Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183
Allowing a company president's appeal in civil penalty proceedings by the Australian Securities and Investments Commission (ASIC), the New South Wales Court of Appeal held that, even on ASIC's case that he deliberately left a proxy poll paper unsigned, he voted as chair under section 250A of the Corporations Law because the paper showed an intention to vote that was given effect when the votes were counted; that no breach of section 232 could be found, under section 232(6) because a purpose of personal advantage was not open on the evidence and under section 232(2) because the case as pleaded and conducted gave no basis for treating his handling of the proxies as a director's duty; and that a want of care finding under section 180(1) about draft board minutes could not stand, so the proceedings were dismissed.
What the court decided
Hodgson, Ipp and Tobias JJA gave one joint judgment [1].
Mr Whitlam, a director and the President of NRMA Limited (NRMA), chaired its 1998 annual general meeting [8]. He completed 54 proxy poll papers and signed all but one, which carried 3,973 votes directed against a resolution on directors' remuneration that he supported [8], [18]. Under the returning officer's rules an unsigned paper was invalid [142]. As chair he first ruled the votes out on advice the Court called incorrect, and later ruled them valid so that they were counted [144].
At trial, Gzell J in the Equity Division declared contraventions of sections 232(2), 232(6) and 250A(4)(c) of the Corporations Law by that omission [2]. His Honour also declared that in revising draft board minutes of NRMA Insurance Group Limited about his remuneration Mr Whitlam lacked the care and diligence required by section 180(1) of the Corporations Act 2001 (Cth), but relieved him as he had acted honestly and ought fairly to be excused [2]. A five-year prohibition on managing a corporation and a $20,000 penalty followed [3]. ASIC cross-appealed against the order granting that relief [4].
Three errors vitiated the trial judge's finding that the failure to sign was deliberate [1], [135]. They concerned motive of personal gain, circular reasoning from the lack of any protest of innocence and a finding, which the Court held unsupportable, that he gave dishonest evidence about the minutes [121], [129]. The evidence could support that finding on the balance of probabilities to the standard for serious allegations, though not beyond reasonable doubt, but the Court would not decide it either way on the record [80], [136]. But for the questions of law, it would have ordered a new trial on the proxy issue [1], [137].
On ASIC's case that the omission was deliberate, the Court asked whether he had nonetheless voted, as section 250A(4)(c) required a proxy who chaired the meeting to vote on a poll as directed [47], [57], [139]. Filling out and lodging the paper was enough, viewed objectively and despite the rules not being met, to manifest an intention to vote the proxies [144]–[145]. That intention was in fact given effect when the votes were counted, so he did vote and could not be in breach [145]. No one sought a declaration of attempted breach, so the Court did not consider one [146].
ASIC had to show dishonesty in exercising his powers or discharging his duties as a director, or improper use of his position as a director [149]. A director holding a proxy owes the appointing member an agent's fiduciary duties, which will generally require a directed vote to be cast as directed [152]. The statutory requirements bind the director only as proxy, and the Court held that neither these nor the fiduciary duties are owed to the company [152]. A director voting as proxy on members' instructions may sometimes be discharging a director's duties, but not necessarily [154].
Where it is not obvious that conduct is an exercise of a director's powers or a discharge of a director's duties, the basis for alleging it must be made clear before the hearing, generally in the statement of claim [155]. The pleading was adequate for section 232(6), but a finding that he failed to sign to gain an advantage for himself was not open on the evidence to the standard for serious allegations, so that claim failed [157]. The only basis advanced under section 232(2) was that he became chair and proxy through his office, and that causal connection was not enough [158]–[159].
The Court raised, without deciding, two other bases: a duty not to subvert voting procedures and a director's role as proxy for absent members [160]–[162]. A charge of serious misconduct had to be formulated with precision [164]. Neither basis had been pleaded or run at the trial, and ASIC neither sought to amend nor filed a notice of contention [163]–[164]. Even a deliberate failure to sign could not, on the case as pleaded and conducted, have been found to breach section 232(2), and no new trial was ordered [165].
On the minutes, the finding of want of care was vitiated and unsupported, and the Court substituted a finding that the allegation was not made out [125], [127]. It saw no substance in ASIC's challenge to the finding of honesty [126]. The Court of Appeal referred to the provision as section 180(1) of the Corporations Law [48], [59].
The Court allowed the appeal and dismissed the cross-appeal, each with costs, set aside the trial orders and dismissed the proceedings with costs [172]. The unnecessary application for leave to appeal was dismissed with no order as to costs [169], [172].
Why it matters
The decision separates a director's duties as proxy under a directed appointment, which are owed to the appointing members, from a director's duties to the company [152], [154], [159]. It leaves open when a director voting proxies, in particular undirected proxies, is also discharging a director's duty [154], [161]–[162].
The practical lesson for solicitors is that where it is not obvious that conduct engaged a director's duties, a claim relying on it should make its factual and legal basis clear before the hearing, generally in the statement of claim [155]. In civil penalty proceedings alleging serious misconduct, natural justice led the Court to refuse to rule on a basis the regulator had not pleaded, run or raised by notice of contention [163]–[164]. The case applied the Corporations Law and New South Wales rules of court, so readers should check the current text of the Corporations Act 2001 (Cth), the Victorian pleading rules and any later treatment of the decision.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.