The leading case of Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 is a landmark case and is considered to be one of the leading cases decided by the Supreme Court of New South Wales. It is one of the biggest civil cases in Australia.
The main contention in the case is made by Australian Securities and Investments Commission wherein they charged former executive directors of One.Tel telecommunications company. Australian Securities and Investments Commission submitted that Jodee Rich and Mark Silbermann have not comply with their duties of care and this breach of duty of care resulted in the collapse of the company in May 2001.
There were 232 sitting that are conducted for over a month of nine months wherein total transcripts of 16,642 were generated. The Supreme Court of the New South Wales on 2009 November decided the case against the Australian Securities and Investments Commission and submitted that the charges that are framed by Australian Securities and Investments Commission against the defendants are not proved up to the level of expectations and thus the judgment must be made in the favor of Jodee Rich and Mark Silbermann.
Rich along with James Packer (who was the shareholder) in 1995, in Australia, formed a company in the name of One.Tel . One.Tel is a company who is a GSM service provider and service provider for long distance calls. In 1998, the business of One.Tel was expanded and it become the forth company in Australia dealing in Telecommunications. ASIC in 2001 initiated proceedings against a non-executive chairman and three former directors of the leading company One.Tel and submitted that the company officers has violated their legal duty of care and diligence established under section 180 of the Corporation Act, 2001. The duty is considered to be violated when they do not disclose the actual financial position of the company to the board of the directors and to the market for a continuous period of five months, that is –March January 2001. ( Foglia and Bassingthwaite, 2009)
Murdoch’s PBL, Packer and News Corporation together withdrew their support for an underwritten rights issue in May 2001. This resulted in the collapse of One.Tel . It was submitted by them that the company was in need of $300 million for its survival. But, it was later found that the assistance provided by the major shareholder of the company and the Rights Issue of the company are more than enough to support the company till 2001, November. Till this time the company would able to generate enough cash flow to sustain itself. But, before November 2001, that is, in May 2001, Murdoch’s PBL, Packer and News Corporation together withdrew their support for an underwritten rights issue, which has resulted in the down fall of the company. (Plessis,et.al, 2010)
Australian Securities and Investments Commission submitted that Jodee Rich and Mark Silbermann are in violation of their statutory duty under section 180 of the Corporation Act 2001. The failure is due to the fact that they did not provide the true and exact financial position of One.Tel to the board of directors of the company. Both, Jodee Rich and Mark Silberman, also did not disclose the prospects and performance of One.Tel. The information was material and must be brought within the knowledge of the board of directors of the company. The information becomes material and important from the fact that the proposed rights issues were cancelled in May 2001.
Against the breach of the company directors, the Australian Securities and Investments Commission prayed that one of the former directors of the company must be banned for the life time and they also allege damages of $92 million.
The defendant submitted that the Australian Securities and Investments Commission have failed to prove everything they have pleaded in the case. The defendant argued that the decision that is undertaken by them is of commercial nature and is based on sound and rational belief and is in the best interest of the company. Thus, they are eligible to seek the defense under section 180 (2) of the Act which establishes the business judgment rule.
After considering the major arguments of Australian Securities and Investments Commission and the Defendant, the judgment delivered is submitted herein below.
On 18th November 2009 the trial of the case was concluded. Justice Robert Austin decided the case that it was for the first time that a detailed judicial analysis on the defense that is available under section 180 (2) of the Corporation Act 2001 was dealt. Justice Robert Austin agreed that that the defense of Business Judgment Rule is provided under section 180 (2) of the Act which if proved provide a defense to a director who is found to be in violation of his duty of care and diligence under section 180 (1) of the Act. but, the law dealt in section 180 (2) of the Act is a controversial issue.
Decision by Austin J
It was submitted by Austin J that Australian Securities and Investments Commission is not able to prove its allegation and thus the case must be decided in favor of the defendants. The Hon’ble Jude has analyzed all the relevant facts and the legal provisions supporting the case law and decided the judgment in favor of the defendants. The main reasons and the belief upon which Austin J has based its decision in the favor of the defendant are submitted herein below: (Foglia and Bassingthwaite, 2009)
Thus, these are the few reasons upon which it was decided by Austin J that the contentions that are raised by the Australian Securities and Investments Commission are too braid and wide without any evidentiary support nor any supporting witnesses. Considering the said factors to account the case led by Australian Securities and Investments Commission was decided against it and the case was found in favor of the defendants. (Heath, 2009)
The leading case of Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 was reported in so many papers and general media. Various legal firms has analyzed and written papers on the said judgment. Around $35 million were spent on the leading case by the Government of Australia.
The leading judgment ahs highly criticized the extended nature of the case laid down by Australian Securities and Investments Commission. However, from the leading case and its decision it is crystal clear that the level of diligence and case that is desired from the officers and directors of the company is objective in nature and is not subjective. However, the court is empowered to look into various other aspects, that is, the circumstances of the company when the decision by the officers and the directors are taken, the person who are positioned at the offices and the responsibilities that must be cater by such officers and directors.
The court submitted that the executive director has the responsibly to have the understating of the true financial position and performance of the company. The court submitted that every executive director should fully understand the position and performance of the company before giving the same to the non-executive directors of the company. (Redlich, 2010)
Reference List
Redlick (2010) The One.Tel case and developments in Directors and Officers’ duties.
J, Plessis, A, Hargovan & M Bagaric (2010) Principles of Contemporary Corporate Governance, Cambridge University Press.
M, Foglia and R, Bassingthwaite (2009) ASIC unable to reel in the Rich – Australian Securities & Investments Commission v Rich, Wottonkearney.
W Heath (2009) One.Tel wipe-out — ASIC v Rich, News and Views
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229
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