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Justice Michael Lee delivered a history-filled judgment with characteristic flourish, providing plenty of thought-provoking entertainment in delivering a verdict on the prosaic issue of whether Star casino directors and executives breached their duties.
The 500-page legal judgment that ultimately found two Star executives, the chief executive Matt Bekier and chief legal counsel Paula Martin, had breached some of their duties under Corporations Act but cleared the non-executive directors, will send most parties straight to the Google search bar to decipher the legal nuances.
Lee drew from the case of the “staggeringly wealthy” 19th century intellectual, the Marquess of Bute who as president of the Cardiff Savings Bank was held to be innocent by virtue of his ignorance to large sums being “defalcated” (embezzled) from the institution by a rogue actuary. The marquess, who preferred to pursue his loftier interests in architecture, linguistics, philanthropy and Catholicism, was legally able to eschew any interest in the bank over which he presided.
Lee’s lesson was that times had changed and in today’s environment directors cannot rely on ignorance as an excuse. “Toleration of the languid, listless indifference of gentleman directors of the Victorian and Edwardian ages is a thing of the past. The law now expects significantly more of officers of a corporation in discharging their duties and when delegating to others,” Lee declared in his judgment.
That said, the Star non-executive directors won a reprieve. The Australian Securities and Investments Commission failed to prove its allegation that the non-executive directors breached their duties to properly manage the casino company’s risks, including money-laundering.
Lee drew on Danish theologian and philosopher Søren Kierkegaard to explain one of the shortcomings of ASIC’s case against the non-executive directors – that it suffered from a degree of hindsight basis.
“Judgments of directors are made in real time. As Søren Kierkegaard famously observed: “life can only be understood backwards; but it must be lived forwards”.
“Evaluative judgments of past actions, including when assessing legal liability, ought to reflect the reality that actions or inactions of directors, like any human actor, need to be judged by reference to the snapshot of knowledge and perspective then available.”
This will be a crucial finding for non-executive directors around the country that are highly attuned to the legal risks associated with their positions.
As such it may come as some relief to the directorial class that Lee expressed some sympathy with the boards that can’t be content with being passive recipients of information but must be sheltered from “Brobdingnagian [gigantic] electronic document dumps masquerading as board packs”.
He conceded that the volumes of materials for directors to study (and in Star’s case sometimes without adequate time) can be oppressive.
But it appears that Lee also found some shortcomings in the way that the regulator presented its case and acknowledged (and almost apologised) the “penitential” length of the judgment reflects the number of defendants, the need to make a vast number of factual findings, and “the convoluted way ASIC has pleaded its case”.
He also suggested that ASIC found itself caught between Scylla and Charybdis (two monsters from Greek mythology used to illustrate a situation where one must choose between two equally dangerous, unpleasant or perilous alternatives).
“It is sometimes difficult in a complex case to avoid assertions of insufficient specificity while avoiding the vice of eliding the distinction between material facts and particulars and unnecessarily confining the case being advanced by making allegations that are too granular. ASIC’s pleaded case did not always avoid unnecessary complexity and misconceptions,” Lee said.
But the judgment provided a stern reminder to Australian directors and their responsibilities. “Directors are remunerated, sometimes handsomely, to do their job, which requires real engagement with information provided to them,” he said.
And regarding this particular case and the conduct of its board, Lee noted his disquiet. “It is not a portrait of directors actively pressing management with difficult questions as to whether the business was being conducted ethically, lawfully, and to the highest available standard.”
The “culture” that prevailed Lee described as so dysfunctional and unethical that senior management was tardy in preventing junket operators from behaving inappropriately and lied to its bankers to secure an ongoing commercial advantage.
“Ultimately, it fell to investigative journalism [from the Herald and The Age], and then a statutory inquiry, to expose the extent of the problems. Given some of the lamentable events canvassed in these reasons, the more self-congratulatory submissions of the non-executive directors are jarring,” the judgment read.
The non-executive directors have successfully defended the case, but didn’t avoid Lee’s legendary burn.
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