One Tel Case Finally Resolved

18 november 2009 sydney au

Austin J delivered his long awaited judgment in the drawn out claim by the Australian Securities and Investments Commission (ASIC) against two directors of the now defunct One.Tel for breaches of their duties of care and diligence as directors. In a stunning blow to the regulator, his Honour ruled against ASIC on all aspects of its claim.

It is too soon to tell whether ASIC intends to appeal the judgment. Nevertheless, there are clear lessons which ASIC will likely take away from this case. In particular, ASIC will in the future try to narrow the scope of its enforcement activities to a particular contravention at a particular point in time in order to avoid the significant evidentiary problems it encountered as a result of the breadth of this case. Such a development would no doubt be welcomed by D&O insurers as this could result in lower litigation costs in civil penalty proceedings such as this.

D&O insurers and their insureds may also find some comfort in Austin J’s expansive analysis of the business judgment rule. The decision confirms that directors and officers have the potential to argue that commercial decisions, coupled with a “rational belief”, remain reasonable.