Australian Securities and Investments Commission vs. Rich and Others

Topics: Board of directors, Corporate governance, Non-executive director Pages: 22 (12566 words) Published: April 16, 2015
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AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v
RICH and Others
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SUPREME COURT OF NEW SOUTH WALES — EQUITY DIVISION

AUSTIN J
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1, 18 November 2002, 24 February 2003 — Sydney
[2003] NSWSC 85

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Directors — Duties — Non-executive chairman of directors — Statutory duty of care — Responsibilities — Usual practice of chairmen of listed Australian companies — Duty to keep informed — (CTH) Corporations Act 2001 s 180(1)(b). Words and phrases — “responsibilities within the corporation”. One.Tel was a listed company which was placed into voluntary administration and then into liquidation. The plaintiff, ASIC, commenced actions against the three executive directors and G, the non-executive chairman of directors, for breach of their statutory duty of care. G was a chartered accountant with substantial commercial experience. He was a founding director and was also chairman of One.Tel’s Finance and Audit Committee. He applied for an order to strike out the statement of claim against him, on the ground inter alia that no reasonable cause of action was disclosed, because the duties to which he was alleged to have been subject were not known to law.

Held, dismissing the application for dismissal:
(i) The word “responsibilities” referred to the acquisition of responsibilities not only through specific delegation but also through the way on which work was distributed within the corporation in fact, and the expectations placed by those arrangements on the shoulders of the individual director. G’s qualifications, experience and expertise, and his occupation of particular positions in the company, were all matters that made up or contributed to the responsibilities he had within the corporation. Re City Equitable Fire Insurance Co [1925] 1 Ch 407; AWA Ltd v Daniels (1992) 7 ACSR 759, approved.

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(ii) The court’s role, in determining liability of a defendant for his conduct as company chairman, was to articulate and apply a standard of care that respected community standards, and which might be expected to have been raised over the last century, correspondingly with the raising of the standard of care expected of directors. (iii) The duty on all company directors to keep informed must be imposed on the company chairman, whose “responsibilities” might be enhanced.

Application
This was an application by the third defendant seeking to strike out the statement of claim against him
M Pembroke SC, P Durack and N Beaumont instructed by J Redfern, for the Australian Securities and Investments Commission.
J N West QC and M A Jones instructed by Watson Mangioni for the third defendant.

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[1] Austin J. This is a civil proceeding in which the plaintiff (the commission) seeks relief of various kinds against the three executive directors of One.Tel Ltd

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AUSTRALIAN CORPORATIONS AND SECURITIES REPORTS

SC(NSW)

and its non-executive chairman of directors (Mr Greaves, who is the third defendant), for breach of their statutory duty of care.
[2] One.Tel was a company listed on the Australian Stock Exchange. It was placed into voluntary administration in May 2001 and then into liquidation in July 2001. The first and second defendants, Mr Rich and Mr Keeling, were the joint Managing Directors of One.Tel from March 1995 until 17 May 2001. The fourth defendant, Mr Silbermann, was the Finance Director from July 1997–29 May 2001. They occupied executive positions within the corporate group of which One.Tel was a part.

[3] Between 1 January and 29 May 2001 there were four non-executive Directors of One.Tel, namely Mr J D Packer, Mr L K Murdoch, Mr R S Adler and Mr Greaves. The commission alleges that Mr Greaves had been a qualified chartered Accountant and had substantial practical commercial experience in listed public companies, as the finance director or chief financial officer of Fairfax Ltd, Optus Ltd and Wormald. It contends that Mr Greaves was better qualified and more...
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