Australian Securities and Investments Commission v Rich
|ASIC v Rich|
|Court||New South Wales Supreme Court|
|Transcript(s)||Full text of judgment|
|Judge(s) sitting||Robert Austin J|
|Duty of care|
Australian Securities and Investments Commission v Rich  NSWSC 1229 was one of the biggest civil cases in NSW Supreme Court history in which the Australian Securities and Investments Commission accused former executive directors of One.Tel telecommunications company, Jodee Rich and Mark Silbermann of having failed to meet their duty of care in the months leading up to the company's collapse in May 2001. The legal process ran for almost nine years, took up 232 sitting days and generated 16,642 pages of transcripts. In November 2009, the NSW Supreme Court Justice Robert Austin comprehensively dismissed ASIC's case against the Rich and Silbermann, saying the corporate regulator had failed to prove any aspect of its pleaded case against either defendant.
One.Tel was a service provider of GSM mobile and long distance calls formed by Rich (with James Packer as a shareholder) in Australia in 1995. One.Tel expanded its operations overseas in 1998 and in 1999, Packer's Publishing and Broadcasting and News Corporation made a $600 million investment in the business as it committed to building Australia's fourth mobile network.
One.Tel grew to become the fourth largest Australian Telco with 3 million subscribers, 3000 employees, operations in 7 countries and a $1 billion annual turnover with the market cap at peak standing at $5.4 billion.
They claimed One.Tel needed $300 million to survive and instructed Ernst and Young to write a report in 36 hours to test this claim. However, former One.Tel auditor and Ernst and Young chairman Brian Long who was responsible for this report, had parts of his evidence rejected by Justice Robert Austin. A file note belonging to Brian Long, “Extract from Underwriting”, taken during meetings with the Packers was disclosed during cross examination. Mr Long had a relationship with the Packer family over many years.
It was found that the Rights issue and the continued assistance of the major shareholders would have been enough to support One.Tel until November 2001, by which time the company’s businesses would have been generating a healthy group cash flow. The withdrawal of the support may have ensured the company's downfall.
One.Tel ceased operation in Australia in June 2001 and in the same month, ASIC obtained criminal warrants and raids the One.Tel executive directors’ houses. Shortly after, ASIC obtained a freezing order over all Jodee Rich’s assets and selected family assets, they did not raid the houses, freeze the assets or seize documents of Packer, Murdoch, Yates or any other PBL director.
ASIC were unable to find minutes of the Commissioners (3 Dec 2001) meeting where the decision was made to launch proceedings against the defendants. Jan Redfern, ASIC’s Executive Director of Enforcement stated there was no formal record of the meeting.
Packer flew a team around the world gathering evidence to assist ASIC with their case
During this time, there were settlement discussions in which ASIC offered a compromise 20-year banning order against the directors.
- ASIC’s claim
ASIC alleged that Rich and Silbermann failed to exercise due care and diligence by failing to keep the board of directors of One.Tel sufficiently informed of material information about the true financial condition, performance and prospects of One.Tel, especially in the period leading up to the cancellation of a proposed rights issue in May 2001.
ASIC sought $92m in damages and a lifetime banning order against the former One.Tel directors.
- Trial Counsel
- Robert MacFarlan QC- ASIC Barrister
- Philip Durack, SC
- David L Williams, SC J Rich Barrister 
- Mark J Steele- J Rich Barrister 
- Plaintiffs and Defendants
- David Knott- ASIC Chairman
- Joanne Rees- ASIC Lawyer
- Jan Redfern- Executive Director Enforcement 
- Jodee Rich
- Mark Silbermann
- ASIC Witnesses
- Paul Carter PwC expert
- Dick Warburton - Woolworths Chairman
- Sam Randall - Jnr Treasury Manager
- Jan Redfern - Director Enforcement
- Joanne Rees
- Geoff Kleemann PBL CFO
- Chris Werner One.Tel UK CFO
- Drew Boaden - One.Tel UK CFO
- Paul Carter - PwC partner, Expert witness
- Peter Yates - PBL Director
- The Stats
- 67 interlocutory judgments.
- 16,642 pages of hearing transcript
- 232 hearing days Including 9 days in London
- 3000 page judgment
- 104 affidavits
- 243 written submission documents 
- ASIC’s $2m Expert Report
PricewaterhouseCoopers Expert Paul Carter, provided evidence that Justice Robert Austin considered to be flawed. The report consisted of 402 paragraphs detailing One.Tel’s financial situation before its collapse, analysing thousands of documents and emails.
CGU, the provider of the companies Director and Officers liability insurance, denied cover. As a result, John Greaves, One.Tel chairman and Brad Keeling, the joint managing Director, were unable to fund their defense.
- Packer’s evidence
In Packer’s evidence, 1,951 questions were delivered in its cross-examination to which Mr Packer Jnr replied "I can’t recall”. Packer claimed that he couldn’t recall questions he had with his father, Kerry Packer about One.Tel or the details about several meetings. Justice Robert Austin decided that his approach to the cross examination was misconceived and was reflected in occasionally aggressive answers.
- Murdoch’s evidence
Similarly, Murdoch responded with “I can’t recall” in 881 questions, a higher daily rate than Mr Packer Jnr. It was decided by Justice Robert Austin that there was a significant problem with the lack of recollection in his evidence which inevitably undermined its credibility.
- Brian Long’s evidence
Brian Long had parts of his evidence rejected by Justice Robert Austin. A file note belonging to Brian Long “Extract from Underwriting” taken during meetings with the Packers was disclosed during cross examination. Mr Long had a relationship with the Packer family over many years.
- Kleemann’s evidence
Kleemann’s evidence was seen to be an attempt to minimize a role that was in reality, quite significant. It was therefore decided that Mr Kleemann’s evidence be treated with caution 
- Boaden’s evidence
Boaden’s evidence was judged as unreliable due in part to his involvement as a paid consultant for the Packer interest 
- Weston’s evidence
Weston’s evidence was not accepted due to its inconsistency with the defendants evidence. Also Weston had a professed lack of recollection.
- Werner’s evidence
Similarly, Werner’s evidence was described as unsatisfactory and implausible and vague.
The trial concluded on 18 November 2009 in which Justice Robert Austin declared that ASIC had “failed in every aspect of their case”, “failed to call key witnesses” and “exaggerated the effect of evidence or misleadingly took passages of evidence out of context”. It was also decided that ASIC's summary of Mr Rich's evidence in the witness box was inaccurate.
Justice Robert Austin, in his judgment, provided the first comprehensive judicial analysis of the statutory business judgment defence in s 180(2) of the Corporations Act 2001. The business judgment rule is capable of providing a defence for directors whose conduct breaches section 180(1). Justice Austin acknowledged that was an untested area of the law and a contentious legal issue.
During the case, the High Court made new law regarding the procedural rights of defendants in civil penalty litigation. The new law declared that in such cases, ASIC banning orders are to be considered penal in nature, rather than protective and as such, any disqualification from ASIC can now be considered unconstitutional. In 2003, the NSW Supreme Court handed down a decision which recognises that under certain circumstances, the chairman of the board holds special responsibilities above those of the non-executive directors. This decision was the result of an application issued by former One.Tel chairman John Greaves during the case.
The judgment was widely reported in the general media and a number of papers written by legal firms. The trial, in total, cost the Australian Government over $35 million. It has been estimated that ASIC spent over $20m on the case, $6 million by Packer, $4 million by One.Tel, $15 million by Rich (reimbursed in significant part by ASIC) and $5 million by CGU
In February 2010, ASIC has announced it will not appeal the decision  On 24 August 2010, it was announced that James Packer and Lachlan Murdoch would be sued for $244 million plus damages by Liquidator Paul Weston, who filed a claim in May 2007 but only activated it in 2010. The case centers on the May 2001 undertaking by PBL and News Ltd to underwrite a proposed issue of One.Tel shares to raise $132 million. 
On 14 September 2010, Rich announced that he would not proceed with a court case against James Packer and Lachlan Murdoch. This low-key private action was a “shadow” of Paul Weston’s case and was filed in 2007 but never served on the defendants. Rich stated that he had resolved all outstanding issues with James Packer and his family company.
-  26 February 2010, ASIC will not appeal Jodee Rich decision, News.com.au
-  Vanda Carson, 18 November 2009, One.Tel Shock ASIC loses case against Jodee Rich, Sydney Morning Herald.
-  Andrew Main, 14 September 2010, ONE.TEL founder Jodee Rich today withdrew his court case against his former fellow directors, James Packer and Lachlan Murdoch, The Australian
-  Paragraph 845, page 365 and paragraph 850, page 368 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Margot Saville, Thursday 19 November 2009, No Winners but Jodee Rich gets back on his bike, Crikey.com
-  Marcus Priest, 1 April 2003, ASIC did not release One.Tel documents to Rich, The Australian Financial Review
-  Jan Redfern, Ally Group
-  hearing transcript, line 28-31 page 9,894
- [dead link] David L Williams, Level Nine Wentworth Building
- [dead link] Mark Steele, 7 Selborne
-  Paragraph 23, page 11 & 12 of Justice Robert Austin's Judgment, dated 18 November 2009
-  Reincarnated One.Tel report faces death by a thousand cuts
- [dead link] Packer’s inside view of One.Tel nightmare- Australian Financial Review 28 November 2005
-  Brigid Glanville, 30 November 2005, James Packer testifies in One.Tel case, ABC.net
-  Paragraph 754 & paragraph 755, page 327 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Brigid Glanville, 22 November 2005, Murdoch testifies in One.Tel case, ABC.net
-  Paragraph 796, page 347 of Justice Robert Austin Judgment dated 18 Nov 2009 and Paragraph 796, page 347 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Paragraph 833, page 361 of Justice Robert Austin Judgment dated 18 Nov 2009 and Paragraph 833, page 361 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Paragraph 2084, page 848, & paragraph 2089, page 851 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Paragraph 2074, page 845 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Paragraph 2073, page 844 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Paragraph 886, page 382 of Justice Robert Austin Judgment dated 18 Nov 2009 and Paragraph 56, page 28 of Justice Robert Austin Judgment dated 18 Nov 2009 and paragraph 1511, page 621 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Paragraph 1991, page 810 of Justice Robert Austin Judgment dated 18 Nov 2009
-  Andrew Lumsden, The Business Judgment Defence: Insights from ASIC v Rich, (2010) 28(3) Company and Securities Law Journal 16
-  Tom Middleton, The High Court’s decision in Rich v ASIC  HCA 42 and its potential impact upon ASIC’s disqualification orders, banning orders and oral examinations, Find Law Australia
-  John Warde & Andrew Byrne, Special Responsibility of the Chairman: ASIC v Rich & Ors"  DeakinLawRw 9; (2003) 8(1) Deakin Law Review 193
- [dead link] One.Telling wipe-out: Decision in ASIC v Rich finally delivered, Mallesons Stephan Jaques
-  Cameron Jorss, January 2010, Jodee Rich lands One.Telling Blow on ASIC, Carter Newell Lawyers
- [dead link] Senate Standing Committee on Economics, Answer to question on notice, treasury portfolio
-  26 February 2010, ASIC will not appeal Jodee Rich decision, Sydney Morning Herald
-  Elizabeth Sexton, 24 August 2010, Packer, Murdoch hit by lawsuit, Sydney Morning Herald
-  Andrew Main, 15 September 2010, Rich calls off case against Packer, Murdoch The Australian