Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited [2010] FCAFC 16 (26 February 2010)

Last Updated: 26 February 2010

FEDERAL COURT OF AUSTRALIA

Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited [2010] FCAFC 16

Citation:		Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited [2010] FCAFC 16
Appeal from:		Motor Trades Association of Australia Superannuation Fund Pty Limited v Rickus (No 3) [2008] FCA 1986
Parties:		JOHN RICKUS v MOTOR TRADES ASSOCIATION OF AUSTRALIA SUPERANNUATION FUND PTY LIMITED (ACN 008 650 628), MTAA SUPERANNUATION FUND (DIRECTOR CO) PTY LIMITED (ACN 101 480 442) and AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY JOHN RICKUS v MOTOR TRADES ASSOCIATION OF AUSTRALIA SUPERANNUATION FUND PTY LIMITED (ACN 008 650 628)
File numbers:		ACD 7 of 2009 ACD 8 of 2009
Judges:		JACOBSON, SIOPIS AND FOSTER JJ
Date of judgment:		26 February 2010
Catchwords:		CONTRACT – construction of director’s Deed of Indemnity – construction of the corporate Constitution of a trustee of an industry superannuation fund – contractual indemnities held to cover legal costs incurred by a director in defending a claim made by the trustee against him for breach of s 181(a) of the Corporations Act 2001 (Cth) in circumstances where the trustee discontinued its claim with the leave of the Court COSTS – proper exercise of discretion to award costs in circumstances where claim discontinued with leave – generally costs should be awarded to the respondent party
Legislation:		Acts Interpretation Act 1901 (Cth) s 22(1) Corporations Act 2001 (Cth) ss 140(1), 181(1)(a), 199A and 199C Federal Court of Australia Act 1976 (Cth) s 24(1A) Federal Court Rules O 3 r 2(4A), O 22 r 2(1)(d), O 22 r 3, O 52 r 10(2A)(b) Superannuation Industry (Supervision) Act 1993 (Cth) ss 52(2)(c), 255 and 299 Trade Practices Act 1974 (Cth) s 52
Cases cited:		Motor Trades Association of Australia Superannuation Fund Pty Limited v Rickus (No 3) [2008] FCA 1986 reversed Motor Trades Association of Australia Superannuation Fund Pty Limited v Rickus [2007] FCA 1878 related Clark v ING Life Limited [2007] FCA 1960 cited Decor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 655; (1991) 33 FCR 397 applied International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 cited J H Lever & Co Pty Ltd v Maniotis (2005) 215 ALR 773 cited Jones v Money Mining NL (1995) 17 ACSR 531 followed Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 cited Merit Protection Commissioner v Nonnenmacher [1999] FCA 274; (1999) 86 FCR 112 applied Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700 applied National Roads and Motorists’ Association v Whitlam [2007] NSWCA 81; (2007) 25 ACLC 688 followed O’Neill v Mann [2000] FCA 1680 cited Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 applied Talbot v NRMA Ltd [2000] NSWSC 608; (2000) 50 NSWLR 300 followed Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 cited Austin et al, Company Directors Principles of Law and Corporate Governance (LexisNexis, 2005) Austin and Ramsay, Ford’s Principles of Corporations Law (14th Ed, LexisNexis, 2010)
Date of hearing:	20 August 2009
Place:	Sydney
Division:	GENERAL DIVISION
Category:	CATCHWORDS
Number of paragraphs:	128
Counsel for the Appellant:	Mr M C Livesey QC with Mr B J Doyle
Solicitor for the Appellant:	DMAW Lawyers
Counsel for the First and Second Respondents:	Mr F M Douglas QC with Mr F Assaf
Solicitor for the First and Second Respondents:	HWL Ebsworth Lawyers
Counsel for the Third Respondent (in ACD 7 of 2009 only):	Mr M Izzo
Solicitor for the Third Respondent (in ACD 7 of 2009 only):	Mr B Carruthers, Australian Prudential Regulation Authority

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	ACD 7 of 2009

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

JOHN RICKUS Appellant

AND:	MOTOR TRADES ASSOCIATION OF AUSTRALIA SUPERANNUATION FUND PTY LIMITED (ACN 008 650 628) First Respondent MTAA SUPERANNUATION FUND (DIRECTOR CO) PTY LIMITED (ACN 101 480 442) Second Respondent AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY Third Respondent

JUDGES:	JACOBSON, SIOPIS AND FOSTER JJ
DATE OF ORDER:	26 FEBRUARY 2010
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The time within which the First Respondent/Cross-Claimant in the proceedings below (Mr Rickus) might apply for leave to appeal from the decision and order of Flick J made on 24 December 2008 not to make any order for costs as a consequence of the Applicants’ discontinuing the proceedings brought by them against Mr Rickus below be extended up to and including 4 February 2009.

2. Mr Rickus have leave to appeal from the said order.

3. The Draft Notice of Appeal annexed to the affidavit of Leo Gerard Walsh sworn on 3 February 2009 stand as Mr Rickus’s Notice of Appeal.

4. The filing and service of the said Notice of Appeal be dispensed with.

5. The appeal be allowed.

6. Order 1 made by Flick J on 24 December 2008 in the proceedings below be set aside and in lieu thereof, the First Respondent in the appeal pay Mr Rickus’s costs of and incidental to the proceedings below (other than his costs incurred in relation to the Cross-Claim) from 27 November 2007 up to and including 28 July 2008.

7. The First Respondent pay the costs incurred by Mr Rickus in respect of his Application for an Extension of Time, his Application for Leave to Appeal and the consequent Appeal.

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 Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	ACD 8 of 2009

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

JOHN RICKUS Appellant

AND:	MOTOR TRADES ASSOCIATION OF AUSTRALIA SUPERANNUATION FUND PTY LIMITED (ACN 008 650 628) Respondent

JUDGES:	JACOBSON, SIOPIS AND FOSTER JJ
DATE OF ORDER:	26 FEBRUARY 2010
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. Orders 2 and 3 made by Flick J on 24 December 2008 be set aside and in lieu thereof:

(a) Pursuant to Cl 2.2 of Deed of Indemnity dated 15 February 2006 entered into between the Cross-Claimant and the Cross-Respondent and pursuant to Art 88(2)(b) of the Constitution of the Cross-Respondent, it be declared that the Cross-Claimant is entitled to be indemnified by the Cross-Respondent in respect of the legal costs incurred by the Cross-Claimant in defending proceeding No ACD 36 of 2007 in this Court and in resisting claims made by the Cross-Respondent upon the Cross-Claimant before that proceeding was commenced to substantially the same effect as the claims made in that proceeding that certain documents be produced or delivered up by the Cross-Claimant to the Cross-Respondent;

(b) The Cross-Respondent forthwith pay to the Cross-Claimant pursuant to such indemnities the amount of his legal costs so incurred to the extent that the amount of those costs has not already been paid by the Cross-Respondent;

(c) The Cross-Respondent pay to the Cross-Claimant interest on the amount required to be paid pursuant to Order 2(b) above, such amount by way of interest to be agreed between the parties or, failing agreement, to be determined by a Registrar of the Court; and

(d) The Cross-Respondent pay the Cross-Claimant’s costs of and incidental to his Cross-Claim.

3. The Respondent pay the Appellant’s costs of and incidental to the appeal.

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 Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	ACD 7 of 2009

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

JOHN RICKUS Appellant

AND:	MOTOR TRADES ASSOCIATION OF AUSTRALIA SUPERANNUATION FUND PTY LIMITED (ACN 008 650 628) First Respondent MTAA SUPERANNUATION FUND (DIRECTOR CO) PTY LIMITED (ACN 101 480 442) Second Respondent AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY Third Respondent

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	ACD 8 of 2009

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	JOHN RICKUS Appellant
AND:	MOTOR TRADES ASSOCIATION OF AUSTRALIA SUPERANNUATION FUND PTY LIMITED (ACN 008 650 628) Respondent

JUDGES:	JACOBSON, SIOPIS AND FOSTER JJ
DATE:	26 FEBRUARY 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

1 John Rickus (the appellant) was the Chairman of the Board of Directors of the first respondent (the Trustee) for a period of approximately ten years between 1996 and 2006. The Trustee is the trustee of the MTAA Industry Superannuation Fund (the Fund). The Fund is one of the largest industry superannuation funds in Australia. It has approximately 270,000 members and close to $6 billion in assets.

2 The present appeal (ACD 8 of 2009) and related Application for Leave to Appeal (ACD 7 of 2009) involve the true construction of a Deed of Indemnity entered into between the appellant and the Trustee, the true construction of the Constitution of the Trustee, the entitlement (if any) of the appellant, as a director of the Trustee, to be indemnified by the Trustee at common law, the interpretation and relevance to the contractual issues of construction of s 199A of the Corporations Act 2001 (Cth) (the Corporations Act), a consideration of the principles governing the due exercise of the Court’s discretion to award costs against an applicant who discontinues proceedings before there has been a hearing on the merits and the correct application of those costs principles in the circumstances of the present case.

3 In the end, the case is now only about whether the Trustee should pay some or all of the appellant’s legal costs incurred by him in respect of the disputes which led to and became the subject matter of the proceedings below.

THE SETTING FOR THE APPEAL AND THE LEAVE TO APPEAL APPLICATION

4 In a prudential review report dated 2 November 2004, the Australian Prudential Regulation Authority (APRA) raised concerns in respect of the Trustee’s organisational structure and the potential for conflicts of interest to arise. It also addressed other corporate governance issues. The matter of most concern to APRA at that time was the arrangement between the Trustee and Motor Trades Association of Australia Limited (MTAA) pursuant to which MTAA provided secretariat, specialist advisory services and administrative services to the Trustee in circumstances where MTAA controlled the appointment of a majority of the directors of the Trustee. In 2004, the Trustee had no employees of its own. That remained the position throughout the life of the proceedings below. APRA also regarded the circumstance that one person then occupied multiple roles with the Trustee and with MTAA as a significant corporate governance weakness.

5 In September 2006, APRA commenced a further prudential review of the Fund.

6 In aid of that review, APRA served upon the appellant a Notice dated 19 September 2006 requiring production of certain books and records (the APRA Notice). Although addressed to the appellant personally (and not to the Trustee), the Notice referred to the appellant in his capacity as Chairman of the Board of Directors of the Trustee.

7 The APRA Notice was served pursuant to the provisions of s 255 of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) and was principally directed to requiring the production to APRA of documents containing the views and comments of those directors who had not been appointed by MTAA in relation to the renewal of arrangements for outsourcing the day-to-day administration of the Fund to MTAA and of documents showing the course of the negotiations for the renewal of those arrangements. Those negotiations had commenced in about September 2005 and were still in train in September 2006. The appellant and certain other non-conflicted directors were the directors of the Trustee charged with the responsibility of conducting those negotiations with MTAA on behalf of the Trustee. The directors of the Trustee who had been appointed by MTAA were excluded from those negotiations.

8 On 27 September 2006, the appellant produced to APRA the documents required to be produced pursuant to the APRA Notice. He was, of course, obliged to do so and no criticism was or could have been made of him for doing so. Prior to producing the documents to APRA, the appellant informed the Board of Directors of the Trustee that he had been served with the APRA Notice and obtained, with the concurrence of that Board, independent legal advice as to his obligations in respect of that Notice.

9 On 10 October 2006, at a meeting of the Board of Directors of the Trustee, the appellant was removed as Chairman of the Board, effective immediately, and also removed as a director of the Trustee. This latter resolution was to come into effect on 10 December 2006. It did, in fact, come into effect on that day.

10 On 22 November 2006, the appellant provided to the Audit & Compliance Committee of the Board of Directors of the Trustee a list of the documents which he had produced to APRA. He also tabled a copy of that list at the Board Meeting held the next day (23 November 2006). He did not provide a copy of the documents on either occasion and refused to do so for some considerable time thereafter.

11 The Trustee then made several demands upon the appellant for a complete copy of all of the documents which he had produced to APRA on 27 September 2006.

12 Unable to secure compliance with its demands, the Trustee commenced proceedings against the appellant on 3 September 2007 (the Trustee’s proceedings). In its original pleading, the Trustee raised many issues and several causes of action. The Trustee’s claims at that time were not confined to requiring the appellant to provide to it a copy of the documents which he had produced in response to the APRA Notice. Included within the relief which was claimed in the Application originally filed by the Trustee was a claim for an account of profits for breach of an equitable duty of confidence said to have been owed by the appellant to the Trustee and a claim for damages or compensation for contraventions of s 52 of the Trade Practices Act 1974 (Cth).

13 Certain separate questions were fixed for hearing before the Court in early November 2007. That hearing was abandoned when the Trustee and the other applicant in the Trustee’s proceedings (a subsidiary of the Trustee) reduced the number and nature of the allegations made by them in those proceedings so as to confine their claims for relief to an order requiring delivery up to the Trustee of the originals or a copy of the documents which the appellant had produced to APRA in the period from 19 September 2006 to 10 December 2006. The costs consequences of the abandonment of that hearing and the refining of the Trustee’s case were reserved for further consideration later in November 2007.

14 On 26 November 2007, Flick J ordered the Trustee to pay the taxed costs incurred by the appellant in defending the Trustee’s proceedings on an indemnity basis (Motor Trades Association of Australia Superannuation Fund Pty Limited v Rickus [2007] FCA 1878). It is common ground amongst the parties to the present appeal that the costs order made by Flick J on 26 November 2007 related to all costs incurred by the appellant in the Trustee’s proceedings up to that date.

15 On 1 February 2008, the appellant filed a Cross-Claim in the Trustee’s proceedings. In that Cross-Claim, he claimed a declaration that he was entitled to be indemnified by the Trustee in respect of legal costs incurred by him in defending the Trustee’s proceedings and in resisting the Trustee’s claims before those proceedings were commenced. In addition, he sought an order for payment of the amount of those legal costs.

16 In his Cross-Claim, the appellant based his claim to be indemnified in respect of his legal costs upon a Deed of Indemnity dated 15 February 2006 entered into between him and the Trustee (the Deed) and upon Art 88 of the corporate Constitution of the Trustee which he contended gave to him a separate and independent indemnity.

17 On 28 July 2008, the Court granted leave to the Trustee and its associated corporation to discontinue the Trustee’s proceedings. At the same time the question of costs arising from that discontinuance was reserved. The Trustee’s proceedings were then discontinued. The Cross-Claim remained unresolved.

18 In a judgment delivered on 24 December 2008 (Motor Trades Association of Australia Superannuation Fund Pty Limited v Rickus (No 3) [2008] FCA 1986), Flick J ordered that the appellant’s Cross-Claim be dismissed with costs and that each party was to bear its own costs of and incidental to the Trustee’s proceedings. This last order related only to the period from 27 November 2007 up to 28 July 2008. It was not intended to and did not affect the order for indemnity costs made in favour of the appellant on 26 November 2007. However, the costs incurred by the appellant in the period from November 2007 up to 28 July 2008 are said to be substantial.

19 In the present appeal, the appellant seeks to overturn his Honour’s decision to dismiss his Cross-Claim with costs. In addition, the appellant challenges the order which his Honour made in respect of the costs of the Trustee’s proceedings. In respect of that order, the appellant seeks leave to appeal out of time. On the assumption that leave to appeal is granted, the appellant seeks an order that the Trustee pay his costs of and incidental to the Trustee’s proceedings on an indemnity basis.

THE ISSUES

20 The following issues arise:

(a) In the events which have happened, does Cl 2.2 of the Deed of Indemnity oblige the Trustee to indemnify the appellant in respect of the amount of legal costs incurred by him in defending the Trustee’s proceedings and in resisting the claims made by the Trustee before those proceedings were commenced;

(b) In the events which have happened, does Art 88 of the Constitution of the Trustee oblige the Trustee to indemnify the appellant in respect of the amount of legal costs incurred by him in defending the Trustee’s proceedings and in resisting the claims made by the Trustee before those proceedings were commenced;

(c) In the events which have happened, is the appellant entitled to be indemnified in respect of the amount of legal costs incurred by him in defending the Trustee’s proceedings and in resisting the claims made by the Trustee before those proceedings were commenced pursuant to a common law right of indemnity;

(d) Does s 199A of the Corporations Act in any event prevent the Trustee from indemnifying the appellant in respect of the legal costs incurred by him in defending the Trustee’s proceedings and in resisting the claims made by the Trustee before those proceedings were commenced; and

(e) Did the learned primary judge’s discretion as to costs miscarry and, if so, what is the appropriate order for costs of the Trustee’s proceedings.

21 The primary judge decided all of the indemnity questions against the appellant and in favour of the Trustee. The appellant did not plead an entitlement to a common law indemnity in his Cross-Claim and does not appear to have relied upon such an indemnity before the primary judge. For these reasons, the primary judge did not decide that question. However, the point was fully argued on appeal and the Trustee did not submit to this Court that the appellant ought not be permitted to rely upon this additional argument. We are, therefore, of the opinion that the appellant ought to be allowed to rely upon this additional argument in the appeal.

THE TRUE CONSTRUCTION OF THE DEED OF INDEMNITY

22 The primary judge held (at [25] of his Reasons) that, on the true construction of the Deed, the indemnity provided by Cl 2.2 thereof is confined to cases where the appellant has incurred a liability for legal costs in respect of a claim or proceeding brought by a third party against him. His Honour held that that indemnity does not attach to legal costs incurred in respect of liabilities incurred by the appellant to the Trustee itself. His Honour reached these conclusions at [25]–[30] of his Reasons without resort to the phrase ... to the maximum extent permitted by law ... His Honour based his conclusions in this part of his Reasons on the definition of the word claim in Cl 1 of the Deed and upon the terms of Cl 2.5 and Cl 7.2.3 of the Deed.

23 Later in his Reasons, his Honour held (at [79] of his Reasons) that the indemnity claimed by the appellant was not permitted by law because it was prohibited by the operation of s 199A(2)(a) and s 199A(3)(a) of the Corporations Act. If not permitted by law, the claimed indemnity would, in any event, be outside the scope of the indemnity provided to the appellant under the Deed, as a matter of construction of the Deed.

The Deed

24 The Deed was entered into pursuant to Art 88(5) of the Constitution of the Trustee which provides that the Trustee may enter into an agreement or deed to indemnify an officer of the Trustee in respect of a Liability and/or Legal Costs (both of which terms are defined in Art 88 for the purposes of Art 88).

25 In the Deed, the Trustee is referred to as the Company and the appellant is referred to as the Officer.

26 Recitals C and D in the Deed are in the following terms:

BACKGROUND

...

C. Subject to Sections 199A and 199B of the Corporations Act 2001, a company may give an indemnity to, and maintain insurance in favour of, certain persons including directors and other persons with respect to certain liabilities.

D. The Company has agreed to indemnify and maintain insurance in favour of the Officer with respect to certain liabilities which the Officer may incur as a result of, or by reason of, (whether solely or in part) being or acting as an officer of the Company or a Subsidiary.

27 In Cl 1 DEFINITIONS, various relevant terms are defined as follows:

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; ... "Director" has the meaning set out in Section 9 of the Corporations Act; "D & O Policy" means a policy of insurance with a substantial and reputable insurer maintained in favour of the directors and officers of the Company or a Subsidiary which indemnifies the directors and officers against certain liabilities to the fullest extent that such an indemnity can be lawfully given; "Deed" means this deed; "Liability" includes any claim, action, suit, proceeding, investigation, inquiry, damage, loss, cost or expense; "officer" has the meaning set out in Section 9 of the Corporations Act; "Officer" means the person referred to in Schedule A in his or her capacity as an officer of the Company and/or of any Subsidiary;

28 Clauses 2.1, 2.2 and 2.5 of the Deed are in the following terms:

2. INDEMNITY

2.1 Subject to Clause 2.2 of this Deed, the Company shall indemnify the Officer, to the maximum extent permitted by law, against any liability incurred by the Officer as, or by virtue of holding office and acting in the capacity of an officer of the Company or a Subsidiary other than the following liabilities:

(a) a liability as described in Section 199A(2)(a) of the Corporations Act, namely a liability owed to the Company or a related body corporate of the Company incurred as an officer of the Company or a Subsidiary;

(b) a liability as described in Section 199A(2)(b) of the Corporations Act, namely a liability for a pecuniary penalty order under Section 1317G of the Corporations Act or a compensation order under Section 1317H of the Corporations Act incurred as an officer of the Company or a Subsidiary; or

(c) a liability as described in Section 199A(2)(c) of the Corporations Act, namely a liability owed to a person other than the Company or a related body corporate that did not arise out of conduct in good faith incurred as an officer of the Company or a Subsidiary.

2.2 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.

... 2.5 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.

29 Clause 3 of the Deed requires the Trustee, at its expense, to effect and thereafter to maintain an appropriate Directors and Officers’ insurance policy in respect of the appellant. The cover to be effected is described in the definition of D & O Policy in Cl 1. Clause 4 obliges the appellant to claim under the D & O Policy before claiming against the Trustee under the Deed. No point was taken by the Trustee in the present proceeding that the appellant had not complied with Cl 4 of the Deed. The parties obviously intended that the cover provided by the D & O Policy would at the very least extend to all of the liabilities that are indemnified under the Deed.

30 Clause 7 of the Deed is in the following terms:

7. LEGAL ADVICE

7.1. Legal Advice – Company

The Company shall, at any time it requests legal advice which is for the benefit of both the Company or a Subsidiary and its officers, in their personal capacities, instruct the advisers retained that they are retained on behalf of both the Company and the officers in their personal capacities.

7.2 Legal Advice – Officer

7.2.1 The Officer may take such legal advice as the Officer requires at any time and from time to time on any matter concerning or in relation to the rights, duties and obligations of the Officer in relation to the affairs of the Company or a Subsidiary provided such legal advice is obtained with the prior knowledge of the chairman and/or company secretary of the Company.

7.2.2 The Company shall be responsible for all costs of and associated with advice taken in accordance with Clause 7.2.1 provided that, where the Company has nominated not less than three law firms, including at least one national firm, which do not advise the Company on a regular basis, the Officer seeks advice from one of those firms.

7.2.3 The Officer shall not be required to disclose advice taken in accordance with Clause 7.2.1 or anything in relation to such advice except where the advice is that the Officer is or may be subject to a claim, in which case 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.

The Reasoning of the Primary Judge

31 The primary judge reached the conclusion which we have noted at [22] above by focusing on the definition of claim in Cl 1 and upon the terms of Cl 2.5. His Honour held (at [26]–[29] of his Reasons) that the obligations imposed upon the appellant by Cl 2.5 to notify the Trustee of any claim made against him that may give rise to a claim for indemnity under the Deed and to give assistance to the Trustee in respect of such a claim did not sit comfortably with the appellant’s asserted construction of the Deed. His Honour also held (at [30] of his Reasons) that the imposition on the appellant by Cl 7.2.3 of an obligation to disclose legal advice would not be rational if the word claim as used in that subclause encompassed claims by the Trustee itself.

32 At [31]–[40] of his Reasons, the primary judge rejected an additional argument advanced by the Trustee that the indemnity provided by Cl 2.2 did not apply in the circumstances of the present case. The Trustee’s contention was that, upon the true construction of Cl 2.2, the liability in respect of which indemnity is provided under that clause must be incurred:

(a) By reason of the appellant’s holding office as a director of the Trustee; and

(b) Whilst he was acting in the capacity as a director of the Trustee.

33 The Trustee argued that, because the appellant had ceased to be a director of the Trustee on 10 December 2006 and because the costs in respect of which he seeks indemnity had not been incurred until much later, ie after 3 September 2007 (the date when the Trustee’s proceedings were commenced), the appellant could not bring himself within the terms of Cl 2.2. His Honour held that, in the circumstances of the present case, the Liability covered by the language of Cl 2.2 was the appellant’s liability to accede to the claim for the return of the documents. The appellant was a director of the Trustee when the first demand was made for the return of the documents and also when that demand was first resisted. It was, therefore, a liability which arose at the relevant time and whilst the appellant was acting in the relevant capacity. The Trustee challenges this holding by its Notice of Contention.

The Arguments on Appeal

34 In support of his construction arguments, the appellant submitted that:

(a) He was entitled to indemnity from the Trustee under Cl 2.2 in respect of his legal costs of the Trustee’s proceedings unless precluded by s 199A(3) of the Corporations Act. In the circumstances of the present case, the indemnity given to the appellant by the Trustee was not precluded by that subsection;

(b) The Deed should be construed in the light of two important contextual matters:

(i) Upon the true interpretation of the Constitution of the Trustee, the indemnity provided in Art 88(2) of that Constitution is not limited to claims made by third parties; and

(ii) Section 199A itself contemplates that an indemnity may operate in respect of costs incurred by a director in proceedings brought by the corporation which has given the indemnity.

(c) The language of the Deed reveals a design and purpose which is to provide the fullest indemnity permitted by law;

(d) The exclusion of the circumstances covered by Cl 2.2(a) (litigation covered by s 199A(3)(a) of the Corporations Act) would be entirely unnecessary if Cl 2.2 did not cover legal costs incurred in respect of claims brought by the Trustee against its own officers;

(e) The D & O Policy contemplated by the Deed was intended to cover liability for costs incurred in proceedings brought by the Trustee against an indemnified officer; and

(f) The literal and natural interpretation of Cl 2.2 leads to the appellant being entitled to invoke the indemnity pursuant to that clause in the circumstances of the present case.

35 In expanding upon the submission to which we have referred at [34(f)] above, the appellant submitted that the indemnity provided by Cl 2.2 is in respect of ... any liability for legal costs incurred in respect of a Liability (emphasis added) ... not a liability for legal costs incurred in respect of a claim or claims. It was further submitted on behalf of the appellant that Cl 2.5 was merely procedural and should not be given such prominence or effect as to control the meaning to be given to Cl 2.2.

36 The Trustee submitted that Cl 2.5, when read with the definition of claim, was not consistent with Cl 2.2 conferring an indemnity for legal costs incurred in respect of claims made by the Trustee itself. It was also submitted on behalf of the Trustee that its asserted construction was supported by a purposive construction of the Deed and by the principles of construction relevant to interpreting a commercial contract such as a Deed of Indemnity. It was said that the provision of an indemnity by the Trustee to its officers in respect of claims by the Trustee itself would not accord with ordinary commercial practice and would also contravene s 52(2)(c) of the SIS Act. The Trustee also submitted that there were significant practical difficulties in construing Cl 2.2 of the Deed of Indemnity as providing an indemnity for legal costs incurred in respect of claims by the Trustee itself.

37 In support of the additional argument which it had put to the primary judge (as to which see [32] and [33] above), the Trustee submitted that, at the time when the appellant incurred the legal costs in defending the Trustee’s proceedings, those actions were not carried out by him as part of his duties as an officer of the Trustee nor were they incurred at a time when he was an officer of the Trustee.

Consideration

38 Clause 2.1 of the Deed of Indemnity provides for an indemnity in respect of liabilities not including liabilities in respect of which indemnity is provided by Cl 2.2. Clause 2.2 deals with legal costs only. The indemnity provided by Cl 2.1 does not extend to the subject matter of s 199A(2) of the Corporations Act which prohibits the giving of an indemnity in respect of certain specific matters which are mirrored in the language of subclauses (a) to (c) of Cl 2.1. By the operation of s 199A(2)(a), the Trustee is prohibited from indemnifying any person against any liability owed to the Trustee incurred by that person as an officer of the Trustee. The Trustee is also, therefore, forbidden from providing such an indemnity by the express terms of the Deed.

39 The operative part of Cl 2.1 includes the following words which qualify the indemnity provided by the clause:

... to the maximum extent permitted by law

40 Of course, the parties to the Deed need not have accommodated the effect of the prohibitions contained in s 199A(2) in these ways. Those prohibitions would, in any event, have operated to render void any contractual indemnity provided by the Trustee to the appellant which purported to provide indemnity in contravention of s 199A(2) of the Corporations Act, to the extent that it contravened that section (see s 199C(2) of the Corporations Act).

41 The same essential structure is employed in Cl 2.2 but the exceptions are different. In Cl 2.2, the exceptions in subclauses (a) to (d) mirror the terms of s 199A(3). Section 199A(3)(a) prohibits a corporation from indemnifying its officers against legal costs incurred in defending an action for a liability incurred as an officer of the corporation if the costs are incurred in defending or resisting proceedings in which the officer is found to have a liability for which he or she could not be indemnified under s 199A(2). One such liability is a liability owed to the corporation of which the person is an officer. The effect of this provision is that a corporation is prohibited from indemnifying an officer of that corporation in respect of legal costs incurred by him in defending proceedings brought by that corporation against that officer if there is a finding in those proceedings that the officer is liable to that corporation. But, for the prohibition to bite, there must be a finding to that effect and that finding must be made in the very proceedings in respect of which legal costs are being claimed by the officer under his or her indemnity.

42 The prohibition contained in s 199A(3)(a) does not apply if the officer successfully defends the proceedings brought by the indemnifier. Nor does it apply if those proceedings are settled or abandoned without any finding of liability being made in those proceedings against the relevant officer.

43 Under Cl 2.2, the liability for legal costs for which indemnity is given must be:

(a) incurred in respect of a Liability (as defined in Cl 1);

(b) (which Liability must itself be) incurred by the appellant, as the indemnified officer;

(c) by virtue of holding office; and

(d) as an officer of the Trustee or one of its subsidiary corporations and acting in that capacity.

44 Liability is defined widely and in an inclusive rather than exhaustive way. As already noted at [27] above, claim is confined to third party claims. The requirements of Cl 2.2 summarised in (c) and (d) of [43] above are self-evident: The liability in respect of which indemnity is provided must be one which is incurred by virtue of holding office (not for some other reason) and in the relevant capacity. In the present case, the liability of the appellant must be as a director of the Trustee, by virtue of his being a director of the Trustee and by virtue of his acting in that capacity. In the present case, these latter two requirements are satisfied.

45 As a matter of construction of Cl 2.1, the liability alleged by the Trustee against the appellant in the present case could not be and was not indemnified by the Trustee under Cl 2.1 of the Deed. This is because, irrespective of whether one takes a wide view or a narrow view of the meaning of the word liability in line 2 of Cl 2.1, the express terms of the clause which define and delimit the scope of the indemnity afforded by Cl 2.1 (which, for present purposes, include the words in Cl 2.1(a)), preclude the grant of an indemnity by the Trustee in respect of a liability owed by the appellant to the Trustee itself. This construction of Cl 2.1 is sustained without resort to the words in the clause ... to the maximum extent permitted by law ... although it is reinforced by the presence of those words in the clause. This conclusion is the inevitable consequence of the operation of the provisions of s 199A(2)(a) of the Corporations Act in the circumstances of the present case.

46 The position would have been exactly the same had subcl (a) not been included in Cl 2.1. This is because s 199C(2) relevantly provides that anything that purports to indemnify a person against a liability is void to the extent that it contravenes s 199A of the Corporations Act.

47 The phrase ... any liability incurred by the Officer ....which appears in lines 2 and 3 of Cl 2.1 is very broad and, absent any express qualification on its scope, is literally apt to cover a liability incurred by the appellant to the Trustee of the kind alleged against the appellant in the present case. That the phrase should be construed widely is made clear when regard is had to the expression ... other than ... which is found in line 4 of Cl 2.1 immediately before mention of those liabilities which are excluded from coverage under the indemnity provided by that clause. The use of the words ... other than ... in that way at that place in Cl 2.1 suggests that the liabilities specifically described in subcl (a) to (c) of Cl 2.1 are carved out of a broader class of liability to which reference is made earlier in Cl 2.1. If that be the correct view of Cl 2.1 (and we think that it is), the word liability when used in line 2 of Cl 2.1 is apt to include a liability to the Trustee itself. In the Deed, the evident policy of the law, whereby claims by the Trustee itself are not allowed to be the subject of any indemnity granted by the Trustee, is accommodated through the express language of Cl 2.1(a), the operation of s 199A(2)(a) of the Corporations Act and, to the extent necessary, by the phrase ... to the maximum extent permitted by law. That policy is not accommodated by interpreting the word liability narrowly and confining it to third party claims.

48 When the terms of Cl 2.2 are considered against the background of the above construction of Cl 2.1, it is apparent that the phrase ... any liability for legal costs incurred ... in line 2 is intended to cover a commitment undertaken by or liability imposed upon the appellant to pay legal costs in respect of the designated subject matter. That subject matter is described in Cl 2.2 as ... a Liability incurred by the Officer ... in his capacity as a director of the Trustee (or, if relevant, one of its subsidiaries) and by virtue of holding office as a director of the Trustee (or, if relevant, of one of its subsidiaries).

49 Liability is defined inclusively and encompasses a wide range of disparate concepts. Read literally, the expression ... a Liability incurred by the Officer ... is apt to cover a liability incurred by an officer in the relevant capacity which is incurred to the Trustee itself.

50 In an approach which is reminiscent of the approach reflected in Cl 2.1, there is then a carve out from this prima facie position of liabilities for legal costs incurred in the circumstances described in subcl (a) to (d) of Cl 2.2. The carve out effected by Cl 2.2(a) picks up and repeats the terms of s 199A(3)(a) of the Corporations Act and precludes the giving of an indemnity by the Trustee for legal costs incurred by the appellant in defending or resisting proceedings in which the appellant is found to have a liability for which he could not be indemnified under s 199A(2) of the Corporations Act or under Cl 2.1 of the Deed.

51 If Cl 2.2 of the Deed is construed in this way, the policy of the law that officers sued by the Trustee who are found liable to the Trustee are precluded from being indemnified for their legal costs in resisting such a claim is appropriately reflected in the Deed through subcl (a) of Cl 2.2 rather than by interpreting the word Liability in line 2 of Cl 2.2 as being confined to third party claims.

52 For the above reasons, as a matter of construction of Cl 2.2, legal costs incurred by the appellant in successfully defending proceedings brought by the Trustee itself or in achieving some other outcome which avoids a finding of liability in those proceedings in favour of the Trustee would not be outside the indemnity provided by Cl 2.2. Such legal costs incurred in respect of such a proceeding would be covered by that indemnity.

53 Clause 2.5 and Cl 7.2.3 do not require a contrary conclusion. Each of those clauses deals with the making of a claim against the appellant. Claim, as defined in Cl 1, is confined to third party claims. Neither of these clauses would be engaged in circumstances where the claimant is the Trustee itself. Nor would it make sense to require the appellant to satisfy the requirements of those clauses if the liability under consideration is a liability said to be owed by the appellant to the Trustee itself. In our judgment, these clauses do not assist in resolving the questions of construction posed by the issues in the present case.

54 The Trustee submitted that:

(a) An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction and its background (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]–[41] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [11] per Gleeson CJ, Gummow and Hayne JJ; and International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8] per Gleeson CJ); and

(b) In giving a commercial contract a business-like interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract and the objects which it is intended to secure.

55 These submissions are correct. However, they do no more than capture general statements applicable to the construction of commercial contracts and do not, of themselves, resolve the present issue of construction. To accord to Cl 2.2 a meaning which leads to indemnity being available for legal costs incurred by the appellant in connection with an unsuccessful suit brought by the Trustee itself does not run counter to the genesis of the grant of indemnity in the present case or to the background to that grant.

56 The subject matter of the claim to indemnity made by the appellant pursuant to Cl 2.2 in the present case is legal costs incurred by him in defending the Trustee’s proceedings and in resisting the Trustee’s claims before those proceedings were commenced. Those costs are covered by the Cl 2.2 indemnity unless the appellant has been found to have been liable to the Trustee in the Trustee’s proceedings.

57 In the next section of these Reasons, we will consider whether or not such a finding was, in fact, made by the primary judge. Before doing so, we will deal with the additional argument raised by the Trustee’s Notice of Contention.

58 The appellant has succeeded in his contention that the primary judge was wrong in his construction of Cl 2.2 of the Deed. Therefore, the appellant is entitled to invoke Cl 2.2 of the Deed in order to secure indemnity for the legal costs incurred by him in defending the Trustee’s proceedings and in resisting the Trustee’s claims before those proceedings were commenced provided that he can demonstrate either that there was no finding of liability made by the primary judge in those proceedings or, if such a finding was made, that it should be set aside because it was made as a result of appellable error.

59 As mentioned at [32] and [33] above, the primary judge rejected the Trustee’s additional argument that the relevant liability in the present case was not incurred by the appellant by virtue of holding office as a director of the Trustee as and acting in the capacity of a director of the Trustee and that it was incurred at a time when the appellant was not a director of the Trustee.

60 The Trustee needs to resort to this argument in the event that it should fail in its primary argument concerning the correct construction of Cl 2.2 of the Deed of Indemnity. As we have held that the Trustee should fail in that primary argument, it is necessary for us to deal with this additional argument.

61 The critical question of construction thrown up by this additional argument is whether the words ... as or by virtue of holding office as and acting in the capacity of an officer of the Company ... qualify the words which appear immediately before them, namely, ... in respect of a Liability incurred by the Officer ... or whether they qualify the words ... any liability for legal costs... which appear earlier in Cl 2.2. In our view, the requirements encapsulated in the words ... as or by virtue of holding office as and acting in the capacity of an officer of the Company ... are requirements which qualify the underlying liability in respect of which the indemnity is granted in Cl 2.1, namely, the word Liability as it appears in Cl 2.2, rather than the earlier words ... any liability for legal costs ... The critical words in Cl 2.2 mirror the language of Cl 2.1. In Cl 2.1, the liability in respect of which indemnity is given is one which is incurred by the appellant in the relevant capacity, and not in any other capacity. It seems to us that the terms of the indemnity in respect of legal costs provided by Cl 2.2 do not require that the legal costs themselves be incurred in the relevant capacity or at a time when the appellant is actually an officer of the Trustee. Read in this way, the qualifying words are meant to signify that it is only in respect of legal costs incurred in respect of a Liability (as defined) that indemnity in respect of legal costs pursuant to Cl 2.2 is to be provided. This interpretation of Cl 2.2 is supported by Cl 2.4 of the Deed which provides that the indemnities under Cl 2.1 and Cl 2.2 continue and are irrevocable notwithstanding the removal, resignation or expiration of the term of the appellant as an officer of the Trustee.

62 We would therefore reject this additional argument advanced on behalf of the Trustee.

WAS THE REQUISITE FINDING MADE

63 The primary judge held that:

(a) The appellant was under a duty to provide to the Trustee a copy of all of the documents which he had produced to APRA in the period between 19 September 2006 and 10 December 2006, at least from the time when the Trustee demanded that he do so;

(b) That obligation was a liability owed to the Trustee within the meaning of s 199A(2)(a) of the Corporations Act; and

(c) By reason of the findings noted in (a) and (b) above and the operation of s 199A(2)(a) and s 199A(3)(a) of that Act, the Trustee was not permitted to indemnify the appellant in respect of his legal costs incurred in defending or resisting the Trustee’s proceedings.

64 In determining the issues raised by the appellant’s Cross-Claim at trial, his Honour, at [68] of his Reasons, made a finding that the appellant was liable to the Trustee to produce the requisite documents and that the legal costs in respect of which he sought indemnity had therefore been incurred in defending or resisting proceedings which sought to establish a liability which could not be the subject of indemnity by reason of s 199A(2)(a) of the Corporations Act. The legal costs were therefore precluded from indemnity by s 199A(3)(a) of that Act.

65 On appeal, the appellant submitted that:

(a) The forensic purpose of the Cross-Claim was not to resist or defend the Trustee’s claim for the production of documents. As pleaded, it had no bearing whatsoever on the Trustee’s proceedings. It was merely a claim for indemnity;

(b) Once the Trustee’s proceedings were discontinued, it was neither necessary nor appropriate for the primary judge to entertain the question of whether or not the appellant was liable to the Trustee within the meaning of s 199A(3)(a) read in conjunction with s 199A(2)(a) nor should his Honour have made any finding to the effect that the appellant was in fact liable to the Trustee in respect of the Trustee’s claim for production of documents; and

(c) The sole question which arose in the present context for determination in the Cross-Claim was whether the indemnity claim was permitted by law and, if so, to what extent. That question had to be determined by considering the circumstances of the case immediately after the Trustee’s proceedings were discontinued.

His Honour considered all of these issues at [48]–[72] of his Reasons.

66 The findings to which we have referred at [63] and [64] above were not made in the Trustee’s proceedings. By the time the primary judge came to hear and determine the appellant’s Cross-Claim, the Trustee’s proceedings had been discontinued. The claimed indemnity pursuant to Cl 2.2 was, in terms, confined to legal costs incurred in defending the Trustee’s proceedings and in resisting the Trustee’s claims before those proceedings were commenced. Although it may have been the case that, had the Trustee pressed its proceedings to finality, the appellant would have been found liable to it as alleged, that is not how events unfolded and no finding of liability was ever made in the Trustee’s proceedings.

67 For these reasons, the indemnity provided to the appellant pursuant to Cl 2.2 of the Deed was enlivened when the appellant made his claim pursuant to that clause and was not precluded either by the clause itself or by s 199A(3)(a) of the Corporations Act. The Cross-Claim is not a proceeding which the appellant defended or resisted and is thus not within the preclusions laid down in Cl 2.2(a) of the Deed and in s 199A(3)(a) of the Corporations Act.

CONCLUSION ON INDEMNITY UNDER THE DEED

68 We have come to the view that the appellant is entitled to indemnity pursuant to Cl 2.2 of the Deed in the circumstances of the present case in respect of legal costs incurred by him in defending and resisting the Trustee’s proceedings and in resisting the Trustee’s claims before those proceedings were commenced. We would make a declaration declaring his rights in this respect and a consequential order for payment of the amount of those costs plus interest.

ARTICLE 88 OF THE TRUSTEE’S CONSTITUTION

69 At [47] of his Reasons, the primary judge held that:

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".

His Honour did not go on to decide the question of whether Art 88 of the Trustee’s Constitution was an independent source of indemnity. At [47] of his Reasons, his Honour held that, even if Art 88(2)(b) of that Constitution provided a stand-alone indemnity, the scope of that indemnity was confined to that which was permitted by law. At [79] of his Reasons, his Honour held that, as a matter of law, the Trustee was prevented from indemnifying the appellant in respect of his legal costs by s 199A of the Corporations Act so that the indemnity claimed in the present case was not permitted by law.

70 Relevantly, Art 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 a 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... ...

71 Section 140(1)(b) of the Corporations Act provides that the constitution of a corporation has effect as a contract between the corporation and each director of the corporation under which the company and the director agree to observe and perform the constitution and rules as far as they apply to each of them. Person, when used in s 140(1), includes the corporation itself. Section 22(1) of the Acts Interpretation Act 1901 (Cth) provides that, in any Commonwealth Act, unless the contrary intention appears, the expression person includes a body corporate. No contrary intention is manifest in s 140(1) of the Corporations Act. To hold otherwise would lead to the absurd result that the statutory contract between the director and the corporation of which he is a director would not bind the corporation but would only bind the director. Further, there is authority to the effect that a director can obtain a declaration against the corporation of which he is a director whereby his rights under the statutory contract are declared (Jones v Money Mining NL (1995) 17 ACSR 531 esp at 537). Although not bound to follow that authority, we think that it correctly encapsulates the law. See also Austin et al, Company Directors Principles of Law and Corporate Governance (LexisNexis, 2005), at [4.4] and Austin and Ramsay, Ford’s Principles of Corporations Law, (14^th Ed, LexisNexis, 2010) at [6.030] and [6.050]. In our judgment, a director is able to enforce the statutory contract created by s 140(1) against the corporation.

72 Article 88(2) gives to each of the directors of the Trustee a right to be indemnified against the liabilities and legal costs covered by the subclause ... to the extent permitted by law... . That is a contractual right created directly by the Constitution and s 140(1)(b) of the Corporations Act.

73 Subarticle (5) authorises the Trustee to enter into an agreement or deed covering the subject matter described in that subclause. The indemnity authorised by Art 88(5) is one which is permitted only ... to the extent permitted by law ... but must, nonetheless, indemnify the director against any Liability of that person (as defined in Art 88(1)(b)). Liability as defined in Art 88(1)(b) does not include a liability for legal costs. Legal Costs is separately defined in Art 88(1)(a) as meaning legal costs incurred by the relevant officer in defending an action for a Liability of that officer. The indemnity provided for in the agreement or deed contemplated by subart (5) cannot be narrower than or substantially different from the indemnity afforded to the directors of the Trustee by Art 88(2) of the Trustee’s Constitution. This is because the indemnity described in Art 88(5)(d) is co-extensive with the indemnity provided by Art 88(2)(a) and the payment or accommodation in respect of legal costs contemplated by Art 88(5)(e) is referrable to Legal Costs as defined in Art 88(1)(a).

74 As noted in [69] above, the primary judge did not construe Art 88(2) of the Constitution of the Trustee nor did he decide the question of whether Art 88(2) was an independent source of indemnity which was apt to cover the appellant’s extant claim for indemnity in respect of legal costs incurred by him. The appellant contends that his Honour erred in deciding not to address these matters and that this Full Court should now decide them and do so in his favour.

75 At [71] and [72] above, we have already held that Art 88(2) does provide contractual indemnities in favour of the appellant. The question to which we now turn is: What is the extent of those indemnities? In particular, does the indemnity provided by Art 88(2)(b) attach to the appellant’s claim in respect of legal costs in the circumstances of the present case?

76 In their terms, the Art 88(2) indemnities are restricted to such protection as is permitted by law. The phrase to the extent permitted by law picks up the preclusions mandated by s 199A of the Corporations Act so that, if the indemnity claimed by the appellant in his Cross-Claim is precluded by that section, as a matter of construction of Art 88(2), the indemnity claimed by the appellant is simply not covered by the terms of Art 88(2).

77 The subject matter of the appellant’s claim for indemnity in respect of legal costs incurred by him is legal costs incurred in defending the Trustee’s claim for delivery up or production of a copy of all documents which were produced by the appellant to APRA in the period from 19 September 2006 to 10 December 2006. The liability claimed by the Trustee as supporting the relief ultimately sought by it was held by the primary judge to be a liability arising from a breach by the appellant of the obligation owed by him to the Trustee pursuant to s 181(1)(a) of the Corporations Act. That obligation required him to exercise his powers as a director of the Trustee and to discharge his duties as a director of the Trustee in good faith in the best interests of the Trustee. The alleged liability in respect of which the appellant incurred legal costs, therefore, is properly characterised as a liability suffered by the appellant as a consequence of an alleged breach of the statutory duty owed by him to the Trustee.

78 In our judgment, the liability of the appellant, characterised in that way, cannot be and is not covered by the indemnity provided for in Art 88(2)(a) of that Constitution. There are several reasons for this.

79 First, by reason of the operation of s 199A(2)(a), a corporation is precluded from indemnifying any of its directors against a liability owed to the corporation which is incurred as an officer of the corporation. Any contract to provide such an indemnity is void (see s 199C(2) of the Corporations Act). We think that this preclusion is given effect to via the phrase ... to the extent permitted by law ... in Art 88(2)(a). It is clear that the indemnity provided by Art 88(2)(a) cannot cover claims by and liabilities owed to the Trustee itself.

80 Second, as we have noted in [73] above, the indemnity contemplated by Art 88(5)(d) must be co-extensive with that afforded to the relevant officer directly by Art 88(2)(a). We have already held that Cl 2.1 of the Deed does not indemnify the appellant in respect of claims made by the Trustee against him. Consistency demands that the Constitution of the Trustee be interpreted in a way which arrives at the same conclusion.

81 Third, a construction of Art 88(2)(a) which, in effect, does away with the substance of the obligation imposed upon all directors of the Trustee by s 181(1)(a) by requiring the Trustee to indemnify its directors against claims made by it for breach of that obligation should be rejected.

82 For these reasons, notwithstanding that Art 88(2)(a) does provide a stand-alone indemnity in favour of the appellant, we think that, as a matter of construction, that indemnity does not extend to cover the claim which was made and pressed against the appellant in the Trustee’s proceedings.

83 The definition of Legal Costs in Art 88(1)(a) nonetheless covers the legal costs incurred by the appellant in defending the Trustee’s proceedings. If the preclusion laid down in s 199A(3)(a) of the Corporations Act does not apply, the appellant would be entitled to indemnity for those legal costs under Art 88(2)(b) of the Constitution of the Trustee.

84 Section 199A(3)(a) of the Corporations Act precludes the provision of indemnity by a corporation in favour of any of its directors for legal costs incurred in respect of claims made against such a person by the corporation itself if the relevant director has been found liable to the corporation in the proceedings in which the corporation seeks to establish that liability. That preclusion is picked up by the phrase in Art 88(2) ... to the extent permitted by law ...

85 The position under the Trustee’s Constitution, therefore, is the same as the position under the Deed. For the appellant to succeed in engaging the Constitutional indemnity for legal costs, he must demonstrate that the primary judge did not make a finding in the Trustee’s proceedings that he was liable to the Trustee or, if such a finding was made, that it should be set aside because it was made as a result of appellable error.

86 At [66] above, we have held that the primary judge did not make such a finding in the Trustee’s proceedings. Accordingly, the appellant is entitled to the claimed indemnity pursuant to Art 88(2)(b) of the Constitution of the Trustee. The scope of that indemnity is the same as that which is provided by Cl 2.2 of the Deed. The declaration which we would make should recognise both bases which support the making of that declaration.

THE COMMON LAW RIGHT OF INDEMNITY

87 In Talbot v NRMA Ltd [2000] NSWSC 608; (2000) 50 NSWLR 300, Hodgson CJ in Eq (as he then was) discussed the position at general law of a director who seeks indemnity from the corporation of which he is a director for costs and expenses incurred by him. At [19]–[22], his Honour said:

It is the duty of a director of a corporation to act bona fide in the interests of the corporation. This requires both a proper purpose and absence of conflict of interests, and also some measure of objective reasonableness. A director as an agent and fiduciary is entitled to be indemnified against losses and expenses properly incurred in the due performance of the office: Young v Naval, Military & Civil Service Co-operative Society of South Africa Ltd [1905] 1 KB 687 at 693. The position of directors is not dissimilar from that of trustees, as set out in R P Meagher and W M C Gummow, Jacobs, Law of Trusts in Australia, 5th ed (1986) Butterworths, Sydney, pars 2105, 2107, 2109. This applies where a director is carrying out duties in the normal course, including attending meetings, and in the case of an executive director performing executive functions; although as the case of Young shows, if the director is remunerated there will be a question whether the remuneration is intended to cover such expenses. Apart from carrying out duties in the normal course, there may be situations where a director honestly and reasonably believes that his or her duties require the incurring of expense in the interests of the company. For example, if a director becomes aware that other directors are misappropriating the company’s property, and incurs costs, for example, in getting an order against a bank to stop this misappropriation, then the director would be entitled to the expenses of taking that action.

His Honour made clear that a single director who takes steps to sue the corporation of which he is a director or, as here, by his conduct provokes that corporation into bringing proceedings against him, must act both honestly and reasonably. He must consider the views of his co-directors and the likely consequences of his actions.

88 At [26]–[27], his Honour said:

It will be seen that I have included in these requirements that the director must go so far as to believe that it would be a breach of the director’s own duty if the proceedings were not brought. In my opinion, it is insufficient that the director merely believes that the course preferred by the director would be in the interests of the company, and insufficient that the director merely believes that the bringing of the proceedings would be in the interests of the company. Certainly, it would be insufficient that the director believes that the bringing of the proceedings would advance the interests of the minority, or give the interests of the minority a fair representation. I think that this element is necessary, because what is involved here is not merely the exercise of a discretion in the ordinary course of the director’s duties, but the taking of drastic positive action outside that ordinary course. I included in the statement of the requirements a requirement that the beliefs in question must be reasonable. I intend this as a shorthand statement of an objective criterion, about which much more could be said. However, I think the elaboration of that criterion could take place more appropriately in the context of a full examination of particular facts, which I am not undertaking in this hearing.

89 In National Roads and Motorists’ Association v Whitlam [2007] NSWCA 81; (2007) 25 ACLC 688, Campbell JA (with whom Beazley JA and Handley AJA agreed) at [96], held that, if the general law entitlement to indemnity is to be imported into an express contract of indemnity as an implied term, the question of whether such a term should be implied must be decided according to ordinary principles of contract. In particular, any term sought to be implied in this way must be necessary in order to give business efficacy to the contract.

90 If the correct conceptual basis of the general law indemnity claimed by the appellant is that it is to be regarded as a term to be implied into the Deed and into the Constitution of the Trustee, such a term would not, in fact, be implied into either the Deed or into the Constitution of the Trustee in the present case because the implication of such term is not necessary in order to give business efficacy either to the Deed or to the Constitution. The law forbids a corporation from indemnifying any of its directors for legal costs in defending or resisting proceedings brought by the corporation itself against the director if the director is found liable to the corporation in those proceedings. The law does not otherwise preclude the grant of such an indemnity. Both the Deed and the Constitution of the Trustee provide indemnity for legal costs incurred by the appellant in successfully defending or resisting the Trustee’s proceedings provided that he is not found liable to the Trustee in those proceedings. Thus, the contractual arrangements between the parties fully accommodate the permissible scope of indemnity in the circumstances of the present case. There is no room for the operation of any general law indemnity.

91 For these reasons, if the question posed by the appellant’s contention that he is entitled to a common law indemnity, is whether an appropriate term should be implied into either of those instruments, we are of the view that no such term should be implied. For the same reasons, we also think that the appellant cannot rely upon a common law stand-alone indemnity.

IS THE APPELLANT’S CLAIMED INDEMNITY IN RESPECT OF LEGAL COSTS PRECLUDED BY S 199A OF THE CORPORATIONS ACT

92 We have already held at [66] and [67] above that the claimed indemnity is not precluded by s 199A of the Corporations Act for the reasons discussed in those paragraphs. It is, therefore, not necessary for us to consider whether, had the primary judge been required to consider the question of whether the appellant was liable to the Trustee, the primary judge was correct in his articulation of the duty owed by the appellant to the Trustee in the circumstances of the present case (as to which see his Reasons at [68]), whether he was correct in his finding that the appellant breached that duty or whether the appellant was fairly apprised at the trial of his Cross-Claim of the Trustee’s contention that, not only was it open to his Honour to make a finding that the appellant was liable to the Trustee, but that his Honour was bound to do so, given the terms of the Trustee’s defence to the appellant’s Cross-Claim (as to which see the primary judge’s Reasons at [61]–[62]).

93 We express no view on whether the appellant acquiesced in his Honour considering and determining the issue of the appellant’s liability to the Trustee in the context of the appellant’s Cross-Claim because any such acquiescence would not, in any event, overcome or detract from the simple fact that his Honour did not make the requisite finding in the Trustee’s proceedings but rather did so in the appellant’s Cross-Claim. Because of the view which we have taken as to the meaning of the word proceedings in Cl 2.2(a) of the Deed and in s 199A(3)(a) of the Corporations Act, we think that the primary judge erred in embarking upon a consideration of the appellant’s liability in the context of his Cross-Claim and that he also erred in making the finding which he did--not because his conclusion was wrong (upon which we express no view) but because it was irrelevant to the issues at hand.

CONCLUSION ON THE CROSS-CLAIM

94 For the reasons explained above, the appellant should have succeeded in his Cross-Claim and should have been accorded an indemnity pursuant to the Deed and the Constitution of the Trustee for the legal costs which he had incurred in defending and resisting the Trustee’s proceedings and in resisting the claims of the Trustee made before those proceedings were commenced. As we have already indicated at [68] and [86] above, he is entitled to a declaration to that effect. That declaration should have been made in the Cross-Claim. The appellant’s appeal from his Honour’s dismissal of the appellant’s Cross-Claim should be allowed and the declaration now made. The appellant should have his costs of and incidental to the Cross-Claim.

SECTION 299 OF THE SIS ACT

95 The appellant and APRA, with the leave of the Court, argued that s 299 of the SIS Act absolved the appellant from any liability to the Trustee.

96 Section 299 of the SIS Act provides:

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.

97 The primary judge held that s 299 did not assist the appellant in the present case. At [89] and [90] of his Reasons, his Honour said:

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. 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.

98 Given that we have not found it necessary to consider the correctness of his Honour’s finding of liability made against the appellant, strictly speaking, we do not need to decide the question of whether the appellant is, in any event, absolved from liability in the present case by s 299 of the SIS Act. However, as the point was fully argued before us, we think it desirable to express our views on the point.

99 On the assumption that the primary judge’s finding of liability was correct, we agree with his Honour’s conclusion and with his Reasons in respect of the appellant’s argument based on s 299 of the SIS Act. The liability which his Honour found was owed by the appellant to the Trustee was not a liability which arose from the circumstance that he had produced documents to APRA. Rather, the liability arose by reason of the appellant’s failure to comply with the Trustee’s request to produce to it a copy of all of the documents which he had made available to APRA.

THE COSTS ORDER MADE BY THE PRIMARY JUDGE ON 24 DECEMBER 2008 AND THE APPLICATION FOR LEAVE TO APPEAL

Introduction

100 Given the views to which we have come in respect of the appellant’s contractual claims, it is, strictly speaking, not necessary for us to deal with the appellant’s Application for Leave to Appeal. This is because the contractual indemnities which we have held the appellant is entitled to invoke cover the costs of the Trustee’s proceedings notwithstanding the fact that his Honour declined to make an order for costs in those proceedings in favour of the appellant. However, because we consider that the primary judge also erred in the way in which he dealt with the consequences of the Trustee’s discontinuance of the Trustee’s proceedings and because the issue involves consideration of some principles of general application, we will address the questions raised by that Application.

Leave to Appeal

101 Leave to appeal is required from the costs order made by the primary judge on 24 December 2008 because that order was interlocutory in form (see s 24(1A) of the Federal Court of Australia Act 1976 (Cth) and Merit Protection Commissioner v Nonnenmacher [1999] FCA 274; (1999) 86 FCR 112 at [20]). In the present case, the appellant’s Application for Leave to Appeal should have been filed by no later than 21 January 2009. This conclusion is arrived at by applying the terms of O 52 r 10(2A)(b) and O 3 r 2(4A) of the Federal Court Rules to the facts of the present case.

102 The Application for Leave to Appeal was filed on 4 February 2009. It was, therefore, 14 days late.

103 The subject matter of the appellant’s Application for Leave to Appeal (ACD 7 of 2009) is closely connected to the subject matter of his appeal in ACD 8 of 2009 which, of course, is also under consideration in these Reasons for Judgment. The appellant’s delay in filing his Application for Leave to Appeal from the costs order made by the primary judge on 24 December 2008 is not inordinate and is probably to be explained by the fact that the appellant and those advising him believed that the appellant had until 4 February 2009 in which to seek to overturn the primary judge’s costs order.

104 We think that the appellant should be granted an extension of the time within which to file his Application for Leave to Appeal from the primary judge’s costs order made on 24 December 2008.

The Relevant Principles (Leave to Appeal)

105 In Decor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 655; (1991) 33 FCR 397, the Full Court (at 398–399) held that, in the general run of cases in which leave to appeal from an interlocutory judgment is sought, the applicant for leave must demonstrate that the decision is attended with sufficient doubt to warrant its being reconsidered by the Full Court and that substantial injustice would result if leave were refused, supposing the decision to be wrong.

106 The Full Court went on to say that there were no rigid rules which should be applied in all cases.

107 At 399–400, the Court said:

In our opinion, the principles discussed in Niemann and in the other cases to which we have referred provide general guidance which a court should normally accept. However, there will continue to be cases raising special considerations, and the court should not regard its hands as tied in any case beyond this; that by s 24(1A) the legislature has evinced a policy against the bringing of interlocutory appeals except where the court, acting judicially, finds reason to grant leave. When the court comes to exercise its discretion on a particular application, an important distinction to be observed is that between the common interlocutory decision on a point of practice -- concerning which the High Court has given (see Adam P Brown Male Fashions v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170 at 177) a strong warning that "a tight rein" should be kept on appeals -- and an interlocutory decision determining a substantive right -- where leave will more readily be granted. Although the judgments of Jordan CJ in Re Will of Gilbert (deceased) (1946) 46 SR(NSW) 318 at 323 and of the majority of the High Court in Adam P Brown Male Fashions Proprietary Ltd v Philip Morris Inc (supra) are not concerned with the question of the granting of leave, they emphasize this distinction, which was applied to the granting of leave in Ex parte Bucknell [1936] HCA 67; (1936) 56 CLR 221 and Sharp (supra). In the present case, the interlocutory decisions in respect of which leave is sought are certainly attended with difficulty, and their correctness is open to dispute. If they are wrong, significant consequences will be suffered by the applicants. We regard this as a clear case for the grant of leave.

108 We shall apply these principles in the present case.

The Reasons of the Primary Judge

109 The primary judge dealt with the question of costs of the Trustee’s proceedings at [91]–[103] of his Reasons.

110 At [93], his Honour noted that the Court has a discretion as to the making of an order for costs where a proceeding is discontinued. At [98], his Honour held that there was 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. His Honour found that the appropriate order as to costs in those circumstances remains in the discretion of the Court. In the second half of [98], his Honour said:

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] HCA 6; (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.

111 At [99]–[101] of his Reasons, his Honour held that, had there been no Cross-Claim and had the discontinuance of the Trustee’s proceedings brought the entire litigation to an end, it may have been appropriate to award costs to the appellant. This was because the issue of whether or not the appellant was bound to produce to the Trustee the documents or a copy of the documents which he had produced to APRA would not have been an issue requiring resolution. But, said his Honour, the pursuit of the Cross-Claim made that matter an issue in the resolution of the Cross-Claim by the Court. This meant that, contrary to the usual position, the Court knew or had a firm position on the underlying merits of the case. Because those merits were against the appellant and in favour of the Trustee, his Honour concluded that there should be no order as to costs.

112 Thus, his Honour gave great prominence and weight to the fact that he had found that the appellant would have been liable to produce to the Trustee a copy of the documents which he had produced to APRA, had the Trustee pressed the Trustee’s proceedings to finality. In determining the Cross-Claim, his Honour found that the appellant was so liable. This factor was decisive in his Honour’s consideration of the costs question.

Consideration

113 There is no doubt that appellate courts are loathe to overturn discretionary costs orders made by single judges. This reluctance reflects a history of caution expressed by appellate courts when asked to overturn discretionary judgments generally.

114 By applying the principles laid down in Decor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 655; 33 FCR 397, we have come to the conclusion that the primary judge took the wrong approach to the question of the costs of the Trustee’s proceedings in light of the abandonment of those proceedings by the Trustee. Had the appellant not had the benefit of the contractual indemnities given to him, it is very likely that substantial injustice would have been visited upon the appellant if his Honour’s decision were allowed to stand in the sense that there would almost certainly have been a substantial shortfall between the amount of legal costs expended by him in defending the Trustee’s proceedings and the claims made before those proceedings were commenced, on the one hand, and the amount of legal costs recovered by him under the existing order for costs made on 26 November 2007, on the other hand.

115 For these reasons, we would grant leave to the appellant to appeal from the costs order made by his Honour on 24 December 2008.

116 A party who discontinues a proceeding without the leave of the Court becomes liable to pay the costs of the other party or parties unless, in cases where the consent of the other parties is relevant, that consent provides otherwise. This is the effect of O 22 r 3 of the Federal Court Rules. That rule reflects a more general policy of the law to the effect that a party should always be permitted to discontinue its proceedings but, in the modern setting, should usually have to pay the costs of the other parties occasioned by the bringing of the proceedings and their subsequent abandonment.

117 In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, McHugh J discussed some general principles applicable to the award of costs in Australian courts. At 624, his Honour said that, after a hearing on the merits, as a general rule, the successful party is entitled to his or her costs. It is success in the action that usually controls the exercise of the court’s discretion in respect of costs. At 624–625, his Honour also said:

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties (Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194 at 201). To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action (Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194 at 201). In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 133, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission (Unreported, Federal Court of Australia, 10 February 1989) where his Honour ordered the respondent to pay 80% of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases (footnotes omitted).

118 In Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700, the Full Court accepted that, when this Court is considering the question of costs in relation to an application for leave to discontinue proceedings pursuant to O 22 r 2(1)(d) of the Federal Court Rules, the appropriate test to apply is that which was explained by McHugh J in Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 625. The Full Court held that, in most cases where there has been no trial on the merits, it is not appropriate in determining an issue of costs to make a prediction as to the outcome of the hypothetical case. That approach was followed by Rares J in Clark v ING Life Limited [2007] FCA 1960 at [16]. See also O’Neill v Mann [2000] FCA 1680 at [11]–[13] (per Finn J) and J H Lever & Co Pty Ltd v Maniotis (2005) 215 ALR 773 at [3] (per Mansfield J).

119 In our judgment, the question of costs thrown up by the grant of leave to the Trustee to discontinue the Trustee’s proceedings and the subsequent discontinuance of those proceedings was one which had to be determined in light of that discontinuance and having regard to the circumstances in play at the time that that discontinuance was put into effect. As at 28 July 2008, there had been no hearing of the appellant’s Cross-Claim and no determination on the merits of the issues raised in that Cross-Claim. If the question of costs occasioned by the discontinuance of the Trustee’s proceedings had been determined at that time, that question would have been considered in circumstances where there had been no hearing on the merits of the claims made by the Trustee in its proceedings and would have fallen squarely within the principles enunciated by McHugh J in Ex parte Lai Qin [1997] HCA 6; 186 CLR 622. In a case such as the present, it would have been inappropriate for a judge to enter into a detailed examination of all relevant facts and circumstances in order to determine whether or not the bringing and maintaining of the Trustee’s proceedings up to 28 July 2008 had been reasonable.

120 It is but a happenstance that the question of the costs occasioned by the discontinuance of the Trustee’s proceedings came to be decided at the same time as and in light of the appellant’s Cross-Claim. That circumstance, however, does not, in our view, elevate the significance of his Honour’s approach to the underlying liability of the appellant to the Trustee to produce the relevant documents in the context of determining the appellant’s Cross-Claim to a point where, in effect, his Honour was entitled to approach the question of costs occasioned by the discontinuance of the Trustee’s proceedings on the basis that:

(a) there had, in fact, been a hearing on the merits; and

(b) on the basis of that hearing, the Trustee had been successful.

In our view, the correct approach in the present case was to consider and determine the question of costs occasioned by the discontinuance of the Trustee’s proceedings on the basis that there had been no hearing on the merits as at the date of that discontinuance and no justification for entering upon an inquiry as to whether the Trustee had acted reasonably in instituting and maintaining the Trustee’s proceedings.

121 The primary judge erred in approaching the matter upon the basis, in effect, that there had been a hearing on the merits and that the Trustee had been successful. The result was unreasonable and plainly unjust.

122 For these reasons, we would allow the appeal in ACD 7 of 2009.

123 The appropriate order for costs consequent upon the discontinuance of the Trustee’s proceedings is an order that the Trustee pay the appellant’s costs of and incidental to the Trustee’s proceedings as and from 27 November 2007 up to 28 July 2008 being the date when those proceedings were discontinued.

124 The Trustee made many detailed submissions in support of its contention that this Court should not interfere with the costs order made by the primary judge. We have not found it necessary to deal with many of those submissions as we have come to a firm view on the question of costs for the reasons which we have given. The Trustee’s submissions will, of course, remain with the Court file.

125 The appellant has claimed his costs on an indemnity basis. No particular arguments were advanced in support of that special order and we would decline to make an order in those terms. The appellant will receive full indemnity for his legal costs, in any event, pursuant to the contractual indemnities which we have held he is entitled to invoke.

THE COSTS OF THE MATTERS IN THE FULL COURT

126 The appellant has been successful in the Full Court in all matters under consideration. The Trustee should pay the costs incurred by the appellant of and incidental to all matters determined by this Court’s decision.

CONCLUSIONS

127 In proceeding ACD 7 of 2009, we would make an order extending to 4 February 2009 the time within which the appellant might file his Application for Leave to Appeal. We would grant leave to appeal to the appellant and allow the appeal with costs.

128 In proceeding ACD 8 of 2009, we would allow the appeal with costs, set aside the primary judge’s order dismissing the appellant’s Cross-Claim, make an appropriate declaration and make an order for payment pursuant to the indemnities acknowledged in that declaration with interest.

I certify that the preceding one hundred and twenty-eight (128) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Siopis and Foster.

Associate:

Dated: 26 February 2010