Analysis of ASIC v Whitlam Case in Corporations Law - HA3021

This report provides a comprehensive analysis of the case ASIC v Whitlam [2002] NSWSC 591, focusing on the breach of director's duties under the Corporations Act 2001 (Cth). The case involved Mr. Nicholas Whitlam, a director of NRMA Limited, who was accused of violating his duties by failing to act in accordance with the shareholders' instructions regarding a resolution to increase director remunerations. The report examines the relevant sections of the Act, including sections 180, 181, and 182, which address the duties of care and diligence, good faith, and proper use of powers. The Supreme Court of NSW initially found Whitlam liable, but this decision was later overturned by the Court of Appeal. The report explores the judgments of both courts, highlighting the importance of director duties and the implications for proxy relationships in Australian commercial law. The analysis also includes relevant references to legal sources and academic literature to support the arguments and findings of the case.

Corporations Law
ASIC v Whitlam [2002] NSWSC 591

Introduction
The Corporations Act 2001 (Cth) (the ‘Act)
provides various duties which directors have
to comply with.
These duties guide their actions to ensure
that they prioritised the interest of the
company.
The case of ASIC v Whitlam [2002] NSWSC
591 is a good example in which the director
was held liable for violating his duties.

Facts of the Case
Mr Nicholas Whitlam was acting as the
director of NRMA Limited.
The shareholders of the company appointed
him as a proxy to vote in the Annual General
Meeting of the company in 1998 (Wolters
Kluwer, 2002).
He was also acting as the Chairman in the
same meeting.

Facts of the Case
The shareholders wanted him to vote against
the Resolution 6 which was to be discussed in
the meeting.
This resolution was to increase the
remunerations of the directors in the
corporation.
Mr Whitlam deliberately failed to sign the
poll paper against this resolution.

Facts of the Case
A special resolution as needed to pass by the
members in order to approve the resolution 6
in the meeting.
29 percent of the 15,165 shareholders
appointed proxy in their meeting to vote
against this resolution (Baxt, 2005).
Whitlam was appointed by 3,973 members to
vote against this resolution.

Facts of the Case
Whitlam did not sign the poll paper against
the resolution 6.
This resolution was passed because the votes
of 3,973 members were not count against the
resolution.
The ASIC brought a suit against Whitlam for
breach of director duties given under section
180, 181 and 182.

Breach of Director Duties
Section 180 (1) provides that directors are
expected to maintain a degree of care and
diligence.
This degree is expected from a reasonable
person who in acting as a director of the
company (Legislation, 2019).
The director should maintain this care and
diligence while taking business decisions
pursuant to section 180 (2).

Breach of Director Duties
Section 181 (1) require directors to maintain
good faith while discharging their duties
They should act in good faith of the company
while prioritising its best interests.
Section 182 (1) provides that directors should
use their powers for proper purposes only.
They should not prioritised their personal
interest, and they should not cause detriment
to the company (Austlii, 2019).

Breach of Director Duties
Gzell J found Whitlam liable for breaching his
duties given under section 180 (1).
It was held that just because he was hired as
proxy does not mean that he did not have to
comply with director duties.
He acted dishonestly based on which he
failed to maintain a degree of care and
diligence.

Breach of Director Duties
The decision taken by Whitlam to avoid the
instructions of the shareholders who
appointed him as a proxy was illegal and
against her duties (Cassidy, 2006).
He was not found guilty of breaching section
181 (1) and 182 (1).
Later, the Court of Appeal overturned this
decision.

Judgement of the Court
The first judgement was given by the
Supreme Court of NSW which provided that
Whitlam is liable for violating his director
duties.
He acted against the interest of the
shareholders while acting as their agent.
He did not acted in a reasonable manner
which is expected for a director for the
company (Neylan, Mir and Sato, 2019).

Judgement of the Court
Due to the deliberate actions of Whitlam, he
was found guilty of breaching provision of
section 180 (1).
Gzell J provided that Whitlam cannot be held
liable for breaching section 181 and 182
since he is not obligated to maintain accuracy
of minutes of the board meeting.
He was prohibited from acting as a director
for a period of five years and a penalty of
$20,000 was imposed.