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Court in the Act
23 May, 2007  
Whitlam takes directors' indemnity fight to High Court

Former NRMA president Nicholas Whitlam has settled his defamation action against Channel Nine. Why is he still pressing ahead with a further appeal in his struggle to get the NRMA to cough-up for his legal costs? Ginger Snatch reports

imageThe High Court may be the ultimate arbitrator as to whether seasoned litigant and former NRMA president, Nick (“Beetroot”) Whitlam, can require the roads and motorists outfit to pay more than $100,000 of his legal costs.

Beetroot ran up the bill during the course of suing Channel Nine for defamation over a March 2001 interview on Sunday. He claimed that the interview caused him “loss” and that he is entitled to rely on NRMA’s officers’ indemnity policy to redress it.

Whitlam has filed an application for special leave seeking to overturn an April NSW Court of Appeal judgment decided in NRMA’s favour.

Justice Paddy Bergin originally found the directors’ indemnity policy allowed Beetroot to have the money to pay for his defamation campaign against Channel Nine.

Tulkinghorn was full of admiration for Bergin’s work in trying to expand the litigation funding horizons. See his report.

It’s a high stakes game for the former NRMA president, who faces both his own legal bills and those of NRMA for both hearings if he loses his final throw of the dice.

The NRMA’s legal bill for Beetroot’s action is still being determined.

In a curious twist, Whitlam and Channel Nine settled their stoush on confidential terms some months ago, before the Court of Appeal reached a decision.

The NRMA says that settlement has no bearing on its court battle with Whitlam over interpretation of the deed of indemnity for officers of NRMA, drafted at the time when Whitlam was its president.

The battle over the deed has been watched with keen interest by company directors and shareholders. A High Court win for Whitlam would open the gates for directors to launch defamation actions using shareholders’, or in this case, members’, funds.

The Court of Appeal reasoned that company funds under the deed are confined to providing a “shield” for directors under attack, not as a “spear” with which to attack.

Whitlam v Channel Nine was commenced at the same time as Whitlam v 2GB. Both actions arose from interviews given by Sunday reporter John Lyons.

The 2GB matter settled five years ago in May 2002, with a payment that was $668.65 less than the legal costs Whitlam incurred in connection with the proceedings.

At that time Whitlam was still president of NRMA.

Beetroot originally commenced the Channel Nine action in the ACT Supreme Court in 2001, but it did not progress for some time. It was transferred to the District Court of NSW in December 2002, three months after Whitlam resigned as a director of NRMA and five months after he resigned as president.

imageIn commencing the action Whitlam (pic) relied on the deed of indemnity, which gave NRMA directors and officers a full indemnity when defending civil or criminal proceedings.

The deed said nothing about an indemnity when commencing civil proceedings. In fact, Whitlam had been told by NRMA’s then legal counsel, Jenny Kelly, that NRMA would not be meeting his costs for the Channel Nine case.

Whitlam nevertheless pressed on, claiming that he had suffered loss in the form of damage to his reputation, lost earnings and had incurred legal costs to obtain redress.

The deed covered claims by officers of the company to defend “any allegation … of any nature whatsoever”.

Justin Gleeson, for Whitlam, argued that “the way one defended oneself against the making of a defamatory allegation was by bringing proceedings for defamation’’.

Gleeson submitted that the type of “loss” suffered by Whitlam fell within the indemnity, and also covered the expense involved in taking reasonable steps to mitigate any such loss. He argued that Whitlam’s reputation was damaged as a result of his performing his duties at NRMA.

Bergin accepted that reasoning but Justice Joe Campbell, who led the charge for the Court of Appeal, disagreed.

He thought that before the relevant clause in the indemnity deed could be applied, “it is necessary to already know what is the proper scope of the indemnity provided”.

Campbell pointed out that the proper construction of the critical clause 1 in the indemnity deed was that NRMA would have no liability concerning the costs of Whitlam’s proceedings because it had no power to take over the conduct of the proceedings. After all, it was not the NRMA that was fighting Nine, but Beetroot.

Campbell reasoned that the type of loss for which Whitlam sought indemnity is not a loss sustained by reason of him having any liability. Critically, he concluded:

“In my view, considering the likely purpose of the indemnity does not lead to the conclusion that it was likely to have been intended to extend to cover a loss of reputation arising from a defamation…

“NRMA is correct in accepting that if Mr Whitlam were to have been sued for damages for an action he had carried out in the course of his duties, his legal costs in defending that action would be within the scope of the indemnity…

“And when an indemnity is given against some particular species of legal liability, that indemnity is construed as extending to the legal costs involved in defending litigation that seeks to enforce such a liability.”

He added that the same cannot be said about legal costs that an officer sustains in bringing defamation proceedings by reason of an allegation made about the manner in which the officer has performed his or her duties.

Whitlam’s commencement of the defamation action was not part of his duties as an officer of NRMA and so the incurring of the costs was not within the compass of the deed of indemnity.

Beetroot was ordered to pay his costs and those of the NRMA for both the appeal and lower court hearings.

The interesting question is why does he feel the need to press on further with a special leave application? Is it because the defamation settlement with Nine was insufficient to cover the costs he’s run up in his battle with the NRMA?