The plaintiff, ASIA, 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. Tells Finance and Audit Committee.
He applied for an order to strike out the statement of claim against him, on the ground inter alai 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 [1 925] 1 Chi 407; AWAY Ltd v Daniels (1992) 7 SCARS 759, approved. 5 45 (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 Track and N Beaumont instructed by J Redford, for the Australian Securities and Investments Commission. J N West SQ and M A Jones instructed by Watson Managing for the third defendant.
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50 [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.Tell 342 AUSTRALIAN CORPORATIONS AND SECURITIES REPORTS SC(NEWS) and its non-executive chairman of directors (Mr. Greaves, who is the third defendant), for breach of their Statutory duty of care. [2] One.
Tell was a company listed on the Australian Stock Exchange. It was laced 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. Tell from March 1995 until 17 May 2001 The fourth defendant, Mr. Silverman, was the Finance Director from July 1997-29 May 2001.
They occupied executive positions within the corporate group of which One. Tell was a part. [3] Between 1 January and 29 May 2001 there were four non-executive Directors of One. Tee, namely Mr.
D Packer, Mr. L K Morocco, Mr. R S Adler and Mr. Greaves.
The commission alleges that Mr. Greaves had been a qualified hardhearted Accountant and had substantial practical commercial experience in listed public companies, as the finance director or chief financial officer of Fairfax Ltd, Opts Ltd and World. It contends that Mr. Greaves was better qualified and more experienced than all of the other One.
Tell directors, as regards board supervision of the financial management of the group. Paragraph 4 of the second further amended statement of claim (SOFAS) states that Mr. Greaves was a Director of One.
Tell from February 1995-31 March 2001; he was chairman of directors from May-December 1 995, and then from July 1 997 until 31 March 2001 ; and from at least July 2000-31 March 2001, he was chairman of the finance and audit committee, one of the functions of which was to consider the funding requirements of One. Tee.The commission alleges that Mr. Greaves was remunerated for his services in the sum of $50,000 pa plus superannuation, while the other non-executive directors at the relevant time received no fees for their services.
[4] The substance of the commission’s allegation against Mr. Greaves is that he had special responsibilities beyond those of the other non-executive erectors, by reason of his positions as chairman of the board and the finance and audit committee, and also by reason of his high qualifications, experience and expertise relative to the other directors.Those responsibilities led to a higher standard of care and diligence, according to the commission, which Mr. Greaves failed to meet.
[5] Mr. Greaves complains that he was a non;executive director, in essentially the same position as the three other non-executive directors who have not been sued by the commission, notwithstanding that he was chairman of the board and of the finance and audit committee.He has filed a notice of motion seeking to strike out the commission’s statement of claim as against him, or alternatively to strike out specified paragraphs so far as they relate to him, or alternatively to obtain proper answers to his requests for further and better particulars. [6] At the time of the application, the commission’s pleading was the further amended statement of claim (FAST). Since the first hearing day of the application, a new version of the statement of claim, the second further amended statement Of claim (SOFAS), has been filed.
The question that now resents itself for decision is whether to grant Mr. Greaves any of the relief he seeks in respect of the SOFAS. I offer the general observation that, compared with typical pleadings one encounters in hearing cases in this division of the court, the SACS is exemplary in its clarity, precision and detail.
It may be that these very virtues have laid the commission open to the complaints now made by Mr. Greaves, 44 SCARS 341 ASIA v RICH (Austin J) 343 which raise some legal issues exposed by the structure of the pleading and also the question of the proper limits of a plaintiffs obligation to supply particulars. ] The application has been made on the following bases, directed to the statement of claim in its previous form: (a) no reasonable cause of action was disclosed, because the duties to which Mr. Greaves was alleged to have been subject are not known to law: Supreme Court Rules 1970 (NEWS), Apt 13 r 5; Apt 15 r 26(a); (b) the form of the FAST had a tendency to cause prejudice, embarrassment and delay in the proceeding: Apt 15 r 26(b); (c) the commission failed properly to particularize its case against Mr.
Greaves in a number of respects, which he claimed to be fundamental: Apt 16 r 1.The structure and content of the SOFAS 8] The commission’s case is that each of the four defendants contravened s 180(1) of the Corporations Law during the period from January-March 2001 To make out this case, it has organized the CEASE by reference to the following headings: ; the parties and the offices; ; the responsibilities; ; the statutory duty; ; One. Tell group’s circumstances: ; knowledge of Rich, Keeling and Silverman; ; knowledge of Greaves; ; the conduct of a reasonable director. The pleading under these headings is obviously intended to establish the content of the duty owed by the defendant directors to One.Tell under s 180(1). 9] The SOFAS then pleads contraventions by each of the defendant directors.
It alleges that their contraventions were serious so as to justify their disqualification from managing a corporation. It then claims that One. Tell suffered loss or damage by reason of the contraventions.
[1 0] Relief is then claimed under the civil penalty provisions of the Corporations Act 2001 (Act), in the form of multiple declarations of contraventions Offs 180(1) by each of the four defendants, and orders against them prohibiting them from managing a corporation, and requiring them to pay compensation to One.Tell, and the commission’s costs. Fourteen declarations of contravention are sought against each of Mr. Rich and Mr.
Keeling, nine are sought against Mr. Greaves and seven are sought against Mr. Silverman. All of the contraventions alleged are contraventions, in various ways, Offs 180(1). [1 1] The pleading draws attention, in an acute way, to the ingredients that must be established for contravention of s 180(1). 1 2] Section 1 80(1) of the Corporations Law, now replaced by the identically worded section of the Corporations Act 2001 (Act), is in the following terms: 180(1) A director or other officer of a corporation must exercise their powers ND discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation’s circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. 1 3] Central to the commission’s case against Mr. Greaves is its assertion that he had special “responsibilities” (in the sense in which this word is used in s by virtue of his various positions and expertise.
The CEASE sets out the alleged responsibilities under the heading “the responsibilities”. 14] Paragraph 9 of the SACS pleads the following as the responsibilities of Mr. Greaves: 9. During the period 1 January to 31 March 2001, by reason of the offices and positions held by him, the particular circumstances then pertaining to the One.
Tell group, and his own qualifications, experience and expertise relative to the other directors, Greaves had the following responsibilities: (a) to take reasonable steps to ensure that he and the other members of the Board monitored management of the One. Tell Group, properly assessed One. Tee’s financial position and performance, and properly and promptly detected and assessed any material adverse development affecting its financial position or performance; (b) to take reasonable steps to ensure that he and the other members of the Board Were informed of all material financial information concerning the One.Tee Group which was necessary to enable the Board to monitor management, to properly assess its financial position and performance, and to properly and promptly detect and assess any material adverse development affecting its financial position or performance; (c) to take reasonable steps to ensure that the material financial information offered to in (b) above included information which revealed: (i) the adequacy of the cash reserves within the One. Tell Group; (ii) the actual, and not simply the estimated, financial position and performance of the various segments of the business of the One.Tell Group; (iii) key events or transactions, which affected the financial position or performance of the One.
Tell Group; (d) to take reasonable steps to ensure, in conjunction with the Joint Managing Directors, that systems were established, maintained and monitored which resulted in the material financial information referred to in (b) above: (i) being accurate and reliable; and ii) flowing from management to the Board so as to enable the Board to monitor management, to properly assess the financial position and performance of the One.Tell Group and to properly and promptly detect and assess any material adverse development affecting its financial position or performance; (e) to take reasonable steps to ensure that the One-Tell Group employed a If menace Director with the financial qualifications, skills and experience reasonably appropriate for a person holding that position and having the responsibilities set out in paragraph 10 below; (f) to take reasonable steps to ensure that public statements made on behalf f the company did not mislead the ASS or the investing public; (g) to take reasonable steps to ensure that One. Tell: (i) complied with ASS Listing Rule 3. By immediately informing the ASS of any information concerning the company of which the company was or became aware and which a reasonable person would expect to have a material effect on the price or value of shares in the company; (ii) did not contravene section 1001 A(2) of the Corporations Law by intentionally, recklessly or negligently failing to notify the ASS of information which was not generally available and which a reasonable 345 errors would expect if it were generally available to have a material effect on the price or value of shares in the company; (h) to take reasonable steps to ensure that if the One.Tell Group was to continue its existing operations the cash reserves within the Group were maintained at a level which ensured that the companies within the Group were able to pay their debts as and when they fell due; and (i) to make recommendations to the Board as to the prudent management of the One. Tell Group, including as to its funding requirements, cessation of its business and/or appointment of an administrator.Particulars i) The offices and positions held by Greaves are set out in paragraph 4 above and the circumstances and relative experience relied upon by the plaintiff are summarizes in paragraph 8 of the letter dated 18 April 2002 from Asiatic Watson Managing.
