Australian Securities and Investments Commission v Hellicar & Ors; Shafron v Australian Securities and Investments Commission

[2011] HCATrans 294

[2011] HCATrans 294

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S176 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

MEREDITH HELLICAR

Respondent

Office of the Registry
  Sydney  No S177 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

MICHAEL ROBERT BROWN

Respondent

Office of the Registry
  Sydney  No S178 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

MICHAEL JOHN GILLFILLAN

Respondent

Office of the Registry
  Sydney  No S179 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

MARTIN KOFFEL

Respondent

Office of the Registry
  Sydney  No S175 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

GREGORY JAMES TERRY

Respondent

Office of the Registry
  Sydney  No S180 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

GEOFFREY FREDERICK O’BRIEN

Respondent

Office of the Registry
  Sydney  No S181 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

PETER JOHN WILLCOX

Respondent

Office of the Registry
  Sydney  No S174 of 2011

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

PETER JAMES SHAFRON

Respondent

Office of the Registry
  Sydney  No S173 of 2011

B e t w e e n -

PETER JAMES SHAFRON

Appellant

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 26 OCTOBER 2011, AT 10.17 AM

(Continued from 25/10/11)

Copyright in the High Court of Australia

FRENCH CJ:   Yes, Mr Gleeson.

MR GLEESON:   Good morning, your Honours.  On the first page of our three page outline, there are four matters that I need to complete before moving on with the argument.  The first is that in relation to our proposition 1 that the case was narrow and specific, I would ask your Honours to go to the actual pleading which is in the red book at volume 1 at page 193, with the critical allegations being that Mr McGregor tabled a draft announcement which was in the form of annexure A to the pleading.  Annexure A is at page 347.  That is the 7.24 am announcement.

The case against the directors was tied to that document, and paragraph 57 over the page alleged that they voted in favour of a resolution to approve that announcement and to authorise the sending of that announcement to the ASX.  By contrast with Mr Macdonald, the final announcement is pleaded in paragraph 61 as a different document, and Mr Macdonald’s contravention is in respect to the final announcement.  One other part is at page 231 in paragraph 112 against the directors. 

The reason for the alleged contravention was approving that specific 7.24 am announcement with actual or constructive knowledge that it conveyed a false message that there was a reasonable basis for asserting certainty of sufficiency of funding.

Your Honours, the second supplementary matter is in relation to our proposition 2(d) which is the fifth draft of the minutes prepared at 8.00 am on 15 February did not get to the meeting and therefore could not have been used as a template.  The Court of Appeal found that at paragraph [478].

The third matter which I would like to dwell on for a moment is paragraph 2(f) which is the position of Allens immediately prior to the meeting.  The relevant findings are in the Court of Appeal at paragraph [340] and following.  The additional information Mr Robb and Mr Cameron obtained from Macdonald and Shafron about a concern about Trowbridge not having the latest data is set out and it led the court to correctly, we submit, make the finding in [343] that they must have gone to the meeting uncertain about whether a surplus was the most likely outcome.

HAYNE J:   That is, does the Court of Appeal accept that what Mr Cameron had said in his statement to the Jackson inquiry was to be accepted and found to be a fact?

MR GLEESON:   Yes.  There being no evidence to contradict it and ASIC not calling the available witness, Mr Robb, if he was to give any different version of that conversation.  Over the page at [351] there is the finding which we submit is correct that when Mr Robb made his changes on the draft release he contemplated reduction in the assurance of funding.  There is the finding which is correct at [352] that Mr Robb had an input into the ultimate changes.  There was some process between him and Mr Baxter and the matter that is important, where the trial judge erred, is reached at paragraph [354]. 

The judge correctly asked the question, why did Mr Robb and Mr Cameron remain silent if at the meeting they were observing the directors being asked to approve the unequivocal statements in the draft announcement?  He gave an answer which the Court of Appeal said just did not work which was, well, they had not had time to absorb it, that much is true, and then what the trial judge had said at paragraph [329] was presumably they held back on voicing a view because they had had an opportunity later in the day to give a view of the document. 

That is where the Court of Appeal correctly found a central error in the trial judge’s reasoning.  If you are the solicitor, if you know you have to advise on the document, if you know there is a problem in the area of sufficiency of funding and if you know you will be doing that later in the day, you do not sit there and let your board approve that document to go as a final to the market without, as a very minimum, making sure they know this document does not have your approval.

GUMMOW J:   You say “if you are a solicitor”, what do you mean?

MR GLEESON:   If you are the solicitor for the company engaged to advise the company on matters including the appropriate release to the market, you do not remain silent in these circumstances.

GUMMOW J:   How could you make a finding on some sort of assumed attributes of how solicitors conduct themselves?

MR GLEESON:   What the Court of Appeal is doing here, your Honour, with respect, is correctly saying we are not in Blatch v Archer territory yet.  These are actual inferences ‑ ‑ ‑

GUMMOW J:   The pressure on solicitors in this sort of situation could be enormous.

MR GLEESON:   Exactly, your Honour.

GUMMOW J:   Before you make a finding about it, you would need a lot more.

MR GLEESON:   Well, that is where I am disagreeing with your Honour.  What the court is saying is, on the record we have got, we know certain matters about Allens’ knowledge and their conduct.  We know they are concerned, very properly, about sufficiency of funding, that is number one.  Number two, we know they are retained to advise on this release to the market and number three, they apparently remained silent in a meeting where, according to ASIC, the directors are being asked to and do consider and approve a document as a final to go to the market.  It belies common sense and practice of a competent and careful solicitor to sit there silent.

The inference is at least available, a fairly strong inference we would suggest, the reason that Mr Robb sat there and said nothing on this topic was the obvious one, that the 7.24 am announcement was not before the meeting for final release to the market.  That is where your Honour asked yesterday, when we come to the inferences question, why would anyone be contemplating calling Mr Robb and what would you ask him?  That is an inference which we submit ‑ ‑ ‑

GUMMOW J:   You could have called Mr Robb, could you not?

MR GLEESON:   I am going to come to the detail of those circumstances. 

GUMMOW J:   All right.

MR GLEESON:   My submission at the moment is an available inference which counted fairly strongly against ASIC’s case arose from these facts we are looking at.

HAYNE J:   Which assume that the solicitor attending the board meeting of the public company is there to interject when he or she thinks fit?

MR GLEESON:   With respect, your Honour, that may not quite be a fair summary of what I am putting.  Your Honour knows from the agenda of the meeting, and we will go back to it perhaps, that it specifically identified three sets of advisers who were to speak to the meeting.  One of those sets of advisers was Mr Robb to deal with legal issues.  The fourth matter that I wish to go to on page 1 is our proposition 4, and here there is a factual dispute between the parties ‑ ‑ ‑

HEYDON J:   Proposition 4?

MR GLEESON:   Proposition 3 on page 1, paragraph 4.  If your Honours could compare that with Mr Gageler’s outline, he submits in paragraph 2.2 that the Court of Appeal did not overturn the trial judge’s finding on tabling but did overturn the approval finding.  We disagree with that as a characterisation of the judgment.  In 3.1.1, he refers to Mr Baxter’s evidence that he took a document to the meeting and his usual practice was to distribute it.  What that leaves out is the cross‑examination of Mr Baxter and the Court of Appeal’s findings that his practice was not followed and a similar point arises in relation to paragraph 3.2.2.  The short difference between us is we submit the Court of Appeal on the rehearing correctly disagreed with what the trial judge found based on Mr Baxter’s evidence and said that looking at the weight of the evidence as a whole, ASIC had not proved to the appropriate standard that Mr Baxter distributed the document to all of the directors.  Could I show why that is.

BELL J:   Where in the Court of Appeal do we find that?

MR GLEESON:   Yes.  It is under the second theme, the practice theme, which commences at [302].  Paragraph [302] sets out the evidence of Mr Baxter in‑chief about practice, as does [303].  Paragraph [304] notes his cross‑examination that this was a series of steps of betting in advance that have to occur.  Then it reviews the evidence which of course showed that that practice had not occurred and the Court reaches the conclusion at [310] that what was not done was what was said to be the practice and that undermined conclusions from the evidence of practice that it was before the board for approval as an ASX announcement.

BELL J:   Can I take up one aspect of this with you arising from the submissions you were making yesterday afternoon concerning the significance of the Brierley directors having the 7.24 am draft?  As I understand it, the Court of Appeal said well, there are other explanations.  They might have come into possession of that at the Jackson inquiry or they might have come into possession of it because they had other channels of communications with Mr Macdonald. 

But the document itself really had a very limited life.  It came into existence shortly before the meeting and was rendered otiose not long after and does not appear to have formed part of the file maintained by JHIL.  What was the reasoning that led to the Court of Appeal concluding it might have turned up at the Jackson inquiry?

MR GLEESON:   The submission was recorded in paragraph [375] and it had the two elements to it.  It had the possibility of the Jackson inquiry or it had separate lines of communication.  Then I can point to no more than the last sentence of paragraph [382].  But what we put as more likely if one is looking at the inferences is we know there are separate lines of communication, we know it is for whatever reason really has direct input into Macdonald on the very transaction occurring. 

We accept the Court of Appeal’s finding Baxter brought to the meeting the 7.24 am announcement.  At the meeting there is dispute but it seems to have started 9, 9.30, 10.00 o’clock.  Mr Robb turned up at 10.30.  The meeting went till some time around lunchtime, perhaps 12 o’clock, 1 o’clock, there is some evidence like that.  We know that from some time after 1.00 o’clock there is circulation of the 9.35 am version of the announcement.  There is plenty of opportunity in a meeting going for several hours or at the end of a meeting for a conversation between persons who have that degree of familiarity and who have that precise interest in what is to be said for the document to be handed from Baxter to one of the Brierley directors.

BELL J:   It is just that the Court of Appeal seemed to have relied on reasoning, including this speculation about the Jackson inquiry as a possible explanation.  On the face of it, the trial judge’s view that an inference was open, supporting the idea that the release had been tabled at the meeting, seems to gain support from the production by the Brierley directors.

MR GLEESON:   There is two steps to that inference.  One is that they got it on that morning and the second is that they got it not as a distribution of a document to a person, but by reason of everyone receiving it at a meeting.  Now, inferences can possibly be drawn that that may be a possible line of reasoning to pursue.  What we are seeking to point out is that when one carrying out what we submit is the overall assessment of the evidence, there are a couple of strands, some points slightly stronger than a strand, pointing in favour of the party with the legal burden of proof to a section 140 evidence standard.  At the end of my submissions this morning I will try to, if possible, encapsulate what we say are the nine or ten pieces of evidence and how they fit together and in that context the explanation we submit would be available that they simply did not prove that however a Brierley director got it, it was because everyone got it. 

Your Honours, just to complete what we are putting about Mr Baxter’s practice and the tabling finding, I went to [310] where the court came to its first conclusion.  The court went further in [311] to [315] that this was a matter pointing strongly against ASIC’s case.  They returned to this question a little later at the third theme, which is paragraphs [359] and following, which was if Mr Baxter took it to the meeting, did he take it and table it?  At [360] they say:

no actual recollection . . . his usual practice that, if proposed announcements had not been sent to the board members in their board packs prior to the meeting, he distributed hard copies of any announcement –

to the board at the meeting.  If your Honours could go to the liability judgment at paragraph [132] to see the full context of Mr Baxter’s evidence.  The so‑called practice involved the propositions that not only would you distribute it to everyone at the meeting, which makes sense, but in the case of overseas directors you would email or fax a copy to them and if they did not have it, Mr McGregor would read out the terms of the announcement to them.

We know, and the court found, that practice was departed from in at least the second and third respect.  It was never sent to the US directors.  It was never read aloud at the meeting.  So, the critical element of practice upon which Baxter says “Because I brought it I would have handed it out” is one which is falsified in those two respects.  The Court of Appeal, correctly, returning to paragraph [361], noting that his evidence is founded on reconstruction in the absence of recollection and is based on his earlier email and the usual practice then sets out the cross‑examination I have read and came to a conclusion in [363] if:

a draft news release was taken to the meeting is not because of JHIL’s practice earlier considered, but because Mr Baxter’s 6.57 am and 7.24 am emails referred to his taking the communication documents . . . to the meeting.

So it only gets you as far as he took the document to the meeting.  For that reason, and it is repeated throughout the judgment, we differ from ASIC that the tabled finding has been overturned by the Court of Appeal.  Your Honours, of course, can review whether that was correct or not, but it is wrong to assert that finding is currently extant. 

Your Honours, to conclude Mr Baxter, if I could ask your Honours to go to black volume 1, there were two references.  The first is on page 372.  I have taken the Court down to line G – or asked the Court to read down to line G which was his concession that what occurred was “entirely irregular”.  That was destructive of the practice argument.  I would ask the Court to consider the further concessions he made between lines H and Q, the end result of which he was unable to depose to the matter.  The other aspect of Mr Baxter is this.  If your Honours could go forward to page 409, he was here being asked about, at the top of the page:

There was nothing said, discussed or decided at the directors meeting –

that he saw as an impediment to making the post‑meeting changes.  He said at about line M and following he felt he could do that, not on his own but with the approval of Macdonald.  Macdonald, he said:

And discussion with others.

Q.       But the terms of the resolution that you were working on and changing earlier in the evening of the 15th –

So this is at the end of the day -

were not set in stone . . . the media releases were not set in stone in any way by anything discussed or decided in the February board meeting, were they?
A.       I’m not sure.

Q.       But you had just made 15 or so changes –

to the release –

A.       Yes.

Q.       You couldn’t have run that going behind the back of the directors, if they had set in stone the terms of the resolution; would you agree?
A.       Correct.

The answer is also given in relation to a question about the release.  So if that is read together with page 411, N to T, we would submit the end result of Mr Baxter’s evidence was an acceptance that he could not have been engaging in the process he did later that day if he had witnessed a definitive resolution to send a particular announcement.

The one other witness called by ASIC on the topic was Mr Harman and, your Honours, you only need to go to one page, page 92, letter J to letter Q.  He also was asked he did not see any impediments to making the changes in the release during the day.  He agreed.  His answer at line P to Q was important:

It was not my understanding that the press release was set in stone at the board meeting.

That is why, with respect, the Court of Appeal said ASIC is to be held to the case, which is you approved the sending of that particular 7.20 am announcement to the ASX.  The only two direct witnesses you called conceded that that was not the way they observed the meeting to occur.  That, we would submit, was fairly powerful in the Court of Appeal’s approach. 

For better or worse, your Honours, I have finished page 1 and on page 2 I have covered and do not need to go back to the slideshow, that is proposition 4, or to the immediate post‑meeting conduct, that is proposition 6.  That leaves me two substantive factual topics to do on the main part of the case.  The first is the evidence of Mr Brown and, to a lesser extent, Mr Koffel about the correlation, that is proposition 5, and the second is to bring together what we wish to submit about the minutes, proposition 7. 

What the Court of Appeal did with Mr Brown’s evidence was to review the entirety of that evidence and find that it did not amount to the critical plank in ASIC’s case which the trial judge thought it did.  It was proper for the court to do that as part of its rehearing power and we submit the court did it correctly.  I will ask the Court to go to two places.  Firstly, volume 13 of the blue book, the part of the evidence in‑chief and then volume 3 of the black book.  In volume 13 of the blue book at 5747, Mr Brown deposed to an exchange with Mr Macdonald during the meeting. 

I might preface it.  Your Honours know from the January meeting that Mr Brown was the person who had the moral issue.  He was unhappy with net assets and he was always a man, to his credit, concerned about whether the sufficiency question was being addressed in a proper director’s duties fashion.  So it is unsurprising that at the February meeting he is active in raising that matter and he initiates an exchange with Mr Macdonald where he wants an assurance that the funds allocated are sufficient and “Is the Trowbridge report sound and fit for the purpose” in question?  Mr Macdonald gives an answer which indicates he is approaching this question from a different end, namely, he is more a communications man rather than a substantive decision man.  He says:

“If we can’t tell all of the interested stakeholders that there will be enough funds then we will have great difficulty getting acceptance of the plan –

Mr Gageler yesterday read through the prism of paragraph [393] of the Court of Appeal’s judgment, that part of the conversation, he then stopped.  What he did not do was to read the balance of the conversation or to the findings the Court of Appeal made about it, because what Brown went on to say was:

“I appreciate that difficulty, but that is not an answer.  My question is:  are you sure there are going to be sufficient funds in the trust?”

Macdonald said:

“Yes there are.  We have got the best actuarial modelling.  We have shown that we can meet the cash requirements each year.  We are providing enough funds for future claims.”

We would submit it is tolerably clear from that conversation that the matter that Brown is seeking assurance on and getting it on is the substantive question, can we properly as directors’ duties separate under this model using Trowbridge, can we rely upon Trowbridge?  Now, there is no doubt he has been told by Macdonald that there is a communication aspect of the decision and the stakeholders.  We know that is everyone in the government through to the claimants through to other persons.  But what does not appear from that conversion, we would submit, is what ASIC now seeks to place on it which is, you can infer from that conversation that Mr Brown and the other directors knew that they were hereby being asked to approve the 7.24 am release. 

What ASIC seeks to elevate from this conversation – it just does not arise from it – is, well, this conversation could only be occurring if the 7.24 am release is before the board as a subject matter for decision and, clearly, it is quite explicable without that occurring.  For that reason, if I could ask your Honours to go back to the Court of Appeal at paragraph [394].  The finding the court perfectly correctly made is that:

In his oral evidence Mr Brown said that he was concerned about sufficiency of funding on the basis of Trowbridge’s actuarial best estimate, and that his “I appreciate that difficulty” did not refer to making a public statement or anything in a draft news release. 

Then the court sets out the evidence expressly to that effect.  I just invite your Honour to read that extract from Mr Brown.  The reference to that evidence is volume 3 of the black book at 1327.  I dwell on that because when I come to my two US clients, ASIC propound two main reasons why this meeting, to their appreciation down the telephone, was meant to have expanded to the approval of a document they did not have and was not read out to them.  One of them is that conversation. 

Completing Mr Brown’s evidence‑in‑chief at page 5752 at paragraph 211 he said he had no recollection of reading or discussing the relevant document, and over the page at 212, he explained how he understood such documents would have to be approved by management and Allens before they would come to the board, and that was the way the practice of the company worked.  That is all from his evidence‑in‑chief.

Then, could I go to the cross-examination in black 3.  There are two sections which the Court of Appeal read in detail.  I will just give the references first.  The first section is pages 1328 to 1331, and the second is 1336 to 1356.  Immediately before the reference I have given the Court, 1327, is the material I have read through the Court of Appeal’s judgment, and he was cross‑examined to some length on the conversation with Macdonald that I have been to, and on 1338, lines J to M, he accepted correctly that when Macdonald is referring to statements, that would encompass what he described as:

press release statements and the statements that would go to other interested stakeholders.  So, yes –

that is the context of Macdonald’s question.  His response:

My question was not in that context.

The cross‑examiner tries to tie him down to – he is referring, that is, Macdonald is referring to what the cross-examiner calls a press release.  Brown correctly refuses to accept that narrowing and says:

And to statements that you might make to other interested parties - the whole lot.

There is further pressing him on that topic and he adheres to his answer at 1329C, and he is pressed to agree that this conversation with Macdonald is really a conversation about what is going to go into what is described as “the press release”, and he correctly refuses to accept that, and he says:

I would call it a conversation about the substance of the matter –

what I have termed the “essential directors’ duty” issue ‑ ‑ ‑

CRENNAN J:   If you go to 1327 and look at his answer at R, he clearly appreciated the intertwining of being satisfied about the sufficiency of the funding as a public disclosure.

MR GLEESON:   I accept, your Honour, that there is a link and he appreciated a link.  He is coming at the question from – the first order question is, should we do this?  Related to that, there will be public disclosure.  One of the aspects the Court of Appeal correctly came to at paragraph [395] was even if that link was present, a link between the essential decision about sufficiency and then what in due course people might be told, how do you get from that to this being evidence of directors being asked to approve at this meeting the 7.24 am announcement?  That is the step where they said ASIC fell short on the case which they were making.  Your Honours, at 1329 at letter K he says:

Sir, to the best of my recollection, it wasn’t presented at the meeting.

That is, the ASX announcement was not presented at the meeting –

The meeting did discuss the key messages –

That is the point I have just accepted –

the way it was to be handled with the various publics for this . . . had an extremely competent public affairs and public relations department, and a very competent, as I thought at that time, chief executive, and I would have been content for him to be able to put all that together as part of his responsibilities.

That is another theme the Court of Appeal picked up from his evidence and accepted, that he maintained that the actual decision on the content of the various announcements was something left to Mr Macdonald and his team.

GUMMOW J:   Provided the press release would deal with the fundamental question of full funding.  That seems to be what was in Mr Brown’s mind at 1328, letter D.  As Justice Crennan put to you, the two were intertwined.

MR GLEESON:   I am not suggesting they were not intertwined, your Honour.  What I am suggesting is that it is a conversation where the critical matter he is seeking assurance on is the substantive decision and the fact that that is intertwined with messages, which may in turn be communicated, leaves ASIC a significant step short of saying you can infer from this evidence, and this is really the high point of their case in terms of solving this dilemma.  We know from the slides and the board paper that messages were not to be communicated of the type that were in the 7.24 am draft and that went out.  Something happened.  Someone was responsible for that.

CRENNAN J:   It raises again, I think, and I think you are probably coming to it, what is the precise meaning of paragraph (b) of the resolution as minuted?

MR GLEESON:   Thank you, your Honour.  The meaning which ASIC has attributed to it throughout the entire case is that the directors authorised and directed the 7.24 am announcement to be sent to the market, not that they said, we have been looking at a document which in principle appears to reflect appropriate messages which balance a decision we are making and we now leave to management and Allens to turn out the final document.  The case has always been fought on the basis that the meaning they attribute to it is directors approved and required that document to go.  Your Honours might say to me that seems a little artificial, it seems a little narrow, but that is exactly what was the case.  It was not a case about directors approving messages. 

I mentioned yesterday that when there was an attempt possibly to broaden the case, there was objection by the counsel for my clients.  Your Honours will see that in Mr Brown’s cross‑examination itself.  It occurred at pages 1348 through to 1349.  The question which provoked Mr Bathurst to rise was at the foot of page 1347 where at this point the 7.24 am announcement is being put in front of Mr Brown, him having said it is not my recollection that I saw it or approved it at the meeting.  What he is asked to agree to is that the terms: 

That is, I want to suggest to you, the terms of what I indicated to you and you agreed was one of the key messages spoken to at the meeting? 

So there is an attempt to say, well, because messages are being conveyed, we can draw a bridge from that to a particular document being before the meeting and approved.  The objection was raised at 1348, S that Mr Bannon was:

not entitled to make an alternative case that rather than the document being tabled and voted on, there was discussion similar or equivalent to what was said on the press release. 

The objection was taken in clear terms at 1349, H that silence was not any form of acquiescence to a broader case.  Your Honours will know that no application to amend to raise a broader case was made.  There are a couple of other aspects of Mr Brown I need to go to.  One which is of importance, and it picks up your Honour Justice Gummow’s question about was there a message being discussed about full funding.  What I will show is that what Mr Brown agreed was being discussed was this, sufficiency of funding in accordance with the actuarial estimate. 

FRENCH CJ:   You say that on ASIC’s pleaded case it had to prove tabling of the draft ASX announcement, a vote on a resolution and the passing of that resolution in terms of what appeared subsequently in the minutes?

MR GLEESON:   Yes, being to send that document to the ASX, which we know the very thing did not occur.

FRENCH CJ:   That did not occur, but that would not be critical to their case as ‑ ‑ ‑

MR GLEESON:   No, would not be critical to their case, but it would be and it is a relevant factor to consider.  If that is what has happened, if everyone has observed that, why do they then set about the process of turning what they all knew was a document that was not fit for final decision into a proper form. 

BELL J:   Can I just clarify one matter arising out of the Chief Justice’s question.  I understood you yesterday to accept that the resolution might have been passed by the informal mechanism that was always adopted by this board, that is, without a formal vote.  That is so, is it not?

MR GLEESON:   There is evidence of informality, but it still had to get to the point of the chair saying in a manner that everyone knows what they are considering are we all happy with that, and the “that” has to be pretty clear and the “that” in the ASIC’s case is the 7.24 am announcement is to go as the company’s statement to the market.  That is the point where I am ‑ ‑ ‑

BELL J:   I understand that.  I just wanted to clarify ‑ ‑ ‑

MR GLEESON:   It does not have to be by a formal tabling of votes, but it has to be assent to a critical matter and that ‑ ‑ ‑

BELL J:   As the minute states.

MR GLEESON:   Exactly as the minute states.  Your Honour Justice Crennan raised with me, is the minute capable of a softer or perhaps a broader more expansive ambulatory meaning?  We would submit, it is not in terms of how they ran the case, but it is not as a minute and of course we know why that problem emerged.  It is one of the whole problems with the minutes, that whoever drew up that minute before the meeting did it in anticipation of something which might happen without it being a minute drawn up to record what had happened.  Your Honours, can I just complete this other aspect.

HAYNE J:   But was adopted as a record of what had happened.  It was signed as a correct record of what had happened.

MR GLEESON:   Your Honour is asking me about 3 April and if may I will come to that in a moment.

GUMMOW J:   Well, I think you have to start with it actually.  But you pursue your course.

MR GLEESON:   Could I beg to differ with your Honour as firmly as I can?  We submit it would be an error to say one starts with a set of minutes which do not satisfy the statutory presumption under section 251A and which have no status other than a piece of evidence which passes admissibility tests of various sorts that I will deal with, to be considered along with the weight of the other evidence.  To say, “You start facing that”, and then an onus in effect has shifted to you and you will have to work exceptionally hard to disprove the minute, we submit, would be an erroneous way to consider the whole body of evidence that was called in the case and of course the evidence which was available but not called.

GUMMOW J:   I think you may have persuaded the Court of Appeal of this.  One view is that that is the source of the difficulties with their reasoning.

MR GLEESON:   Your Honour, can I complete Brown?

GUMMOW J:   This concentration and themes and so on.

MR GLEESON:   Your Honour, I did attempt yesterday to explain and defend themes as not the only way to do it, perhaps not the most common way of doing it, but when a court is dealing with a volume of material of this character, number one, and number two, an extensive notice of contention from ASIC running a whole lot of arguments the trial judge did not accept the court found it convenient and, we would submit, fair to the parties to treat that as a useful tool to assess all the evidence.  So the matter with Mr Brown that I wish to further deal with is this.  If your Honours could go to page 1322.

HAYNE J:   Which volume?

BELL J:   It is volume 3.

MR GLEESON:   It is black 3.  At the top of page he is being cross‑examined by reference to the slides, and the slides accept there would be an ASX announcement, and his answer was:

ASX announcement and whatever further communications activities were going to go on –

At the foot of the page he is asked:

Q.       And you don’t dispute that there was significant discussion, do you, at this meeting, about the ASX announcement?
A.       Yes, I believe there was significant discussion about the communication of the Foundation to all outside parties.

The “Yes”, we would submit, is to be read in the sense of, yes, in the sense that there was to be significant discussion of the communications to all outside parties.  Then he is asked a few further questions, and the linkage point comes out fairly clearly, which I have accepted, at letter G, that:

market reaction would depend upon our understanding of . . . the substance of [the proposal], and I could rely on the people within the company to reflect that in any news announcement.

So that is his “management will do the job”.  He is then asked:

Q.       You can’t think of any reason why . . . you wouldn’t have asked management for a copy of the announcement, can you?

He gives a fair answer:

A.       To the best of my recollection, sir, the announcement was not provided at the meeting.  What there was was a discussion, if you will, of the key messages that were to be provided to the market.

So this is the discussion of key messages but short of the meeting being provided with and asked to approve a particular announcement.  Now, at 1324 he is asked about the February board paper and whether he thought:

the communications message was unsatisfactory because it did not convey that there would be a certainty of funding – that’s correct?
A.       I note – yes.

Q.       You had expected from the previous meeting that if the management was going to put up a proposal again – 

there would have to be full funding. 

A.       Yes, sir.

Q.       And, two, that’s the message they would be conveying to the market?
A.       Yes, sir.

Then it is important to read on for the context:

Q.       And yet the board paper you got, which dealt in detail with a communications strategy, didn’t say “fully funded”?
A.       That is correct, and that’s where there was a whole lot of discussion in the board meeting, and that was the focus of the meeting, for the board to be satisfied that the Foundation had sufficient funds to meet its obligations.

Then, in effect, the Browne v Dunn question is put to him.  

you made sure you satisfied yourself precisely what it was that the announcement was going to contain – 

He denies that:

A.       I believe the board discussed the key messages and had some discussion about the approach to individual key stakeholders, but was content to leave the drafting of the press release to management.

Now, this is where the Court of Appeal said that the entirety of his evidence was not addressed in this detail by the trial judge and the trial judge did not take into account the witness said repeatedly that the drafting was to be left to management.  There is some more cross‑examination on the Macdonald conversation that page and the next page.  Then there is 1327 that I have been to.  So that completes the first section of his evidence I wish to go to.  The second is this.  Commencing at 1336 at the foot of the page he is asked whether the:

communication would include an ASX announcement:

And his answer was:

A.       As part of a communication, yes, sir.

Q.       You were satisfied that what was said as to the proposed terms of the communication –

He did not agree with the question in that form.  He said:

A.       I recall a discussion of the general thrust of communications . . . 

Q.       You were satisfied that what was said as to the proposed terms of communication to the market – 

That is the market generally.  It is not about a specific press release –

accorded with what you expected should be said?
A.       I believe so, sir, yes.

Q.       And your expectation was that the message to the market would be that the Foundation was fully funded?
A.       My expectation was that the market – that the message to the market was, in the terms that had been provided to us, sufficiently funded.

And he has pressed on full funding as opposed to sufficient funding and the answer I wanted to draw particular attention to is at the foot of the page:

And may I explain the term “fully funded”?

The concept probably at January but certainly at February, at the top of page 1338, was that the:

actuarial estimate provided sufficient funds.  That’s a longwinded way of expressing something.  I believe that the shorthand way that was developed in that meeting was to say it was fully funded, but fully funded in the context of sufficiently funded to the actuarial estimate –

So another matter the Court of Appeal picked up and paid attention to was that the message which Brown was accepting consistent with what he thought he was approving was sufficient funding to the actuarial estimate relying upon the Trowbridge numbers.  He is then pressed again at letter J:

management indicated what it was proposing to say and the board indicated that it approved of that?

GUMMOW J:   But he had said in his affidavit, had he not, that he had certain assumptions as to the sufficiency of the actuarial estimates and the methodology?

MR GLEESON:   He was wanting confirmation, yes.  That was the critical matter and he was wanting confirmation that the Trowbridge report in its assumption methodology was an appropriate basis upon which the decision could be made and, in turn, the matter could be communicated to the market.  At 1338, K:

I don’t recall the specific terms that management used in describing communications –

but, in principle, accepted the statement.  When I have said there are two high points that ASIC relies upon in the whole of Brown, the first is the Macdonald conversation, and 1338 is the second high point of the ASIC case.  So it is the whole of the section between letter I and letter S.  Having said at letter K he did not recall the specific terms that management used in describing the communications, he is then asked:

Q.       And they indicated that this was what was going to be communicated by various means to the market, including an ASX announcement?
A.       That would have been part of it, I would assume.

So this is why the Court of Appeal says this is not recollection –

Q.       After they had indicated that –

Now, the “that” seems to be that they are going to communicate to the market various messages, including the message at the top of the page, sufficient funding to the actuarial estimate –

it is likely that the board’s approval of that message –

I emphasise the word “message”.  The cross‑examiner is clearly content to frame a question as message –

was summarised, may we take it, by Mr McGregor, in the usual fashion, saying, “Is the board happy with that?” and everybody nodded?
A.       I do not recall, sir, exactly what the ‑ ‑ ‑

Q.       But you wouldn’t dispute that that might have happened in that form?
A.       It could well have happened in that form, yes.

So, treating that as the high point of the case against us, if the Macdonald conversation is to be read as I submit it is, it has these problems in it which the Court of Appeal identified.  The first problem is this is not a man agreeing this occurred.  It is a man agreeing that something was possible.  The second problem, which is more fundamental, is what has been put to him is management propounding messages and McGregor bringing the meeting to a consensus as to whether messages, key messages, will go to the market, not a 7.24 am announcement being put to the meeting. 

Coming back to your Honour Justice Bell’s question earlier this is why I say that the McGregor – “Are we all happy with that?” – is in a sense, at the heart of the case.  What ASIC needed to prove was at this part of the meeting it was tolerably clear to everyone that the “that” is not a message in general, but it is the 7.24 am announcement.  That is the second problem with it.  The third is that the message he is agreeing to is a message of sufficiency according to actuarial estimate, not certainty of sufficiency of funding.  Your Honours, that is critical because the case is that the 7.24 am was misleading because it conveyed certainty of sufficiency of funding. 

What the cross‑examiner never put to Mr Brown was “You were party to an approval of (a) a specific announcement in the 7.24 am terms and (b) an announcement which was to convey to the market certainty of sufficiency of funding”.  Brown would never have agreed to that because he was not acting on that basis.  He was acting on the basis that the actuarial estimate was reliable.

HAYNE J:   What do you make then of the answer at 1329, letters F to H?

MR GLEESON:   Your Honours would read that in the context of letters B to D.  He is being asked about things that are likely and the problem with asking a question in terms of “is something likely to have happened” to a person who said “There are aspects I do not recall, I do not believe occurred” is what exactly are you encompassing in “likely”.  He says at letter C:

I believe Mr Macdonald would have been talking to it as well, but that’s more from a belief of what would be the usual practice rather than an explicit recollection.

He is drawing that distinction.  Then there is the question –

Q.       Would you accept that it is likely that one of the members of management indicated that one of the key messages to be communicated would be that the Foundation will have sufficient funds to meet all legitimate compensation claims . . . 
A.       Yes, sir.

So my answers to your Honour’s questions are these.  Firstly, the problem with “likely” is he is not agreeing it occurred.  Secondly, it is an agreement to a message, a message, not to the 7.24 am announcement.  Thirdly, it is not ‑ ‑ ‑

HAYNE J:   Well, the cross‑examiner is taking the script of the question from the text of the 7.24 am announcement, is he not?

MR GLEESON:   Yes.  What the cross‑examiner is doing at this point, from a witness who said a couple of things (a) “I do not recall”, (b) “I can give some assent to messages being discussed as part of an overall communication strategy”, (c) “In my mind, sufficiency of funding was always tied to the actuarial estimate”, the cross‑examiner is then, with that sort of witness, picking out lines from the press release and saying, “Well, do you recall a message like that being discussed?”  That is no doubt what he is doing and that is the sort of answers that he gets over the next few pages of the document.  But what that leaves ASIC is considerably short of proof of what is recorded in the minute for the reason I mentioned earlier. 

Could I just indicate some aspects, but not all, of that strategy that then follows?  At 1340 he is asked some questions about certainty and your Honours will note, between letters O to Q:

If, on the other hand, “certainty” means it is absolutely certain that there is no possibility whatsoever that the funds are not enough, are not sufficient . . . I don’t believe that I would ever concur that the company should be implying that.

A number of his answers are simply “I don’t recall” and I will not go through all of them.  At 1342 ASIC would point to the answers between letters O to Q to find an agreement from Mr Brown that:

the levels of assurance that [he] received in the meeting about the sufficiency of funding are stronger than what is implied in –

the slides and that is a matter ASIC can point to and say, well, perhaps it was ramped up a little in the meeting and that might start to provide the bridge between the more cautious statements in the slides and the board paper and what actually happened.  But it still falls short of proof that the board is being asked to approve the 7.24 am announcement.

HAYNE J:   That is the fundamental premise for this branch of your argument is that it was for ASIC to prove that the minute was accurate.

MR GLEESON:   No, your Honour.  The fundamental premise is it was for ASIC to prove the allegation it made, and the allegation was that the directors approved the release of the 7.24 am announcement, of which there were various ways for ASIC to try and prove it.  Could I take your Honours to 1344, where a different tack was tried at letter G:

Q.       What I want to suggest to you is that you were told, by the board paper, that more work was being done . . . on a draft announcement?
A.       We were told that there was more work being done . . . 

Q.       May we take it that you would have expected that management had had enough time between the publication of the board paper and the time of the board meeting to prepare a draft ASX announcement?
A.       I can’t answer that question, sir, because I don’t know exactly what other tasks management had to do in that period.

It was a bold question because we know one thing is perfectly clear, management had not had enough time to do that and the witness was perfectly entitled to give the answer he did, which was completely accurate.  Now, while it is all important, the last part I will go to is page 1354.  The question at the foot of the previous page was:

Q.       I suggest to you if someone indicated in words to the effect of the balance of the document ‑

that is the 7.24 –

you would have had no difficulty –

and he denied that –

A.       Sir, if given the opportunity to read it –

and he appropriately qualified his answer.  It is obviously very difficult –

trying to put my mind as to how I would have viewed it, I may well have raised the question in relation to the third‑last paragraph of the statement on this page, where it talks about “the Foundation will have sufficient funds” –

He made the same comment in relation to another answer.  The ultimate Browne v Dunn question is put at letter I and he denied it at letter L.  At letter T he is asked can he point to any other document which would support those statements?  He says, “No.”  So, your Honours, could I just pull together what we say on the correlation issue by reference to the Court of Appeal’s findings.  At paragraph [387] the trial judge’s findings at [153] to [161] are set out.  At [388] the court correctly notes that the trial judge has not looked at the full context of the evidence.  At the end of [391] they note Mr Brown’s evidence that he was content to leave the drafting of it to management.  The court picks that up at [395] and that is the conclusion on the Macdonald conversation.  At [396] they note correctly that the trial judge had not entirely accurately summarised the cross‑examination.  They deal with the answers in terms of likelihood.  At [401] we submit correctly they identified that the trial judge’s reasoning had four steps to it. 

The second step as to whether he had recall, the court disposed of down to paragraph [408] and pointed out the difficulties in recollection in questions based in likelihood [409].  The third step which is, could the only source for the statements that he agreed to as a matter of possibility have been the draft release, the court examined in detail.  The trial judge never did this.  This was a critical step in the reasoning which was never done.  The court notes that at [413] and the court actually does an analysis of where the various findings of the trial judge, this is [418], can be sourced to the slides and the only two that cannot be sourced to the slides you see in [419] are two matters that are irrelevant to the misleading nature of the press release and accordingly, the court said the correlation was very weak [420].  At [421] it was rather artificial.  The conclusion at [421] is important.  Even if there was:

acceptance by the board that a strong assurance of sufficiency of funding should be given does not satisfy the pleaded case –

That is where, coming back to the question of your Honour Justice Kiefel yesterday, this analysis of what ASIC alleged and what they failed to prove is critical to the Court of Appeal’s reasons.  In relation to Mr Koffel, my other client, the trial judge said he got a little bit from his evidence.  The Court of Appeal analysed correctly in [423] and [424] that Koffel did not make any concessions which supported this analysis.

FRENCH CJ:   Can I just take you back for a moment to the trial judge’s finding in relation to the January meeting, which is recorded at paragraph [91] in the Court of Appeal:

management was sent away to do more work on the separation proposal to ensure sufficient funds were available to meet all present and future asbestos claims”.

That is not actually reflected in the minutes of the January meeting, but does that stand as a finding of fact and therefore a frame of reference for the February meeting?

MR GLEESON:   No, your Honour.  We would submit that is inaccurate in its summary nature.  What we have is the minute which said management were sent away to do more work on funding.  What that work was to be ‑ ‑ ‑

FRENCH CJ:   It is a kind of weasel word.

MR GLEESON:   Yes, your Honour, as to what it would be, that was what they were to come up with.  The various positions of the directors your Honours see paragraph [97].  This is probably a better guide to what management thought they had to accommodate in some way.  Brown had the moral issue and wanted sufficient funds.  Terry, Gillfillan and Koffel at that stage were not committed to a view there had to be more than the net assets.  My other client, Ms Hellicar, was always contemplating funding beyond the net assets up to an actuarial estimate.

So, in a sense, it is a combination of Ms Hellicar’s conceptual idea - increase the funding to the actuarial estimate - together with Mr Brown’s moral concern that you should not be taking a point based on Putt; you should treat it as a group liability, which conceptually perhaps management says, “That is how we come up with the extra $70 million MPV that the company will contribute beyond its, on one view, strict legal liability”.

Your Honours see in that last sentence of [97] that the Trowbridge estimates were in the order of $200 to $300 million variously throughout the period.  I think I may be forgiven for not pushing judicial notice too far to submit that the central problem which emerged after the proposal was that when estimates were redone that figure was found to be many hundreds of millions of dollars short.  When KPMG came in and looked at it they came up with a conservative figure much, much larger and that is why the subsequent events played out over the last 10 years. 

Now, can I move then to the minutes.  Could I start with the statutory provisions which are set out by the trial judge in two places.  Firstly, at paragraph 64, your Honours will see the old provision which practitioners would have been familiar with up until about 1990.  The Companies Code, section 253 worked this way.  The obligation was imposed on the company to cause the minutes of shareholder or director meetings “to be entered, within one month” in the books and the company was to cause them “to be signed” by the chair of that meeting or the next meeting.

Then there were two evidentiary provisions which hung off section 253.  The first was that a minute which was so entered and signed was “prima facie evidence of the proceedings”.  The second which seemed to go further was that “unless the contrary” was proved there were several deeming results: 

(a)the meeting shall be deemed to have been duly held and convened –

Importantly –

(b)all proceedings that are recorded in the minutes as having taken place at the meeting shall be deemed to have duly taken place; and

(c)all appointments . . . shall be deemed to have been validly made.

What we now have from 1990 onwards and relevantly is found at paragraph 54 - the structure starts the same way.  The obligation is upon the company to:

keep minute books in which it records within 1 month:

(a)      proceedings and resolutions of –

relevantly, directors’ meetings.  We observe the obligations on the company.  The obligation is not imposed on the directors by the law itself.  It is a question for each company as to how it goes about meeting that obligation.  In the case of a large company such as James Hardie with a large company secretariat, as a matter of fact the obligation was allocated to management.  It was Mr Macdonald and the secretariat who were responsible to ensure the company met its obligation.

One thing is clear; the company did not comply with its obligation under subsection (1) in this case.  The February minutes were not entered, recorded in the books by 15 March.  Under subsection (2) there is an obligation on the company, again, to ensure that the chair within a reasonable time signs the minutes.  That seems to contemplate that the minutes could be prepared and kept, one might think, conventionally by the company secretary at the meeting observing what has occurred and could be placed in the minute book under subsection (1) within the one‑month period to comply with that obligation and then in terms of when the company must ensure the chair signs them, that is a reasonable time which in the circumstances might be longer than one month, or shorter. 

It follows from that that no obligation by the law is imposed on the individual directors other than this indirect obligation on the chair in respect to the creation and entry and signing of the minutes.  It is an offence under subsection (5A) not to comply with subsection (1) or (2) and in subsection (6) a minute that is so recorded and signed, that is in compliance with subsections (1) and (2), may be received as evidence of a resolution to which it relates unless the contrary is proved.  That provision appears to take a slightly different approach to the earlier section 253 that I have mentioned. 

In the present case, it is now accepted that the conditions for subsection (6) were not engaged.  The trial judge at paragraph [72] drew the conclusion that it followed that the minutes had no special evidentiary value and we submit that was a correct conclusion.  The role of the minutes in the case would be under the ordinary principles of evidence via the Evidence Act where they could have a role either directly as a business record or as part of a chain of evidence in relation to their subsequent adoption.  That is our first submission on the topic of the minutes.

GUMMOW J:   It is an odd construction of the provision, though, because it enables a company by its ineptitude to escape in the operation of 251A.

MR GLEESON:   I would submit it ‑ ‑ ‑

GUMMOW J:   The scheme of the section is people dealing with the company should be able to rely on the minutes, and I imagine there is something in the listing requirements, too, about this which we have not been taken to.

MR GLEESON:   I would agree with part of what your Honour is putting.  Importance is given to minutes being created and entered within a period.  Why?  Presumably, the closer they are brought into existence to the meeting the more reliable they are.  One month is treated as a rough and ready cut‑off point.  If a company has not complied with that ‑ ‑ ‑

GUMMOW J:   The company is too late, why should it have the advantage that flows from it being too late?  Why should it not suffer any consequences that flow from any inaccuracies by reason of its late preparation of minutes so that the outsider still relies on them?

MR GLEESON:   Your Honour, my short answer would be that does not follow.  That would be reading too much into the section.  If one were to go down that path, the obligation is imposed, as I said, on the company.  No obligation imposed on the director.

GUMMOW J:   It is imposed on the company but it is subject to the Criminal Code provisions, is it not?

MR GLEESON:   Were we subject to that, but that is not the issue we are dealing with in terms of alleged contravention here.

FRENCH CJ:   The question, I suppose, of construction would be whether the so-recorded in 251A(6) picks up the within one month in 251A(1).  That was not in contention.

MR GLEESON:   We submit it does and, yes, your Honour, that is not a point that has been raised because ASIC does not seek to reactivate the life of the section, but in order that my answer is complete, the consequence if a company does not comply with a section is it faces the offence provision under subsection (5A), but equally it is viewed in terms of what is really a different subject matter, namely, what prima facie reliability will be given to the minutes?  The approach taken under subsection (6) is if it happens within a month, it is deemed to be sufficiently reliable to be evidence which will shift an evidentiary onus to the party disputing.  If it is outside a month, it does not have that character.

KIEFEL J:   Well, it is conclusive evidence if it is within that period, but would it not be evidence otherwise depending upon its weight and the time at which it was entered in the records?  If it was entered in the records one month and one day, you would still say that it had some evidentiary weight, would it not?

MR GLEESON:   Yes, your Honour, and the source of that would be under the Evidence Act as a business record or as part of a larger piece of evidence of chain of conduct.

HEYDON J:   Or as an admission.

KIEFEL J:   Yes.

MR GLEESON:   As an admission being an example of requiring the minute plus something else to prove the fact.  So we accept that.  Our point is simply that if it is not done within the month, you do not look here and you are thrown back to what Justice Gzell correctly said at paragraph [72], no special evidentiary value, it is a piece of evidence to be considered along with the other evidence and its reliability and its weight have to be assessed.

GUMMOW J:   Well, I have to tell you I am not persuaded that is correct at the moment.

KIEFEL J:   But if is evidence in the nature of an admission in a business record, it throws up questions of evidentiary onuses, does it not?  That is what it does.  You have to look at the weight it is given.  This is not a case with purely circumstantial evidence where you assume everything has the same low value and see how it is all added together.  This is a document that has a business record which calls for an explanation, I would have thought.

FRENCH CJ:   Thank you, Mr Bell.  Yes, Mr Wood.  Mr Wood, we will sit until 4.30.

MR WOOD:   If your Honours please.  I will of course not trespass upon any area covered by my learned friends and I propose to address four topics briefly going to the reliability of the minutes as an accurate record of what occurred on 15 February and one topic separately which is what your Honours can and should make of the confirmation of the accuracy of the minutes at the 3 April meeting.

Your Honours have been taken to paragraph [240] in the Court of Appeal judgment dealing with the informal way in which meetings were conducted at James Hardie and the trial judge’s finding about that.  What your Honours have not been taken to is two illustrative aspects of the evidence upon which that finding was built, and may I invite your Honours to go first to volume 9 in the blue books, to Mr McGregor’s statement, which he gave to the Jackson inquiry, remembering Mr McGregor had died by the time of our trial, he being the chairman of James Hardie, and he described in paragraph 20 at page 4202 the way in which he conducted the meetings.

Your Honours will see that at the bottom against letter V on page 4202 going over to 4203.  So you have a presentation by a management of a paper or a proposal, a discussion and normally a consensus develops which is then expressed by the chairman.  To see that in operation at the meeting of 15 February, may I take your Honours to Mr Willcox’s statement which is in volume 12 of the blue book, page 5543, and it is paragraphs 98 through to 100.  What your Honours will see in 98 is agreement by Mr Willcox with the general statement of the way in which board meetings were conducted and then Mr Willcox descends into what occurred at the meeting of 15 February so far as the separation proposal was concerned.

This approach to the conduct of meetings is uncontentious because there are concurrent findings of fact that way, but also we have put in footnote 150 the evidence, references of Sir Lou Edwards, Mr Morley, Mr Brown, Mr Gillfillan and Ms Hellicar to the same effect.  May I take your Honours to that depth of the material to make this observation.  In the eight pages of the signed minutes of the 15 February meeting one has 22 resolutions.  Those resolutions descend from matters of generality to matters of intricate legal complexity.  If the approach that Mr McGregor expressed as to the conduct of a meeting was the way this meeting was conducted, and indeed that seems common ground, it is passing strange in the absence of some form of road map at the meeting for 22 resolutions, as recorded in those minutes, of that kind to have been passed.

The Court of Appeal noticed the argument about this at paragraph [488], and I will not take your Honours to it, but that was a part of the path to their conclusions about the hesitancy with which one should treat the minutes as an accurate record.  The second general observation that permeates the reliability of the minutes as an accurate record can be found, most conveniently I think, if your Honours would be good enough to go to volume 2 of the green book, at page 244 – sorry, I have given the wrong reference – 244 is the annotated ASIC version. 

What your Honours would notice throughout those pages is that there are references on 15 separate occasions to the tabling of documents at this meeting.  Mr Willcox, Mr Koffel and Ms Hellicar said with the exception of two documents the entries in the minutes relating to the tabling of those documents are incorrect.  The two exceptions were Mr Allsop’s advice and the cash flow model. 

Now, I will not take your Honours to the evidentiary references, other than to identify that we have in paragraph 30(o) at green volume 2, 505 to 506, identified precisely that evidence.  But there is something more important about this topic, and that is that evidence is supported by the joint company secretary, Mr Donald Cameron’s evidence.  Your Honours know that Mr Shafron was one of the secretaries and Mr Cameron was another.  Mr Cameron gave evidence, to which I should direct your Honours, as to the systems that were in place at James Hardie to capture documents presented to, tabled at meetings of directors over the relevant period of time. 

Your Honours will find Mr Cameron’s outline of evidence in volume 12 of the blue book and, relevantly, the first reference is at page 5231.  In paragraph 12, Mr Cameron tells us that after about some period well before the 2001 meeting, he ceased to go and attend board meetings.  Mr Shafron performed that role.  Against letter Q down to R, he tells us what occurred in terms of being provided by Mr Shafron with copies of documents and presentations that had been tabled at the board meetings.  It was his role then to file them in chronological order in a filing system at James Hardie.

Then we know from paragraph 30, if I could take your Honours over to page 5238, that the particular document management system that addressed board papers, management accounts, board meetings and documents that were tabled at board meetings was set out in that paragraph 30 and it goes over to the top of the next page.  Then minutes ultimately are kept as well.  So one has a comprehensive system of record keeping so that one knows what was in board packs, at board meetings, tabled at board meetings and the minutes.

Then if I can take your Honours over to paragraph 149, which appears at page 5283 at letter O, he addresses the board meeting of 15 February and he states in paragraph 149 he did not attend, but then identifies the minutes and identifies Mr McGregor’s signature upon them.  Then what is interesting and relevant to us occurs in paragraphs 150 and 151 and, indeed, 152.  This can be seen and should be seen as the implementation of the system in place to capture documents tabled at the board meeting.  So what he tells us in paragraph 151 is he received from Mr Shafron, consistent with the practice referred to earlier in paragraph 12, two documents initially.

The first one under bullet point No 2 is Mr Allsop’s opinion and bullet point No 3 is the cash flow model and bullet point No 4, the bottom one, is the Grant Samuel draft valuation, which your Honours will recall was a valuation of the subsidiaries, and he then says he either filed them or got his secretary to file them.  Now, what is more revealing, perhaps if your Honours can keep that page open and be good enough to go to volume 5 of the blue book, you will see Mr Allsop’s advice that is referred to in paragraph 151.  Your Honours will find that at page 2177. 

In the top right‑hand corner of 2177 you will see in handwriting that Mr Cameron has identified as that of Mr Shafron “Tabled and discussed Bd 15/02/01”.  Similarly with the cash flow model, which your Honours will find over at 2311, again in Mr Shafron’s handwriting – this is the first page of four pages of the cash flow model, it is the assumption sheet.  Your Honours will see at the top “Bd 15 Feb ’01 (Phillip Morley presented)”.

I can tell your Honours that the Grant Samuel report appears at page 2315, that is the first page of it.  It does not carry any notation of that kind.  That suggests that the evidence given by Mr Willcox and Ms Hellicar and Mr Koffel about what was tabled at the meeting could well be correct.  But more importantly it tells us that ‑ ‑ ‑

HEYDON J:   How could Mr Koffel’s opinions on that subject or evidence on that subject be helpful in view of the fact he was not in Sydney.

MR WOOD:   True.  I accept that immediately, but he would at least be able to hear what is said to be tabled, said to be distributed and said to be discussed, but it has that limitation which I readily accept.  But I am not seeking to reinforce the evidence directly of Mr Willcox or Ms Hellicar, but rather to highlight the question, what happened to the other 12 or 13 documents said to be tabled at this meeting as recorded in the minutes?

BELL J:   Was there some evidence from Mr Cameron respecting why a copy of the ASX release would not form part of the board papers?

MR WOOD:   Yes, that is right.  Your Honour is referring to the evidence referred to by the Court of Appeal in paragraphs [378] to [379].  Your Honour highlights what is now seen by the Court of Appeal to be an unsuccessful cross‑examination by me to talk Mr Cameron into the dogmatic position that if a draft ASX announcement had been passed by the meeting, his system would have captured such a document.  He resisted on the Court of Appeal’s interpretation of that evidence, which your Honours will see the discussion of that his system worked that way.

So that would have been a short way home.  I have a rather longer way home by highlighting the question of whether the minutes could be seen in the light of objective evidence such as this and direct evidence of three of the directors as accurately recording the tabling of 13 of the 15 documents. 

May I then go to the third topic dealing with reliability of the minutes to address a matter that your Honour Justice Hayne has mentioned more than once and ASIC have made something of in what they call proposition 3.3.3 of their outline propositions and that is that changes in the sixth draft of the minutes, which your Honours will remember was sent by Mr Shafron to Mr Macdonald on 21 March, being the first version after the 15 February meeting, actually reflected what happened at the board meeting on 15 February. 

Your Honour Justice Hayne expressed particular interest in or reliance upon the changes so far as it related to the about turn.  We say when one looks a little bit more closely at the changes effected between the fifth draft and the sixth draft, and there are six that relate to the creation of the foundation, the true result is a lack of support for the idea that those changes reflect what happened at the meeting.  Rather, they suggest the opposite.

Can I seek to make that good in this way.  One needs for this purpose, because some are additions and some are deletions, to have both the fifth draft which turned up on 15 February at 8.05, shortly before the board meeting, and your Honours will find that in volume 5 commencing at 2103, and one will need to compare that with the sixth draft which emerged on 21 March, some five weeks after the meeting, which your Honours will find volume 6 at 2674, or perhaps 2672 is where it starts, and the timing of it your Honours can see at 2671.  If I can identify the first change that was made after the meeting by reference to volume 5, 2104, if your Honours would go to letter P, your Honours will see in that draft the payments to be made under the indemnity to the subsidiaries by the parent company was expressed to be “$[100] million” over a period of 42 years.

What the change was made in the sixth draft your Honours will see at page 2674 paid $65 million” expressed then as a net present value.  That same $65 million your Honours will see, if your Honours go to 2107, being in the fifth draft, at letter F there is $100 million, again being net present value of $70 million there and what has been put in the sixth draft at page 2676 is $65 million.  Now, we know without a shadow of a doubt that there was no mention of a present value of this deed of covenant and indemnity at the February meeting.  The cash flow model showed it to be 70, the slides showed it to be 70 – sorry, 72 and the slides showed it to be the same number.  None of them were 65.  Mr Harman was cross‑examined on it.  Mr Morley was cross‑examined on it and everybody agreed there was no mention of 65.  So whoever has changed the fifth to the sixth draft, has changed it in a way that did not follow the actual activities at the meeting.

We have given your Honours the detailed references to the evidence to demonstrate that error in the final minutes, and your Honours will find them at pages 498 to 499 in our paragraphs 30(a) and 30(b), and that is probably the most simply demonstrated error in what occurred between the fifth and sixth drafts, and was perpetuated in the final.  But the perhaps more subtle one and interesting one is the one concerning the power of attorney. 

Your Honours will see in the fifth draft at page 2109 that the attorneys, in contemplation of that resolution, were Messrs Macdonald and Shafron and Ms Marchione, whereas in the sixth draft which your Honours will find at 2679, a Mr Guy Jarvi has appeared.  There is a qualification then put at the end after Mr Jarvi’s appearance and there was subsequently a correction about this in the April meeting.

Your Honour Justice Hayne said this is a good indication that there was a focus upon the events at the meeting in terms of the redrafting and changing of the minutes thereafter.  What is the true position, we would submit respectfully, at the evidentiary level – and I will not take your Honours through this in painful detail – but it is identified in painful detail in our paragraph 30(c) of our submissions that commence at 499 of the green book, and continue on to 501, now what that evidence demonstrates are these facts.

The draft of the fifth minutes identified three attorneys that did not include Mr Jarvi.  The power of attorney that was extant as at the time of the meeting on 15 February did not include Mr Jarvi.  Late in the night of the 15th or early in the morning of the 16th someone has come up with the idea that Mr Jarvi should be included.  On 21 March someone decides – Mr Shafron one would think – to change the draft minutes from the fifth to the sixth version to include Mr Jarvi.  So what has occurred, if this power of attorney had been tabled, is to change the fifth draft which was correct into the sixth draft which was incorrect. 

Then someone has come up with the idea that there has been a problem in relation to the power of attorney because it purports on the face of the draft minutes to not have captured Mr Jarvi, but we know Mr Jarvi actually was one of the attorneys under the power of attorney itself, and we have referred your Honours to where you can find that power of attorney, we had better fix that by way of a notation and a ratification in the February board pack and then there is a notation about the material document at the February board meeting.

Mr Morley was cross‑examined at black 3, 1006 to 1007 about this particular issue, but what upon analysis is revealed there is presumably Mr Shafron in changing the fifth draft to the sixth draft in this topic did not have his eye on the events of the meeting at all, but rather changed from what was possibly true if there was a tabling of the power of attorney to that which was demonstrably untrue.

FRENCH CJ:   That might be a convenient moment, Mr Wood.

MR WOOD:   It would be, thank you, your Honours.

FRENCH CJ:   The Court will adjourn until 10 o’clock tomorrow morning.

AT 4.30 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 27 OCTOBER 2011