AIG Australia Limited (ACN 004 727 753) v Kim Samuel Jaques

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2014 0072

AIG AUSTRALIA LIMITED (ACN 004 727 753)	Appellant
v
KIM SAMUEL JAQUES	Respondent

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JUDGES:	WARREN CJ, NEAVE and HANSEN JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	16 September 2014
DATE OF JUDGMENT:	16 December 2014
MEDIUM NEUTRAL CITATION:	[2014] VSCA 332
JUDGMENT APPEALED FROM:	Jaques v AIG Australia Ltd [2014] VSC 269

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INSURANCE – Construction of policy – Investment management insurance policy –Meaning of non-executive director – Where non-executive directors entitled to benefit of special excess limit under the policy – Whether respondent a non-executive director during the relevant period – Where director was represented in Product Disclosure Statements as an executive director – Where director was regarded by the company board as an executive director – Where director was not employed by the company but was employed by a related company – Where director performed tasks that benefited the company – Respondent held not to be an executive director as respondent did not perform executive functions in the management and administration of the company – Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr P Jopling QC with Mr E A Gisonda	Lander & Rogers Lawyers
For the Respondent	Mr W Houghton QC with Mr A Blakeman	Millens Pty Ltd

WARREN CJ
NEAVE JA
HANSEN JA:

Introduction

The appellant, AIG Insurance Limited (‘AIG’) issued an Investment Management Insurance Policy to the company Australian Property Custodian Holdings Limited (‘Holdings’). By the policy, AIG undertook to pay or reimburse the loss of any insured person resulting from a claim being made against them during the policy period for a wrongful managerial act. The policy was issued by AIG on 20 October 2010 and was operative for the period 16 July 2010 to 16 July 2011 (‘the policy period’).

The respondent, Mr Jaques, was a director of Holdings and was an insured person under the policy. During the policy period, Mr Jaques notified AIG of claims made against him for wrongful managerial acts that had occurred on various dates in 2006, 2007 and 2008.

Under the policy, executive directors were insured for losses up to $5,000,000. Non-executive directors were entitled to extended cover by way of a special excess limit of an additional $1,000,000. Mr Jaques sought further indemnity pursuant to the special excess limit on 26 April 2013 to continue to fund his defence in court proceedings in relation to the alleged wrongful acts. AIG refused to provide the extended cover on the ground that Mr Jaques was an executive director at the time of the wrongful managerial acts and thus was not entitled to the benefit of the special excess limit.

Mr Jaques commenced proceedings seeking declaratory relief. The issue at trial was whether Mr Jaques was a non-executive director of Holdings during the period from 6 April 2004 to 26 June 2007 (‘the relevant period’). Following a two day trial, the judge held that Mr Jaques was a non-executive director during the relevant period and was prima facie entitled to the special excess limit under the policy. [1]
[1]Jaques v AIG Australia Ltd [2014] VSC 269 (‘Reasons’).

AIG appeals this decision.

Factual Background

Holdings was the responsible entity for, and trustee of, the Prime Retirement and Aged Care Property Trust (‘the Prime Trust’), a property unit trust dedicated to a specific asset class, namely retirement and aged care facilities.

The respondent was a director of Holdings from 1 March 2001 until 6 July 2011. His contention at trial was that he was a non-executive director until 26 June 2007 when he was appointed as an executive director.

The policy, which was issued on 20 October 2010 for the policy period, provided that the appellant would pay the loss of any insured person – of which the respondent was one – which arose out of a claim first made during the policy period for a wrongful managerial act notified to the appellant as soon as practical during the policy period. It was common ground that the respondent so notified the claims made against him in the above proceedings, and that those claims constituted allegations of wrongful managerial acts committed by him as a director on various dates in 2006, 2007 and 2008.

Liability under the policy was limited to $5,000,000. It was common ground that this amount had been exhausted in the proceedings. In addition to this, the policy provided for the special excess limit as a separate aggregate limit of the appellant’s liability to each non-executive director:

4.71 Special Excess Limit
a separate excess aggregate limit of $1,000,000 for each Non-Executive Director, subject to a total aggregate limit equivalent to the Limit of Liability for all Non-Executive Directors.

The policy defined ‘Director’ as ‘any person who was, now is, or during the policy period becomes, an executive or non-executive director’ of Holdings. A ‘Non-Executive Director’ was defined as ‘any natural person who serves as a non-executive director of’ Holdings at the time of any wrongful managerial act. The policy did not further define ‘Director’ or ‘Non-Executive Director’, and did not state any criteria by reference to which it may be determined into which category a director fell. It was common ground that the Corporations Act 2001 did not contain a definition or criteria that would aid in that regard.

At trial the appellant conceded that the respondent was a non-executive director of Holdings prior to 6 April 2004, while the respondent conceded that he was an executive director from 26 June 2007. But the parties disagreed as to the respondent’s status in the intervening period. The question to be determined was whether the respondent, in the period 6 April 2004 to 26 June 2007, was an executive or non-executive director of Holdings. The respondent contended that he was a non-executive director, while the appellant contended the contrary. This was an issue of fact. But there was also an issue of law, as to the meaning of the expression ‘non-executive director’ in the policy.

The only witness at the trial was Mr Jaques; he had sworn an affidavit, which was tendered, and gave further viva voce evidence. A number of documents were tendered.

Background

By a Unit Trust Deed made 27 November 2000 between Holdings and Australian Property Syndications Pty Ltd (‘Syndications’), Holdings undertook the office of trustee, and manager, of the Prime Trust established by and under the Deed. The Deed conferred, and Holdings undertook to discharge, powers of broad import and obligation as trustee and manager.

The Prime Trust was a managed investment scheme under Part 5C of the Corporations Act 2001. Subscriptions for units in the Trust were sought by, and made pursuant to, Product Disclosure Statements (PDS) which relevantly to this case were dated 15 August 2003, 5 July 2004 (being supplemental to the 2003 PDS), 30 August 2005, 22 August 2006 (being supplemental to the 2005 PDS), and 26 June 2007.

The Trust owned retirement village properties. The object was to provide monthly income distributions to unit holders and maintain and accrue the real capital value of assets. To ensure that the Prime Trust itself was not liable for taxation it was necessary that Holdings not operate the villages.[2]
[2]Reasons [42]-[43]; Product Disclosure Statement, 26 June 2007, 85-6.

For at least this reason, other entities managed the businesses operated on the Prime Trust properties. There were also related employment and consultancy agreements. These arrangements involved entities and persons employed in what may be called the Lewski Group, the name deriving from William Lionel Lewski, the managing director and controlling personality of Holdings. The judge noted:

…that the corporate structures employed by Mr Lewski appeared not to be one of parent and subsidiary companies, rather a larger and more amorphous grouping of companies existed that were related entities because they were either owned and/or controlled by Mr Lewski. [3]

[3]Reasons [22].

In 2001, Mr Lewski was looking for someone with property experience to serve as a director of Holdings. He approached Mr Jaques. Mr Jaques accepted Mr Lewski’s invitation to become a non-executive director of Holdings in March 2001 and he was described as such in the PDS dated 15 August 2003. When appointed, Mr Jaques was in full time employment in the property industry with an unrelated company and remained in full time employment with that company until early 2004. During this initial three-year period, Holdings paid Mr Jaques a director’s fee of $5,000 per annum.

In late 2003, Holdings was negotiating to purchase Buderim Gardens, a retirement village of 400 units on 62 acres in Buderim, Queensland, for the portfolio of the Prime Trust. Shortly prior to settlement of the purchase, negotiations with the proposed operator of the village broke down. Mr Lewski informed the board of his intention to form a management company to manage the village once it was acquired by Holdings. Retirement Guide Pty Ltd (‘Retirement Guide’) was formed by Mr Lewski to run this retirement village, and possibly others where required or appropriate. Holdings settled the purchase on 30 April 2004 and Retirement Guide became the manager of the village.

Mr Lewski invited Mr Jaques to work for him managing the retirement village and Mr Jaques agreed to do so. Mr Jaques resigned his employment and, by a written agreement, on 6 April 2004 commenced employment in the position of general manager with Australian Property Custodians Pty Ltd (‘Custodians’), a company owned and managed by Mr Lewski. Mr Jaques ceased to receive a director’s fee from Holdings and Custodians paid him a salary, which was the only emolument he received for his labours as a general manager and as a director, at least until June 2007.

In his reasons for judgment, the judge said:

It appears that Custodians agreed with Retirement Guide to provide Mr Jaques’ services to it, although the precise nature and terms of that arrangement were not in evidence. Initially, Mr Jaques’ duties involved management of Buderim Gardens, particularly the refurbishment of the village facilities and of the individual units, as and when they came up for sale. He continued in office as a director of Holdings. [4]

[4]Reasons [45].

As mentioned earlier, on 5 July 2004, Holdings issued a Supplementary PDS, to be read in conjunction with the PDS dated 15 August 2003. It included the following statements and references:

(1) On page 5, that:
An associated entity of two of the Directors (namely, William Lewski and Kinsman Jaques), of the Responsible Entity with the requisite expertise has been established for the purpose of acting as Manager of some of the Properties.

(2) On page 11, under the heading “Statement by Directors”:
The Directors state that they have made all reasonable enquiries and have reasonable grounds to believe that all statements by Australian Property Custodian Holdings Ltd in this Supplementary PDS are true and not misleading.
Each Director has consented in writing to the issue of this Supplementary PDS and has not withdrawn that consent.

The statement was then signed by the following:
JOHN DEANS
CHAIRMAN
WILLIAM LIONEL LEWSKI
MANAGING DIRECTOR
CEDRIC RICHARD PALMER BECK
EXECUTIVE DIRECTOR
KINSMAN SAMUEL JAQUES
EXECUTIVE DIRECTOR
MARK FREDERICK BUTLER
NON-EXECUTIVE DIRECTOR
(3)On page 15, there was a Corporate Directory in which the name and title of each of the directors was listed as follows:

Directors of the Responsible Entity
John Deans   Chairman
William Lionel Lewski   Managing Director
Cedric Richard Palmer Beck   Executive Director
Kinsman Samuel Jaques  Executive Director
Mark Frederick Butler  Non-Executive Director

In cross-examination Mr Jaques said of this reference to him as an executive director that, ‘I think now it’s a mistake’. He said ‘he was not very experienced at being a director’.

In the PDS issued by Holdings on 30 August 2005, Mr Jaques was described as a ‘director’. In the Supplementary PDS dated 22 August 2006 it was stated that the Hon Dr Michael Wooldridge was the new Chairman, that Mr Peter Clarke was a new director, and that the other ‘continuing directors’ were William Lewski, Kim Jaques and Mark Butler.[5] It also advised that further properties had been acquired.
[5]There seems to be a gap in the evidence as to when Mark Butler’s status as a director changed. The Supplementary PDS dated 5 July 2004 lists Mark Butler as the sole non-executive director. The Supplementary PDS dated 22 August 2006 states that the Hon Dr Michael Woolridge was the new Chairman and that Mark Butler was a ‘continuing director.’ He is then listed as an executive director in the PDS dated 26 June 2007. In ground 3(a)(ii), the appellant asserts that it is Mr Woolridge who is referred to as the first (and only) non-executive director at the time of the 17 October 2006 meeting of directors of Holdings.

Holdings entered into an agreement with another Lewski controlled company, APCH Administrators Pty Ltd (‘Administrators’), for the performance by Administrators of management and administration services for the Prime Trust, including hiring employees and entering into Service Agreements with service providers for the provision of services to the Trust. More particularly, in the Supplementary PDS dated 22 August 2006, it was stated that Administrators agreed to provide:

corporate secretarial services to the Responsible Entity for the operation of the fund including, but not limited to, registry services, compliance services, employment of staff, leasing of premises and entering into service agreements with third parties. [Administrators] will receive a project management fee, being an amount for reimbursement of all costs incurred by [Administrators] in connection with the performance of its management services plus a margin of up to 15% of those reimbursed costs.

The agreement with Administrators was not produced but is referred to in Recital B to a Service Agreement between Administrators and Custodians. Mr Jaques produced this agreement as an exhibit to his affidavit in which he described it as ‘an unsigned true copy’. Save for ‘2007’, the date of making is not stated. This agreement is referred to further below when dealing with the judge’s findings.[6]
[6]See [52]-[56] below.

As an employee of Custodians, Mr Jaques also performed work for Syndications, which also was controlled by Mr Lewski. Syndications provided services to Holdings under a Property Acquisition Consultancy Agreement whereby it was appointed as exclusive consultant for the procurement of opportunities for Holdings to acquire properties and any other property related assets on behalf of the Prime Trust[7] in connection with the potential acquisition of properties by Holdings for the Prime Trust.
[7]PDS 26 June 2007, 97 [12.1.3].

On 22 August 2006, there was a meeting of directors of Holdings. The minutes of the meeting record:

MEDIA
The three Executive Directors have done one half-day session of media training and will continue with the process.

Mr Jaques was one of the three who undertook the half-day session of media training. Mr Jaques was also responsible for taking the minutes.

On 17 October 2006, there was a meeting of directors of Holdings. The minutes of the meeting record:

(5) Operational Matters
The Board noted the following reports:
Distribution and RV management – Tabled by KJ
The Board was briefed of the Research activities performed by Zenith and Lonsec. Zenith is progressing well while a Confidentiality agreement needs to be signed before Lonsec can commence their work. These reports are expected to potentially increase distribution levels and the raising of capital. MW requested that KJ look at the potential benefits to residents from bulk buying power and telecommunications services.

…
(6) Kidder Williams Report
[William Lewski] advised that the Board members have had their chance to peruse the Kidder William’s report and their recommendations for changes in preparation for listing in the Stock Exchange. He advised the Board that, whilst most of the essential recommendations are within the guidelines of the listing rules, he is concerned regarding the following and requested that the Board endorsed them:
(a)Composition of the Board is maintained as it is but with the possible inclusion of a further independent Director at a later date. This is to allow the dilution of the Board with more external representation.

...
[Kim Jaques] reiterated the point that the Board needs the representation of the working Directors who understand the business. The Board agreed in principle regarding concerns raised by [William Lewski] and resolved that the current Directors be maintained in the Board but acknowledged that further addition of non-executive Directors is inevitable. It was resolved that a 2^nd non-executive Director be appointed in 3-6 months and a 3^rd in 9 months. [Michael Wooldridge] has suggested Peter Lee and Bob Collins as potential candidates. [William Lewski] will follow up and will also consult Matt Pringle and Ian Bond for more potential candidates. The Due Diligence Committee will also discuss this matter further.

On 26 June 2007, it was resolved by the board of Holdings that deeds of appointment be approved and executed by all presently serving members of the Board. Accordingly, and on the same day, Holdings and Mr Jaques entered into a ‘Deed of Appointment (Executive Director)’. The Deed commenced with an ‘Introduction’ (as though, and properly understood as, Recitals) in the following terms:

AThe Director is an executive director of the Company and may from time to time and at the request of the Company serve as an executive director of one or more Subsidiaries of the Company.
BThe Company and the Director agree to certain provisions relevant to the Director’s service.
CThe Company has agreed to give the Director certain rights of access, indemnity and insurance.

Clause 3.1 provided that:

3.1The Director agrees to act as an executive director of the Company in accordance with this Deed. The Director and the Company acknowledge that the executive service functions of the Director are provided by the Executive Service Arrangement.
…
3.3Unless the Director’s appointment is extended, the appointment and this Deed will end at the expiry of the Appointment Period.

‘Appointment Period’ was defined to mean the period during which Mr Jaques ‘holds office as a director of the company [Holdings], being the period’ of his ‘engagement as General Manager in accordance with the Executive Service Arrangement.’ ‘Executive Service Arrangement’ was defined to mean the arrangement under:
(a) the Employment Agreement dated #date# [check] between Australian Property Custodians Pty Ltd (ACN 073 064 703) and Kim Samuel Jaques; and
(b)the Service Agreement between Australian Property Custodian Holdings Ltd and Australian Property Custodians Pty Ltd dated [date].

Also on 26 June 2007, Holdings issued the PDS of that date to facilitate listing the Prime Trust on the Australian Stock Exchange. At the outset, it was stated that Holdings was:
…responsible for the proper promotion and management of Prime Trust as a Managed Investment Scheme. APCH has been responsible for investment decisions and selecting the Properties and preparing this PDS. Its ongoing responsibilities will include being the registered proprietor of Prime Trust’s Properties, keeping accounts, co-ordinating and determining distributions to Unitholders, preparing financial statements for Prime Trust and the making of all investment decisions in pursuance of the objectives of Prime Trust.
The management structure was described as being that Holdings had:
…entered into an agreement with APCH Administrators (Manager), in accordance with which the Manager has assumed responsibility for the day to day management of Prime Trust on behalf of the Responsible Entity.
In section 7, Board of Directors and Management Structure, it was stated:
7.1.1    Responsible Entity
The Responsible Entity of Prime Trust is Australian Property Custodian Holdings Ltd (APCH), an entity associated with Bill Lewski. The Responsible Entity holds the assets of Prime Trust and is required to operate Prime Trust in accordance with the Corporations Act and its Constitution. While the Responsible Entity retains the overall responsibility for the management of Prime Trust, it has also engaged the Manager to assist it in discharging its responsibilities.
7.1.2    The Manager
The relationship between the Responsible Entity and APCH Administrators is covered by a long term Management Agreement.
Under the Management Agreement, the Manager is granted broad discretion to manage both the Responsible Entity and Prime Trust on behalf of the Responsible Entity. The key responsibilities of the Manager in relation to its management of Prime Trust include:
‑managing Prime Trust’s property assets on behalf of the Responsible Entity;
‑reporting to Unitholders;
‑arranging the acquisition of assets that satisfy Prime Trust’s investment criteria;
‑accounting, secretarial and treasury services;
‑managing relationships with external suppliers to the Responsible Entity and agreed by the Manager;
‑any additional services requested by the Responsible Entity and agreed by the Manager.
…
Various other entities associated with Bill Lewski have entered into agreements with the Responsible Entity in relation to the operations of Prime Trust:
‑the Responsible Entity has entered into arrangements with members of the Retirement Guide Group to be the Property Operator of certain retirement facilities (see Section 12.1.5);
‑the Responsible Entity entered into a Property Acquisition Consultancy Agreement with Australian Property Syndications Pty Ltd (see Section 12.1.3);
‑the Responsible Entity and APCH Aged Care Services have entered into a Deed of Appointment with Glendale RV Syndication appointing Glendale RV Syndication to provide Approved Provider services for Prime Trust’s Aged Care Facilities (see Section 12.1.8);
As a consequence of the above arrangements, Prime Trust does not have any direct management employees. It is the Manager’s responsibility to provide management resources. The Manager is responsible for contracting with individuals as to their employment conditions including remuneration (both fixed and bonuses). However, as noted in the next Section, four of the key management executives are also Board members of the Responsible Entity.
7.2      BOARD OF THE RESPONSIBLE ENTITY
At the date of this PDS, the Board of APCH currently comprises of five persons. Effective 1 July, two new non-executive directors noted below will be appointed to join the Board.
[The Directors were then listed: Mr Wooldridge as non-executive Chairman, Mr Lewski as Managing Director, the two Non-Executive Directors (Mr Hancy and Mr Reddaway), and Mr Jaques, Mr Butler and Mr Clarke, each as an Executive Director. As to Mr Jaques, it stated:]
...
Kim Samuel Jaques
Executive Director
Kim Jaques has had extensive experience in commercial and retail property management. ...
Kim is responsible for the management of the resorts owned by Prime Trust ensuring that resort staff are properly trained and able to look after the best interests of both residents and Unit holders. He has overall responsibility for the renovation of the units as they become available to ensure that they meet the exacting standards of our potential residents.
…
7.3.2    Composition of APCH’s Board of Directors
... The current Board will comprise from 1 July 2007, 7 persons being 3 non-executives and 4 executives. The four executives have been responsible for the successful development of Prime Trust and their knowledge and skills are vital for the on-going growth of the Trust. At this time, it is felt that appointment of sufficient numbers of non-executive directors to result in a majority would not be cost effective or efficient. It is a long term objective to have a Board with a majority of independent non-executives, to comply with ASX Corporate Governance recommendations.

Following the Deed of Appointment, Mr Jaques’ role as a director and his management role did not change and was exactly the same as it had been prior to June 2007.

On 14 May 2012, Mr Jaques was examined under oath by the Australian Securities and Investments Commission (‘ASIC’), as required by s 19 of the Australian Securities and Investments Commission Act 2001. In the course of that examination, the following exchange took place:

QDid you - in April 2004, then, your role on the board of APCH - did that change?
A.Privilege. I believe that that changed my role from non-executive to executive director.

Before his Honour, however, Mr Jaques deposed that this answer was wrong, that he had been confused in a stressful environment.
The judge’s reasons

The judge commenced by considering the meaning of ‘non-executive director’ in the policy. Noting that the definition in the policy was not helpful, his Honour referred to the approach to the interpretation of a policy of insurance stated by Gleeson CJ in McCann v Switzerland Insurance Australia Ltd.[8] That is that a policy of insurance is a commercial contract that should be given a businesslike interpretation.
[8](2000) 203 CLR 579, 589 [22].

Then noting that the special excess limit recognised the distinction between executive and non-executive directors, his Honour said that:

the essential characteristics of an executive director is his or her discharge, usually as an employee, of executive functions in the management and administration of the company. Non-executive directors are usually independent of corporate management.[9]

The judge observed that the role of a non-executive director was of benefit both to a company and to an insurer such as the appellant. That was because the non-executive director, not being engaged in executive management, brought an independent mind to the performance of the task of director. The additional protection afforded by the special excess limit was intended, his Honour said, to have the effect of attracting appropriate persons to act as non-executive directors, and was thus in the commercial interest of the appellant.

[9]Reasons [15] (Emphasis added.)

The judge then referred to AWA Ltd v Daniels t/as Deloitte Haskins & Sells & Ors[10] where Rogers CJ Comm Div referred to the different roles of executive and non-executive directors. Those passages included the following:

Another division of function is between the non-executive directors and the chief executive officer or managing director. Generally a chief executive is a director to whom the board of directors has delegated its powers of management of the corporation’s business. Usually the chief executive is employed under a contract of service which will either include an express term or, in the absence of an express term, an implied term, that the chief executive will exercise the care and skill to be expected of a person in that position. The degree of skill required of an executive director is measured objectively. In contrast to the managing director, non-executive directors are not bound to give continuous attention to the affairs of the corporation. Their duties are of an intermittent nature to be performed at periodic board meetings, and at meetings of any committee of the board upon which the director happens to be placed. [11]

[10](1992) 7 ACSR 759, 866-867.

[11]Ibid 867.

His Honour observed that it was well accepted that the managing director has powers of day to day management exercisable without reference to the board as a delegated executive management function. In contrast, appointment as a director carried no express or implied grant of executive power. Directors can only act collectively as a board and the function of an individual director is to participate in decisions of the board. His Honour continued:

It is a question of fact whether a person has assumed the powers of the managing director,[12] or, I would add, an executive director, with the approval of the company. The critical aspect of that inquiry is whether the company approved, or perhaps acquiesced, in that assumption of power. [13]

[12]Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 5 ACSR 424, 427.

[13]Reasons [17] (Emphasis added).

The judge then referred to the Macquarie Dictionary meaning of the word ‘executive’ as including ‘a person or body having administrative authority as in a company’.

His Honour continued:

19I am satisfied that the term ‘non-executive director’ in the policy refers to a person who is a director of the insured entity and who is not an executive director. A managing director is, absent special circumstances, as a matter of law an executive director. Whether a director, other than the managing director, is an executive director is a question of fact. It may depend on whether there is some feature of the company’s constitution, or conduct of the company in general meeting or of the board of directors that evidences the delegation of executive function, in the sense that I have described, to that director to operate as an executive of the company. The classic example is board approval of a contract of employment of a director as an executive of the company. Usually, an executive director has simultaneous parallel duties owed to the company; on the one hand by virtue of the office of director under statute and at general law, and on the other hand, as an executive employee under an express or implied employment agreement.[14]
20There is no explicit act of Holdings, either in general meeting or of the board, in the relevant period that evidences any delegation of power to Mr Jaques to operate as an executive director. The first such act identified in evidence is the deed of appointment of Mr Jaques as an executive director by the company on 26 June 2007. That deed of course marks the commencement of the period when it is not in dispute that Mr Jaques was an executive director.
21Holdings never employed Mr Jaques, either at all or as an executive employee. Through employment and consultancy agreements involving third parties, companies in the loosely described ‘Lewski Group,’ the defendant contends that Holdings received Mr Jaques’ services. In that way, the defendant contends that Mr Jaques provided executive services to Holdings such that he was, from the commencement of those contractual arrangements in April 2004, an executive director within the terms of the policy.

[14]Emphasis added.

The judge then referred to the appellant’s contentions. He commenced with the following summary:

The defendant contended that the business of Holdings was identified from its trust deed. The trust deed empowered the company to undertake any act that would be involved in managing a retirement village business. Further, one of its core business activities, revealed by product disclosure statements and also within its constitutional powers was identification and buying of properties to add to its portfolio and renovation and selling of its existing property holdings at a profit. The defendant contended that Mr Jaques was the executive who administered these activities for Holdings and his employment by Custodians was not a critical factor. That fact was demonstrated by his reporting on such matters direct to the board of Holdings and not otherwise. Buying and selling individual units in retirement villages was, it contended, necessarily part of the business of Holdings. The reason Mr Jaques was so employed, in the defendant’s submission, was, on the one hand, to improve the resale value of the properties owned by Holdings for the Trust and on the other hand, to advise in respect of prospective property acquisitions and their cost effective renovation to achieve improved resale value. That, the defendant submitted, was the source of the Trust’s income. [15]

[15]Reasons [23].

The judge then noted that in 2004, Mr Jaques ceased to receive a director’s fee from Holdings, and that the only remuneration he received was a salary from Custodians. He noted the appellant’s submission that the evidence ‘did not suggest’ that Mr Jaques reported to any entity other than Holdings about his managerial activity. It was submitted that corporate veils should be ignored because Mr Jaques was in control of the Buderim Gardens business and later other retirement home businesses on properties owned by Holdings. Further, his responsibilities after his appointment as executive director in 2007 were exactly as they had been from April 2004.

The judge then dealt with and rejected a submission of the appellant that he should infer that if Mr Lewski had given evidence, his evidence would not have assisted the respondent.

The judge continued:

The defendant pointed to evidence of statements by the plaintiff, and statements by the company about his position, contending that the plaintiff appreciated the difference between an executive and a non-executive director. In the 2003 product disclosure statement, prior to his employment by Custodians, Mr Jaques was described as “non-executive director”. Like with every other signatory, Mr Jaques signed the supplementary product disclosure statement dated 5 July 2004, as “executive director”. He said that was a mistake - that the document was prepared by others and he signed above his name - but counsel was critical of that explanation. In the two following product disclosure statements, Mr Jaques is not described as “executive director”, merely as “director”. The first of these product disclosure statements, in August 2005, states that two properties – Buderim Gardens and Hibiscus Group – are managed by an entity associated with two of the directors (Mr Lewski and Mr Jaques). That product disclosure statement describes Mr Lewski as managing director, Mr Beck as Chairman and the remaining directors simply as directors. The product disclosure statement does not say that Mr Jaques has any executive responsibilities in relation to Holdings. [16]

Two things should be said about this paragraph. First, the judge was in error in saying that ‘every other signatory’ signed the 5 July 2004 Supplementary PDS as ‘executive director’; Mr Butler signed as ‘non-executive director’, and Mr Deans as ‘Chairman’ and Mr Lewski as ‘Managing Director’. Secondly, and as to the two subsequent PDSs to which his Honour refers, the word ‘director’ comprehends both an executive and non-executive director. Further, in the 30 August 2005 PDS, and in the 22 August 2006 Supplementary PDS, Mr Butler was called ‘a director’. Ultimately these matters do not affect the outcome.

[16]Reasons [29].

The judge referred to the reference in the 22 August 2006 minutes of the directors meeting to media training having been undertaken by the three executive directors of whom one was Mr Jaques. He then referred to the references to the composition of the board in the 17 October 2006 minutes.

Finally, reliance was placed on the proposition that the respondent saw himself as an executive director, and was seen as such by Holdings because of the way in which he had been employed by the related entity. It was submitted that the 2007 Deed of Appointment simply formalised Mr Jaques existing responsibility; he had since April 2004 been a director in a de facto if not in a de jure sense.

The judge then turned to consider the nature of Holdings’ business and the structure employed for its conduct, and the nature of Mr Jaques’ employment including the circumstances in which his services were employed in relation to Holdings’ business.

He immediately stated that he accepted Mr Jaques’ evidence and added:

Although his recall of events was not perfect, that was unsurprising. The relevant period ended about 7 years ago. He accepted that he had given some unhelpful answers under oath on prior occasions and had signed documents that were contrary to his principal contention, but his demeanour in the witness box was open and honest and there was substantial consistency between his evidence and the documents on matters that properly fell within his personal knowledge. What follows are my factual findings. [17]

[17]Reasons [36].

The judge then considered the facts under headings as follows, followed by his conclusions.

The business of Holdings and its structure

The judge described Holding’s business, thus:

…
38Holdings’ business was essentially that of a landlord. The trust owned retirement village properties. Other entities, initially only Primelife Corporation Ltd, managed the retirement village businesses operated on the Prime Trust properties. On 15 August 2003, Holdings issued a product disclosure statement for the Prime Trust that demonstrates the business of Holdings and the structure through which it was carried on, immediately prior to the relevant period. Holdings was both the responsible entity and the trustee of the Trust. The Trust was a public property unit trust dedicated to a specific asset class, namely retirement and aged care facilities. Its objective was to provide monthly income distribution to unit holders and to maintain and accrue the real capital value of its assets. The Trust assets were properties occupied by Primelife under long-term management deeds or leases. The product disclosure statement stated that Primelife must manage and operate each property and the associated business with diligence and efficiency and in a proper businesslike manner and, after paying all outgoings and costs, including maintenance and repairs, pay to Holdings an annual fee or rental.
39The product disclosure statement revealed that Holdings intended that the Trust acquire, over a period of time, further properties, or securities within the retirement and aged care asset class. The product disclosure statement described Holdings to be responsible for the proper promotion and management of the trust as a management investment scheme. It represented to the investing public that Holdings had been responsible for selecting the properties owned by the Trust and preparing the product disclosure statement. Its ongoing responsibilities would include instructing the Custodian, keeping accounts, co-ordinating and determining distributions to unit holders and preparing financial statements for the Trust. Mr Jaques stated that he had no role in Holdings in these aspects of its business.
40In August 2003, Holdings had two executive directors, including Mr Lewski, its managing director. In the August 2003 product disclosure statement, Mr Jaques was described as a non-executive director, and he signed the statement by directors in that product disclosure statement in that capacity. In that product disclosure statement, he is described as having extensive experience in commercial and retail property management. No specific responsibilities in the affairs of Holdings are enumerated as executive responsibilities of Mr Jaques in the product disclosure statement.
41Under this structure, Holdings was a passive investor as a landlord taking no part in active management of the tenant businesses that generated rentals or annual fees paid to the Trust, which constituted trust income. Holdings’ business activity was its investment decisions, that is selection of the properties included in its portfolio, and it was the registered proprietor of trust properties. Holdings also kept accounts, determined and co-ordinated distributions to unit holders, prepared financial statements, and made all relevant ongoing investment decisions. In his employment by Custodians, Mr Jaques had no duties in respect of these responsibilities. His duties, as described, concerned some of the businesses that, as ‘tenants’, paid rentals or annual fees to the Trust. An objective of the trust was to seek to make further acquisitions and appropriate investments over time and Mr Jaques had a role to play in this activity that I will shortly discuss.
42The reason that Holdings constrained its activities was the taxation advantages that were promoted by Holdings to potential investors in successive product disclosure statements. Holdings was bound by a constitution[18] and the Corporations Act 2001 (Cth)[19] in its management of the Prime Trust. Although Holdings clearly had power under the constitution to manage the businesses conducted on the properties that it owned, it was not at liberty to exercise every available power under the constitution. The business of the trust was limited to that promoted by product disclosure statements in reliance on which members of the public invested in the trust.[20] Holdings could not manage the retirement villages without exposing the Prime Trust to claims by unit holders that its business was other than as represented in product disclosure statements. [21]
[18]Corporations Act 2001, s 601GA.
[19]Corporations Act 2001, ss 601FB(1), 601FC(m).
[20]Corporations Act 2001, ss 601FB(1), 601FC(1)(b) and (c).
[21]Reasons [38]-[42].

Jaques’ employment

The judge noted that Mr Jaques continued ‘in full-time’ employment with Custodians until termination on 31 March 2014. And, as already noted, while employed by Custodians, he continued as a director of Holdings. The judge referred to the definition of Custodian’s business in the employment agreement and stated that Mr Jaques duties were ‘allocated by the board of Custodians’. He continued:[22]

Mr Jaques stated that Holdings was not involved in running the retirement villages and that he performed his duties, initially managing Buderim Gardens, for Retirement Guide through its services agreement with his employer. Later, he became more extensively involved in managing the expanding business of Retirement Guide, which managed numerous facilities for Holdings.

[22]Reasons [48].

Finally, his Honour noted, but without development, that subsequent PDSs ‘might bear on the probability of establishing the administrative arrangements between Holdings and Mr Jaques’.[23]
[23]Reasons [53].

The relationship between Custodians and Holdings

The judge noted that the PDSs had revealed that Holdings had a management agreement with Administrators. He then referred to the supplementary PDS dated 22 August 2006 referred to at [23] and [24] above, and to the Service Agreement referred at [25] above.

The judge then said that while the Supplementary PDS suggested that Administrators had ‘other agreement[s] with third parties, possibly including Custodians’, the ‘precise nature and status of any service agreement between Administrators and Custodians was not established in evidence’. He then referred to the service agreement produced and deposed to by Mr Jaques, and described it as a ‘draft’ to which he gave ‘no weight’.[24] This finding was not expressly challenged on the appeal.
[24]Reasons [57].

It is convenient to interpolate that there is a difficulty with his Honour’s description of the document as a draft. It is true, as mentioned earlier, that the document produced was unsigned and for a date bore only the year ‘2007’. But Mr Jaques deposed, and this was not challenged in cross-examination, that the document was a ‘true copy’ of the agreement. His Honour stated that Mr Jaques ‘did not state that he had sighted an executed copy of this agreement’,[25] but that does not belie what he did say.
[25]Reasons [55].

The judge further stated that ‘Contrary to Mr Jaques’ affidavit, the draft agreement does not provide that his services were being made available for management and administration of retirement villages’.[26] With respect, his Honour here fell into the error of treating Mr Jaques’ evidence as to what happened pursuant to the agreement as a statement of what was stated in the agreement. The agreement provides that Custodians agreed to make the services of its employees, Mr Jaques, Mr Lewski and Mr Butler, available to Administrators for the purpose of performing management and administration services for the Trust and to assist Holdings in fulfilling its obligations as responsible entity of the Prime Trust. The effect was to misstate the terms of the agreement.[27]
[26]Reasons [57].
[27]Despite there being some difficulty with the judge’s treatment of this service agreement, it does not affect the outcome of the appeal; see [142] below.

The final point made by the judge in regard to the Service Agreement was that the evidence did not establish that it came into operation prior to 22 June 2007 when Mr Jaques was appointed as an executive director. As Mr Jaques’ case was concerned with the situation prior to 22 June 2007, the reasonable inference might have been considered to be that it did come into existence prior to then. However, his Honour made the finding that he did. That, of course, does not gainsay the statements made in the PDS as to the arrangements operating between the various entities in the Lewski group, which extended to the role of Administrators referred to in the 2006 Supplementary PDS.

Director’s fees and tasks

As mentioned earlier, Mr Jaques was paid director’s fees of $5,000 per annum. Also, he twice received a bonus payment from Holdings. Director’s fees ceased when he commenced with Custodians and resumed ‘at some point after the public float in August 2007’; his salary from Custodians continued. The judge continued:

As a non-executive director, Mr Jaques attended monthly board meetings and there was occasional telephone attendance on Mr Lewski. Each director had, and exercised, an equal vote on board business. Mr Jaques often reported about the management of Buderim Gardens, and later other Retirement Guide managed facilities to the board. Mr Jaques said the subject matter of his reports did not change other than by reference to the expanding portfolio of Retirement Guide after he was appointed as an executive director. It initially struck me as curious that Mr Jaques would report to Holdings about the business of Retirement Guide rather than to the board of that company, but there is a relationship between the capital value of a retirement village and its management. That relationship arises from the fact that the turnover of individual units in a village is a major driver of both management profitability and improvement in capital value, matters of interest to landlords as well as managers of retirement villages. The fact that the board of Holdings had an interest in issue[s] of maintenance and improvement of both units and common facilities in retirement villages is unsurprising. The fact that Holdings was interested in aspects of the financial performance of tenant businesses managing its facilities is also unsurprising. Neither of these matters persuades me that the general manager of the business was charged with any executive function of Holdings. [28]
[28]Reasons [59].

Listing

The judge referred to the 26 June 2007 PDS and the agreement between Holdings and Administrators referred to respectively at [24] and [31] above.

His Honour went on to say that the PDS ‘represented that by a resolution of the board of Holdings on 26 June 2007, Mr Jaques and others were appointed as executive directors and two new directors were appointed as non-executive directors’.[29] With respect, no such representation was made, expressly or impliedly, by the PDS. Paragraph 7.2 of the PDS merely stated the composition of the board at the date of the PDS, 26 June 2007, and that the two new non-executive directors would be appointed on 1 July 2007. Further, the statement that Mr Jaques was then an executive director did not imply that on 26 June 2007 his status had changed from a non-executive to an executive director.
[29]Reasons [62].

Investigating prospective acquisitions

This section was concerned with Mr Jaques’ role in investigating possible acquisitions of retirement villages by Holdings for the Trust. It is as well to quote his Honour:

Over time, Mr Jaques’ duties for Custodians expanded. He also investigated the feasibility of possible acquisitions of other retirement villages by the Trust. His assessments formed part of the information that was put before the board of Holdings, which took the decision whether to acquire further properties. This activity differs from managing the business of the villages for Retirement Guide. Although Holdings, by its product disclosure statements, limited its business to passive real estate investing, Holdings intended that it would expand its portfolio of properties by acquisition of suitable properties.[30]

[30]Reasons [64].

The judge referred to the agreement made between Holdings and Syndications, referred to at [26] above. He then set out evidence of Mr Jaques as to his role in relation to acquisitions, viz:

I’d inspect the villages, look at their condition, and look at the opportunity for upsiding, refurbishment, changing the units’ interiors so that they were more presentable, more acceptable to the modern market. I’d look at the management of the village itself, in terms of the people management staff and then I’d give a report to Lewski who would then combine that with his – he had a software thing that he used to value the villages and he’d put all that together to make a recommendation.[31]
[31]Reasons [66].

But the evidence continued:
HIS HONOUR:              So, you give him a written report?---Yes.
COUNSEL:                   Who took the decision as to whether or not the Prime Trust should acquire these properties?---That would have been Lewski reporting to the Board.
All Right.
COUNSEL:                   Who were these reports addressed to?---My report, sir? Or - - -
Your report, yes?---Mine would have been to Mr Lewski.

Just to him personally, or to some entity?---Probably in the form of an email to him.

His Honour said that:

It is a reasonable inference that those reports were given to Mr Lewski as a director of Syndications. Mr Jaques stated that it was Mr Lewski who reported to the board on whether Prime Trust should acquire any property that he had inspected or investigated. It is a reasonable inference that Mr Lewski reported to the board of Holdings on behalf of Syndications.[32]

It is convenient to interpolate that whether the reports were truly given to Mr Lewski as a director of Syndications may be doubted, for the tenor of the evidence is rather that while Mr Jaques’ reports may be understood as being from Syndications, it may the more seem, in reality, that the reporting was to Lewski as and for Holdings. As to this, it is important to bear in mind the underlying situation that while there were various corporate entities and employees, there were several key managerial people, including Mr Jaques and Mr Lewski, whose various roles, despite being performed on behalf of other related entities, directly benefitted Holdings.

[32]Reasons [66].

The judge then referred to 13 letters Mr Jaques sent on the letterhead of Holdings, and signed as General Manager, on dates between 13 and 19 November 2004. The letters were sent to the registered proprietors of retirement villages indicating the interest of the Prime Trust in purchasing their property should they consider selling it. His Honour noted Mr Jaques’ evidence that his use of Holdings letterhead was a mistake, as he was general manager of Custodians and not Holdings. Notwithstanding the use of the letterhead and Mr Jaques having signed as General Manager of Holdings, his Honour was:

… not persuaded that this correspondence demonstrates that any relevant executive function of Holdings’ business had been delegated by the board to Mr Jaques. The 13 general inquiry letters are, at best, isolated conduct insufficient to support the inference contended for by the defendant.[33]

[33]Reasons [67].

Finally, his Honour concluded as to Mr Jaques’ role in providing information as to possible acquisitions that he was:

…satisfied that in performing the functions that he described, Mr Jaques was not performing executive functions for Holdings. His activities were directed by Mr Lewski and for the benefit of other Lewski controlled entities, particularly Syndications, and drew upon his experience managing facilities for Retirement Guide through his employment with Custodians.[34]

[34]Reasons [68].

This brought the judge to his conclusions which he expressed as follows:

69From the circumstances that I have described, I draw the following conclusions that support Mr Jaques’ contention that he was not an executive director of Holdings until his appointment in June 2007.
(a)Mr Jaques was employed by and worked for Custodians. Neither Custodians’ agreement to employ Mr Jaques nor its agreement to provide his services in connection with retirement village businesses conducted on properties owned by Holdings can operate as a delegation of executive responsibility by Holdings to Mr Jaques. That employment agreement is inconsistent with Mr Jaques being an executive of Holdings. That is not to say that there may never be circumstances where a corporate executive’s services are provided by a third party pursuant to a consultancy arrangement rather than directly by an employment agreement, only that this is not such a case.
(b)The distinction is that Mr Jaques’ consultancy services were not provided in connection with the business of Holdings. His services were provided to Retirement Guide after it obtained management agreements with Holdings in respect of properties that Holdings had acquired or to Syndications where his services concerned evaluation of potential acquisitions.
(c)Those management agreements were entered because Holdings could not and did not intend to manage the retirement village businesses that paid rent or fees to Holdings. Because the relationship between Holdings and Retirement Guide was essentially one of landlord and tenant, the logical extension of the defendant’s contentions is that by managing the tenant’s business, Mr Jaques was a de facto executive of the landlord. Not only could Holdings not perform the work done by Retirement Guide without losing the tax benefits that determined the income stream represented to investors, it simply did not do so.
(d)I am satisfied that the affairs of Holdings were carefully structured to ensure that in doing the work that he did, Mr Jaques was not working as an executive of Holdings.
(e)I do not accept the defendant’s contention that what occurred in June 2007, including the appointment of Mr Jaques as an executive director, was no more than formalising pre-existing arrangements. What occurred at that time was that Holdings restructured from being the responsible entity of an unlisted property trust to being a listed entity. This was a substantial restructuring of the funding of Prime Trust, no doubt undertaken to raise capital for further acquisitions. Public listing of the Trust required significantly greater regulatory compliance and presented the opportunity for restructuring of the arrangements for services provided to Prime Trust, the operation of businesses on the land owned by Prime Trust, and the management of Prime Trust. As counsel for Mr Jaques submitted, there was an obvious commercial rationale for Mr Jaques’ appointment as an executive director in 2007, given the circumstances of the public listing. That appointment was explicit conduct evidencing a delegation of executive managerial responsibility that Mr Jaques had not previously assumed.
(f)At all times, Mr Jaques’ loyalties and contractual obligations as an employee were to Custodians. While he owed loyalties and statutory obligations as a director to Holdings, there was no relationship between his employment and his directorship sufficient to persuade me that at any time prior to June 2007, Mr Jaques was an executive director of Holdings. Mr Jaques’ employment obligation, the executive duties that he discharged, all pointed away from Holdings towards the businesses operated by Mr Lewski, notably Custodians, Retirement Guide and Syndications. Even if it could be said that Holdings relevantly conducted the business of the retirement villages, which proposition I reject, the delegation of executive function for those management services could not be said to have been made to Mr Jaques. The evidence was that these executive functions were the subject of consultancy agreements with a Lewski Group company.[35]
[35]Reasons [69].

Grounds of appeal

At the hearing of the appeal, the appellant was granted leave to file an amended notice of appeal by which it relied on the following grounds:

1) The learned trial judge erred in finding that with respect to the definition of ‘non-executive director in the Policy’:

a. the essential characteristic of an executive director is his or her discharge, usually as an employee, of executive functions in the management and administration of the company;

b. the critical aspect of any inquiry into whether a director is an executive or non-executive director is whether the company approved or acquiesced in the assumption by the director of the powers of an executive director;

c. whether a director is an executive or non-executive director may depend on whether there is some feature of the company’s constitution, or conduct of the company in general meeting or of the board of directors that evidences the delegation of executive function to that director.

2) The learned trial judge should have concluded that on a proper interpretation of the policy, the phrase ‘non-executive director’ required a consideration of all the relevant facts which included the following:

a.   whether the director was represented to the investing public as a non-executive director;
b.   whether the board regarded the director as a non-executive director;
c.   whether the director saw himself as a non-executive director;
d.   whether the director was independent of the managing director of the company;
e.   whether the director was responsible for guiding and monitoring the management of the company;
f.    whether the director was involved in the operations of the company, and/or performed work in connection with the business of the company.

3) In determining whether the Respondent was a non-executive director within the terms of the Policy, the learned trial judge erred in failing to find that the Respondent was not a non-executive director of Holdings from 6 April 2004 to 26 June 2007 (‘the relevant period’) because of the following:
a. the Respondent was represented to the investing public as an executive director, the Board of Holdings regarded the Respondent as an executive director, and the Respondent saw himself as an executive director as evidenced by:

i. the minutes of a meeting of directors of Holdings dated 22 August 2006 [Ex D3] in which it was reported that ‘three executive directors’ had received media training (the evidence showing that the Respondent was one of the directors who had received the media training);
ii. the minutes of a meeting of directors of Holdings dated 17 October 2006 [Ex D4] in which it was resolved that a “2^nd non-executive director be appointed in 3 – 6 months and a 3^rd in 9 months” (the evidence showing that of the Directors then serving on the Board, it was the Honourable Dr Michael Wooldridge and not the respondent who was the 1^st non-executive director);
iii.the Corporate Directory contained in the Supplementary Product Disclosure Statement dated 5 July 2004 [Exhibit D2] (the evidence showing that the Respondent was listed in the Directory as an "executive director", and other directors were listed with different titles, including that of "non-executive director");

iv.the Respondent signing the Supplementary Product Disclosure Statement dated 5 July 2004 [Exhibit D2] as an "executive director" (the evidence showing that, contrary to the finding of the learned trial judge, at [29] of the reasons for Judgment, that the Respondent had, "[l]ike with every other signatory", signed the document as an executive director, other directors had signed the document using different titles, including that of non-executive director");

v.the Deed of Appointment between Holdings and the Respondent [Exhibit KSJ12 to Exhibit P1] (the evidence showing that the Introduction to that Deed said that "[t]he Director is an executive director of the Company ... ");

vi.the Product Disclosure Statement dated 26 June 2007 [Exhibit P2] (the evidence showing that in that Statement, on pages [40]-[44], there was no explanation to the public that the Respondent's director status had changed, or any reasons given as to why that status had been changed);

vii.the Respondent's answer under oath to a question asked of him by the Australian Securities and Investments Commission on 14 May 2012 [Exhibit P3] (the evidence showing that the Respondent's answer was that in April 2004, his role on the board of Holdings was changed from non-executive director to executive director).

b.   the Respondent's duties did not change after 26 June 2007 from what they were before 26 June 2007;
c.   the Respondent was not independent of the managing director of Holdings;
d.   the Respondent was not responsible for guiding and monitoring the management of Holdings;
e.   the Respondent was involved in the operations of Holdings, and/or performed work in connection with the business of Holdings.

4) The learned trial judge should have concluded, by reason of the following, that the Respondent was not a non-executive director within the terms of the Policy during the Relevant Period:

a. the Respondent was represented to the investing public as an executive director, the Board of Holdings regarded the Respondent as an executive director, and the Respondent saw himself as an executive director, as evidenced by:

i. the minutes of a meeting of directors of Holdings dated 22 August 2006;

ii.the minutes of a meeting of directors of Holdings dated 17 October 2006;
iii.the Supplementary Product Disclosure Statement dated 5 July 2004;
iv.the Deed of Appointment between Holdings and the Respondent;
v.the Product Disclosure Statement dated 26 June 2007;
vi.the Respondent's answer under oath to a question asked of him by the Australian Securities and Investments Commission on 14 May 2012.

b.   the Respondent's duties did not change after 26 June 2007 from what they were before 26 June 2007;
c.   it was not a matter of controversy that the Respondent was an executive director after 26 June 2007;
d.   the Respondent was not independent of the managing director of Holdings;
e.   the Respondent was not responsible for guiding and monitoring the management of Holdings; and
f.    the Respondent was involved in the operations of Holdings.

5) Further, in determining whether the Respondent was a non-executive director within the terms of the Policy during the Relevant Period, the learned trial judge erred in finding that:

a.   the Respondent's employment with Australian Property Custodians Pty Ltd was inconsistent with the Respondent being an executive of Holdings;
b.   the services provided by the Respondent were not provided in connection with the business of Holdings;
c.   the affairs of Holdings were carefully structured to ensure that the Respondent was not working as an executive of Holdings;
d.   there was an obvious commercial rationale for Holdings to appoint the Respondent as an executive director on 26 June 2007;
e.   there was no relationship between the Respondent's employment and his directorship that demonstrated he was an executive director.

6) The learned trial judge should have found that:

a.   the Respondent's employment with Australian Property Custodians Pty Ltd was consistent with the Respondent being an executive of Holdings;
b.   the services provided by the Respondent were provided in connection with the business of Holdings;
c.   the affairs of Holdings were not carefully structured to ensure that the Respondent was not working as an executive of Holdings;
d.   there was no obvious commercial rationale for Holdings to appoint the Respondent as an executive director on 26 June 2007;

e. there was a relationship between the Respondent's employment and his directorship that demonstrated he was an executive director.

7) In the premises, the learned trial judge erred in finding that the Respondent was entitled to indemnity under clause 2.19 of the Policy, in respect of loss as defined in clause 4.51 of the Policy.
8) The learned trial judge should have concluded that the Respondent was not entitled to indemnity under clause 2.19 of the Policy, in respect of loss as defined in clause 4.51 of the Policy.

Grounds 1 - 2

By Grounds 1 and 2 the appellant sought to challenge the judge’s definition of the phrase ‘non-executive director’ in the policy. The appellant did not, by its submissions, seek to identify any error in the propositions set out in Ground 1, nor in his Honour’s reliance on the authorities to which he referred. Indeed, in oral submissions, counsel for the appellant conceded that there was nothing wrong with these statements per se. Rather counsel asserted that the error of the judge was in treating them as exhaustive since the definition of non-executive director in the policy could not properly be determined without taking into account the various relevant facts set out in Ground 2.

The facts said to be relevant and not properly considered or given adequate weight by the judge were identified as:

1) Was the director represented to the investing public as an executive or non-executive director?
2) Was the director regarded internally as an executive director or non- executive director?
3) Was the director independent of key management personnel? Did he perform a supervisory role?
4) Did the director guide and monitor the management in board meetings?
5) Was the director involved in the operations of the company, or performing work in connection with the business of the company?
6) How did the director see himself?

The appellant submitted that the distinction between an executive and a non-executive director had not been given content by the legislature or by the courts and observed that there were very few circumstances where the distinction had any legal consequence. Relying on Daniels v Anderson,[36] it submitted that non-executive directors are typically appointed to secure a perceived commercial advantage and contended therefore that the significance of the distinction lay primarily in its meaning to members of the investing public. It was for this reason that the appellant submitted the judge should have placed importance on how a director was represented to the investing public as by the company’s PDSs.
[36](1995) 37 NSWLR 438, 501 (‘Daniels’).

Relying on Equitable LifeAssurance Society v Bowley,[37] the appellant submitted that providing independence of judgment and supervision of management are key functions of a non-executive director. A failure or inability to perform these functions was relevant, it was submitted, as it would count against the view that the relevant director was a non-executive director.
[37][2003] EWHC 2263 [41].

Relying on ASIC v Healey,[38] the appellant submitted that the role of a non-executive director is to guide and monitor the company rather than to be involved at an operational level. A failure to guide and monitor the company would count against the view that the relevant director was a non-executive director. Conversely, reporting to the board and undertaking various tasks at the board’s request would add weight to the view that the director was an executive director.
[38](2011) 196 FCR 291, 332 [171].

It was emphasised that there was no requirement at law that to be an executive director one had to be an employee of the company. Indeed, Holdings had no direct management employees.

The appellant further submitted that the way in which the director was regarded internally, as evidenced for example by minutes of board meetings, and the way in which the director regarded himself were also relevant to determining the meaning of non-executive director under the policy and were not adequately taken into account by the judge.

Finally, the appellant submitted that the absence of an explicit act by the company appointing the director as a ‘non-executive’ is as significant as the absence of an explicit act appointing the director as an ‘executive’. The fact that there was no explicit appointment of Mr Jaques as a non-executive director did not mean he occupied that position.

The respondent submitted that the judge’s definition was consistent with the authorities and plainly correct in the context of the policy. Further, he submitted that a director is necessarily a non-executive director in the absence of any further authority conferred upon him or her by the company. In addition, he said that many of the additional matters raised were irrelevant in the context of the policy. Finally, he submitted that many of the matters the appellant now says should have been taken into account were not pressed, or even raised, before the judge at trial.

In our view, there is substantial force in the submissions of the respondent on this point.

The statement of claim alleged that during the relevant period, Mr Jaques did not work as an executive or employee of Holdings and received no salary or remuneration from Holdings during that period. The defendant at trial took issue with this claim and alleged in its defence that during the relevant period Mr Jaques ‘acted inter alia as a manager of the business of APCH [Holdings] and the retirement villages which it owned.’ At trial, the plaintiff therefore sought to demonstrate that the business of Holdings was not the management of the retirement villages and that Mr Jaques was not managing Holdings’ business by performing his duties as an employee of Custodians.

In opening at the trial, counsel for the plaintiff stated that:

The usual meaning of non-executive director is someone who’s not an executive of the company. In other words, not a person who has some control over the management, such as a managing director or a CEO or say a finance director… Now what’s put against us is that Mr Jaques, because he managed the business of APCHL [Holdings] and because he managed the retirement villages, was an executive director at the relevant time.

Counsel for the defendant stated:

[w]e would say, Your Honour, that this term or the terms executive and non-executive directors, they’re not terms of art… it’s not only pretty plainly understood what the difference is. And we would say that the… expression, “working director” is a pretty good overall description of what an executive director is.

The transcript does not reveal that the appellant joined issue with the definition before the judge, much less that it put the matters it now says are relevant to the judge. Indeed, counsel for the plaintiff stated in closing:

There doesn’t seem to be too much disagreement between us at the Bar table and what that term [non-executive director] means or what executive director might mean. We’ve attempted to persuade your Honour that executive director is a more serious role than non-executive director and it involves – must involve the company bestowing upon a director powers additional to and over and above those powers that might be exercised by a non-executive director… most commonly, an employment contract is the vehicle whereby a director is deemed to be an executive director… that’s not the only way.

No point was taken with this statement by counsel for the defendant in reply.

It is well established that courts will not ordinarily entertain an appeal on the basis of a point of law which was not advanced below.[39] Even in circumstances where a point is sought to be taken on appeal that could not be affected by further evidence, as is the case here where the issue concerns the construction of a policy of insurance, a departure from the case advanced at trial is permissible only in exceptional circumstances[40] and only where the Court finds that it is ‘expedient in the interests of justice’.[41]
[39]Metwally v University of Wollongong (No2) (1985) 59 ALJR 481, 483 (‘Metwally’); Whisprun Pty Ltd v Dixon (2003) 200 ALR 447, [51] (Gleeson CJ, McHugh and Gummow JJ); Setka v Abbott [2013] VSCA 345.
[40]Metwally (1985) 59 ALJR 481, 483: ‘Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.’ (Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ.)
[41]See Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631, 645. Mason P (with whom Gleeson CJ and Priestley JA agreed): ‘However there is another principle of more direct relevance. A party does not have a right to insist that a new point be decided on appeal simply because all of the facts have been established beyond controversy or the point is one of construction or of law, even constitutional law. This is because it remains a question of whether the appellate court ‘may find it expedient and in the interests of justice to entertain the point’… The rule is not an absolute one… However:
‘…it is a sound general principle, leading not only to the maintenance of fair play, but also to the repression of unnecessary litigation, that parties must be bound by the course they deliberately adopted at the trial’: Rowe v Australian United Steam Navigation Co Ltd (1909) 9 CLR 1 at 24 per Isaacs J”.’

In the circumstances we consider that the appellant should not be permitted to raise these arguments for the first time on appeal. Although it is true that no further evidence would be required to determine the proper construction of the policy, the case was run on the basis that the issue in dispute was whether, during the relevant period, Mr Jaques had a role in managing the business of Holdings. Had Mr Jaques’ lack of independence of management, or failure to provide guidance and monitoring to the board been pleaded, the evidence on these factual matters would likely have been more detailed. To allow the appellant to now take issue with the meaning of the term non-executive director under the policy would substantially undermine the basis on which the case was run. In the circumstances, I consider the appellant should be bound by the way it ran its case below.

However, even if this departure were permissible, we are not persuaded that his Honour erred in the way alleged by the appellant.

The appellant relies on the following passage from the judgment of Clarke and Sheller JJA in Daniels:

To be balanced against calls that the modern public company director has acquired and now asserts a professional status together with professional skills … are the difficulties deriving from the variety of businesses with which companies may be concerned and from the highly diversified activities of a large and complex company. In such circumstances it would be unreasonable to expect every director to have equal knowledge and experience of every aspect of the company’s activities. Furthermore traditionally non-executive directors have been appointed for perceived commercial advantage such as attracting customers or adding to the prestige and status of the company: Mitchell, Directors’ Duties and Insider Dealing (1982) at 49.[42]

[42](1995) 37 NSWLR 438, 501 (emphasis added).

However, it does not follow from this passage that the primary significance of the distinction between an executive and a non-executive director is the meaning of this distinction to members of the investing public. Clarke and Sheller JJA are here addressing the question whether an objective standard of care should be imposed on non-executive directors that would not yield to considerations such as lack of knowledge or lack of experience. Their Honours emphasised the significance of the varying circumstances of both non-executive directors and the companies in which they work, in finding that the standard of care required of a non-executive director will vary depending on such circumstances.

That non-executive directors have traditionally been appointed for perceived commercial advantage is one of the factors that may be taken into account in determining the standard of care required of a particular director. It does not follow, however, that the primary significance of the distinction between an executive and a non-executive director is in its meaning to investors.

The passage from Daniels set out above refers to Directors’ Duties and Insider Dealing. The author states:

The modern board of directors commonly consists of a handful of ‘non-executives’ the presence of whom may add status or prestige to the company, attract customers, be useful for lobbying purposes, or merely look impressive on the company’s notepaper; and a lesser number of full-time operatives, mainly employed under contracts of service, who will be concerned with the administration of the business on a level of continuous participation. As we have seen, full-time directors are expected to show a high degree of diligence. A corresponding enhancement of their duty of care cannot be inferred from any principle of law dealing with the position of a director as such. Such inference must be drawn, if at all, from rules of agency, or where the traditional master and servant relationship and any express or implied contractual terms applicable thereto, can be invoked.[43]

[43]Philip L R Mitchell, Directors’ Duties and Insider Dealing (Butterworths, 1982) 49.

The term ‘non-executive director’ in this passages refers to a director who is not a full-time operative and who is not otherwise employed by the company, or acting as its agent. It is contrasted with ‘full-time directors’ who perform an additional role in ‘the administration of the business on a level of continuous participation.’ It is as a result of this additional role that they are subject to a higher standard of care. In our view, rather than supporting the appellant’s contention, this passage affirms the importance of the distinction drawn by the judge.

The appellant also relies on the decision of Langley J in Equitable Life Assurance Society v Bowley[44] for the proposition that providing independence of judgment and supervision of management are key functions of a non-executive director. After referring to an argument that, in circumstances where duties may properly be left to another official, a non-executive director is justified in trusting that official to perform those duties honestly, Langley J stated that:

I do not think this statement does represent the modern law at least if … it means unquestioning reliance upon others to do their job. It is well known that the role of non-executive directors in corporate governance has been the subject of some debate in recent years. For present purposes … it in any event suffices to say that the extent to which a non-executive director may reasonably rely on the executive directors and other professionals to perform their duties is one in which the law can fairly be said to be developing and is plainly ‘fact sensitive’. It is plainly arguable, I think, that a company may reasonably at least look to non-executive directors for independence of judgment and supervision of the executive management.[45]

[44][2003] EWHC 2263.

[45]Ibid [41].

Seen in context, this passage is authority for the now well-established principle that a director must make an independent assessment rather than simply deferring to the advice and judgment of others.[46] The duty to exercise independent judgment rather than simply defer to the judgment of others is a duty of all directors. A failure to exercise such independence and supervision does not lead to an inference that a person was an executive director; it leads to a conclusion that the director had failed to fulfil their duty.
[46]See, eg, Federal Deposit Insurance Corporation v Bierman 2 F 3d 1424, 1432-3 (7^th Cir, 1993) (US); Rankin v Cooper 149 F 1010, 1013 (1907) (US); Daniels (1995) 37 NSWLR 438, 502-4.

The appellant also relied on a passage from ASIC v Healey[47] in which Middleton J quoted from the judgment of Gzell J in ASIC v Macdonald:[48]

The position of non-executive directors (as distinct from directors in general) has also been the subject of judicial consideration. In ASIC v Macdonald, Gzell J noted at [255] that:
While Clarke and Sheller JJA in Daniels rejected the test propounded by Rogers CJ Comm Div for the limit of a director’s entitlement to rely on management, they did recognise that the role of a non-executive director was to guide and monitor the management of the company rather than to be involved at an operational level.[49]

[47](2011) 196 FCR 291 (‘Healey’).

[48]ASIC v Macdonald (No 11) (2009) 256 ALR 199, 250 [255] (‘MacDonald’).

[49](2011) 196 FCR 291 [171].

When understood in its context, we do not consider that this supports the appellant’s contention that a failure to guide and monitor the company would support an inference that the director is an executive director. After the passage quoted in Healey, Gzell J continued in Macdonald by quoting the following from Daniels v Anderson:

There is no doubt reason for establishing a board which enjoys the varied wisdom of persons drawn from different commercial backgrounds. Even so a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience. That duty involves becoming familiar with the business of the company and how it is run and ensuring that the board has available means to audit the management of the company so that it can satisfy itself that the company is being properly run. The board may be assisted by sub-committees consisting of its members, including non-executive directors.[50]

[50]Daniels (1995) 37 NSWLR 438, 500-1.

This passage makes clear that the focus is on the duties owed by directors, including non-executive directors. Furthermore, it appears to suggest that it is possible that a non-executive director may undertake tasks at the Board’s request and report directly back to it; for example, by participating in a sub-committee. As with the other duties referred to above, a failure to guide and monitor the management of the company does not lead to an inference that a person was an executive director; it leads to a conclusion that the director had failed to fulfil their duty. We observe too that Gzell J’s statement affirms that the role of non-executive directors does not include being involved in the company at an operational level. This is consistent with the findings of the judge.

We observe also that in ASIC v Plymin,[51] the role of a non-executive director as being removed from the operational management of the company was emphasised. The following was noted without criticism by Mandie J:

Attention was directed to the role of a non-executive director as being different from that of the managing director or chairman, and as involving duties of an intermittent nature to be performed at periodic Board meetings.[52]

[51][2003] VSC 123.

[52]Ibid 424.

On appeal, in Elliott v ASIC,[53] the same argument was put to the Court of Appeal:

It was fundamental to Mr Judd’s argument that the duties and responsibilities of a non-executive director, such as Elliott, are critically different to those of directors involved in the day-to-day management of a company, or a director, such as the managing director, who has the authority to make executive decisions. It followed that the ability of an executive director to take action to prevent an insolvent company from incurring a debt could readily be distinguished from the position of a non-executive director.[54]

[53](2004) 10 VR 369.

[54]Ibid 388 [87].

Although the appeal was dismissed, the assumption underlying his argument – that non-executive directors are fundamentally different from executive directors due to their lack of involvement in the day-to-day management of the company – does not appear to have been criticised by the Court.

No authority was cited either for or against the propositions that the way in which the director was regarded internally, or the way in which the director perceived himself are determinative of whether a director is an executive or non-executive director. In the case of Natcomp Technology Australia Pty Limited v Graiche,[55] the New South Wales Court of Appeal was asked to determine whether the respondent was acting as a de facto director of the company, Amtech Industries Pty Ltd (‘Amtech’), within the meaning of s 60(1) of the Corporations Act. Relevantly, the respondent had accompanied directors of Amtech to a trade fair in Taiwan where he made various representations as to his role with Amtech, including distributing a business card that carried the logo of Amtech and described himself as CEO of the company. He also represented himself as ‘the person who made the decisions at Amtech’ and as the ‘brains behind Amtech.’ Although arising in a different context to the present case, the approach of the Court in determining whether such representations meant the respondent was acting as a director is instructive. Stein JA (with whom Spigelman CJ and Heydon JA agreed) held:

The involvement of [the respondent] in the affairs of Amtech must be examined in the context of the overall nature of the company’s business, see for example Austin at 570.
…
There is no evidence that the respondent was involved in any fashion in this principal aspect of the company’s business [being the sales of computer packages], nor in its day-to-day operations. [The respondent’s] involvement with Amtech was, it appears, limited to an interest in the development and marketing of possible new products. The evidence placed before his Honour was insufficient to attract s 60(1)(a) or (b) or the Corporations Law. It was inadequate to establish that the respondent was either a de facto or shadow director.[56]

[55][2001] NSWCA 120.

[56]Ibid [14]-[15].

In our view, the subjective views of either the board, or of the director are of limited relevance in construing the terms of the policy. On the basis of the authorities to which we have referred, we are satisfied that the essential element of the distinction for the purposes of construing the term non-executive director in the policy, is whether the director is performing executive functions in the management and administration of the company. Whilst contemporaneous records kept by the company will often be relevant in determining a director’s status, such records are relevant to the extent that they provide evidence of the roles and tasks undertaken by a particular director, or of a delegation of authority to perform such functions. In any case, to the extent that these matters were relevant, they were considered by the judge.[57]
[57]Reasons [29]-[31].

Secondly, except to the extent that they provide evidence of the roles and tasks undertaken by a particular director, the way in which Mr Jaques’ status was represented to investors is of limited relevance. Whilst these representations may be relevant in other circumstances, for example, in an action by a unit-holder for misleading and deceptive conduct, they are of limited relevance to construing the meaning of the term in the policy. In any case, to the extent that they were relevant, these matters also were considered by the judge.[58]
[58]Reasons [29].

Thirdly, whilst being independent of key management personnel and guiding and monitoring management may well be desirable attributes for a non-executive director to bring to his position, a finding that these attributes were not present would be insufficient to alter a conclusion based on a finding that the director performed executive functions for the company and that the company gave the director the authority to do so. As discussed already,[59] the duty to exercise independent judgment rather than deferring to the judgment of others is a duty of all directors. We observe too that since this matter was not raised before the judge, it is unsurprising that his Honour did not discuss it in detail in his reasons.
[59]See above [89]-[90].

Fourthly, whether a director is involved in the operations of the company, and performs work in connection with the business of the company is relevant to the definition. So much was accepted by his Honour. However, when broadly framed in this way, the approach does not distinguish between an executive and a non-executive director and begs the question of what kind of involvement of the director is sufficient, and what kind of connection with the business a director’s work must have in order for that director to be regarded as an executive of the company. His Honour considered Mr Jaques’ involvement in the operations of Holdings and the way in which his employment with Custodians related to the business of Holdings in some detail. He found:[60]
[60]Reasons [44]-[60].

1. Mr Jaques remained in full time employment with Custodians until 31 March 2014;

2. Mr Jaques’ duties were allocated by the board of Custodians;
3. Mr Jaques' evidence was that Holdings was not involved in running the retirement villages and that he managed the villages on behalf of Retirement Guide; and
4. Holdings had a management agreement with Administrators and that although the Supplementary PDSs suggested Administrators had other agreements possibly including with Custodians, the nature and status of such agreements was not established in evidence.

Finally, we accept that in the absence of some further authority conferred upon a director by the company, be it under a contract of employment, a services agreement, or via an express delegation or acquiescence in a director’s exercise of executive powers, the director should generally be treated as a non-executive director. The starting position must be that the mere fact of appointment does not normally give a director any executive powers. We observe that s 198C of the Corporations Act is a replaceable rule[61] which allows the directors to appoint one or more of themselves to be managing director and to confer on the managing director any of the powers that the directors can exercise. In respect of the tasks of a managing director, the authors of Ford’s Principles of Corporations Law observe the following:

A managing director's usual task is "to deal with every day matters, to supervise the daily running of the company, to supervise the other managers and indeed, generally, be in charge of the business of the company": Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 6 WAR 68. A managing director may engage others to provide services for the company ( Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 and authorise agents to make contracts on behalf of the company of the kind that the managing director could make: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, above.[62]

[61]A company’s internal management may be governed by provisions of the Corporations Act that apply to the company as replaceable rules, by a constitution or by a combination of both. A provision that applies to a company as a replaceable rule applies to most companies unless it has been displaced or modified by the company’s constitution: see Corporations Act, s 135.

[62]H A J Ford, R P Austin, I M Ramsay, LexisNexis, Ford’s Principles of Corporations Law, (at 18 November 2014) [13.070].

On the other hand, in a company with several directors, a director acting individually had no usual authority to bind a company.[63] The authors of Ford’s Principles of Corporations Law observe:

In such a company a director's normal power is to bind the company only by joining with other directors in a collective resolution of the board of directors. If a director is to have power, as a single director, to bind the company, he or she must either have that power as an agent, delegated by the appropriate organ, or — sometimes, in a family company — have predominant power under the company's constitution as a governing director: see [7.295]. An individual director may be expressly authorised by the company to carry out formal functions for the company, such as executing a document on behalf of the company, but whether the transaction underlying it binds the company depends on whether it was authorised by some person or persons with sufficient authority.[64]

[63]See Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146, 205.

[64]H A J Ford, R P Austin, I M Ramsay, LexisNexis, Ford’s Principles of Corporations Law, (at 18 November 2014) [13.080].

In our view, the findings of the judge on this point are consistent with the authorities and with the case that the parties put at trial. In our view, his Honour did not err in his definition of non-executive director under the policy.

It follows, we would dismiss grounds 1 and 2.

Grounds 3 - 4

The appellant argued that the judge erred in finding that Mr Jaques was a non-executive director during the relevant period as his Honour failed to consider or failed to give adequate weight to various matters of fact.

The appellant accepted that by virtue of Fox v Percy, to the extent it sought to overturn findings based on the evidence of Mr Jaques, it could only succeed if the findings were shown to be ‘glaringly improbable’, or ‘contrary to compelling inferences’ in the case.[65]
[65]Fox v Percy [2003] HCA 22 [29] citing Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842, 844 and Chambers v Jobling (1986) 7 NSWLR 1, 10.

The appellant developed its argument on these grounds by reference to representations in the minutes of board meetings and in the PDSs to the effect that Mr Jaques was an executive director, and to his evidence at the ASIC examination as enumerated in Ground 3(a) To recapitulate, the representations relied upon were:

i.the minutes of a meeting of directors of Holdings dated 22 August 2006 [Ex D3] in which it was reported that ‘three executive directors’ had received media training (the evidence showing that the Respondent was one of the directors who had received the media training);

ii.the minutes of a meeting of directors of Holdings dated 17 October 2006 [Ex D4] in which it was resolved that a 2^nd non-executive director be appointed in 3 – 6 months and a 3^rd in 9 months (the evidence showing that of the Directors then serving on the Board, it was the Honourable Dr Michael Wooldridge and not the respondent who was the 1^st non-executive director);

iii.the Corporate Directory contained in the Supplementary Product Disclosure Statement dated 5 July 2004 [Exhibit D2] (the evidence showing that the Respondent was listed in the Directory as an "executive director", and other directors were listed with different titles, including that of "non-executive director");

iv.the Respondent signing the Supplementary Product Disclosure Statement dated 5 July 2004 [Exhibit D2] as an "executive director" (the evidence showing that, contrary to the finding of the learned trial judge, at [29] of the reasons for Judgment. that the Respondent had, "[l]ike with every other signatory", signed the document as an executive director, other directors had signed the document using different titles, including that of nonexecutive director");

v.the Deed of Appointment between Holdings and the Respondent [Exhibit KSJ12 to Exhibit P1] (the evidence showing that the Introduction to that Deed said that "[t]he Director is an executive director of the Company ... ");

vi.the Product Disclosure Statement dated 26 June 2007 [Exhibit P2] (the evidence showing that in that Statement, on pages [40]-[44], there was no explanation to the public that the Respondent's director status had changed, or any reasons given as to why that status had been changed);

vii.the Respondent's answer under oath to a question asked of him by the Australian Securities and Investments Commission on 14 May 2012 [Exhibit P3] (the evidence showing that the Respondent's answer was that in April 2004, his role on the board of Holdings was changed from non-executive director to executive director).

In addition to those matters, the appellant relied on four specific facts.

· First, that the Respondent's duties did not change after 26 June 2007 from what they were before 26 June 2007;

· Second, that the Respondent was not independent of the managing director of Holdings;

· Third, that the Respondent was not responsible for guiding and monitoring the management of Holdings;

· Fourth, that the Respondent was involved in the operations of Holdings, and/or performed work in connection with the business of Holdings.

His Honour’s definition of ‘non-executive director’ in the policy draws attention to two aspects. First, it focuses on whether a director is performing executive functions in the management or administration of the company.[66] Secondly, it focuses on whether the company has approved or acquiesced in the delegation of executive functions. The question whether Mr Jaques falls within the definition as a matter of fact requires an examination of whether Mr Jaques was performing executive functions for Holdings and whether Holdings delegated to him the authority to perform these functions, or acquiesced in his doing so.
[66]Reasons [15].

The judge in his reasons referred to the fact that Mr Jaques signed a PDS as an executive director, was listed in the corporate directory in that PDS as an executive director and was described in the minutes of meeting as having received media training as an executive director.[67] These facts were considered as to whether they showed some delegation of executive function to Mr Jaques or acquiescence in his performing those functions. As bare statements of his title, they were of little significance. Mr Jaques’ evidence was that his signing as an executive director was a mistake and that ‘he was not very experienced at being a director.’ As the judge observed, in the two following PDSs, Mr Jaques is not described as ‘executive director’, merely as ‘director’.[68] In the circumstances, it was open to the judge to give this evidence the significance that he did.
[67]Reasons [29]-[30].
[68]Reasons [29].

The minutes of the board meeting of Holdings held on 17 October 2006 state:

The Board ... resolved that the current Directors be maintained in the Board but acknowledged that further addition of non-executive Directors is inevitable. It was resolved that a 2^nd non-executive Director be appointed in 3-6 months and a 3^rd in 9 months.

It was not in dispute that it was assumed by the board that at this time Mr Jaques was acting as an executive director. These minutes were referred to by the judge.[69] However given the way in which his Honour framed the legal question, the answer to the factual question was to be found in an examination of the involvement of Mr Jaques in the operations of Holdings; an assumption by the board as to his status could not be determinative.

[69]Reasons [31].

These minutes also record that Mr Jaques tabled a report on ‘distribution and RV [retirement village] management’ and that Mr Lewski requested that he ‘look at the potential benefits to residents from bulk buying power and telecommunications services.’ These statements are relevant as evidence of Mr Jaques’ role as they disclose him reporting to the board of Holdings and performing tasks at its request.

However, we do not consider that his Honour erred in finding that these minutes fell short of evidencing a delegation to Mr Jaques of authority to perform executive functions for Holdings. The statements strongly support the proposition that Mr Jaques had an operational role in the management of the villages; they do not show that this was done as part of Holdings’ business rather than Custodians’.

The appellant also relied on the answer given by Mr Jaques in the ASIC interview on 14 May 2012 that in April 2004 his role changed from non-executive to executive director.[70]
[70]See [33] above.

Before his Honour, however, Mr Jaques deposed:

Can you tell His Honour why it was that you answered that you were an executive director? Why do you say you were wrong about that?---Well, to be quite frank, I'm not very experienced in these things. And I got it wrong. And I can't explain to you why. I was confused at the time. It was a very stressful environment and I made a mistake.

The respondent submitted that in addition to being irrelevant in the context of the policy, Mr Jaques’ statement that he was an executive director was of little assistance as it must be understood as an answer to a mixed question of law and fact. Further, it is of little relevance because it cannot be said that Mr Jaques was aware of the relevant legal distinction between the terms non-executive and executive director when giving his answer.[71] Whilst we see some force in this submission, it is unnecessary to decide this point; Mr Jaques’ answer, and his subsequent recanting of it, were considered by the judge and given appropriate weight.[72]
[71]See Lym International Pty Ltd v Marcolongo [2011] NSWCA 303; see also Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317 where Gummow J held at [70]:
Different questions arise where, as here, the suggested admission includes a conclusion which depends upon the application of a legal standard. In Grey , Glass JA considered an admission sought from a witness to the effect that he had assigned certain choses in action at law or in equity. His Honour said:
'By extorting from a party an admission that he was negligent, or that he was not provoked, or that his grandfather possessed testamentary capacity, there is added to the record something which is, not merely of dubious value, but by definition valueless, owing to the witness' unfamiliarity with the standard governing his answer.'
[72]Reasons [34].

The appellant also relied on the Deed of Appointment between Holdings and Mr Jaques which states in the introduction that ‘[t]he Director [Mr Jaques] is an executive director of the Company’. The appellant submitted that the deed formalised Mr Jaques’ existing responsibilities and reflected the fact that he had been a de facto executive director of Holdings prior to being formally appointed by the deed. It submitted that because the statement in the introduction to the deed is in the present tense and because Mr Lewski, who was clearly acting as managing director prior to the execution of the deed of appointment, also signed the deed, the deed should be seen as confirming Mr Jaques’ pre-existing status rather than changing it.

That Mr Jaques’ duties did not change following his entering into the deed of appointment further supports this submission.

This argument was considered and rejected by the judge who stated:

I do not accept the defendant’s contention that what occurred in June 2007, including the appointment of Mr Jaques as an executive director, was no more than formalising pre-existing arrangements.[73]

[73]Reasons [69(e)].

His Honour found that:

[t]here was an obvious commercial rationale for Mr Jaques ’ appointment as an executive director in 2007, given the circumstances of the public listing. That appointment was explicit conduct evidencing a delegation of executive managerial responsibility that Mr Jaques had not previously assumed.[74]

[74]Reasons [69(e)].

Whilst the statement in the introduction to the deed is in the present tense, clause 3.1 provides ‘that the Director agrees to act as an executive director of the Company in accordance with this deed’, which contemplates the act taking place upon execution and not before. Other statements in the deed look to the Director’s rights and responsibilities going forward. That Holdings resumed paying Mr Jaques director’s fees in August 2007, shortly after Mr Jaques had been formally appointed, supports the judge’s conclusion.

Mr Jaques’ role is described in the PDS of 26 June 2007 (issued after Mr Jaques had been appointed an executive director by deed) as follows:

Kim is responsible for the management of the resorts owned by Prime Trust ensuring that resort staff are properly trained and able to look after the best interests of both residents and Unit holders. He has overall responsibility for the renovation of the units as they become available to ensure that they meet the exacting standards of our potential residents.

It is apparent that the duties listed are limited to the management of retirement villages and that nothing in this description suggests Mr Jaques is performing the executive functions of Holdings.

The appellant submitted that the judge should have placed importance on the fact that Mr Jaques was not independent of the managing director of Holdings and was not responsible for guiding and monitoring the management of Holdings. Again, these matters were not pressed below. Perhaps because of this, the evidence adduced on these issues was limited and proceeded primarily on the argument that Mr Jaques was not independent because it was Mr Lewski who employed him at Custodians. However, even taken at its highest, for the reasons discussed at [89]-[93], given the way in which his Honour construed the meaning of non-executive director in the policy, this evidence is insufficient to disturb the findings of the judge.

The judge gave careful consideration to the involvement of Mr Jaques in Holdings’ business and the work he performed in connection with it. As his Honour’s reasons demonstrate, he rejected the appellant’s claim that because he managed the retirement villages he was performing executive functions for Holdings. His Honour observed:

It initially struck me as curious that Mr Jaques would report to Holdings about the business of Retirement Guide rather than to the board of that company, but there is a relationship between the capital value of a retirement village and its management. That relationship arises from the fact that the turnover of individual units in a village is a major driver of both management profitability and improvement in capital value, matters of interest to landlords as well as managers of retirement villages. The fact that the board of Holdings had an interest in issue[s] of maintenance and improvement of both units and common facilities in retirement villages is unsurprising. The fact that Holdings was interested in aspects of the financial performance of tenant businesses managing its facilities is also unsurprising.[75]

However, his Honour concluded that ‘[n]either of these matters persuades me that the general manager of the business was charged with any executive function of Holdings.’[76]

[75]Reasons [59].

[76]Ibid.

Mr Jaques’ involvement in the operations of Holdings is discussed further below. On these grounds, it is sufficient to state that, in our view, to the extent that these matters were relevant, the appellant has not shown that his Honour failed to consider them. In addition, we do not consider that the complaint that his Honour failed to give these matters adequate weight is made out. Given the judge’s characterisation of the legal question, it was open to his Honour to find that these matters were not determinative of the factual issue.

We would dismiss grounds 3 and 4.

Grounds 5 – 6

By grounds 5 and 6 the appellant challenges the factual findings of the judge that:

a.the Respondent's employment with Australian Property Custodians Pty Ltd was inconsistent with the Respondent being an executive of Holdings;
b.the services provided by the Respondent were not provided in connection with the business of Holdings;
c.the affairs of Holdings were carefully structured to ensure that the Respondent was not working as an executive of Holdings;
d.there was an obvious commercial rationale for Holdings to appoint the Respondent as an executive director on 26 June 2007; and
e.there was no relationship between the Respondent's employment and his directorship that demonstrated he was an executive director.

The judge made the following findings of fact about Mr Jaques’ employment.

a) Mr Jaques’s duties were allocated by the board of Custodians. He was employed pursuant to a contract with Custodians and was paid by Custodians.[77]
[77]Reasons [49]-[50]

b) Mr Jaques did not receive his salary from Holdings and Holdings did not pay a fee to Custodians referable for his services.[78]
[78]Reasons [52].

c) Mr Jaques was involved in managing the expanding business of Retirement Guide, which managed numerous facilities for Holdings.[79]
[79]Reasons [48].

d) Mr Jaques often reported about the management of Buderim Gardens, and later other Retirement Guide managed facilities to the board of Holdings.[80]
[80]Reasons [59].

e) Mr Jaques also investigated the feasibility of possible acquisitions of other retirement villages by the Trust and his assessments were put before the board of Holdings.[81]
[81]Reasons [64].

f) It is a reasonable inference that Mr Jaques’ reports as to the feasibility of acquisitions were given to Mr Lewski as a director of Syndications, and that Mr Lewski put the assessments before the board of Holdings on behalf of Syndications.[82]

g) In performing this role, Mr Jaques’ activities were directed by Mr Lewski for the benefit of other entities controlled by Mr Lewski, particularly Syndications, and drew upon his experience managing facilities for Retirement Guide through his employment with Custodians.[83]

[82]Reasons [66].

[83]Reasons [68].

The judge held that although there may be circumstances where a company’s executive functions are provided by a third party pursuant to a consultancy arrangement, rather than directly by an employment agreement, this was not such a case.[84] Here, both the absence of any fee paid by Holdings to Custodians for Mr Jaques’ services, and his Honour’s findings as to the constraints on the business of Holdings led him to conclude that Mr Jaques was discharging his duties to Custodians under his employment agreement and was not discharging executive functions of Holdings.
[84]Reasons [69(a)].

The judge held:

Holdings was a passive investor as a landlord taking no part in active management of the tenant businesses that generated rentals or annual fees paid to the Trust, which constituted trust income. Holdings’ business activity was its investment decisions, that is selection of the properties included in its portfolio, and it was the registered proprietor of trust properties. Holdings also kept accounts, determined and co-ordinated distributions to unit holders, prepared financial statements, and made all relevant ongoing investment decisions. In his employment by Custodians, Mr Jaques had no duties in respect of these responsibilities.[85]

[85]Reasons [41].

In respect of the business of Holdings the judge found that although the trust deed of the Prime Trust gave Holdings broad powers as trustee and manager, the business of Holdings was constrained by the need for it to comply with the information provided to investors in the various PDSs. These PDSs stated that investors would enjoy substantial tax advantages while the Trust invested in land primarily for the purpose of deriving rent. His Honour held:

Holdings could not manage the retirement villages without exposing the Prime Trust to claims by unit holders that its business was other than as represented in product disclosure statements.[86]

[86]Reasons [42].

The tax advantages available to unit holders flowed from the fact that as a public unit trust, if the Trust merely owned land and derived rent from it, it was not assessable to income tax and could distribute 100 per cent of its profits to unit holders. If it were to participate in the management of the villages, it would no longer be entitled to its tax exempt status and be subject to the company tax rate on its earnings.

These findings led to his Honour’s conclusion that the affairs of Holdings were carefully structured to ensure that, in doing the work that he did, Mr Jaques was not performing executive functions for Holdings. His Honour held, ‘[n]ot only could Holdings not perform the work done by Retirement Guide without losing the tax benefits that determined the income stream represented to investors, it simply did not do so.’[87]
[87]Reasons [69(c)].

It is apparent that this finding is no answer to the submission that the work Mr Jaques did in investigating the feasibility of possible acquisitions of property by the Trust was work for Holdings. Unlike management of the villages, this work related to Holdings’ core business activity, namely, the matter of investment decisions.

Before the judge, Mr Jaques described his role in relation to acquisitions in the following terms:

I’d inspect the villages, look at their condition, and look at the opportunity for upsiding, refurbishment, changing the units’ interiors so that they were more presentable, more acceptable to the modern market. I’d look at the management of the village itself, in terms of the people management staff and then I’d give a report to Lewski who would then combine that with his – he had a software thing that he used to value the villages and he’d put all that together to make a recommendation.[88]

[88]Reasons [66].

The judge found that:

It is a reasonable inference that those reports were given to Mr Lewski as a director of Syndications. Mr Jaques stated that it was Mr Lewski who reported to the board on whether Prime Trust should acquire any property that he had inspected or investigated. It is a reasonable inference that Mr Lewski reported to the board of Holdings on behalf of Syndications.[89]

[89]Reasons [66].

The judge inferred from a consultancy agreement between Syndications and Holdings described in the June 2007 PDS, together with the fact that Mr Jaques reported to Mr Lewski rather than to the board directly, that Mr Jaques was not working for Holdings when performing these tasks. The judge appears also to have relied upon the fact that this work drew upon Mr Jaques’ experience managing facilities for Retirement Guide and that Custodians had, as part of his employment, provided his services to other Lewski controlled companies prior to 2007.

The appellant submitted that the judge fell into error because he focused too narrowly on which entity Mr Jaques was doing his work for and failed to take into account the reason why Mr Jaques was doing the work that he did, which was to benefit Holdings. The appellant submitted that the fact that Mr Jaques was employed by Custodians and not Holdings was of little significance. The appellant relied on the fact that from 2004, Mr Jaques was the primary board member with operational experience and responsibility for the daily management of the villages. The decision to employ Mr Jaques as manager was driven by the commercial objectives of Holdings, and Mr Jaques himself considered his involvement in the operational activities to be in the best interests of the unit holders. In addition, it relied on the fact that Mr Jaques’ role enabled Holdings to fulfil its obligations under the trust deed, including ensuring that all real property investments were kept in good repair. It also relied on his work advising Holdings as to the feasibility of potential acquisitions.

It is clear that Mr Jaques performed multiple roles across multiple Lewski companies. The evidence demonstrates that the arrangements put in place to separate the work of Administrators, Custodians, Syndications and Holdings were not always adhered to. Mr Jaques had a single work email address at the domain ‘primetrust.com’. As mentioned earlier,[90] in November 2004 he sent various letters on Holdings letterhead, signing the letters as ‘general manager’.
[90]See [63] above.

There can be no doubt that the services provided by Mr Jaques were of benefit to Holdings. The terms of the arrangement by which Custodians provided Mr Jaques’ services to Holdings was not in evidence at trial. Nor was the service agreement between Holdings and Administrators produced, although an ‘unsigned true copy’ of the agreement was exhibited to Mr Jaques’ affidavit. His Honour observed that:

The draft agreement recited that Holdings had appointed Administrators as manager to ‘perform management and administration services for the trust’, including hiring employees and entering into service agreements with service providers for the provision of services to the Trust. Custodians had agreed to make available the services of its employees and consultant to the manager for the purpose of performing management and administrative services for the Trust and in order for the responsible entity to fulfil its function as responsible entity of the Trust… The draft agreement does not provide for the payment of any service fee by Administrators as Custodians apparently agreed to accept other benefits as consideration for making the services of personnel available to the manager and the Trust. The draft states that the benefits from fees charged by Holdings in acting as the responsible entity of the Trust would provide a direct or indirect benefit to Custodians or its shareholders.[91]

[91]Reasons [56].

As discussed above,[92] there is some difficulty with the judge’s treatment of this document. However, his Honour’s treatment of this agreement was not challenged on appeal and, in any case, it did not affect the result.
[92] See [25], [52]-[56].

Significantly, Mr Lewski who, it may be assumed, could have given evidence about these agreements, was not called by either party. A submission to the judge that he should infer that Mr Lewski’s evidence would not have assisted Mr Jaques was rejected by the judge who took the view that there was nothing that would have prevented the appellant calling him as a witness at trial.

Ultimately, his Honour found that any inferences to be drawn from circumstances where it appeared that Mr Jaques was performing executive functions on behalf of Holdings and for its benefit were outweighed by more compelling evidence, namely, that the business of Holdings was carefully structured such that Mr Jaques was not performing executive functions in the management of Holdings when carrying out the work that he did. Nor was his Honour persuaded that any relevant executive function of Holdings’ business had been delegated by the board to Mr Jaques.

As to the reason for Mr Jaques’ appointment by deed as an executive director on 26 June 2007, Mr Jaques’ evidence was that:

I was told that the name of - of my position would be changed for listing purposes and I believe it came from the 3 corporate advisors.

The judge found that there was an obvious commercial rationale for Holdings to appoint Mr Jaques as an executive director at this time. The Prime Trust was undertaking a substantial restructuring of the funding of the Trust to assist in raising capital for further acquisitions. His Honour found that the public listing of the Trust required significantly greater regulatory compliance and presented the opportunity for restructuring of the arrangements for services provided to the Trust, the operation of businesses on the land owned by Prime Trust, and the management of Prime Trust. In our view, it is was open to the judge to infer that Mr Jaques’ appointment was made in order to assist in this process of restructuring.

We would dismiss Ground 5 and 6. The appellant’s onus when challenging findings of fact made below is a high one. His Honour’s findings are based on a thorough examination of the evidence before him. We would not disturb them on appeal.

For these reasons, it follows that we would dismiss Grounds 7 and 8.

The appeal is dismissed.

[2014] VSCA 332

16 December 2014