contends that Mr Rickus cannot bring himself within this phrase because he ceased to be a director of the Trustee on 10 December 2006 and the present proceeding was not commenced until September 2007. At the time the liability to costs was incurred it is contended that Mr Rickus was not a director and was not “acting in the capacity of an officer of the Company”.

35                  It is not considered that this argument should prevail. Clause 2.2 confers an indemnity in respect to a “liability for legal costs”. The indemnity extends to the payment of such costs “in respect of a Liability incurred … by virtue of holding office as and acting in the capacity of an officer of the Company”. The “Liability” there referred to is the “Liability” to accede to the claim for the return of the documents. At the time the documents were produced by Mr Rickus to the Authority, and at the time the first demand was made for the return of those documents, and that demand was resisted, Mr Rickus remained a director of the Trustee. Indeed, it was because he was a director that the Trustee maintains that he was under a duty to return the documents or a copy of the documents.

36                  The “Liability” to accede to the demand of the Trustee is considered to be a “Liability” incurred at a time when Mr Rickus was “holding office as … an officer of” the Trustee. In National Roads and Motorists’ Assoc v Whitlam [2007] NSWCA 81, 25 ACLC 688 Campbell JA observed in respect of a like provision:

[78] The expression “as an officer” has in the present context the shade of meaning of “while acting in the role of an officer”. If an officer is sued for a liability he or she is alleged to owe by reason of his or her actions in the role of an officer, it is within the scope of the indemnity. It is because any such liability is within the scope of the indemnity that reasonable costs incurred in defending any such assertion of liability are themselves also within the scope of the indemnity.

Beazley JA and Handley AJA there agreed with Campbell JA. Special leave to appeal was refused: Whitlam v National Roads and Motorists Assoc Ltd [2007] HCATrans 484. The fact that Mr Rickus thereafter ceased to occupy that office is not considered to be a reason to reach any contrary conclusion.

37                  In resisting the claim for production of the documents, it is further considered that at the time the demand was first made for the production of those documents, and whilst Mr Rickus remained a director, he was acting bona fide and in a manner which he reasonably considered was in the best interests of the Trustee. It was the genuineness of his belief which enabled his conduct to remain properly characterised as “acting in the capacity of an officer”. A director may be opposed to the views of his company but still act in the due performance of his office: Talbot v NRMA Ltd [2000] NSWSC 887, 50 NSWLR 300. Hodgson CJ in Eq there observed:

[24] In my opinion it is clear that it is insufficient that the director honestly believes that this action is required: the director must also be acting reasonably. That is the position in relation to trustees: Re Knox’s Trust [1895] 2 Ch 483; McGregor v McGregor (No 2) [1919] NZLR 286.

[25] In my opinion, in cases like these, before taking the extreme step of bringing legal proceedings against the company, a director must take into account not only the director’s own view of what is in the company’s interests, but also the views of others; and in that regard the director should not be too ready to attribute dishonesty or unreasonableness to other persons, and the director should take into account his or her own fallibility. The director should also take into account all the consequences of bringing proceedings against the company, including the consequences of the court decision going either way, and the costs of litigation. However, if, having done all these things, the director believes that it would be in the interests of the company that the company be subject to litigation, and that he or she would be in breach of his or her own duties as a director if the proceedings were not taken, and if those beliefs are both honest and reasonable, then it seems to me that the bringing of the proceedings should be regarded as due performance of the director’s office, so that the director would be entitled to expenses and an indemnity from the company.

38                  If this construction of cl 2.2 is not correct, it would be open to the Trustee to make the demand upon Mr Rickus by reason of him occupying the position of director and thereafter deny him the benefit of the indemnity by simply removing him from his position. In resisting the demand for the return of the documents, it is thus concluded that Mr Rickus was acting bona fide and that the legal costs he incurred were costs “incurred in respect of” that “Liability”.

39                  Also rejected is an argument advanced by the Trustee that there was a failure on the part of Mr Rickus to give such notice as is required by cl 2.5. Notice of an intention to invoke the right to indemnity was provided by way of an exchange of correspondence from the solicitors acting for Mr Rickus to the solicitors acting for the Trustee, first by way of a letter dated 16 May 2007, and again by way of a letter dated 3 October 2007.

40                  The more substantial difficulty confronting Mr Rickus is not whether cl 2.2 confers an indemnity in respect only to a claim made by a third party (and not by the company) or whether he can bring himself within the phrase, “a Liability incurred by the Officer as or by virtue of holding office as and acting in the capacity of an officer” — the more substantial difficulty is the introductory words of cl 2.2. Those introductory words confine the indemnity to “the maximum extent permitted by law”.

Clause 88: An Independent Source of an Indemnity?

41                  A further independent source of an entitlement to claim an indemnity in respect to legal costs relied upon by Mr Rickus was cl 88 of the Constitution. Rather than that provision merely being an enabling provision which conferred authority to enter into the Deed, it was his contention that cl 88 was itself an agreement to provide an indemnity.

42                  By virtue of s 140(1)(b) of the Corporations Act 2001 (Cth) a company’s constitution has effect as a contract between the company and each director of the company. See: New Cap Reinsurance Corp Ltd v Daya [2008] NSWSC 64 at [20], 216 FLR 126 at 130 per Barrett J.

43                  Relevantly, cl 88 provides as follows:

Officers: Indemnities and Insurance

88.        (1)        In this Article:-

(a)        “Legal Costs” of a person means legal costs incurred by that person in defending an action for Liability of that person.

(b)        “Liability” of a person means any liability incurred by that person as an officer of the Company or a subsidiary of the Company.

(c)        “Relevant Officer” means a person who is, or has been, a Director or Secretary.

(2)        To the extent permitted by law, the Company must indemnify each Relevant Officer against:-

(a)        a Liability of that person; and

(b)        Legal Costs of that person.

(3)        To the extent permitted by law, the Company may make a payment (whether by way of advance, loan or otherwise) to a Relevant Officer in respect of Legal Costs of that person.

(4)        To the extent permitted by law, the Company may pay, or agree to pay, a premium for a contract insuring a Relevant Officer against:-

(a)        a Liability of that person; and

(b)        Legal Costs of that person.

(5)        To the extent permitted by law, the Company may enter into an agreement or deed with:-

(a)        a Relevant Officer; or

(b)        a person who is, or has been, an officer of the Company or a subsidiary of the Company,

under which the Company must do all or any of the following:-

…

(d)        indemnify that person against any Liability of that person;

(e)        make a payment (whether by way of advance, loan or otherwise) to that person in respect of Legal Costs of that person…

…

Section 9 of the Corporations Act relevantly defines an “officer” as including a director.

44                  The advantage to Mr Rickus should cl 88, and in particular cl 88(2), be an independent source of the indemnity sought to be invoked is that the indemnity thereby conferred would be free of the textual constraints imposed by cl 2.2 of the Deed. Clause 88(4), upon which some reliance was placed, does not assist. It is simply a provision which permits the payment of a premium.

45                  Left to one side is the question as to whether the Constitution could confer any greater entitlement to indemnification than the Deed.

46                  The difficulty confronting Mr Rickus is the fact that cl 88 imposes its own constraint, relevantly the constraint that it is confined to an indemnity in respect to the “Liability” of a person and, more importantly, the constraint that (again) any indemnity in respect of legal costs is an indemnity “to the extent permitted by law”.

47                  Whether the source of the indemnity sought to be invoked by Mr Rickus is the Deed or the Constitution, no greater indemnity can be conferred than that “permitted by law”.

“Permitted by Law”: A Duty to Disclose a Copy of the Documents?

48                  It was to confront the prospect that the Deed and/or the Constitution may be construed in the manner being urged on behalf of Mr Rickus that the Trustee separately urged that the Cross-Claim should be dismissed upon the basis that Mr Rickus was under an obligation to disclose to it the documents he in fact provided to the Authority.

49                  If there was such an obligation, the Trustee contended that Mr Rickus was under “a liability owed to the company” within the meaning of s 199A(2)(a) of the Corporations Act.If there was such a “liability”, s 199A(3)(a) of that Act would preclude any indemnity extending to the recovery of legal costs incurred in respect to defending a proceeding seeking to enforce that “liability”. Mr Rickus put in issue the proposition that, if he was required to produce to the Trustee a copy of the documents, such a requirement was a “liability” for the purposes of s 199A; he further put in issue whether or not he was under a requirement to produce the documents at all.

50                  Both the breach of the asserted obligation or duty and the source of any such obligation or duty were matters which Senior Counsel for Mr Rickus quite properly sought to have clarified. In that respect:

(a)           the breach of duty was said to be the failure on the part of Mr Rickus to provide to the Trustee, upon a request being made, a copy of the documents he had produced to the Authority pursuant to the statutory demand; and

(b)          the source of that duty was variously expressed, varying from a fiduciary duty to disclose, to a duty to act in the best interests of the company or agency, and an assertion of a right of property.

The Trustee “left its options open” as to the source of the duty or obligation.

51                  No authority was cited that specifically addressed the duty owed by a director (or chairman) of a company when served with a notice such as that served upon Mr Rickus under s 255 of Superannuation Industry (Supervision) Act.

52                  The very existence of any such duty and — if any such duty existed — the content of the duty had thus to be addressed as a matter of general principle. As a matter of general principle it was common ground that:

(a)           the duty owed by a director to his company is fiduciary in character (eg, Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 268 per King CJ);

(b)          the duty includes a duty to act bona fide and in the best interests of the company (eg, Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260 at 270 per Kirby P; Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 at 671);

(c)           the discharge of that duty may involve a right on the part of a director to inspect those documents relevant to the discharge of the duty (eg, Edman v Ross (1922) 22 SR (NSW) 351; Molomby v Whitehead (1985) 7 FCR 541 at 550 per Beaumont J);

(d)          the discharge of the duty involves a director becoming familiar with how the company conducts its business (eg, Daniels v Anderson (1995) 37 NSWLR 438 at 500–1); and

(e)           a director who occupies the position of chairman may have additional rights and duties, including a duty of selecting documents to be placed before the board for its consideration and keeping the board fully informed (cf Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 225 per Mahoney JA).  

Reference should also be made to ss 180 to 184 of the Corporations Act and to Ford’s Principles of Corporations Law at [8-010] and [8-065]–[8-090] (13^th ed, 2007). The statutory duties imposed by ss 181 and 182 reflect, and to some extent refine, corresponding obligations on directors under the general law: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052 at [99], 59 ACSR 373 at 397. See also: Austin R, Ford H and Ramsay I, Company Directors: Principles of Law and Corporate Governance (2005) at [7.4]. Beyond recognition of these general principles, the potential existed in the present proceeding for submissions to descend to a level of unnecessary abstraction.

53                  In some circumstances, for example, it has been said that it is “the duty of the general manager and (possibly) of the chairman to go carefully through the returns from the branches, and to bring before the board any matter requiring their consideration”: Dover v Cory [1901] AC 477. There being addressed was the responsibility of a director to inform himself as to the records of the company as opposed to the reliance he could place upon a chairman or a general manager in identifying those matters requiring his consideration. Lord Davey concluded as follows (at 492–3):

In this state of the evidence, my Lords, I ask whether the course of business at the board meetings, as described by the respondent, was a reasonable course to be pursued by the respondent, and other directors, or whether the knowledge which might have been derived from a careful and comparative examination of the weekly states and quarterly returns from the different branches of the bank ought to be imputed to the respondent, or (alternatively) whether he was guilty of such neglect of his duty as a director as would render him liable to damages. I do not think that it is made out that either of the two latter questions should be answered in the affirmative. I think the respondent was bound to give his attention to and exercise his judgment as a man of business on the matters which were brought before the board at the meetings which he attended, and it is not proved that he did not do so. But I think he was entitled to rely upon the judgment, information, and advice of the chairman and general manager, as to whose integrity, skill, and competence he had no reason for suspicion. I agree with what was said by Sir George Jessel in Hallmark’s Case [(1878) 9 Ch D 329],and by Chitty J. in In re Denham & Co. [(1883) 25 Ch D 752], that directors are not bound to examine entries in the company’s books. It was the duty of the general manager and (possibly) of the chairman to go carefully through the returns from the branches, and to bring before the board any matter requiring their consideration; but the respondent was not, in my opinion, guilty of negligence in not examining them for himself, notwithstanding that they were laid on the table of the board for reference. ...

In other circumstances it has been said that a “chairman has the primary responsibility of selecting matters and documents to be brought to the board’s attention”: AWA Ltd v Daniels (1992) 7 ACSR 759 at 867. More recently, in Australian Securities and Investments Commission v Rich [2003] NSWSC 85 at [51]–[72], 174 FLR 128 at 141–7, Austin J has reviewed the authorities and considered the duties owed by a chairman of a listed company. See also: Australian Securities and Investments Commission v Vines [2003] NSWSC 1116, 182 FLR 405.

54                  Mr Rickus sought to confront the more generally framed argument in the present proceeding, that he was under a duty to produce a copy of the documents to the Trustee as had previously been provided to the Authority, by contending that:

(a)           given the discontinuance of the proceeding in July 2008, the Trustee was now precluded from contending that Mr Rickus was under such a duty;

(b)          if the Trustee was not precluded from advancing such a contention, the Trustee should not be permitted to now raise the contention because of the prejudice to which Mr Rickus would be exposed; and

(c)           there was no such duty.

55                  The contention that s 199A of the Corporations Act denied any entitlement to an indemnity was expressly raised by the Defence to the Cross-Claim. Notwithstanding the express reliance upon s 199A(2) and (3) in that Defence, the submissions advanced on behalf of the Trustee as to the source of the duty to produce a copy of the documents caused some procedural difficulties.

56                  One difficulty was that the Authority sought an opportunity to itself make submissions. The Authority had previously been joined as the Second Respondent, in November 2007. But it had taken no real part in the present proceeding thereafter. Its participation was substantially confined to the related proceeding: Motor Trades Association of Australia Superannuation Fund Pty Ltd v Australian Prudential Regulation Authority [2008] FCA 828. The Authority’s renewed interest in the present proceeding occurred during the course of submissions in reply being advanced on behalf of Mr Rickus. The Authority, it was said, had an interest in being heard as to whether a person upon whom a notice had been served under s 255 of the 1993 Act thereafter came under a duty such as that now sought to be espoused by the Trustee. Notwithstanding the lateness of its expressed interest, the opportunity for the Authority to file written submissions confined to that issue was not opposed by Senior Counsel on behalf of the Trustee. Directions were made for the filing of written submissions and for submissions in reply by both Mr Rickus and the Trustee.

57                  Any contention that, by seeking leave to discontinue its claims as against Mr Rickus, the Trustee was thereby precluded from resisting the Cross-Claim is to be rejected. The abandonment of a claim pursued as an applicant is not considered to be the abandonment of any defence that an applicant may otherwise have to a cross-claim. By seeking leave to discontinue, the Trustee was simply contending that it no longer wished to pursue its own claim for relief — for whatever reason. The Trustee’s decision to seek leave to discontinue the Application in July 2008 may well have been influenced by the fact that it had already obtained copies of most of the documents previously produced to the Authority by Mr Rickus, or by the stage reached in relation to the inquiries being pursued by the Authority. But, whatever the reason which motivated the Trustee, leave was given to discontinue. It thereafter remained a matter for Mr Rickus to decide whether he wished to pursue his Cross-Claim or whether he too would seek to discontinue that action. If the Cross-Claim was to be pursued, the Cross Respondent was entitled to rely upon whatever issues had been legitimately raised in the Defence as filed. A discontinuance of an applicationis not to be construed in some way as some implied amendment of a defence as filed to a cross-claim.

58                  But it was the further contention of Mr Rickus as to prejudice that had the potential to occasion greater procedural difficulty. It was his contention that, had the source of the duty been more fully articulated at the outset of the hearing of the Cross-Claim, there would have been cross-examination of a number of witnesses in order to establish facts that were not otherwise considered to be relevant. A number of such outstanding facts were immediately articulated by Senior Counsel during the course of oral submissions. None of those facts then expressed were seen by Senior Counsel on behalf of the Trustee to be contentious and such as could not be the subject of agreement. A short adjournment was thus granted to enable Senior Counsel for Mr Rickus to more fully consider his position and to determine whether additional facts were also considered to be necessary. That short adjournment, however, provided insufficient time in which to properly consider the matter and the proceeding was adjourned to the following morning.

59                  Of concern were two considerations, namely the paramount importance of ensuring that Mr Rickus was extended a proper opportunity in which to advance his case and also the importance of ensuring that the proceeding was brought to conclusion as expeditiously as was consistent with a proper determination of all issues presented for resolution. If there was to be agreement as to the outstanding facts, that was to be encouraged; if there was to be no agreement, the adjournment of the proceeding to the following morning accommodated the prospect that Senior Counsel for Mr Rickus could then apply even at that stage to cross-examine such witnesses as he saw fit.

60                  Whether or not Senior Counsel for Mr Rickus should have cross-examined witnesses at the outset may be left to one side. The fact that the Trustee had “left its options open” as to the source of the duty imposed upon Mr Rickus may possibly have left his Senior Counsel in a state of uncertainty as to the case he had to meet. The importance of the Cross-Claim to  Mr Rickus’ position however was obvious; and the importance of the duty upon persons in his position when served with a notice by a regulator was also considered to be of more wide-ranging importance than the personal interests being propounded by Mr Rickus and the Trustee. The presentation of all facts relevant to a resolution of those issues, no matter how late they may have been raised, was obviously desirable — if not essential.

61                  This difficulty potentially confronting Mr Rickus, however, resolved itself. Senior Counsel on his behalf, after he had been given an opportunity to consider his position, advised that he did not wish to cross-examine further witnesses or reach any further agreement beyond that reached during the course of submissions.

62                  The position was thus reached that it was open to the Trustee to place reliance upon both s 199A of the Corporations Act and upon the manner in which it was said that Mr Rickus owed “a liability to the company”. If he did, the Trustee was not “permitted by law” to confer an indemnity in respect to the legal costs incurred by Mr Rickus in resisting the claim made for a copy of the documents to be produced.

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.

66                  All of these statutory provisions confer an authority which is a serious intrusion into the affairs of a company. If a director or other officer of a company is to yield to a lawful statutory demand, it would seem surprising that the fact of a demand should not be made known to the company and the company fully informed as to the demand and that which had been produced. Unless fully disclosed, the decision as to the response to be made to the exercise of statutory power (or further response) may be transferred from the company to an individual director. Although the obligation to respond to a statutory demand may fall upon an individual director, a decision as to whether the lawfulness of the demand should be reviewed may in some cases be made more appropriately by the company than its director.

67                  But no such generally expressed conclusion need be made in the present case.

68                  In the circumstances of the present case it is considered that Mr Rickus was under a duty to fully inform the Trustee as to his response to the s 255 notice — and that included a duty to provide to the Trustee a copy of that which had been given to the Authority. His position has been considered upon the basis that he was a director. The circumstance giving rise to the duty include the very request made for the production of the documents, the manner in which the notice was addressed and the documents sought to be produced. The circumstances also include the review being undertaken by the Authority, the stage which that review had reached, the legal advice obtained by the Trustee and the need for the Trustee to be informed as to the documents provided to the regulator so that it could properly respond to the regulator. The circumstances also include the commitment of the Trustee to use the documents, if produced, only for the purposes of the Trustee’s dealings with the Authority. Given the constraint upon the use to which it would put the documents, it is not considered that there remained any good reason why a copy of the documents could not have been produced by Mr Rickus when the request was made. No claim (for example) for legal professional privilege was sought to be made out on behalf of Mr Rickus.

69                  The source of Mr Rickus’ duty to produce to the Trustee a copy of the documents provided to the regulator was his duty to act in the best interests of the Trustee. As was made apparent to Mr Rickus, both in correspondence and at the board meeting in November 2006, the Trustee needed to be put in the position of having those copies so that the Trustee could properly address the matters being pursued by the Authority. That was what the Trustee told him and Senior Counsel to his knowledge had observed that he could not provide “definitive advice” without himself being given copies. Whatever may be the subtleties involved in other cases as to identifying that which is in the bests interests of the company (see: Sealy L S, ‘Directors’ “Wider” Responsibilities — Problems Conceptual, Practical and Procedural’ (1987) 13 Mon Univ L Rev 164), in the present proceeding no submission (not surprisingly) was advanced that it was not in the interests of the Trustee to properly address the matters being pursued by the Australian Prudential Regulation Authority.

70                  A more generally expressed submission advanced by the Trustee that it was a part of the fiduciary duty owed by a director to make full disclosure is rejected. “The strong weight of judicial authority is that fiduciary duties are proscriptive rather than prescriptive; accordingly, a fiduciary does not have a positive duty to disclose information”: Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963 at [375], 160 FCR 35 at 88 per Jacobson J.Reference may also be made to one of the authorities there referred to by His Honour, namely Breen v Williams [1995] HCA 63, 186 CLR 71. Gaudron and McHugh JJ there observed (at 113):

In this country, fiduciary obligations arise because a person has come under an obligation to act in another’s interests. As a result, equity imposes on the fiduciary proscriptive obligations — not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed. If there was a general fiduciary duty to act in the best interests of the patient, it would necessarily follow that a doctor has a duty to inform the patient that he or she has breached their contract or has been guilty of negligence in dealings with the patient. That is not the law of this country.

Gummow J concluded (at 137–8):

Fiduciary obligations arise (albeit perhaps not exclusively) in various situations where it may be seen that one person is under an obligation to act in the interests of another. Equitable remedies are available where the fiduciary places interest in conflict with duty or derives an unauthorised profit from abuse of duty. It would be to stand established principle on its head to reason that because equity considers the defendant to be a fiduciary, therefore the defendant has a legal obligation to act in the interests of the plaintiff so that failure to fulfil that positive obligation represents a breach of fiduciary duty.

See also: Pilmer v Duke Group Ltd [2001] HCA 31 at [74] (per McHugh, Gummow, Hayne and Callinan JJ) and [127] (per Kirby J), 207 CLR 165 at 197–8 and 214; P & V Industries Pty Ltd v Porto [2006] VSC 131 at [12]–[25], 14 VR 1 at 4–6 per Hollingworth J; Dempsey G and Greinke A, ‘Proscriptive fiduciary duties in Australia’(2004) 25 Aust Bar Rev 1.

71                  The rejection of such a generally expressed duty, however, does not preclude a conclusion that in the circumstances of the present proceeding Mr Rickus was under a duty to produce a copy of the documents to the Trustee — at least when a request to do so was made of him by the Trustee. The Trustee was aware that a statutory demand for the production of documents had been given to Mr Rickus and, indeed, had paid for the independent legal advice provided to Mr Rickus in respect to that demand. The Trustee had also reasonably formed the view that the regulator had most probably used at least some of the information provided by Mr Rickus in forming conclusions reached. There was a legitimate basis upon which the Trustee could make a request that it be provided with a copy of that which had been provided to its regulator. The duty imposed upon Mr Rickus in such circumstances is not considered to be some generally expressed duty to disclose that which was previously not known or the imposition of some “positive obligation”; rather it is a duty to place the board in the position whereby it can respond to an investigation being pursued by a statutory regulator and respond to that information provided by Mr Rickus. Having complied with a statutory demand and produced documents relevant to the matters being pursued by the regulator, it is not considered that Mr Rickus could thereafter withhold and thereby deny to the Trustee information potentially relevant to a meaningful response by the Trustee to the findings as were being made contrary to (or potentially contrary to) the Trustee’s interests.

72                  Rather than the obligation being the imposition of a “positive obligation”, it was his obligation not to withhold information from the board. The “obligation”was to accede to the request made of him to provide the documents. It would not be “in the best interests of thecorporation” (Corporations Act, s 181(1)(a)) to not produce to it a copy of that which had been provided to its regulator. Replying to a request properly made of him cannot properly be characterised as the imposition of any “positive obligation”.

Defending or Resisting Proceedings: Section 199A(3)(a)?

73                  Although Mr Rickus disputed that he was under any duty to provide a copy of the documents, he further disputed whether s 199A(3)(a) of the Corporations Act precluded an indemnity in respect to the legal costs provided.

74                  Central to the resolution of this contention was the distinction between the Statement of Claim (as amended) and the Cross-Claim.

75                  Section 199A(3)(a), Mr Rickus relevantly pointed out, precludes an indemnity for legal costs being provided if those costs were incurred “in defending or resisting proceedings in which the person is found to have a liability”. On Mr Rickus’ behalf it was contended that he only defended or resisted the relief claimed in the Statement of Claim (as amended). And the claim for that relief was abandoned. Even if he was “defending or resisting” the claim for relief, he contends there was no finding as to “liability”. And, in his Cross-Claim he was not “defending or resisting” anything; he was the one seeking relief.

76                  On this approach, the indemnity in respect of legal costs incurred in the present “proceeding” was not denied by s 199A(3)(a) and (2)(a). Emphasis was placed upon an accepted difference between a Statement of Claim as an originating process and a Cross-Claim. Indeed, it could also have been advanced on behalf of Mr Rickus that a Cross-Claim has been accepted as itself constituting a “proceeding” in its own right such that in the present matter before the Court there may have been two “proceedings”: cf Aussie Home Security Pty Ltd v Sales Systems Australia Pty Ltd [2000] FCA 498 at [5], 172 ALR 141 at 143 per Katz J. On such an approach, the “proceeding” in which the liability of Mr Rickus was established was a different “proceeding” to the one commenced by the Applicants; and, in his own “proceeding”, Mr Rickus was neither “defending” nor “resisting” any liability.

77                  Whether there be one “proceeding” before the Court or two “proceedings”, it is not considered that the legislative objective set forth in s 199A(3)(a) is to be resolved by such subtleties. The legislative objective is reasonably clear — an officer or auditor of a company is not to be indemnified in respect to such legal costs as he incurs in defending or resisting proceedings seeking to establish the existence of the liability in issue. At all material times the Trustee was asserting a right to have a copy of the documents produced. At all materials times Mr Rickus was resisting or denying any such right on the part of the Trustee and any duty on his part to produce a copy. A “proceeding” was instituted seeking to establish the liability denied. A further “proceeding” in the form of the Cross-Claim, it may be accepted, was also instituted. The very forensic purpose of the Cross-Claim was to resist the demand for the production of a copy of the documents. Such conduct, it is considered, falls within s 199A(3)(a). The duty or obligation to produce a copy of the documents can properly be characterised as a “liability” owed to the company.

78                  It is also separately considered that the fact that that finding has been made in resolution of the Cross-Claim does not lead to any different conclusion as to the application of s 199A(3)(a). The Cross-Claim was but the vehicle whereby it was found that Mr Rickus was under a “liability owed to the company”. It may be considered to be a curious result if a director of a company could otherwise escape the application of s 199A(3)(a) by simply filing a Cross-Claim in any “proceeding” in which a “liability” is sought to be established and inviting the Court to enter judgment — either for or against him — in the Cross-Claim and not the originating application. The object or purpose of s 199A(3) could, by such a means, potentially be thwarted.

79                  It is thus considered that s 199A(3)(a) precludes an indemnity being given in respect to the legal costs presently in issue. Whether or not either the Deed or the Constitution are otherwise to be construed as conferring an indemnity, both the Deed and the Constitution are expressed to be subject to that which is “permitted by law”. Section 199A(3)(a) and s 199A(2)(a) preclude the indemnity now claimed. Mr Rickus was under a “liability owed to the company” to produce a copy of the documents when requested.

80                  This conclusion, it should be noted, is not dependent upon the solution proffered on behalf of the Trustee during the course of oral submissions — namely that the order as made on 28 July 2008 (that leave be given to the Trustee to discontinue its claim for relief) was an order that had not formally been entered. The resolution as to whether s 199A(3)(a) precludes the indemnity sought to be relied upon by Mr Rickus should not depend upon an accident or inadvertence as to whether or not an order has or has not been entered.

81                  Whether a chairman is under any different duty need not be resolved. Whether or not there is a duty upon a director (or a chairman) in other circumstances to disclose the steps being taken by a regulator or the information provided to a regulator in relation to a company pursuant to a statutory demand, let alone a duty to produce a copy of those documents provided to a regulator, will depend upon the facts and circumstances of individual cases.

Agency and Property

82                  Two further ways in which the Trustee sought to impose a duty upon Mr Rickus need not, therefore, be addressed. But they should be briefly mentioned — only to be rejected.

83                  One further basis upon which the duty was sought to be founded was the contention that Mr Rickus was an agent of the Trustee. But when responding to the s 255 notice given to him in September 2006, Mr Rickus was not acting as the agent of the Trustee. The notice had been served upon him and it was his obligation to respond. 

84                  The other basis relied upon by the Trustee was that the documents provided by Mr Rickus were the property of the Trustee. As previously observed, it was not previously considered that an assertion as to property had been made out by the Trustee: Motor Trades Association of Australia Superannuation Fund Pty Ltd v Australian Prudential Regulation Authority [2008] FCA 828 at [45], 169 FCR 483 at 494. No reason has been advanced during the course of the present hearing to reach any contrary conclusion.

Superannuation Industry (Supervision) Act: Section 299

85                  A further submission advanced on behalf of Mr Rickus was that s 299 of the Superannuation Industry (Supervision) Act renders him “immune” from liability, “including an obligation of disclosure”. Although this provision received scant attention during the course of oral submissions, and was not adverted to at all in the Reply to the Defence to the Cross-Claim, it was a provision to which reference was made in written submissions and leave was sought (if necessary) to amend to enable reliance to be placed upon it.

86                  It is also an argument which can be shortly dealt with.

87                  Section 299 of the 1993 Act provides as follows:

Person complying with requirement not to incur liability to another person

A person who complies with a requirement made of the person under this Part does not incur any liability to any other person merely because of that compliance.

“Liability” is not a term defined by s 10 of the 1993 Act.

88                  By its terms, s 299 provides that no “liability” is incurred by Mr Rickus by reason of his compliance with the s 255 notice and the provision by him of books and documents. So construed, it is simply a provision which provides that a person who complies with a requirement imposed by the Act is not thereby exposed to any “liability to any other person”. Had compliance with the statutory demand exposed Mr Rickus to a claim (for example) of breach of duty, s 255 would have prevented him being liable for that breach.

89                  But s 299 is not a provision which absolves a person upon whom a s 255 notice has been served from all other duties or requirements otherwise imposed upon him. Whatever other obligations or duties are imposed upon Mr Rickus, they remain.

90                  It is thus not considered that s 299 is of present application and is not considered as a reason for denying the existence of the “liability” relied upon by the Trustee, namely the “liability” to provide to the Trustee a copy of the documents given by him to the Authority. Had leave been required to amend the Reply to expressly raise reliance upon s 299, leave would have been granted, but reliance upon s 299 was in any event misplaced.

Discontinuance: Costs To Be Paid?

91                  Had Mr Rickus succeeded in his Cross-Claim it may not have been necessary to separately consider the making of an order for costs occasioned by the discontinuance. To Mr Rickus it may not have mattered whether he recovered his costs by reason of his indemnity or by reason of any order that he be paid his costs. Indeed, it was understood to be Mr Rickus’ submission that it mattered not whether he won or lost the argument as to whether he was under any duty to provide a copy of the documents to the Trustee — if he won, he would most probably have been entitled to an order for costs; if he lost, his legal costs incurred in losing the argument would nevertheless have remained embraced by the indemnity.

92                  The rejection of the Cross-Claim makes it necessary, however, to separately resolve the making of an order for costs incurred up to the time of discontinuance and which were reserved in July 2008.

93                  All parties accepted that the Court has a discretion as to the making of an order for costs where an application is discontinued. The costs in issue are those incurred subsequent to November 2007.

94                  In the present proceeding, it is contended on behalf of Mr Rickus that the discretion conferred by s 43 of the Federal Court of Australia Act 1976 (Cth) should be exercised in his favour for substantially three reasons, namely:

(a)           the fact that the present proceeding is not simply an instance where astatement of claimhas been filed and thereafter discontinued. The present proceeding, it is contended, is characterised by a statement of claim being filed and thereafter being amended on a number of occasions;

(b)          the fact that each of the claims sought to be advanced, be it those claims advanced initially or as later amended, were discontinued; and

(c)           what was said to be a “general rule” that “when a matter is discontinued costs follow the event”.

95                  Such amendments by the Applicants to their Application and Statement of Claim as occurred prior to November 2007 may, for present purposes, be disregarded. Such costs as were incurred prior to that date will be incorporated within the costs order as made on 26 November 2007. Even after that date, however, there were further amendments by way of either Amended Applications or Amended Statements of Claim being those filed in October, November and December 2007 and April and May 2008.

96                  One common claim, however, remained constant throughout the evolution of the Applicants’ pleadings — namely the claim for the production of a copy of the documents produced by Mr Rickus to the Authority. And Senior Counsel on behalf of Mr Rickus accepted that the bulk of the legal costs were incurred in respect to that claim for relief.

97                  The contention of Mr Rickus, however, remains one of substance. The constant amendment of the Applicants’ Statement of Claim, and the varying bases upon which it was contended that Mr Rickus should return the documents, exposed him to legal costs.

98                  Contrary to the submission of Mr Rickus, there is no “general rule” that a party who discontinues a proceeding with the leave of the Court pursuant to O 22 r 2(1)(d) of the Federal Court Rules should normally pay the costs occasioned by the discontinuance. It may be accepted that a Court will normally allow a party to discontinue a proceeding if he wants to, provided no injustice will be caused to his opponent. “It is not desirable that a plaintiff should be compelled to litigate against his will”: O’Neill v Mann [2000] FCA 1680 at [11] per Finn J. But there is no “general rule”, such as suggested on behalf of Mr Rickus, and the order as to costs remains in the discretion of the Court: Smith v Airservices Australia [2005] FCA 997 at [39], 146 FCR 37 at 48 per Stone J. Where there has been no hearing on the merits and where both parties have acted reasonably, a proper exercise of the discretion may be to make no order as to costs: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai  Qin (1997) 186 CLR 622 at 625 per McHugh J. The approach there pursued by McHugh J has been accepted as an appropriate test to apply when proceedings are discontinued under O 22 r 2(1)(d): Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700. It is no part of the function of the Court when a proceeding is discontinued “to make a prediction as to the outcome of a hypothetical case”: Clark v ING Life Ltd [2007] FCA 1960 at [16] per Rares J.

99                  Had the entirety of the proceeding been concluded in July 2008 by the discontinuance by the Applicants of their claim for relief, it may well have been that an order for costs, or some part of the costs that had been incurred, would have been made in favour of Mr Rickus. In Smith v Airservices Australia Stone J, for example, referred with approval to the following observations of Cooper J in Grundy v Lewis [1998] FCA 563:

Although the power to award costs is unfettered, there is in the Federal Court Rules an underlying policy that a party who discontinues proceedings is to be held liable for the costs of the other parties … unless the court otherwise orders (see for example O 22 r 3, O 62 r 26).

This “underlying policy”, according to Her Honour, had not “hardened into a usual rule”: [2005] FCA 997 at [44]. But the “underlying policy” may well have indicated that Mr Rickus may have obtained a favourable costs order. Whether or not he was exposed to a duty or obligation to produce to the Trustee the documents or a copy of the documents he had been required to produce to the Authority, would have been an issue not requiring resolution.

100               The pursuit by Mr Rickus of his Cross-Claim, however, has required resolution of the principal issue otherwise left unresolved by the discontinuance of the claim previously advanced against him by the Trustee. Unlike other proceedings in which the Court may not be able to form an assessment — or should not be called upon to make an assessment — as to the prospects of success of an applicant who discontinues a proceeding, in the present proceeding that assessment can now be made. Had the Application been heard and resolved, the Trustee would have been entitled to the relief it sought.

101               On one view, it may thus be appropriate for an order to be made that Mr Rickus pay the entirety of the costs incurred since November 2007. That view would only be supported by the “open offer” made on behalf of the Trustee at the commencement of the present hearing of the Cross-Claim that the Trustee was prepared to seek no order as to costs if the proceeding was brought to finality on that day. A short adjournment was allowed to permit that offer to be considered. But the offer was rejected. An earlier like offer of compromise had been made in July 2008.

102               It is nevertheless considered appropriate that orders be made that:

(i)             each party pay their own costs up to 28 July 2008; and

(ii)           Mr Rickus should pay the costs of and incidental to the hearing of his Cross-Claim.

Such an order admittedly does some disservice to the Trustee now that the liability of Mr Rickus to have produced the documents has been resolved, and also does some further disservice to the Trustee by reason of its open offers having been rejected. But the constantly changing basis upon which the Trustee asserted that Mr Rickus was under a duty to provide to it a copy of the documents, it is considered, requires being given some significance when making an order. No order should be made for the payment of costs on an indemnity basis.

103               No order is sought either that the Authority should pay costs or that it should be entitled to an order for costs in its favour. No order would have been made, even if sought. It was appropriate for the Authority to have sought an opportunity to make submissions and to have made the written submissions it later advanced. No additional costs were incurred by reason of those submissions having been filed.

Conclusions

104               It is thus considered that:

(i)             clause 2.2 of the Deed is confined to the conferral of an indemnity in respect to claims made otherwise than by the Trustee itself;

(ii)           within the meaning of cl 2.2 of the Deed, the “Liability” to which Mr Rickus was exposed — to accede to the claim by the Trustee for the production of a copy of the documents produced to the Australian Prudential Regulation Authority — was incurred by him “as or by virtue of holding office as and acting in the capacity of an officer of” the Trustee, and the “liability for legal costs” thereafter incurred was a liability incurred “in respect of” resisting that claim;

(iii)          such legal costs as were incurred by Mr Rickus in “defending or resisting the proceedings” being advanced against him by the Trustee were costs incurred in respect to “a liability that [he] owed to the company” within the meaning of s 199A(2)(a) and (3)(a) of the Corporations Act 2001 and, accordingly, no indemnity for those legal costs could be given to him; and

(iv)         section 299 of the Superannuation Industry (Supervision) Act is no answer to the claim made by the Trustee upon Mr Rickus for the production of a copy of the documents given to the Authority.

ORDERS

105               The orders of the Court are:

1.             Up to 28 July 2008, each party is to bear its own costs of and incidental to leave being granted on that date to the Applicants to discontinue their proceeding.

2.             The Cross-Claim as filed on 1 February 2008 is dismissed.

3.             The Cross-Claimant is to pay the costs of the Cross Respondent of and incidental to the dismissal of the Cross-Claim.

Associate:

Dated:         24 December 2008