TA is a company limited by guarantee and the peak body for the sport of tennis in Australia which obtains revenue from fees that it earns from the licensing of rights to broadcast its tournaments. As of 2012, domestic broadcast rights had been held by Seven for more than 40 years with the then most recent agreement with Seven due to expire in July 2014. Seven was granted an exclusive negotiating period from 1 April to 30 September 2013, in respect of any renewal of the agreement.
On 20 May 2013, TA's board unanimously accepted a recommendation from its then CEO Steven Wood to approve a renewal with Seven for five years at a fee which was a substantial increase from the previous agreement.
At the time, two of TA's directors were Stephen Healy and Harold Mitchell, the Chairman/President and Vice President respectively. Prior to the finalization of the negotiations, both Healy and Mitchell were aware of information relating to the interest of a number of other potential bidders for TA's domestic broadcast rights, including Channel Nine and Network Ten. Mitchell had also had communications with the Legal and Commercial Director at Seven that were separate from the negotiations conducted by the CEO.
The judgment is striking for the significant criticism levelled at the way that ASIC had run its case, with Justice Beach noting on multiple occasions that allegations made by ASIC were "spurious" or "untenable". His Honor described the regulator's overall case against the directors as "forensically impoverished". Justice Beach found that ASIC's construction of evidence displayed confirmatory bias noting that it floated various "cover up and conspiracy theories" that ultimately lacked substance. His Honor observed that the effect of such hindsight bias was diminished if one "endeavor[s] to perceive the events as they unfolded in real time appreciating the speed and concurrent conflicting themes and actors at work with different roles, skills, motivations, and objectives".
Crucially, Justice Beach found that ASIC's case theory was flawed from the outset as it did not coherently establish that the conduct of the directors had caused any harm to TA. Instead, the evidence suggested that the renewal deal with Seven was anticipated to be and ultimately was of considerable benefit to TA, with the CEO and the board properly deciding on an informed basis that the benefits of the renewal outweighed the risks of an open tender process.
Breach of Duty Allegations Against Mr. Healy
While the negotiations with Seven were ongoing, certain information relating to the other potential bidders in TA's broadcast rights was not provided to the board, which was a decision taken by the CEO. ASIC alleged that Healy, as chairman, was responsible for disclosing to the board certain information and documents relevant to the interest of the other potential bidders. ASIC argued that by failing to provide such information, Healy breached his duty of care and diligence under section 180 of the Corporations Act.
Justice Beach stated that it is the function of the chairman of a company to preside at board meetings and exercise procedural control, including by setting meeting agendas. However, the Chairman is entitled to set agendas in consultation with the CEO, which may include allowing the CEO to exercise his judgment on what documents should be included in board packs and whether and in what form (i.e. written or oral) certain information should be disclosed to the board.
Justice Beach found that the chairman's duty did not require him to countermand the judgment of the CEO with respect to the information which should be put to the board and the method by which such information was disclosed.
Justice Beach found that given the CEO was charged with managing the negotiation strategy, the CEO was best placed to judge what information should have been provided to the board. The chairman was entitled to rely on this judgment under section 189 of the Corporations Act, which presumes reliance is reasonable when it is made in good faith after an independent assessment has been made. Justice Beach found that ASIC had failed to rebut this presumption.
Breach of Duty Allegations Against Mr. Mitchell
ASIC alleged that, by communicating with Seven's Legal and Commercial Director during the course of the negotiations, Mitchell had failed to act with care and diligence, improperly misused his position as a director, and improperly misused information received as a director, which was in breach of sections 180, 182, and 183 of the Corporations Act.
Justice Beach rejected ASIC's characterization of Mitchell's communications as being made for the purpose of gaining an advantage for Seven during the negotiations. Justice Beach found that Mitchell believed the renewal was in the best interests of TA and rejected any suggestion that there was "conspiracy or collusion" between Seven's Legal and Commercial Director and Mitchell, noting that ASIC was unable to adduce any evidence of such a conspiracy nor advance any motivational reason for Mitchell to engage in one.
However, in respect of three of ASIC's allegations, Justice Beach found that Mitchell "stepped over the line" and breached section 180, including when he twice disclosed TA's internal deliberations to Seven's Legal and Commercial Director and advised him to "hold off" on sending information to the CEO. However, Justice Beach found that these actions were consistent with Mitchell's desire to push negotiations forward, did not have any improper motive, and did not cause damage to TA.
The balance of ASIC's case against Mitchell failed, with Justice Beach suggesting that declarations and a moderate pecuniary penalty, rather than disqualification, might be the suitable consequence. Despite this, ASIC has indicated in a press release following the judgment that it is still seeking a disqualification order against Mitchell in addition to pecuniary penalties.