Australian Securities and Investments Commission v Hellicar & Ors; Shafron v Australian Securities and Investments Commission
[2011] HCATrans 293
[2011] HCATrans 293
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 TUESDAY, 25 OCTOBER 2011, AT 10.15 AM
Copyright in the High Court of Australia
MR S.J. GAGELER, SC, Solicitor‑General of the Commonwealth of Australia: If the Court pleases, in each matter I appear with MR A.J.L. BANNON, SC, MR R.T. BEECH-JONES, SC and MS S.E. PRITCHARD for the Australian Securities and Investments Commission. (instructed by Clayton Utz Lawyers)
MR J.T. GLEESON, SC: May it please the Court, I appear with MR R.S. HOLLO, SC and MR R.J. HARDCASTLE for the respondents Hellicar, Brown, Koffel and Gillfillan. (instructed by Atanaskovic Hartnell Lawyers)
MR A.S. BELL, SC: If the Court pleases, I appear with MR S.M. NIXON for Mr Terry. (instructed by Blake Dawson Lawyers)
MR P.M. WOOD: May it please the Court, I appear with my learned friend, MR M.S. HENRY, for Mr O’Brien as a respondent to the appeal. (instructed by Arnold Bloch Leibler)
MR T. JUCOVIC, QC: May it please the Court, I appear with my learned friend, MR R.C. SCRUBY, for Mr Willcox. (instructed by Kemp Strang Lawyers)
MR B.W. WALKER, SC: May it please the Court, I appear with my learned friends, MR R.P.L. LANCASTER, SC and MR N.J. OWENS, for Mr Shafron. (instructed by Middletons Lawyers)
FRENCH CJ: Yes, Mr Solicitor.
MR GAGELER: Your Honours, despite ‑ ‑ ‑
FRENCH CJ: I notice by the way there is a summons to amend your – minor amendment to your notice to appeal in the Shafron matter.
MR GAGELER: Yes.
FRENCH CJ: Is that opposed?
MR GAGELER: I believe not, your Honour.
FRENCH CJ: All right, you have leave.
MR GAGELER: Your Honours, despite the volume of the appeal books and the length of the written submissions, the issues in the case are within a quite narrow compass. In presenting the appeal I propose to stray very little outside the materials contained in the green joint appeal book, volume 2, in the white joint appeal book containing the judgment of the Court of Appeal and in volume 2 of the red joint appeal book which contains the judgment of the trial judge.
Within volume 2 of the green joint appeal book at page 244, your Honours see an annotated version of the minutes of a meeting of directors of James Hardie Industries Limited on 15 February 2001. The original, to which your Honours need not turn, is to be found in volume 5 of the blue books at pages 2118 and following. Those minutes were found to have been approved by the same directors other than Mr Willcox at the subsequent meeting of the James Hardie Board on 3 April 2001, and to have been signed by the chairman, Mr McGregor, some time soon after 7 April 2001. Those findings of the trial judge are relevantly at paragraphs 56 and 1193 of the liability judgment.
It was, nevertheless, held by the trial judge in a ruling not challenged on appeal - the ruling appearing in the liability judgment at paragraphs 53 to 79 - that the minutes were deprived of the evidentiary status ordinarily conferred on the minutes of the company by section 251A(6) of the Corporations Act because of the default of the company in entering them in a minute book within the one month period required by section 251A(1). The evidentiary status of the minutes is, nevertheless, at least as a business record under section 69 of the Evidence Act so recognised by the Court of Appeal at paragraph 469 and, in addition, as recognised by the trial judge in paragraphs 1192 through to 1203, they operate as an admission under section 71 of the Evidence Act, at least, in respect of those directors who approved them at the subsequent meeting.
Now, the Court of Appeal in its judgment - your Honours need not turn to it at this stage - at paragraph [791] said that it viewed the accuracy of these minutes with some reserve. Precisely why is revealed in a lengthy discussion of the minutes by the Court of Appeal at paragraphs [463] through to [497] of the judgment. Again, your Honours need not concentrate on any of this detail.
But if one leaves aside some speculation by the Court of Appeal at paragraph [495] about the possible existence of errors not found by the trial judge and not found by the Court of Appeal itself, the errors found in respect of the minutes really come down to two points and these are what were described in the Court of Appeal’s judgment at paragraphs [492] through to [494] as significant inaccuracies.
The two points are these, that on two occasions a figure of $65 million appears when the true figure should be $72 million and there is, at a number of points, an error in the sequencing or, as the Court of Appeal put it, scheduling of the events that occurred. All of the errors catalogued by the trial judge and repeated by the Court of Appeal are noted on the version of the minutes that your Honours have at pages 244 and following of the green book.
GUMMOW J: Did the Court of Appeal, in dealing with these matters you are taking us to at paragraph [490] and so on, say that the minutes should not have been admitted as a business record?
MR GAGELER: No. Indeed they said that they were, of course ‑ ‑ ‑
GUMMOW J: Did they advert to their status as a business record?
MR GAGELER: Yes, they did. They referred to the status of a business record at paragraph [469] and then, indeed, much further in the judgment at paragraph [791]. They said, “Some strength in ASIC’s case lies in the minutes” but then they went on - your Honour is looking at page 146, about line 46 – to make this point about “the accuracy of the minutes” needing to be viewed “with considerable reserve”. What I am doing, merely by way of introduction, is pointing out the extent of the inaccuracy of the minutes.
HAYNE J: When you speak of inaccuracy, does the expression “inaccuracy” proceed from a premise that I thought was denied both by the trial judge and the Court of Appeal, namely, that the meeting proceeded according to forms and solemnities that would see motions proposed, seconded, passed or not? That is, is the notion of inaccuracy one which presupposes a degree of formality that I had understood these meetings did not follow?
MR GAGELER: The inaccuracies found by the trial judge and mentioned by the Court of Appeal I think do not suffer from that defect, your Honour. There are just the two of them. One is the figure of $65 million not matching up to the figure of $72 million which was in the slide before the directors and the other is the sequence in which the events occurred, albeit that they occurred in a relatively informal way, so no, I do not think that is necessarily the case, your Honour. So far as the errors were concerned, and in particular the scheduling errors, there is great force, in our submission, in the point made by the trial judge at page 1220 of ‑ ‑ ‑
FRENCH CJ: Paragraph 1220.
MR GAGELER: Sorry, paragraph 1220, and paraphrasing what he there said, the point is that to say that the minutes recorded events in a different sequence from the way in which the events unfolded, or some of the events, is qualitatively different from saying that the minutes recorded events that did not occur at all. If one then looks at the minutes, your Honours will note at page 244 that those who were present are recorded, including those two directors who participated by telephone. Those in attendance are also recorded, and those in attendance for part of the meeting – the relevant part of the meeting – are also recorded. They include Mr Baxter and Mr Harman, both of whom were called by and gave evidence for ASIC. They included Mr Cameron, who was deceased at the time of the hearing. They included Mr Robb, who will be the focus of much attention before your Honours, and they included Mr Sweetman and Mr Wilson. If one turns to page 250, at the bottom of the page one sees recorded in the minutes:
ASX Announcement
The Chairman tabled an announcement to the ASX, whereby the Company explains the effect of the resolutions passed at this meeting and the terms of the Foundation (ASX Announcement).
Resolved that:
(a)the Company approve the ASX Announcement, and
(b)the ASX Announcement be executed by the Company and sent to the ASX.
As the Court of Appeal said at page 496 of the judgment, that appears as fairly prominent, even on a scan of the minutes.
FRENCH CJ: Does that mean that rather than relying upon the minutes themselves as evidence of what occurred at the meeting of 15 December, you are relying upon the directors’ assent to the minutes as evidence of what happened at that meeting?
MR GAGELER: Well, both. The context, your Honours, of the announcement resolution, as is evident from its preamble, is the resolutions are passed at the meeting concerning the creation of the foundation. Those resolutions are recorded from the bottom of page 245 onwards, the critical resolution being at the top of page 247, where it was resolved that – and then there is something of a preamble:
The Board considers that it is in the best interests of the Company to effect the Coy and Jsekarb Separation –
The steps involved in the Coy and Jsekarb separation are the steps that appear from the bottom of page 245 through to about the middle of the page on 246, those steps (a) through to (f). That decision to effect the Coy and Jsekarb separation fits in an historical context where, to use the language of the Court of Appeal at page 820 of the judgment:
The board had long been considering separation, and the directors were well aware of the importance of sufficiency of funding and its communication to stakeholders in relation to the separation proposal.
That long history is sufficiently captured in the recount of events in the judgment of the Court of Appeal commencing at paragraph [52], page 15 of the white book, and is captured, for relevant purposes, in what is said at paragraph [60] where it is recorded with approval that the trial judge referred to:
“a continuous flow of communications strategies papers in the board packs that highlighted the importance of market and stakeholder perception”. He said . . .
[397] that there was significant public and market interest, especially from asbestos sufferers and those who represented them, in any communications concerning the adequacy of funding made available for Asbestos Claims. The material advised that a successful communications strategy was essential to the achievement of any separation and central to that was the need to convince stakeholders that there were sufficient assets available to meet Asbestos Claims.
The more immediate temporal context for the meeting on 15 February 2001 was the outcome of the meeting on 17 January 2001, that outcome being recorded by the Court of Appeal in paragraph [91] and following, page 23 of the white book. This was where there was a rejection of what was described as the net assets model, that is, the establishment of the trust simply with the assets of Coy and Jsekarb and without any top up from JHIL. It was recorded by the Court of Appeal at paragraph [91]:
The proposed trust was discussed at the board meeting on 17 January 2001. Mr Baxter gave a presentation on the communications strategy. The judge said succinctly . . . “The board rejected the net assets model . . . and 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”.
There is a discussion in some detail over several more paragraphs but if your Honours then go to paragraph [99], again, as recorded correctly, in our submission, by the Court of Appeal, paragraph [99] second sentence:
Plainly, the adequacy of the funding of the proposed trust was a significant, and rather contentious, matter among the directors. In part this was as a moral issue, but it was also because the net assets model would not be well received by stakeholders . . . But it is clear enough that the reaction of stakeholders was in the directors’ minds. A subsequent draft communications strategy, prepared in early February 2001, included that “[a]t the January Board meeting, Directors raised concerns about whether the communications strategy presented at that time would be able to neutralise potential stakeholder opposition effectively”.
The continuation of those concerns about potential stakeholder opposition, about sufficiency of funding and about the need for an effective communications strategy can be seen as continuing through to the meeting that occurred on 15 February in the board papers for that meeting to which the Court of Appeal refers at paragraphs [103] through to [119], in particular, at paragraph [110], and is also evident in the slide presentation made at the board meeting to which the Court of Appeal refers at paragraphs [168] through to [178] - this is page 37 and following, especially at paragraph [175] – “Slides headed ‘Communication strategy’” and [176] where as correctly recorded by the Court of Appeal:
The contemplation of a ‘news release on the Foundation itself’ in one of these slides was matched in a statement in a later slide, “Provide Foundation specific news releases from both JH and the Foundation as well as detailed briefing notes”.
It is emphasised in the uncontested evidence of Mr Brown set out by the Court of Appeal at paragraph [393], page 81 of the white book. Paragraph [393] extracting part of the evidence‑in‑chief of Mr Brown, Mr Brown said this:
Because the board papers for the February 2001 board meeting did not expressly state that the additional funding for the Foundation would be adequate to satisfy all claims, this question was at the forefront of my mind during the discussion. The oral presentations at the board meeting had made evident management’s view that the funding would be sufficient, and this occurred without prodding by the non-executive directors. However, further to satisfy myself that the funds provided for the Foundation would be sufficient to meet all future claims, I initiated an exchange with Mr Macdonald in words to the following effect.
I SAID:
“Can we be sure that the funds we allocate to the Foundation on the basis of the Trowbridge report are sufficient? Is the Trowbridge report sound and fit for purpose?”
MR MACDONALD SAID -
and this is important:
“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 and it won’t work.”
That is recorded without apparent concern by the Court of Appeal and it was ‑ ‑ ‑
CRENNAN J: Is the timeframe 50 years, that is to say, the long‑tail liabilities, the ‑ ‑ ‑
MR GAGELER: Potentially, your Honour, yes. The trial judge also recorded that statement of Mr Macdonald at paragraph [149] of the liability judgment where he added that it was accepted by Mr Brown as referring to the content of an ASX announcement. That evidence to which his Honour was referring and implicitly accepting your Honours would find in the black book, volume 3, page 1328 at letters H to O. Your Honours need not turn to it. One puts that then with the evidence of Mr Baxter referred to by the Court of Appeal at paragraph [302] that important announcements were “usually considered at Board level” and what you see is an, in our submission, extremely strong context for the case as pleaded by ASIC against the non‑executive directors and against Mr Shafron. Because much is made of the case as pleaded in the Court of Appeal’s judgment and in the submissions put against us, may I mention it briefly?
HAYNE J: Just before you go to the question of pleadings, can I understand the statutory background to the requirement to make announcements. Was there a statutory obligation to make announcements because of the application of 1001A of the then Corporations Law? Is that the statutory root if it or is there some other statutory root to this? Section 1001A of the Law engaged listing rules, listing rule 3, I think, is the relevant listing rule and finding a copy of the listing rule as in force at the time is not easy. I would be glad if the resources of your party could provide it, but is that the statutory chain, Mr Solicitor?
MR GAGELER: That is correct, your Honour, yes.
HAYNE J: That is an obligation on the company?
MR GAGELER: Yes. That is, of course the legal context. There was also the commercial context of the need to have an effective communication strategy, but, yes, your Honour is right about the legal chain.
GUMMOW J: I do not think commercial contexts are divorced from legal contexts and if people think they are they are greatly mistaken.
MR GAGELER: I am sorry, your Honour, I missed that.
GUMMOW J: I do not think commercial contexts and legal contexts are divorced.
MR GAGELER: Certainly not in relation to the listing rules, no.
HAYNE J: Yes, but commerce works on the assumption that the law will be obeyed and that is why the commercial context is informed by and rooted in.
MR GAGELER: Of course.
HAYNE J: Yes.
MR GAGELER: Your Honours, the summary of the pleadings by the Court of Appeal is sufficient for my purposes. That summary occurs at paragraphs [227] to [229] and at paragraphs [797] to [802] in respect of the non‑executive directors and in respect of Mr Shafron at paragraph [874] and in essence the pleaded case was that the ASX announcement referred to in the resolution appearing in the minutes at page 250 of the green book was what is described in the judgments as the 7.24 am draft set out in the judgment of the Court of Appeal at paragraph [208] and that the events recorded in the minutes with respect to that document are events that occurred. If one goes to the detail ‑ ‑ ‑
GUMMOW J: Do you understand as a consequence of the case against your client that – or the case in opposition to your client – that the ASX announcement was made in discharge of an obligation imposed on the company, that the relevant organ of the company, one would have thought, the board, the did not authorise that to happen because the resolution had not been passed? Is that what it seems to come to?
MR GAGELER: Yes. That is what it seems to come down to.
GUMMOW J: The relevant organ, surely, in this sort of matter would be the board.
MR GAGELER: There was never a case run that the board made some other resolution.
CRENNAN J: The contravention is the voting on the resolution.
MR GAGELER: The contravention is the vote on the resolution. The contravention is the voting on the resolution when the directors knew the content of the draft ASX announcement and ought to have known that it was misleading. That is the way it is pleaded. Your Honours see that if you go to paragraph [228] at page 51 of the white book. Paragraph [228] is the beginning of the relevant pleading in respect of the non‑executive directors. Paragraph 55 of the statement of claim – I think it was the fourth further amended statement of claim:
At the February 2001 Board Meeting, McGregor tabled a draft announcement to the ASX . . .
56.The Draft ASX Announcement was in the form attached ‑ ‑ ‑
That is the 7.24 am form. Then paragraph 57, that the directors “voted in favour of a resolution” as recorded in the minutes. Then, if one goes over to paragraph [802], paragraph 119 of the same pleading:
In the premises –
each of the directors –
(a)failed to discharge their duties –
under section 180(1) relevantly, and to (b)(i), by voting – I missed out one step. You go back to paragraph [800], where paragraphs 112 through to 118 of the same pleading are set out, the allegation being that the directors, when they voted, knew or ought to have known that the draft ASX announcement was misleading, essentially because it conveyed certainty that the funds available to the foundation would be sufficient to meet the asbestos claims, and then one gets to the breach as pleaded in paragraph 119, relevantly in respect of the directors other than Mr Gillfillan and Mr Koffel - it is 119(b)(i), “voting” ‑ ‑ ‑
FRENCH CJ: “Ought to have known” and informed by the failure to inquire, what is the referent for the “ought”?
MR GAGELER: Could I put it this way, your Honour, that there is no pleading for it. The “ought to have known” is that the material available to the board, particularly the Trowbridge analysis, ought to have led a director acting reasonably to view a statement that there would be certainty in the funding available to meet asbestos claims as overreaching.
HAYNE J: But the bottom line is that the Court of Appeal’s conclusion is that the court should not be persuaded to the requisite standard that the announcement in fact made by the company to the exchange of market‑sensitive information was authorised by the board?
MR GAGELER: Indeed. That is what it comes down to, and in that respect ‑ ‑ ‑
HAYNE J: But it was because it was market‑sensitive information, I suspect, that there was the obligation to announce, was it not?
MR GAGELER: Yes, that engaged the listing rule ‑ ‑ ‑
HAYNE J: That brought in listing rule 3, et cetera.
MR GAGELER: That is right.
FRENCH CJ: Absent that, JHIL shareholders might have had a particular view of the stability of the share price, the exposure of the company to legislative change or ‑ ‑ ‑
MR GAGELER: Extreme - I have not gone through the detail, your Honour, but the detail of the consideration of the separation proposal over an 18 month or so period, in particular leading up to the February meeting showed extreme sensitivity about the reaction of those referred to as stakeholders, not just shareholders – potential shareholders, governments, and those acting for the potential asbestos claimants, in particular.
Your Honours, the form of the declarations relevantly made by the trial judge usefully set out in the Court of Appeal’s judgment in paragraph [803] and in paragraph [839] in respect of the directors, and your Honours might also note the relevant form of the declaration in respect of Mr Shafron, paragraph [879]. It is declaration (1) there that is relevant to the appeal. If I could ask your Honours to look at the form of the declaration in paragraph [803] which captures the essence of the misleading nature of the draft ASX announcement, that is, in various ways it conveyed certainty when there was no certainty.
If your Honours, in view of the question I have just been asked, turn to the document usefully appearing in the green book at pages 516 to 517, it is a reproduction of the final form of the ASX announcement as announced to the ASX on 16 February marked up to show the changes that occurred from the 7.24 am draft announcement. It is instructive to bear in mind that the final ASX announcement was found by the trial judge to be misleading in all of the same respects as the 7.24 am draft announcement. That finding your Honours would see in the trial judge’s liability judgment at paragraph [637] and that finding formed the basis for declarations – to which your Honours need not turn but which can be found in the red book at pages 925 to 927 – that James Hardie Industries Limited – that is the eleventh defendant, although its name had been changed by the time of the trial – by making and disseminating the final ASX announcement, contravene section 995(2) and section 999 of the Corporations Act.
Looking at the comparison that one sees at pages 516 to 517 and reading it with the formal declaration that your Honours see extracted at paragraph [803] of the judgment, the four respects in which the draft ASX announcement was materially misleading are there set out in paragraphs (i) through to (iv) of subparagraph (a) of the declaration. The first respect, (i), is a reference really to the totality of the document. The second respect, the reference to Mr Macdonald’s belief, is a reference to the third, fourth and fifth paragraphs at page 516. The third respect in which the announcement was misleading, that is the belief of all of the directors, is a reference to those paragraphs plus, in particular, the first paragraph at the top of page 517. The fourth respect, (iv), is a reference to those paragraphs plus the last paragraph on page 516.
Much again is made against us and a little was made in the Court of Appeal about the changes from the draft ASX announcement to the final ASX announcement. There was a change in some of the wording. There was a change in the dollar figure attributed to the assets of the foundation, a change explained in the Court of Appeal’s judgment at paragraph [323] as a change in the discount rate, or brought about a change in the discount rate to be applied to the stream of payments under the deed of company indemnity, but those changes were not material in any way to the message that was conveyed.
The Court of Appeal, interestingly, accepted that if the 7.24 am draft was tabled and if the directors voted to approve the draft, then the trial judge was correct in finding contraventions of section 180(1) by each of the non‑executive directors and also by Mr Shafron in this respect. Those findings of the Court of Appeal your Honours will see at paragraphs [831], [855], and in respect of Mr Shafron, [946]. The Court of Appeal cast doubt on but ultimately did not contradict the findings of the trial judge, which it summarised at paragraphs [241] through to [245], that the 7.24 am draft was tabled at the meeting – I will come back to that in a little detail – but it identified as the problem and, it appears, the whole problem the findings of the trial judge which it summarised then at paragraphs [246] through to [250] that the 7.24 am draft was approved at the meeting. So if one relates that to the minutes, apparently the first part of the minutes were accepted, but the resolution to approve not accepted.
This was the topic of extremely detailed discussion by the Court of Appeal in Part 4 of its judgment that begins at paragraph [219] with the heading “Was the draft ASX announcement approved?” and ends with what is described as the decision from paragraphs [789] through to [796]. If your Honours have been looking at the white book, that is at pages 146 to 147. The beginning of that is that:
We agree that the 7.24 am draft news release was taken by Mr Baxter to the February meeting, but we differ from the judge in two respects important to the remainder of his tabling finding and to the approval finding. The first is the correlation from which he concluded that one or both of Mr Macdonald and Mr Baxter spoke to the draft news release –
I will come to that separately and in due course -
The second is the significance of ASIC’s failure to call Mr Robb.
Now, ASIC’s failure to call Mr Robb is then picked up in paragraph [794] through to [796] and what is said in paragraph [794] in the penultimate sentence is that:
As a matter of fairness . . . Mr Robb should have been called by ASIC.
GUMMOW J: All to give what evidence? Does the Court of Appeal explore that?
MR GAGELER: I will come to that. A call to be allowed to be cross‑examined, it appears, and not much more.
HAYNE J: Cross‑examined about what? Again, one has to come down at some point to what was the evidence expected to be?
MR GAGELER: I will come to what there is about that in a very short time. We go from there – as a matter of fairness, Mr Robb should have been called by ASIC. Then it said at paragraph [795] that:
“should” rather than “could” in the preceding paragraph takes matters beyond Jones v Dunkel . . . The failure to call Mr Robb means more than disinclination to draw inferences favourable to ASIC’s case . . . counts against satisfaction on the balance of probabilities ‑ ‑ ‑
FRENCH CJ: Now, what is your logic by which this works? Is this a kind of punitive discount for unfairness on cogency?
MR GAGELER: Yes, exactly.
KIEFEL J: Directed specifically to the weight to be given to the evidence?
MR GAGELER: Directed specifically to the weight to be given to the existing evidence. Not simply, as a Jones v Dunkel inference would be, allowing for the inference that Mr Robb would not have added anything to ASIC’s case, but this is failing to call Mr Robb, detracts from ASIC’s case, discounts the probity of the evidence that is led in ASIC’s case. That is what is being said. I will show your Honours how we build up to that in a moment, but that is what is being said, and that leads to this conclusion in paragraph [796]:
There was some basis for finding that the draft ASX announcement resolution had been passed ‑
We say it is the natural inference –
Having regard in particular to the failure to call Mr Robb, with consequences for the cogency of ASIC’s case, we do not think ASIC discharged its burden of proof. We are not satisfied that the non‑executive director appellants voted in favour of the draft ASX announcement resolution.
FRENCH CJ: Can I just ask you, before you go further, what evidence of findings were there about the actual process at the meeting? I recall something about votes not being taken and so forth.
MR GAGELER: The trial judge made findings at paragraph 234 in particular – this goes back to a question Justice Hayne asked me somewhat earlier – there was no formal practice.
GUMMOW J: Which paragraph is this?
MR GAGELER: Paragraph 234, page 470 of volume 2 of the red book:
The practice of the board of JHIL was not formally to put a matter ‑ ‑ ‑
FRENCH CJ: That was not a finding which was called into question?
MR GAGELER: No.
KIEFEL J: But in that regard, the Court of Appeal seems to have put quite a lot of emphasis upon the way in which the statement of claim had framed the allegation of the passing of a resolution.
MR GAGELER: Yes. There was a great deal of emphasis on the precise identification of the draft ASX announcement.
KIEFEL J: So anything less than a formal resolution in the way in which the Court of Appeal approached it might not be sufficient. That seems to be what they are saying at paragraph 231. Then one has added to that the uncertainty which the Court of Appeal seems to inject into their consideration of the evidence about that process.
MR GAGELER: As we see it, what the Court of Appeal is perhaps doing is suggesting that the informality with which the board habitually proceeded was itself a factor to be taken into account in assessing what is in the minutes, but it does not appear to us, your Honour, that the Court of Appeal was elevating ASIC’s case to the need to prove a formal resolution.
KIEFEL J: A formal resolution.
FRENCH CJ: So when I put to you earlier the way in which you used the minutes, having regard to the trial judge’s uncontroverted finding as to practice, the minutes are not necessarily evidence of a formal resolution past but an approval.
MR GAGELER: It depends on how you use the word “formal”, your Honour. It is evidence of the directors assenting to ‑ ‑ ‑
FRENCH CJ: It is the assent – yes.
MR GAGELER: Yes, and in that way voting, and the directors being the same directors, apart from Mr Willcox, who were given the minutes recording in a formal way what had happened informally at the earlier meeting, and assented to that formal record at the subsequent meeting.
KIEFEL J: Just to clarify, the Court of Appeal’s approach to the way in which the matter was framed, does that assume importance in their reasoning later about the level of uncertainty of evidence?
MR GAGELER: We do not think so, your Honour.
KIEFEL J: It looks like it was starting out that way but it probably got lost in the ‑ ‑ ‑
MR GAGELER: There are a lot of things that start ‑ ‑ ‑
KIEFEL J: ‑ ‑ ‑ that are not picked up.
MR GAGELER: ‑ ‑ ‑ that do not actually result in a ‑ ‑ ‑
KIEFEL J: It is the strands that are hard to find.
MR GAGELER: Indeed – I do not want to use metaphors – but there are a lot of ideas that are floated as possibilities in the Court of Appeal’s judgment that ultimately do not lead the Court of Appeal to make a firm conclusion that is different from a conclusion of fact made by a trial judge, and that occurs on many occasions. I should have given your Honour the Chief Justice also a reference to paragraph [240] of the Court of Appeal’s judgment where they also deal with the informality of proceedings concerning both the tabling and voting.
CRENNAN J: Is there any suggestion that a consensus at a meeting which results in a resolution somehow does not qualify as a vote in relation to a resolution?
MR GAGELER: I do not believe that argument was put by anyone. I was asked about what Mr Robb’s evidence would potentially have added to the case. Can I deal with that by taking your Honours first to the key documents that bear upon the potential relevance and utility of the evidence of Mr Robb, and then can I take your Honours very briefly through the chronology leading up to ASIC’s decision not to call Mr Robb.
The Court of Appeal seemed to place some emphasis on that being “a conscious decision” – that is the language used at paragraph [673] of the Court of Appeal’s judgment, but, yes, like most decisions, it was a conscious decision, and I will show your Honours how it came about. The key documents are the various versions of the 7.24 am draft and the various versions of the minutes ‑ ‑ ‑
FRENCH CJ: Can I just go forward for a moment to the end point of your argument in relation to the Robb evidence?
MR GAGELER: Yes.
FRENCH CJ: Accepting that you would be successful, for the sake of argument, in relation to the fairness point found against you by the Court of Appeal, what is the consequence of that? It removes some sort of unquantified discount on cogency. You spring back up.
MR GAGELER: We do not have to spring very far. We do not need to spring beyond the face of the minutes as approved by the directors.
FRENCH CJ: That is what you say once you have got to that point.
MR GAGELER: Once you link the reference in the minutes to the particular draft – and I will show your Honours how that occurs – once you do that, then the minutes are sufficient, but there is more than the minutes, of course. There is what the Court of Appeal refers to as the correlation evidence. There is the context.
FRENCH CJ: That is the correlation with the key messages.
MR GAGELER: The key messages, and I will refer to that later. But there is the broader context in which it was obvious and legally necessary and commercially necessary, and those two points are intertwined, for there to be an ASX announcement in respect of this transaction that was being approved at the board meeting.
HAYNE J: But it then is not unimportant, I think, to identify with some care exactly what it is that the Court of Appeal has decided. First it is a decision that the trial judge should not have been persuaded, that the evidence did not satisfy a standard of proof.
MR GAGELER: Yes.
HAYNE J: A standard of proof of what fact? I earlier put to you, and I think you agreed, that the Court of Appeal was not persuaded that the announcement in fact made by the company was authorised by the board. Is that a complete or sufficient understanding of what it is that the Court of Appeal has decided or must it be amplified in some respect?
MR GAGELER: No. What they decided and, really, to go to the way in which they called their own decision appears in the last sentence of paragraph [796] at page 147.
GUMMOW J: There is this “voted”, you see, that Justice Kiefel was taking up with you.
MR GAGELER: Yes, that is right.
CRENNAN J: Paragraph [804], as well. The same theme comes out. The same concentration on voting and a failure on ASIC’s part to prove its case in relation to voting.
MR GAGELER: That is right. That is the point. That seems to be the whole point.
HAYNE J: And not a finding that the directors did not assent to the content of the draft?
MR GAGELER: If it was as simple as that, it is hard to believe that the Court of Appeal would have been so concluding, your Honour. Recognising that they recognised the informality of the procedure of voting, they must be saying that the directors did not at the meeting formally or informally assent.
GUMMOW J: What is the paragraph on informality again?
MR GAGELER: I am sorry, your Honour?
HAYNE J: Paragraph [240].
MR GAGELER: Paragraph [240].
FRENCH CJ: Your pleaded case was on voting, was it not?
MR GAGELER: The vote, yes. Nothing in ASIC’s case turned on the formality or informality of the manner of voting.
BELL J: If one looks at the Court of Appeal’s reasoning for the conclusion expressed in that final sentence in the paragraph to which you last referred, it is about why when one has regard to the board papers to the content of the slides one might conclude that those were documents of a different tenor to the tenor of the draft release.
MR GAGELER: Yes.
BELL J: And, accordingly, by the process of more elaborate reasoning that is set out in the judgment that the directors did not resolve, contrary to the terms of the minutes, in the sense of not assenting to by the informal mechanisms. What I am raising with you, Mr Solicitor, is there is nothing in the reasoning to suggest that this turned on the absence of a vote in the view of the Court of Appeal.
MR GAGELER: Nothing in the view of the Court of Appeal appears to have turned on the informality by which directors gave their assent habitually in meetings of this company, no.
BELL J: Yes.
KIEFEL J: It was rather that it was to be seen as a work in progress, is that the ‑ ‑ ‑
MR GAGELER: Well, I will come to the work in progress ‑ ‑ ‑
KIEFEL J: I should not interrupt you.
MR GAGELER: ‑ ‑ ‑ in due course. But again, that is an idea, an idea, hypothesis that seems to be floated by the Court of Appeal at a number of points. Never said by the Court of Appeal to be on the balance of probabilities what the position actually was at the meeting, never said. Scotched by the trial judge in a passage to which I will come in due course. But again, this is one of the hypotheses floating around but not leading to any firm conclusion on the part of the Court of Appeal. Your Honours, I was about to go to the various versions of the 7.24 am draft. I am not going to do this in any extremely elaborate way.
GUMMOW J: With a view to demonstrating what?
MR GAGELER: Well, I had introduced it by saying that with a view to demonstrating in part the significance of Mr Robb’s evidence.
GUMMOW J: Yes.
MR GAGELER: But I was going to use it a little more than that, your Honours, to demonstrate that it was quite clear, despite some misgivings on the part of the Court of Appeal, quite clear that it was a 7.24 am draft that was circulated, meaning tabled, within the informal processes of this company, at the meeting. But again, this is a conclusion of the trial judge that the tabling occurred, questioned by the Court of Appeal in subtle ways, but the Court of Appeal does not say that the trial judge was wrong, and in the course of demonstrating to your Honours ‑ ‑ ‑
FRENCH CJ: There was a constellation of factors from which the trial judge drew that inference, including the possession of ‑ ‑ ‑
MR GAGELER: Indeed, the Court of Appeal suggests that in two respects the trial judge’s conclusion may have been questionable. What I want to show your Honours is in neither of those respects was it at all questionable and the Court of Appeal was itself mistaken. So I have a number of forensic purposes in doing this and I am not going to take very long about it ‑ ‑ ‑
GUMMOW J: Is it being suggested that Mr Robb would be cross‑examined to falsify the minutes?
MR GAGELER: Apparently.
HAYNE J: Which he had supervised drafting and which I think he had supervised settling.
MR GAGELER: And sent a bill for it, as you would expect.
HAYNE J: He would be cross‑examined to say that, “The minutes which I supervised the preparation of and settling of do not constitute an accurate record of the meeting”?
MR GAGELER: Apparently.
GUMMOW J: Does the Court of Appeal explore that conundrum?
MR GAGELER: Yes, your Honour, more than explore it.
GUMMOW J: To dignify it with that term.
MR GAGELER: Well, a lot more than explore it. They say that is what should have happened.
HAYNE J: A masterpiece of forensic skill.
MR GAGELER: They say that is what should have happened. I was going to come to this in a more orderly way, but can I cut to the chase? If you go to paragraph [758], page 141. I see some of your Honours have a different print. Page 141 of the white book, paragraph [758], we have an identification of the relevant issues apparently that Mr Robb may have given evidence about. First is:
whether the draft new release was tabled . . .
how and in what circumstances Mr Robb and Mr Peter Cameron obtained the copies of the 7.24 am draft news release –
I was going to show your Honours, and I might go back to it, that the Court of Appeal itself accepted that they obtained copies at the meeting. Then –
whether there was any consideration of the content . . .
whether there was a resolution approving the draft news release . . .
whether the minutes accurately recorded the events at the meeting.
They are the topics on which Mr Robb would have given some evidence, says the Court of Appeal, why in the light of the evidence that was adduced ASIC may have been expected to call them. The Court of Appeal comes to, at page 144, paragraph [775], after this discussion of the duty of fairness, and I will just pick up the last bit of the last sentence there, it is said, “if only” it is said:
if only with a view to showing (if it were the case) that he could not in fact recall anything on the factual issues and for cross examination by the appellants –
So that is apparently why he should have been called, to say perhaps that he did not recall anything but, in any event, so that he would be available for cross‑examination by the respondents to the proceeding.
GUMMOW J: It looks as if we link [758] to [796]. When [796] talks about failure to call, you ask yourself, well, about what? The answer seems to be from [758], or their assumption seems to be [758].
MR GAGELER: Yes, but it is – [758], they are the topics, [775], well, because he may have been able to say something about those topics – potentially he might have been able to say something about those topics, he should have been called at least to say that he did not recall but, in any event, so that he could be cross‑examined. Then you get to [796].
BELL J: As far as his recall of the meeting went, ASIC, I think, made available to the parties the draft of the proof and one gets at [664] the contents of that. That is paragraph [664] on page 124.
MR GAGELER: One gets it, but not legitimately for the purposes of this appeal.
BELL J: I see.
MR GAGELER: That statement was – I would rather like it to be before your Honours for the purposes of the appeal, but it cannot legitimately be before your Honours because it was in respect of Mr Terry’s stay application and admitted only for that purpose, and there is no appeal from that.
BELL J: I understand, yes.
HAYNE J: Other than [775], is there any identification of the advantage denied to the defendants, or disadvantage inflicted on the defendants, by reason of ASIC not calling Mr Robb?
MR GAGELER: Only what is suggested to be a procedural disadvantage in paragraph [776] and that is that the point had been reached – and I was going to take your Honours through this in an orderly way – but the point had been reached where Mr Robb had said that he would not co‑operate with the respondents. So they had his statement, they had the existing ASIC subpoena, which ASIC said it would still use to call Mr Robb if they wanted it – they could have also, of course, have subpoenaed him themselves – but they did not have the opportunity, which the Court of Appeals seems to have seen as quite important, to talk to him in advance of putting him in the witness box.
HAYNE J: The reference in [776] in its last two lines to proceedings of this character being determined on what the Court of Appeal describes as “true facts” is an idea that is rooted in what appears at [717], I think, suggesting some modification of adversary procedure in a manner which I think may not be consistent with what Chief Justice Barwick said, apropos of criminal proceedings, at least, in Ratten’s Case - see 131 CLR 510, particularly at 517.
MR GAGELER: Yes, and indeed, your Honours will have seen that we have picked up a similar statement of Justice Dawson ‑ ‑ ‑
CRENNAN J: In Whitehorn v The Queen.
MR GAGELER: Yes.
KIEFEL J: It is by way of saying, then, that unless the court can be confident that there has been a full inquiry that one is necessarily left in a state of uncertainty about the truth of the matter. That seems to be it.
MR GAGELER: That seems to be part of what is being said, but it goes further because the consequences of something less than a full inquiry are a discounting of the cogency of the inquiry that is being made, and that is one of the extremely novel steps taken in the Court of Appeal’s judgment.
FRENCH CJ: The problem is even on a modified adversarial model finding a logical connection between a failure in fairness and a judgment about cogency ‑ ‑ ‑
MR GAGELER: Yes, we do not see it, and the Court of Appeal does not demonstrate it, your Honours.
HAYNE J: In the criminal context the question of failure to call witnesses emerges not under the question of whether the verdict is against the evidence and the weight of the evidence, it emerges under the third ground.
MR GAGELER: Of course, yes.
HAYNE J: On any other ground whatsoever a miscarriage.
MR GAGELER: Indeed.
HAYNE J: But it is very specifically not an evidentiary point.
MR GAGELER: Indeed, and what the Court of Appeal has done in the present case is create a new rule. Your Honours, I will not burden you with the detail that I was going to take you to, but I will go to the reasoning of the Court of Appeal relating to this new rule. It is suggested in some of the submissions that are put against us that all that the Court of Appeal was doing was applying the old case of Blatch v Archer in a particular context.
This is anything but an orthodox application of Blatch v Archer. An orthodox application of Blatch v Archer in a case of a failure to call a witness is Jones v Dunkel. The Jones v Dunkel rule is introduced in Jones v Dunkel and then numerous other cases as an application of Blatch v Archer in precisely that context.
GUMMOW J: Blatch has been discussed from time to time in the Court.
MR GAGELER: Indeed.
GUMMOW J: Maybe most recently in Weissensteiner, a fairly famous criminal case, 178 CLR 217, particularly at 227. It does not seem to bear on what the Court of Appeal is talking about.
MR GAGELER: No, and indeed, there are many other references to Blatch v Archer and I looked at all of them. They seem to be becoming more frequent in the last 10 to 20 years. But none of them take Blatch v Archer outside ‑ ‑ ‑
FRENCH CJ: Blatch v Archer talks about what you expect people to do in an adversarial context.
MR GAGELER: Exactly. It is just a drawing of inferences and Jones v Dunkel is a drawing of a particular inference in circumstances of failure to call a witness and the Jones v Dunkel inference in Australia is that the witness would not have assisted the case of the party failing to call them.
HAYNE J: With the consequence that you may more confidently draw the inferences that are available from the other party and Jones v Dunkel warns, I think quite specifically, against the notion of then engaging in some conjectures or speculations.
MR GAGELER: Absolutely. So the trial judge here – the trial judge was asked to draw a Jones v Dunkel inference and the trial judge refused to draw a Jones v Dunkel inference. That is at paragraphs [1137] to [1143], your Honours need not turn to it. The Court of Appeal did not say that the trial judge was wrong and the Court of Appeal is not itself purporting to apply Jones v Dunkel.
Indeed, on numerous occasions in the course of its reasoning it says the Jones v Dunkel inference does not go far enough, recognises the limits of Jones v Dunkel and says it does not go far enough. That is paragraph [731], paragraph [760] and again at paragraph [795]. If you go to what the Court of Appeal said it was doing here, this is paragraph [705], page 130, what the Court of Appeal says it is doing is creating a new rule:
There is, however, no case in which the failure to call a witness has been held to constitute a breach of the obligation of fairness.
This is the case where it is occurring for the first time. It then goes on and poses in that paragraph, your Honours will see, two questions. The first is:
Can failure to call a witness constitute breach of the obligation of fairness –
It answers that question yes, and I will come to that in a moment –
and was there a breach of the obligation in the particular circumstances of this case?
Answer, yes –
What are the consequences of breach of the obligation if found to exist?
Well, a discounting of the evidence that is otherwise adduced. Can I go to the first question, though:
Can failure to call a witness constitute breach of the obligation of fairness and was there a breach of the obligation [of fairness] in the particular circumstances of this case?
The first part of that question the Court of Appeal addresses at paragraphs [706] through to [728]. This is an interesting agglomeration of rather disparate thoughts. In paragraph [706] there is a reference to the Legal Services Direction and section 55ZF of the Judiciary Act. There is then at paragraphs [707] through to [713] an analogising to criminal procedure.
FRENCH CJ: I am sorry to interrupt, Mr Solicitor, but does this lead to some sort of fallback position “if we did breach an obligation of fairness nevertheless we win because”? I am just wondering where this leads to in terms of the ultimate argument.
MR GAGELER: What I am seeking is to show is that there is no ‑ ‑ ‑
FRENCH CJ: Yes, I know. You are saying there was not a breach, but the primary argument is they misuse the breach ‑ ‑ ‑
MR GAGELER: No, I am a step before that. I am seeking to show that there is no obligation of fairness to call a witness in civil proceedings, that the duty that the Court of Appeal said existed does not exist.
FRENCH CJ: Let us take a worst case scenario. From your point of view, there is such an obligation and you breached it?
MR GAGELER: Yes.
FRENCH CJ: On your argument, what happens then? You simply go back to where you were before? You say that that does not have any impact on the ‑ ‑ ‑
MR GAGELER: That would be a middle ground fallback position, that is, if there were an obligation and we breached it, it could go no higher than Jones v Dunkel. We would make that submission, your Honour. It is not at the forefront of ‑ ‑ ‑
FRENCH CJ: Well, Jones v Dunkel would not matter whether it was unfair or not. It is just an inference to be drawn from the failure to call a particular witness.
MR GAGELER: Exactly, yes.
KIEFEL J: It is interesting, here no one suggested and the Court of Appeal did not suggest that there was the obligation of a prosecutor imposed upon ASIC.
MR GAGELER: No. That is really the oddity of the discussion at paragraph [707] through to paragraph [713].
KIEFEL J: Whereas as if this obligation of fairness actually giving rise to something concrete in terms of proceedings is more easily followed in the criminal sphere because a miscarriage may have led to a new trial.
MR GAGELER: Of course
KIEFEL J: But instead of discussions about procedures leading to a rehearing, the Court of Appeal here is adjusting the evidence to give a fair outcome and that appears to be the process.
MR GAGELER: Exactly, your Honour. It is adjusting the procedural rights of the parties in the course of the litigation, yes.
HAYNE J: According to the evidence that was not given.
KIEFEL J: Yes.
MR GAGELER: Adjusting the evidence that was given according to the evidence that was not given, yes. Adjusting it downwards, yes.
HAYNE J: According to some speculation about what that evidence might have been perhaps or perhaps not.
MR GAGELER: Yes.
KIEFEL J: Adjusting the evidence might be taking it a little higher.
MR GAGELER: No. Well, we do not think so.
KIEFEL J: It expresses a level of uncertainty about where the evidence is left.
MR GAGELER: I will come to what they said. It is discounting the cogency. It is really quite strong what they said. It goes well beyond Jones v Dunkel, but just at the point ‑ ‑ ‑
CRENNAN J: Just to go back a minute, in Whitehorn v The Queen, 152 CLR 657, Justice Dawson referred at 674 to the obligation on a prosecutor to generally call an eyewitness, but the Court of Appeal seems to start this whole reasoning process by putting aside the analogy, but then actually ‑ ‑ ‑
MR GAGELER: Bringing it in again.
CRENNAN J: ‑ ‑ ‑bringing it in again.
MR GAGELER: Exactly. So it precedes this discussion with what it says at paragraph [699]. Paragraph [699] says:
that reasoning by analogy from criminal procedure is . . . liable to lead to error.
Then, almost inexplicably, paragraphs [707] to [713], it reasons by analogy to criminal procedure but incompletely for the reasons that have already been exposed.
HAYNE J: But the completion is found, if at all, in [717], is it not? Is that not the significance of [717]?
MR GAGELER: Yes, that is right.
HAYNE J: That is the closer of the loop.
MR GAGELER: Yes. Paragraphs [714] through to [717] then have a number of very, very broad concepts; there is truth, there is public interest and fair trial. These were all concepts that were brought in an extremely high level by the Court of Appeal. Then that thought is left and then immediately after that, paragraphs [718] through to [727], there is a rather detailed recitation of statutory provisions bearing on ASIC’s constitution, its powers and the conduct of proceedings. Then, at the end of all that, you get to paragraph [728] and this seems to be only drawing together of these rather disparate threads. Paragraph [728]:
The cumulative effect of all these matters is that ASIC cannot be regarded as an ordinary civil litigant when it institutes proceedings. This is so particularly for proceedings of the character before this court. No other person could have brought these proceedings. In partial answer to the first of the questions, whether its failure to call a witness can constitute a breach of the obligation of fairness, in our opinion it can.
What is this? Is this an implication from the statutory scheme? Is it a rule of the common law? Is it a rule of evidence in particular? It is simply not identified by the Court of Appeal.
GUMMOW J: This expression “true facts” which appeared at [776], which is found earlier ‑ ‑ ‑
MR GAGELER: Paragraph [717], so it is the same thought.
GUMMOW J: At [717], the truth, I think, flows from [707], which is the use, unfortunate I think, by Justice Deane in Whitehorn of “the whole truth” which, as we know from what Sir Garfield was pointing out in Ratten, is not the objective of a criminal trial let alone a regulatory procedure like this. But the other judges in Whitehorn did not use this expression “the whole truth”, I think. I do not think you found Justice Dawson ‑ ‑ ‑
CRENNAN J: Well, in particular, I think, Justice Dawson has said something about it is not the truth by any means that is required.
MR GAGELER: That is right. It is the truth as revealed by the processes – the well‑understood processes of the Court. I should just go to the second part of the first question because it answers the question of when the Court of Appeal thinks that according to this duty a witness must be called in proceedings of this nature and that appears at paragraph [766] and [769], almost influentially. In [766] it is said:
In our opinion, ASIC would be expected to call Mr Robb and he would “probably have knowledge” on the issues –
and then [769], last sentence referring to the opinion of the majority, Chief Justice Spigelman and Justice Beazley:
In their opinion, a possibility is not sufficient to require that they be called in the exercise of a duty of fairness on the part of the regulator. What is required is some basis for an inference that there was a significant degree of probability that the witness would have relevant knowledge.
So it appears that this duty arises in respect of any witness or any person where there is a significant degree of probability that the person would have knowledge relevant to an issue and nothing more.
Now, before I come to a more detailed criticism of what is said about the existence of a duty - dealing with the consequences of a duty, which the Court of Appeal poses as the second question at paragraph [705], it deals with the consequences at paragraphs [729] through to [756] and interestingly, it starts with a reference to Blatch v Archer and then mentions but, in effect, bypasses Jones v Dunkel because in Jones v Dunkel the inference is not strong enough and goes straight to putting Blatch v Archer together with Briginshaw and the combination of Blatch v Archer and Briginshaw in a case of a breach of this supposed obligation is to produce the result that the cogency of the evidence that is led is itself discounted. That is the way they put it at paragraph [756]:
The consequence that the case of the party in default suffers in its cogency –
Paragraph [777]:
the failure to call Mr Robb in our view significantly undermines the cogency of ASIC’s case –
and then [795] most strongly and clearly we are going beyond Jones v Dunkel. It is said in the first sentence:
The failure to call Mr Robb means more than disinclination to draw inferences favourable to ASIC’s case.
It “counts against satisfaction” in some positive way, apparently. Then a little further on:
Absence of evidence from Mr Robb . . . tells against achieving the “comfortable satisfaction” –
So, in our submission, not only is there no foundation at common law or in any provision of any statute for an obligation of fairness of the kind found by the Court of Appeal – with or without the consequences found by the Court of Appeal – but, in our submission, the existence of such an obligation is wholly inconsistent with the statutory scheme incompletely recognised, or incompletely mentioned, but incompletely recognised by the Court of Appeal. Critically, it is inconsistent, in our submission, with section 1317L of the Corporations Act and it is inconsistent with section 64 of the Judiciary Act. Can I take your Honours first to the provisions of the Corporations Act ‑ ‑ ‑
GUMMOW J: Section 1317?
MR GAGELER: Section 1317L, but I just wanted to mention a couple of other provisions before I get there. You start with the jurisdiction conferred on a Supreme Court by section 1337B, 1337B(2) in particular, which is in addition to and not in derogation from the jurisdiction that exists in any event under section 39(2) of the Judiciary Act. That is made clear by section 1337A(4) ‑ ‑ ‑
GUMMOW J: In any event, ASIC is the Commonwealth, for the purposes of Chapter III.
MR GAGELER: Yes, important, Edensor establishes that. You then go to Part 9.4B of the Corporations Act, beginning with section 1317E, and the power of a Supreme Court exercising the jurisdiction to which we have referred to “make a declaration of a contravention” of section 180(1), you find in section 1317E(1)(a). You then see in section 1317G, relevantly subsection (1)(a), the power to make a “pecuniary penalty” order. You then turn over to section 1317J, and you find by a combination of subsections (1) and (4) that only ASIC may apply for a declaration of contravention and a pecuniary penalty order.
In that context then, that is, in a context of this statutory scheme which provides for pecuniary penalty orders and provides for the unique role of ASIC in invoking the jurisdiction of the court to seek a civil penalty order, section 1317L and section 1317L says:
The Court must apply the rules of evidence and procedure for civil matters when hearing proceedings for:
(a)a declaration of contravention; or
(b)a pecuniary penalty order.
In our respectful submission, the rules of evidence and civil procedure for civil matters expressed as in section 1317L without qualification, without modification, means the rules applicable in an ordinary suit between ordinary civil litigants, not as modified in some way. If it is necessary for authority to be invoked for such a proposition, it can. If your Honours turn to what was said in this Court in Rich 220 CLR 129 at paragraph 19, section 1317L is set out and it is said:
It follows from s 1317L that the statute itself requires the application of the body of law which has developed in relation to the privileges against penalties and forfeitures, when deciding whether the appellants should be ordered to make discovery of documents in the proceedings.
That is simply a part of the existing body of law that applies in any civil proceedings. In our submission, it equally follows that the statute does not require or permit the modification of the body of law which has developed in relation to civil proceedings. It certainly does not allow for the modification by reference to the status of ASIC which is provided for in the very part of the Corporations Act in which one finds section 1317L, nor by reference to the nature of the proceedings, which is also the context in which one finds 1317L.
The body of law to which section 1317L refers is, of course, the law that is picked up, relevantly, by sections 79 and 80 of the Judiciary Act as control in proceedings in which the Commonwealth, broadly understood, is a party by section 64 of the Judiciary Act and nowhere does the Court of Appeal recognise the significance of those provisions, that is, if you were going to find some rule of procedure applicable to a Commonwealth litigant in civil proceedings, you need to anchor it to the common law, picked up by section 80, to some statute law, picked up by section 79, and you have to relate it to the operation of section 64. Going straight to section 64, the first two steps are completely missed. Nowhere do we find this duty anchored either in statute or in common law in any traditional way, in any event, but if you go to section 64, of course it says that in civil proceedings:
to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same –
as between the litigant and litigant. Section 64 was held in Edensor to be applicable in any proceeding in which ASIC is a party, the reason being that ASIC is the Commonwealth for the purposes of section 75(iii) and therefore for the purposes of section 64. Edensor, your Honours – there is no need to go to it – is 204 CLR 559 at paragraph 43. The consequence of section 64 applying is that it governs procedural as well as substantive rights unless it is excluded by some other Commonwealth statutory provision. Many cases say that, but they are collected usefully by Justice McHugh in Austral Pacific 203 CLR 136 – your Honours need not turn to it – at paragraph 56. Very usefully, by way of illustration and analogy, may I ask your Honours to turn Naismith v McGovern in 90 CLR 336.
GUMMOW J: This is a tax case.
MR GAGELER: This is a tax case. It is interesting. It is a tax prosecution and it is just a very neat illustration of the application of section 64 to somewhat analogous proceedings. This was a case, your Honours will recall, where it was said, well, the Commissioner of Taxation in a tax prosecution could be required to give discovery, and that was one of the consequences of section 64, that the statutory provisions setting up the jurisdiction of this Court to deal with this form of proceeding. You see mentioned at page 339, in the middle of the page, we are concerned with Part VII of the Assessment Act:
Section 222 provides that: “In this Part, ‘taxation prosecution’ means a proceeding by the Crown for the recovery of a pecuniary penalty –
Then there was a section, not wholly dissimilar from section 1317L, that says –
“Every taxation prosecution in the High Court of Australia or the Supreme Court of any State or Territory of the Commonwealth may be commenced prosecuted and proceeded with in accordance with any rules of practice established by the Court for Crown suits in revenue matters or in accordance with the usual practice and procedure of the Court in civil cases or in accordance with the directions of the Court or a Judge”. There are in this Court no rules of practice established by the Court for Crown suits in revenue matters and the present proceeding is being prosecuted in accordance with the usual practice and procedure of the Court –
being this Court –
in civil cases.
Then at page 342, getting to the operation of section 64, it said, in the paragraph at the bottom of the page, third sentence:
The plaintiff represents the Crown in right of the Commonwealth –
and then there is reference to section 64. Across the page, page 343, the third sentence on the page, it is said:
Section 64 of the Judiciary Act provides that: “In any suit to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject”. Section 2 of the Judiciary Act –
It then defines “suit” –
Section 222 of the Assessment Act provides that taxation prosecutions are proceedings by the Crown for the recovery of pecuniary penalties under the Assessment Act. Such prosecutions are original proceedings in this Court. They proceed in accordance with the usual practice and procedure of the Court in civil cases. We can see no reason why s 64 of the Judiciary Act should not apply to such proceedings.
In the same way, your Honours, there is no reason why section 64 of the Judiciary Act should not apply to proceedings for a pecuniary penalty brought by ASIC in circumstances where section 1317L applies and our point is that, as nearly as possible, in section 64 cuts both ways. The Commonwealth as a party in civil proceedings enjoys no procedural advantage by reason of being the Commonwealth, nor does the Commonwealth in civil proceedings suffer any procedural or substantive disadvantage that would not be applicable to a subject or citizen in analogous circumstances.
Now, there is, your Honours might note - or I should draw your Honours’ attention – I should mention Verwayen’s Case in that respect. Verwayen, your Honours will recall, was decided by some judges on the basis of waiver, by some judges on the basis of estoppel but there is a useful reference in Verwayen’s Case 170 CLR 394 at page 486 in the judgment of Justice Gaudron to section 64 of the Judiciary Act operating to put the Commonwealth on the same plane as any other litigant.
There is a modification to the position of a Commonwealth litigant that is brought about under the Judiciary Act that is mentioned by the Court of Appeal but does not have the consequence that the Court of Appeal sought to draw from it in combination with other factors. If your Honours have the Judiciary Act, in 1998 at the same time as the Australian Government Solicitor was established by the insertion of Part VIIIB into this Act, there was inserted a Part VIIIC, sections 55ZF and 55ZG, which permit the Attorney‑General to issue directions called legal services directions about the conduct of Commonwealth legal work.
The Attorney‑General has issued such directions which do require a Commonwealth entity, including ASIC, to behave as a model litigant. I will mention the detail of those in a moment, but the requirement for compliance with those directions and the consequences of non‑compliance are spelt out in section 55ZG. There is an obligation to comply in subsection (1). ASIC falls within subsection (1)(a) - I will not go through the details of that. But subsection (2) says that compliance:
is not enforceable except by, or upon the application of, the Attorney‑General.
55ZG(3) The issue of non‑compliance with a Legal Services Direction may not be raised in any proceeding . . . except by, or on behalf of, the Commonwealth.
That is as distinct from the consequences of non‑compliance, of course, but the issue of non‑compliance may not be raised. The legal services directions we did not provide to the Court, but it is on the list of authorities and I believe that your Honours have it. Relevantly, the obligation to be a model litigant is in clause 4.2 and the content for this purpose of being a model litigant is in annexure B, and the nature of the obligation is spelled out in clause 2 – I should say illustrated in clause 2, rather than being exhaustively defined – and note 2 to clause 2 usefully captures the essence where it says:
In essence, being a model litigant requires that the Commonwealth and it agencies, as parties to litigation, act with complete propriety, fairly and in accordance with the highest professional standards. The expectation that the Commonwealth and its agencies will act as a model litigant has been recognised by the Courts.
So it has. The obligation to act as a model litigant has always been taken extremely seriously by Commonwealth entities before and after the issue of the legal services direction. It is an obligation self imposed to observe the highest standards of propriety, professionalism and fairness within the same procedural rules that govern all. It is not an obligation to fight under some modified rules of engagement. When the Court of Appeal at paragraph [701] of its judgment referred to:
ASIC accepted that it had an obligation to act fairly –
it is clear and it is spelled out in our written submissions in the green book at page 191 that it was the model litigant self‑imposed obligation to which counsel for ASIC was then referring.
There are two sources in the cases of references to government parties being required to act as model litigants. One is a statement of Chief Justice Griffith in Melbourne Steamship v Moorehead and another is a statement of Justice Mahoney in Cantarella. Our learned friends in some of the submissions put against us seek to elevate these statements far beyond the context in which they were uttered.
Melbourne Steamship v Moorehead 15 CLR 333 at 342 - your Honours need not turn to it - Chief Justice Griffith referred to an old‑fashioned almost instinctive standard of fair play that he had always understood government parties to abide by. That was in the context of criticising the Comptroller‑General of Customs represented by Mr Starke for taking a pleading point, and in the context of going on and dealing with the pleading point on its merits.
GUMMOW J: Well, Huddart Parker was a case in federal jurisdiction obviously.
MR GAGELER: Yes.
GUMMOW J: So where is Chief Justice Griffith getting this notion of model litigant from?
MR GAGELER: His experience.
GUMMOW J: It is an attribute of the federal judicial power, is it?
MR GAGELER: No, and it did not influence his own exercise of judicial power in disposing of the case. He said, effectively ‑ ‑ ‑
GUMMOW J: Is it part of the common law picked up by section 80 of the Judiciary Act?
MR GAGELER: No, none of those.
GUMMOW J: I mean, he has to be getting what he said from some textural route because he is in federal jurisdiction.
MR GAGELER: He does not identify any, your Honour.
GUMMOW J: I know.
MR GAGELER: What he is doing is, by way of preamble to dealing with the point that he does not like being taken, saying something about the taking of the point at all, but not in a way that suggests that the point cannot be taken but rather, in his day, it would not have been taken. All I am seeking to say, your Honour, is that there is no doubt that government parties do have an instinctive standard of fair play and do abide by it, but it is not a matter of legal obligation that is drawn from anywhere. Cantarella [1973] 2 NSWLR 366, the passages at 383 to 384, the other source, where there is a sentence in the judgment of Justice Mahoney that refers to “the duty of the Executive” to assist the court to arrive at a proper and just result, there is no doubt that he said that and there is no doubt that at one level that is an entirely proper and true statement, but the context was the formulation of an appropriate declaration in circumstances where there had been a trial on the merits and where the plaintiff had won and the regulatory agency there, the Egg Board, had lost and it was a matter of assisting the court in the framing of the appropriate declaration by reference to the facts as they then existed. It is in appropriate to seek to elevate these sorts ‑ ‑ ‑
GUMMOW J: Notions of the Commonwealth as a model litigant certainly enter into exercise of procedural discretions.
MR GAGELER: Exactly and entirely properly.
GUMMOW J: Judges from time to time get angry with federal litigants when they have not been measuring up to procedural requirements and they do something about it.
MR GAGELER: Entirely properly, yes. Absolutely, yes, and so they should, but that is the only context in which the failure of the Executive or executive agency to behave as a model litigant has a consequence.
GUMMOW J: Now, these matters do not seem to have been put to the Court of Appeal by your opponents in building up this case.
MR GAGELER: No. I beg your pardon, your Honour.
GUMMOW J: In building up the proposition at [713] in the Court of Appeal I am afraid there seems to be a slip in the second sentence, or a slide. Paragraph [712] sets outs various cases on abuse of process, I think. Paragraph [713] talks about Williams, which is such a case, and then talks about “the State” – with a capital S – “enforcing the criminal law” – the next sentence, “with some force when the” – the small S – “state is seeking to enforce the law.” That is the slide which ignores the significance of federal jurisdiction by use of small S state.
MR GAGELER: Entirely.
GUMMOW J: If the words there had been “when the Commonwealth is seeking to enforce”, et cetera, if might have sent some train of thought off.
MR GAGELER: The whole problem with the analysis is that it does not start with an appreciation of the precise form of jurisdiction being exercised.
GUMMOW J: The proposition in the Court of Appeal seems to be a common law notion, whatever this principle is.
MR GAGELER: Quite possibly, your Honour, it is not anchored in the common law in the reasoning of the Court of Appeal, but possibly.
GUMMOW J: It has to come from somewhere.
MR GAGELER: That is part of my point. It has got to come from somewhere. It just cannot come from putting together ‑ ‑ ‑
GUMMOW J: It does not come in a statute. It has to come in the common law and if it comes in the common law, you then say it is not picked up by section 80?
MR GAGELER: That is right. But if it comes from the common law, what is the point of all this recitation of the statutes? I am not going to assent to it ‑ ‑ ‑
GUMMOW J: We cannot sit here in lengthy perplexity, Mr Solicitor.
MR GAGELER: Well, perplexity is part of my argument, your Honour.
GUMMOW J: If there is such a doctrine of common law, why do you say it is not picked up by section 80? Can you encapsulate that?
MR GAGELER: If there is such a doctrine of the common law, it would be picked up by section 80 but for section 64.
CRENNAN J: I suppose it is always put as a subset of the principle of fairness. It is a subset, is that not the way they have put it? That is to say, that is an assumption which you know you can invoke in the context of the principle of legality for argument’s sake. A statute would not need to advert to it, the criminal statute. I am just speculating that perhaps it is to be seen as a subset.
MR GAGELER: Your Honour, I am not going to try to make better a process of analysis that, in my submission, is fundamentally flawed from beginning to end. It might be speculated that it is an analysis that is meant to be anchored in the common law, but then what is the point of the recitation of the statutes? If it is meant to be anchored in the common law, in our submission, there is no common law doctrine that is identified. If a common law doctrine were identified, then it would have no application by reason of the modification of the substantive and procedural rights in federal jurisdiction brought about section 64.
GUMMOW J: The problem starts, I suppose, from the looseness of language at [707] in the first two sentences which have a major premise of a very indeterminate content. It is an idea and it is translated into a basic principle.
MR GAGELER: Yes, it is an aspiration and it is translated into some form of legally enforceable obligation in a way that, in our submission, does not withstand scrutiny. Your Honours, perhaps recognising the difficulties with the Court of Appeal’s justification for the existence of this particular obligation of fairness to call a witness, most of the respondents in their lengthy submissions put an argument which really says, well, you can leave the obligation of fairness identified by the Court of Appeal to one side. What the Court of Appeal did with the evidence of Mr Robb can be justified as an orthodox application of Blatch v Archer and Briginshaw v Briginshaw.
Now, there are a number of responses that one can make to that kind of argument. The first is that the argument itself is really not coherent. Our learned friends really do not leave the obligation of fairness entirely to one side. They say they can but when they come to the application, they do not. You can see that, for example, at page 337 of the green book.
FRENCH CJ: I think Mr Bell says something about a reinforcing effect of the unfairness failure.
MR GAGELER: Yes. It is put in perhaps subtly different ways, but these are the submissions of Mr Shafron which are useful because they summarise, condense and put in a rather succinct way submissions that are put elsewhere. What you see at page 337 you can see in a more elaborate version in other submissions, at page 439 for example, but it is said, top of the page, that:
The Blatch v Archer principle would be engaged in the ordinary event by ASIC’s failure to call a witness if . . .
i.the missing witness would be expected to be called . . .
Then it is said:
That principle was engaged in this case for the reasons set out –
Those reasons in the other submissions are at page 439 and following, but then if you look at how they are summarised:
Mr Robb was the person best placed to give evidence of the crucial events before, during and after the February Meeting. His conduct and state of mind –
Not so. His state of mind is not, nor his conduct –
was of central importance to ASIC’s case.
none of that –
In civil penalty proceedings, with serious consequences for proven breaches –
and here is the duty –
it would be expected that ASIC would call direct evidence available to it, rather than relying on uncertain inferences.
So there you have it, it is just the duty disguised a little ‑ ‑ ‑
HEYDON J: Mr Solicitor, I may be missing something. This proposition in c is the statement of Jones v Dunkel. The Court of Appeal excluded Jones v Dunkel. Is this some sort of notice of contention argument, an argument that the Court of Appeal’s conclusion is to be supported because it erred in rejecting the application of Jones v Dunkel?
MR GAGELER: No. Your Honour has anticipated my next point, and that is our learned friends disavow Jones v Dunkel.
HEYDON J: Well, maybe they do, but they speak with forked tongue because c is Jones v Dunkel. Payne v Parker is a classic Jones v Dunkel exposition.
MR GAGELER: Absolutely. Your Honour, that is my second point. Point one is they do not exclude the duty. Point two is what they are really doing is calling it Blatch v Archer seeking to come up with Jones v Dunkel and Jones v Dunkel was considered by the trial judge and correctly the trial judge said the condition for Jones v Dunkel to apply was not made out. Mr Robb was not in ASIC’s camp. Indeed, Mr Robb, it has to be remembered, was a lawyer for two of the defendants and that is the second complete answer to what is being said.
In this context, your Honours, a number of the respondents seek to draw some comfort from American case law. They say it expounds Blatch v Archer in a relevant context. The US cases in the Jones v Dunkel field have to be approached with great caution, as your Honour Justice Heydon has already noted in a case called HML v The Queen 235 CLR 334 at paragraph 303. They have to be approached with great caution because unlike Jones v Dunkel where the inference is simply in Australia that the witness who is not called would not assist the party not calling, in the United States the inference that is drawn is that the witness would expose an unfavourable fact to that party and the witness is not being called by a party not simply because the witness would not assist, but is not being called because the party fears calling the witness.
You can see that and it is worth just noting that, your Honours, in Wigmore. Your Honours have an extract of Wigmore, the Chadbourn revision. Your Honours also have, I hope, an extract from McCormick, the fifth edition of McCormick. Going first to Wigmore where the standard US position is stated. It is at page 192, the heading “Failure to Produce Evidence”. I suppose the point is captured in the proposition in bold in paragraph 285:
Failure to produce evidence, as indicating unfavourable tenor of evidence . . . The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so; and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party.
Then the italicised words in the first sentence of the next paragraph make the same point. So that more extreme inference is drawn in the United States from a failure to call a witness and what it appears to produce in the United States is a corresponding narrowing of the conditions in which the inference or an inference will be drawn. You can see that narrowing from a Jones v Dunkel position in McCormick. We have given your Honours an extract from the fifth edition from page 407, and it is said, about the middle of the page:
Most of the controversy arises with respect to failure to call a witness.
Then there is a classic statement and then it is said -
The cases fall into two groups. In the first, an adverse inference may be drawn against a party for failure to produce a witness reasonably assumed to favourably disposed to the party.
Favourable disposition is one category.
In the second, the inference may be drawn against a party who has exclusive control over a material witness . . . without regard to any possible favourable disposition –
They are the two really very limited categories in which this extreme inference might be drawn. It is not an inference that is drawn simply from the failure of a government party to call a witness who would be able to give material evidence and I will not take your Honours to it, but that is well illustrated by one of the cases we have put on our supplementary list of authorities, United States v Tavarez. We have given you that because it is really quite recent and we only have a pamphlet copy of it, but it is the United States Court of Appeals For the Seventh Circuit decision in November 2010. The relevant passages, your Honours might note, are at pages 3 and 4, but they illustrate the outworking of the McCormick propositions.
GUMMOW J: Mr Solicitor, could you just look at Whitehorn again for a minute in 152 CLR 657 at page 674, the first paragraph in Justice Dawson’s reasons there:
failure to call witnesses who ought to be called may constitute misconduct and may result in a miscarriage of justice which will constitute a ground for setting aside –
Would it be within the competence of the Commonwealth Parliament to legislate to provide that in Commonwealth prosecutions, there would be no miscarriage of justice in those circumstances?
MR GAGELER: Yes, of course. It is a rule of evidence ‑ ‑ ‑
GUMMOW J: What I am getting to is that perhaps if the Court of Appeal really wanted to develop this doctrine in the federal sphere, they would have to constitutionalise some aspects of due process, I think.
MR GAGELER: To get over the effect of section 64 ‑ ‑ ‑
GUMMOW J: And the effect of these sections in the Corporations Law you took us to.
MR GAGELER: Yes, they would, and they did not. Your Honours, there is only one other topic that I should touch upon ‑ ‑ ‑
GUMMOW J: Because if it was constitutionalised in that way section 80 could not override it because it is subject to Constitution. That is what you have to do, I think.
MR GAGELER: Section 80 and section 64 could not ‑ ‑ ‑
GUMMOW J: As well, yes.
MR GAGELER: Yes, of course.
GUMMOW J: So it would be a big endeavour, I suspect ‑ ‑ ‑
MR GAGELER: Which I would ‑ ‑ ‑
GUMMOW J: ‑ ‑ ‑ which is not undertaken, and not sought to be undertaken ‑ ‑ ‑
MR GAGELER: ‑ ‑ ‑ faced with a section 78B notice and even more people at the Bar table, but your Honour is right. Your Honours, I should say something about the correlation evidence – it is moving on to a different topic. At paragraph ‑ ‑ ‑
HAYNE J: Again, with a view to demonstrating what larger proposition, Mr Solicitor? What is the end point that you are taking us to this evidence for?
MR GAGELER: It was not going to be the evidence. It was just going to be to the judgments. But the Court of Appeal said that there was to be some weight given to the evidence of correlation between the statements Mr Brown said were made at the meeting and the content of the ASX – draft ASX announcement, but they said it was weak. I was about to seek to demonstrate to your Honours that the Court of Appeal wrongly discounted the weight given to that evidence by the trial judge, but it is a bit tedious and if your Honours ‑ ‑ ‑
HAYNE J: We need to know where you are going.
MR GAGELER: That was the only reason for it and I freely admit that it is tedious and I will try not to do it - take too long about it. It is the subject of our detailed submissions in the green book at pages 208 to 213 and again at pages 303 to ‑ ‑ ‑
GUMMOW J: I am not sure I saw in your oral outline reference to paragraph 1193 of Justice Gzell, namely what happened at the board meeting on 3 April with respect to approval of the minutes of 15 February.
MR GAGELER: It may not be in the outline, but I did mention it to your Honour.
GUMMOW J: One view is that what happened at the board meeting on 3 April is of the highest importance.
MR GAGELER: Of course. The subsequent approval of the minutes in circumstances where the final version of the ASX announcement had been given to the ASX on 16 February - it is of the highest importance and that is why we put it in terms of ‑ ‑ ‑
HAYNE J: As the final recording of assent.
MR GAGELER: Yes.
HAYNE J: Recorded in the forms of resolutions.
MR GAGELER: Exactly. In circumstances where Mr Willcox was not a participant in that meeting, but where it was found by the trial judge at 1198 he had received the board papers and it was his “normal practice” to read the minutes through thoroughly.
GUMMOW J: Where is that reference to the ‑ ‑ ‑
MR GAGELER: Paragraph 1198 in the judgment of Justice Gzell. Your Honours should tie that with what is said by his Honour at 1203.
HAYNE J: And tie it to the fact that the April minutes corrected one of the errors that was identified in the February minutes about appointment of an attorney under power.
MR GAGELER: Yes.
HAYNE J: So that correction of one error but not apparently correction of what is now asserted to be erroneous.
MR GAGELER: Yes. Your Honours, on reflection, the detail of what we say about the correlation evidence is not something that would perhaps assist your Honours in going through in addition to what we have put in writing. Can I simply make two points about it. The Court of Appeal criticised the weight given by the trial judge to the correlation evidence on two bases.
One is they said that the word “likely” used by Mr Brown when he said it was “likely” something was said could well have meant possible. They said that at paragraphs [396] to [409]. The other basis upon which they criticised the weight given by the trial judge is they said well, the propositions that Mr Brown assented to as having been “likely” to have been articulated could well have come from either the slides or the presentation – the oral presentation relating to the slides and not from the draft news release.
As to the first of those points when a witness says it is likely that something is said, of course it can mean that it is possible that it was said and, of course, it can mean alternatively it was said, but I cannot remember the precise words. Now, the trial judge who was in a particularly well‑suited position to choose between those two alternatives said, in this case, it meant the latter. There is no reason, consistent with Fox v Percy, for considering in the present case that the trial judge got it wrong.
I will not take your Honours to it, but it is clear enough, if you look at the evidence given by Mr Brown, that the better view, simply on the face of the transcript is he was using the word “likely” in the latter sense. The relevant passages – I will not take your Honours to it – are in the black book at pages 1322 to 1323, 1336 to 1337, 1338 and 1354. In relation to the suggestion that what was said could have come from the slides, or some elaboration of the slides, what that speculation overlooks is the very clear evidence of Mr Brown ‑ ‑ ‑
GUMMOW J: Mr Brown’s counsel was there. There is no re‑examination about this.
MR GAGELER: No, that is right. It was not suggested at the trial ‑ ‑ ‑
GUMMOW J: What looked like a good answer you would leave alone.
MR GAGELER: It was not suggested at the trial and there was no re‑examination and at paragraph 161 the trial judge – this is page 451, volume 2 of the red book – records that in the last sentence of paragraph 161, Mr Brown:
could not point to any document other than the Draft ASX Announcement as the source of the statements as to the messages to be conveyed to the market.
The trial judge was right to give the correlation evidence the weight that he did.
GUMMOW J: Did the Court of Appeal deal with the trial judge’s treatment of the events of the meeting of 3 April?
MR GAGELER: The answer is yes, but in a very elaborate and – it is wrong to say unfocused – but a very elaborate way in the entirety of Chapter 4. In fact, it is broken into elements and I think at no point – I can look perhaps over lunch ‑ ‑ ‑
GUMMOW J: What I am trying to get at is at [796] they say “There was some basis for finding”. Their statement of “some basis”, does that appear to include reference to what the trial judge had used as flowing from the April confirmation of minutes?
MR GAGELER: Yes, and they did say, at ‑ ‑ ‑
CRENNAN J: Paragraph [791].
MR GAGELER: They say at [791]:
Some strength in ASIC’s case lies in the minutes . . . and their adoption at the April meeting –
Yes.
HAYNE J: But apart from [791] and [497] where approval is treated, if you like, as attack on, is there any separate consideration of the significance to be attached to the directors approving of the February minutes?
MR GAGELER: No. To be fair, paragraphs [485], [486] and [487] may go some of the way, but that appears to be the extent of it.
GUMMOW J: That is what ASIC said about it. It has to be discounted in some way in order to reach the conclusions that the Court of Appeal reached.
MR GAGELER: I think it is discounted because of the failure to call Mr Robb. That is how it gets discounted.
HAYNE J: Is it the common ground that Mr Robb was not at the April meeting?
MR GAGELER: It is common ground that Mr Robb was not at the April meeting, yes.
HAYNE J: But Mr Robb had what role, if any, in settling the minutes after the meeting? Did he continue to have a role with the minutes after the February meeting?
MR GAGELER: Yes, he did. The role that he had was that he was – there was a version of the minutes on 21 March – your Honours have seen that – that was sent to Mr Robb on 30 March. There was no change from the 21 March version through to the 3 April version and Mr Robb sent a bill for settling the minutes; it was subsequent to receiving them but before the 3 April meeting. That was the sequence of events. I can give your Honours the detailed references; I will do that immediately after lunch. Subject to that, your Honours, that will complete our submissions in‑chief.
FRENCH CJ: Yes, all right. Thank you, Mr Solicitor. We will adjourn now until 2.15.
AT 12.45 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.15 PM:
FRENCH CJ: Yes, Mr Solicitor.
MR GAGELER: Your Honour Justice Hayne this morning asked about the listing rules. Listing rule 3.1 is in the green book. It is at page 163. It needs to be read with the definitions in rule 19 and we will provide this afternoon the totality of rule 19 and the totality ‑ ‑ ‑
GUMMOW J: What page in the green book?
MR GAGELER: Page 163.
HAYNE J: This is as at the relevant date?
MR GAGELER: Yes. We will provide fuller extracts as at the relevant date and that is being copied as we speak. Your Honour asked me also about the evidence about Mr Robb settling the minutes. It was in part of my outline that I skipped over this morning. The references are relevantly in my outline 3.3.3 through to 3.3.5 and in answering your Honour this morning I got the sequence slightly out of order. What happened was that on 21 March there was the sixth draft, that is blue 6, 2671. On 27 March
there were the board papers sent out, including that draft, that is blue 6, 2686 at 2729. Then on 29 March was the Allens’ bill, blue 7, 2826. Then on 30 March Mr Shafron emailed Mr Robb the same draft minutes, blue 7, 2830. If your Honours please, those are our submissions.
FRENCH CJ: Thank you, Mr Solicitor. Yes, Mr Gleeson.
MR GLEESON: Your Honours will see from our outline that we propose to deal with our submissions in three broad groups. The first is a chronological review of the body of evidence before the Court of Appeal which we submit, irrespective of any drawing of adverse inferences on any principle, entitled the Court of Appeal on a rehearing to find that ASIC had not proved its case to the appropriate standard. That is the main and first matter I will deal with in detail, if I may.
The second topic, which is in the alternative, is proposition nine which is that, to the extent it might be necessary, the decision is supportable by the drawing of an adverse inference arising from the failure to call Mr Robb in particular. We submit that that inference can be drawn under conventional principles, Blatch v Archer, Jones v Dunkel, and does not require any extension of the law. The final topic is that two of my clients were the directors present in the US on the telephone when the meeting occurred and they have a particular additional factual defence to whether they assented to the alleged resolution to pass the ASX announcement.
Your Honours, in the course of the first topic in particular, which is the chronological review of the key body of evidence, I will seek to deal with perhaps five or six matters that came out of your Honours’ questions this morning and also to point out that Mr Gageler has given you an incomplete and inaccurate summary of key pieces of evidence which I will need to correct. Our starting point is, in a sense, uncontroversial, that ASIC’s case was specific in the sense that it involved an allegation that the directors approved the release of a particular announcement in the form of the 7.24 am draft. We observe that the way the case was pleaded and the declarations framed, what was said to be misleading about that draft was that it conveyed certainty of sufficiency of funding.
That is important because your Honour Justice Kiefel asked a question of Mr Gageler as to whether what the Court of Appeal said at paragraph [231] had a role to play in the later judgment where the court was focusing on the specificity of the case. Mr Gageler’s answer was that you can really forget that paragraph because it was a stray thought which was not taken further in the court’s reasons. We differ. What the court identified at paragraph [231] was that ASIC alleged more than a mere discussion in which the directors assented to a message being conveyed as part of an announcement which might be made. The case was more specific in the sense of assenting to a resolution approving the specific draft release.
We submit that throughout the first 600 paragraphs of his judgment the court kept clearly in mind the cases framed and the distinction between the possibility that there was discussion about messages as opposed to the board taking responsibility for the specific announcement. Could I indicate to your Honours at least eight places where that matter was taken up by the court as part of its assessment of the evidence. As your Honours know, the court at paragraph [282] – and this might appear a little unusual, but what the court did was to say we are going to analyse ASIC’s submissions through the prism of eight themes. Your Honours might ask why.
The answer is this, that the appellants challenged the judgment on a whole range of grounds. ASIC had an extensive notice of contention which sought to invoke a whole lot of matters which the trial judge placed no reliance upon. The court correctly, we submit, consistent with how ASIC ran the appeal, identified that these were the key eight themes, as they were called, in which ASIC said it had proved its case to the appropriate standard. With that preface I was going to give your Honour these references to show where paragraph [231] was important in the Court of Appeal’s reasoning.
The first is at paragraph [301] where the court concluded its analysis of the first theme by indicating it would not be enough for ASIC if the directors were discussing messages. ASIC have to prove they approved a particular release and for that reason, amongst others, the court rejected ASIC’s first theme which had been that it was necessary to have a press release in the form it took. The second place, if I could show your Honours, is paragraph [316].
HAYNE J: Sorry, the last proposition you put was?
MR GLEESON: The court rejected the first theme of ASIC’s case, the theme identified at paragraph [282], first bullet point, that it was necessary as part of establishing a foundation to have a press release which included the claim in it of certainty of sufficiency of money.
GUMMOW J: It is not a press release. It is a stock exchange announcement.
MR GLEESON: Stock exchange release, I accept your Honour’s correction.
GUMMOW J: It is a big difference.
HAYNE J: Are you distinguishing between the draft and that which was announced, because the contravention, surely, alleged against your clients was approval of the announcement that was in fact made?
MR GLEESON: No, your Honour.
HAYNE J: No?
MR GLEESON: No.
HAYNE J: Approval of a draft.
MR GLEESON: A draft. The case was, and that is why the Court of Appeal was correct to focus on it, you approved, and we do not take any point about formality or not of expressing assent, you approved the release at the meeting of what is described as the 7.24 am draft and what you did was, as directors, say the company is to send that document to the ASX. That is the case. One of the problems of course ‑ ‑ ‑
HAYNE J: And the fact that it was not sent to the ASX in precisely that form?
MR GLEESON: Is important in the assessment of whether – of whether that in fact occurred in that fashion at the meeting, because one of the matters critical to the Court of Appeal ‑ your Honour may question what I am putting. One of the matters critical was if the proposition is you as directors are being asked to consider and approve that draft, and if that draft has not in fact gone through any of the usual procedures for clearance by Allens, such as Mr Robb, by the whole of management, if the experts referred to in the draft have not given their consents to being referred to, is it likely – is it likely that Mr Baxter and management would have in fact ever asked the board to approve that document. That is one of the strong likelihood reasons why they would not have put the document up for approval by the board because if they did the first question would have been has it been through all the procedures this company requires and Mr Baxter would have had to say no.
FRENCH CJ: Is this linked to the proposition that as an immature document it was not actually among the papers put before the board? Is that necessary to this line of argument?
MR GLEESON: It builds on that argument. We start from what is absolutely common ground, that it is not in the board papers as a document, and secondly, there is no notification in the board papers you will be asked to approve a release which you will be shown at the last minute at the meeting. So that a reasonable director coming to this meeting would not have had knowledge that part of the business to be considered was the approval by the directors of a press release.
HAYNE J: Why? It was the ordinary practice of JHIL that announcements of this magnitude would be passed by the board, is that not right?
MR GLEESON: That is not right, your Honour, and I propose to show that – I propose to show through the material that that is the type of evidence that Mr Baxter sought to give in-chief upon which through cross‑examination his evidence was destroyed and the Court of Appeal recognised his evidence had been destroyed on that topic.
HAYNE J: Do you accept that the company was bound to make the announcement that – an announcement on the subject matter of separation?
MR GLEESON: Yes, under listing rule 3 – yes, under listing rule 3.1.
HAYNE J: And it had to be made the day after the board meeting?
MR GLEESON: It had to be made immediately that the price sensitive information came into existence and therefore on or the day after the meeting, yes.
HAYNE J: And do you say that the board members went to the board meeting not recognising that if they approved of separation that an announcement would have to be made to the exchange that day or the following day?
MR GLEESON: We do not say that, your Honour. There was an awareness that an announcement would be made. The critical step that is missing which is the next step ‑ ‑ ‑
GUMMOW J: Not would be made, had to be made.
MR GLEESON: Had to be made. The critical step – I want to come in a moment to your Honour Justice Gummow’s question this morning to Mr Gageler as to what would be the appropriate organ and can we simply assume the board would be the organ which in the ordinary course would take responsibility for it. So I am conscious of that question, your Honour. I want to come to it just in a moment.
In answering Justice Hayne’s question, what we submit is dealt with in the paragraph I mentioned at [301] was that you cannot, through a necessity proposition, get to a conclusion that the directors had to and must have approved the 7.24 am announcement. Just to complete that theme, as to the other paragraphs where the Court of Appeal at [231] resumed the topic, in [316] under the topic of practice, and I will come to this in detail, the court returned to the possibility which ASIC did not defeat on the balance of probabilities that the document may have been there as a work in progress but no more than that. The third reference is at [336] where, in considering the conduct after the meeting, including the Allens’ changes, the court concluded:
This suggests that making them was thought to be open despite whatever had occurred at the meeting, and thus that whatever had occurred at the meeting was less than the draft ASX announcement resolution.
That is the other aspect of the answer I wish to give your Honour Justice Hayne’s question as to why it is critical the case was about an alleged assent to the particular document at the meeting because the reasoning of the Court of Appeal which seemed to have some substance to it, we would suggest, is this. If, in fact, they had assented at the meeting to that particular document being sent to the exchange, why would Mr Robb and management who had sat there watching such an event occur regard themselves at liberty to start working on the document after the meeting to make the changes which they thought were needed to make sure it was in a proper form? That is a fairly powerful matter, we would submit.
The fourth reference in this chain is at [358] which is to the same effect as what I have just mentioned. The next is at [384]. This was the question whether the fact that Allens produced two versions of it and BIL produced one was of significance and the court reasoned that this topic did not lead to a conclusion that, the second last sentence:
Even if there was a general distribution, it may have been for [other purposes such as] information or discussion –
The court then dealt with correlation in detail, which I will need to come to, and at paragraphs [430] and [432] a similar point was made. So our first point is that when attention is given to the precise case that was made, one sees that the way the Court of Appeal approached it in this respect had substance. Your Honours, our second proposition takes up what could properly be drawn from the events which occurred prior to the meeting in terms of coming to a conclusion as to what probably occurred at the meeting.
The matters that we submit are important are six of them. The first is, and this is common ground, that what occurred in January was the net assets proposal was rejected in favour of further work. There was contention expressed between different directors as to what should be the resolution of the matter and, significantly, the board papers did include a press release but as a work in progress within a large communication strategy which it was management’s responsibility to settle and implement. Could I ask your Honours to go to the January board meeting?
Your Honours, to assist in terms of the evidentiary references since there are a number I wish to go to we have prepared a list of the documents and their references in the appeal book. Justice Hayne raised a question yesterday about that. We have prepared a list of reference to witness evidence that I wish to deal with as part of my submissions and if I could hand those two documents up?
GUMMOW J: Did the Court of Appeal refer to the pendency of the implementation of exposure draft 88.
MR GLEESON: Yes, your Honour, in the early section around paragraph [72], [73].
HAYNE J: Because the board papers for the February meeting had stressed the urgency of the matter in light of ED 88, had they not?
MR GLEESON: We accept that, your Honour.
HAYNE J: It said James Hardie has to act now.
MR GLEESON: One of the matters the directors needed to consider was that if they were to take this course there was an urgency in doing it now. If they did not take it now it may be more difficult or impossible for them to take later.
GUMMOW J: Because?
MR GLEESON: The concern was this, your Honour, that under the US standard of GAAP accounting there might – there was an argument that what might be required to be done was two things. The first is, to bring on to the balance sheet of the subsidiary companies which faced the asbestos claims the actuarial estimate of the full value of the claims over the period Justice Crennan asked about this morning so that you would have to, in effect, recognise an additional liability. That was one concern. The second concern was that contrary to the legal advice being provided by Mr Allsop of Senior Counsel, and Allens, that based upon the decision in Putt JHIL, as the holding company, would not be expected to have a legal liability directly to the injured persons.
GUMMOW J: That is not the full import of Mr Allsop’s advice.
MR GLEESON: No, it is one part of it, your Honour.
GUMMOW J: He said there was a risk that as to the period after 1980 the holding company could be in trouble because it, de facto, was directing what happened through its officers.
MR GLEESON: With respect, your Honour is there referring to his later advice which was provided to those in Sydney in the board meeting on the morning of 15 February but coming back to the question about GAAP, the concern was whether under the American standard, irrespective of strict legal liability, did you need to consolidate into the accounts of the parent company the full actuarial estimate of the claims. If you had to do that the balance sheet of JHIL, as well as the balance sheets of the subsidiaries, would look worse. So, your Honour, I accept that is one of the contextual matters which the board was addressing and also I accept Justice Hayne’s question, did it provide a point to urgency? Yes, it did.
GUMMOW J: The urgency being that next financial year would begin when for this company?
MR GLEESON: The next year would begin on 1 April 2001 which would go through to the end of March 2002, and there was some discussion in the material whether ‑ ‑ ‑
GUMMOW J: Are you sure it is April? It had better be checked.
MR GLEESON: I will check that, your Honour – of whether, if the change occurred, it came in in 2013 or any earlier than that. Your Honours, the matter I wish to go to as the first point ‑ ‑ ‑
GUMMOW J: When were the next quarterly results to come out?
MR GLEESON: The next quarterly results were the results for December 2000 which would have come out on 16 February 2001.
GUMMOW J: Exactly.
MR GLEESON: Your Honours, the paper for the January board meeting is in volume 3 of the blue book commencing at ‑ ‑ ‑
GUMMOW J: So if matters had been resolved in the January meeting, the degree of urgency would not have been so great, but it had become acute by the middle of February, had it not?
MR GLEESON: Not quite, your Honour. I wanted to show your Honour that in the January paper at page 1279, letter U, it was never intended that the January meeting would be a decision meeting.
GUMMOW J: All I am saying to you is if it had been, there would not then have been urgency continuing and the pressure accompanying it in the middle of February.
MR GLEESON: I accept your Honour’s question. Had they accelerated matters ‑ ‑ ‑
GUMMOW J: You have choice but to accept it really. You should try and answer it.
MR GLEESON: What I was putting to your Honour was that what had been propounded in January, as the Court sees at 1279, T to W, was that subject to discussion at the January meeting and further work on a number of issues, a recommendation in relation to the trust may be made at the February meeting. Had they come to a decision in January, what your Honour puts to me is correct. These are the matters that we submit are important in the context from the January board papers.
The first is at page 1294 where the key legal issues as presented to the directors were focusing upon whether it was proper to transfer for nil consideration companies that had substantial net tangible assets and whether a gift for research was proper. Those were the matters that had been discussed with counsel and were the subject of a separate paper. No issue was raised for the board’s consideration of a legal character as to their duties in relation to the issue of a release to the market. The second matter is at page 1297, letter M. The draft press release at this stage was contained as attachment A and the board was told it would continue to be updated as underlying assumptions were firmed up. The draft is at 1307 At 1303, letter T, the board was told:
The creation of the Trust should not create any issues with the ASX. JHIL would comply with the ASX’s continuous disclosure regime, both by providing shareholders with appropriate information on the Trust and its effects and by providing detailed information to the market through the press release and background information distribution. This should satisfy stock exchange requirements.
Our submission is that it was not presented to the Board in the January paper as a document which they would be asked to approve and adopt.
GUMMOW J: At page 1301 – did you take us to that? At letter L there is reference and I think it occurs elsewhere. This:
removal of the asbestos poison pill increases the potential for a takeover of JHIL; and
the separation removes management distraction and allows it to focus on growing the fibre cement business.
What is the poison pill?
MR GLEESON: I would assume that the person writing this thinks that at this stage, given that the subsidiaries are still part of the group and that they have asbestos claims and the difficulties with quantifying and dealing with asbestos claims, people looking to take over the whole company might take a second thought.
HAYNE J: Because you cannot value them, that is where the second thought is.
GUMMOW J: That is the poison, it is not, the long tail?
MR GLEESON: I think that is what the author is suggesting, your Honour. Your Honour, I will come in a moment to our theme that what was presented in February to the board was never that you could make a claim of certainty of sufficiency of funding, amongst other reasons, for the very ones your Honours have just put to me.
GUMMOW J: Is there anything in this paper that you were taking us to that suggests an intractable problem presented by the existence of the long tail and any discrete funding provision in respect of the long tail, as distinct from the necessity of a topping‑up mechanism as the tail got shorter?
MR GLEESON: I think I have not understood your Honour’s question.
GUMMOW J: Is there any reference here to what seems to be an intractable problem in this proposal, which is that the poison pill could never really be got rid of without some continuing obligation to fund the long tail rather than a discrete capped, finished obligation, which would then enable the poison pill to be put away?
MR GLEESON: I think the answer to your Honour’s question is there is something of that character, for instance, page 1295 where there is a discussion of stakeholder issues and possible stakeholder legal responses, including the possibility of legislative response, and the possibility of more claims emerging. It goes over to 1296.
CRENNAN J: I think Attachment B at 1316 and following, which explains exposure draft 88, which I think was expected to be in by March of 2003, deals with the issue of reliable measurement of future claims, long‑tail claims.
MR GLEESON: Yes, your Honour. So one of the things that emerged from the January meeting was a rejection of the model where you would simply transfer for nil consideration which model would have left, subject to legislative or court consideration, assets in the transferred companies less than the then actuarial estimate.
So we accept that one of the issues management was sent away to work on was what can be done to modify that proposal in a way that strikes a balance – and this is our proposition 2(b), a balance between two issues, on the one hand, the parent company, JHIL, contributing money which may be beyond its legal liability in the sense that in general it was advised not to have a liability for the subsidiary companies, subject to the matter your Honour Justice Gummow raised with me. So, on the one hand the directors could not be accused of making a wanton gift, and on the other hand, whether there would be a likelihood or an expectation of sufficient funding in the subsidiaries when they were transferred to the foundation.
I now want to deal with the question your Honour Justice Gummow asked this morning which was was the board the appropriate organ to deal with an announcement of this character and it partly relates to what Justice Hayne asked me about this afternoon. There are two pieces of evidence on that. The first is the disclosure policy for the company which is in volume 1 of the blue book at page 109.
I will show in a moment that this disclosure policy was in force. Two aspects are relevant. Firstly, on page 104 where the policy starts, the policy is specifically designed to enable the company to comply with its obligations under the listing rule in question, listing rule 3.1. Secondly, on page 109, the persons with authority to disclose, who in turn formed a committee, were the chairman on behalf of the board, at the relevant time it is Mr McGregor. The managing director ‑ ‑ ‑
GUMMOW J: What does the phase “on behalf of the Board” mean?
MR GLEESON: That if a statement was to be made which bound, as it were, the board as an organ, Mr McGregor would be the person who would or could speak for them. It means that firstly, your Honour, and it means secondly by reason of the bullet point that follows, because these four persons constitute a committee, to the extent the decision is taken by committee, he would be a representative on the committee to speak for the board. So that the persons there identified are Chairman McGregor, Managing Director Macdonald, General Manager Corporate Affairs Mr Baxter, Company Secretary Mr Donald Cameron, again on behalf of ‑ ‑ ‑
GUMMOW J: The point of paragraph 16 is in the third bullet point, is it not? People lower down the chain are not to disclose information.
MR GLEESON: That is also true. The submission we make from it which, I think, your Honour apprehends is that the procedure put in place is by a disclosure committee and it is a procedure which does not require the board to take responsibility for each and every announcement under listing rule 3.1.
FRENCH CJ: Sorry, are you saying that no disclosure can be made except by a decision of that committee as distinct from the individual officers named?
MR GLEESON: No, I am not saying that, your Honour. All I am saying is that there is a procedure for disclosure in relation to listing rule 3.1 which does not require the board to meet and approve each announcement and there is a good reason for that because announcements have to be given immediately. Could I then come to the February board papers?
GUMMOW J: But what would the information be, the relevant information being spoken of on page 119 in this case?
MR GLEESON: Any information necessary to comply with, inter alia, listing rule 3.1 and in relation to the particular proposal, if that is your Honour’s question, the critical information that would be likely to affect the price would involve the fact of separation, namely, that the legal ownership of the shares in the two subsidiaries ‑ ‑ ‑
GUMMOW J: No. There would not be a fact of separation unless there had been a decision to bring it about. So whose decision provides the information? It is someone’s decision that brings about this information. That will not always be so, but in this case it was a decision that was the information.
MR GLEESON: I accept, your Honour, that the organ to make the decision to effect what is loosely called the separation was the board and I accept that the ASX release would communicate information that such a decision had been made and, indeed, implemented by reason of documents being executed.
HAYNE J: And terms on which separation was to occur were themselves price sensitive information, were they not? Had to be, Mr Gleeson.
MR GLEESON: That would have to be right, your Honour.
FRENCH CJ: You accept that one mechanism by which authority to disclose might be exercised is by a decision of the board to make a disclosure upon which the chairman or the managing director or the company secretary could act?
MR GLEESON: There could be no objection to that occurring. My point is a lesser one, merely that it is not a necessary step under the company’s disclosure policy. The February board papers are found in volume 4 of the blue book commencing at page 1439. The agenda over the page refers, in relation to Project Green item 11, to a paper with Mr Macdonald to report with the assistance of three persons; Morley, Baxter and Shafron, that is management with various skills, Cameron and Robb from Allens to report, one would expect, upon any legal issues arising out of the proposal, Mr Wilson and Mr Sweetman of UBS, who were the financial advisors engaged to advise on the proposal.
The Project Green board paper starts at 1595. On that page we see the essential change in the proposal. At letter M it is presented on a basis that JHIL does not have legal liability for the obligations of the subsidiaries, but an additional sum of $70 million net present value will be paid in return for an indemnity and covenant not to sue. Then at letter R there are two attached papers. The first is a paper on the separation process and the second is a communication strategy which is described as “well developed”, and that is attachment B. At 1597, letter F, the board was being asked to consider coming to a decision at this meeting so that it could be announced together with the third quarter results on the date I mentioned earlier, 16 February. In attachment A, which is the paper on the separation process commencing at 1599 ‑ ‑ ‑
HAYNE J: The reference I had in mind to the quotation “James Hardie needs to act now” is at 1598, letter N, and a reference to ED 88 and that connection.
MR GLEESON: Yes, and there is no doubt that what management, in particular Mr Macdonald, was putting up was this is a good decision, a necessary decision and one you should do now. At 1599, letter S to V, that is essentially as much as the board was told in advance at the meeting were the resolutions they would be asked to consider, to:
1. establish a trust (on terms outlined below);
2. settle $3M on the trust for research purposes –
make the payments and then allow an allotment of shares under the transfer mechanisms. One submission we make is that the board paper did not notify to the directors that one of the resolutions they would be asked to consider is the approval of the release to the ASX. The topic of director duties is considered over the page and the question of corporate benefit is addressed in relation to the proposal and at 1601 various US legal advices were provided. Again we make the submission that no legal issue was identified for the directors’ consideration as to their liability in relation to the issue of a release.
GUMMOW J: Is the Allsop advice referred to there on 1600 the document which appears at 1677, the advice dated 14 February.
MR GLEESON: Yes, your Honour, that is it and it was made available in Sydney on the morning, it would seem, of 15 February. There is a fax header upside down at the bottom, it is dated ‑ ‑ ‑
HAYNE J: But can that be, given that the board papers were circulated much earlier than 14 February?
MR GLEESON: They were circulated approximately 7 February and in terms of 7 February 2001, and the material which we circulated after then and prior to the meeting consisted of these matters, firstly the slideshow that I will come to or the PowerPoint presentation; secondly, Mr Morley’s cash flow model; and, thirdly, it seems that Mr Allsop’s advice was available at the meeting itself in Sydney. One of the points we make was that if there was a genuine plan to have the board go beyond the board paper and approve the terms of a press release, you would expect steps to be taken to bring that document to their attention prior to the meeting so they could give consideration to it.
I then wish to deal with attachment B, which is the communications strategy commencing at page 1607. At 1607N refers to the “work still in progress which forms part of this plan”. The whole plan was a work in progress. Page 1607O is important to our case. What was put to the board was there is a:
central communications conundrum that we will not be able to provide key external stakeholders with any certainty that the funds set aside . . . will be sufficient to meet all future claims.
So what was presented to a director conscientiously reading the board papers was, we cannot either make our decision or present it on the basis that there is certainty of sufficiency of funding. Accordingly, the communications strategy at letter R anticipates there will be questions about sufficiency and insufficiency and there is a strategy designed to deal with those sorts of questions.
Your Honours, all of the document is important, I do not pass over any of it lightly, but for the purpose of the submissions I am seeking to make there is a broad analysis of risks at page 1610 and following as to how various stakeholders, as they are impolitely called, might respond, for instance, at 1613 the Government might be concerned about their risk of financial exposure if there were “insufficient assets to meet future liabilities”. At 1614 J the strategy, which is a communications strategy, which is a much broader creature than the legal obligation to provide a market announcement, involves briefings and other such matters.
Could I then go to page 1618 which we submit is the material provided to the directors in advance as to what types of messages would be conveyed across the entirety of this broad‑ranging strategy. Your Honours see at letter P that, again excusing the poor language through the entire document:
We will hard sell the message –
they are going to sell a message or make a message –
that the value of the assets vested to the Foundation far exceeds that which the JH directors were obligated to provide –
that is the Putt reasoning coming in there –
and explain that the Foundation has a far greater chance of success than other schemes –
At the foot of the page:
We will try to turn the question of uncertainty to our advantage.
This perhaps relates to the matter Justice Crennan raised about long-tail, even if an indirect sense, that this idea seemed to be that as things presently stand there can be no certainty as to what the James Hardie Group will look like in 20 years time. At least if we do this proposal, the assets in those subsidiaries will be irrevocably committed to the charitable trust and therefore they can never be used to meet general liabilities of James Hardie.
I draw attention to the timing and announcement issue discussed at 1619, H and I. There is no doubt the directors were told that an announcement would be made, and that is an announcement on the issue of separation, and it would coincide with the announcement of the third quarter results, and so on, and there is some general description of it being presented as a business story. At letter L they are going to be announced simultaneously at 10.00 am assuming the directors approve it. If your Honours could go over to page 1624, section 3.8 “Work in Progress”:
We are continuing to receive a range of information from our in‑house litigation team. This information is helping to strengthen our case.
. . .
As more of this information comes to hand we will incorporate it into our key messages, Q&A and other documents such as the announcements.
We submit that a person reading this board paper as a director would approach it this way; I am being given information as part of my overall decision whether to support separation upon the strategy which management thinks will be the appropriate communication strategy. It is a work in progress. There will be announcements. We will incorporate information into the announcements as it comes to hand. Nothing on that page or anywhere in this document, we submit, tells a director you will be asked to approve as a board the announcement. Your Honours, there are many other references to there not being absolute certainty of sufficiency of funding. Your Honours see, for instance, on 1625, N, the position of claimants is said to be improved and at R, there is much greater certainty of adequate compensation in the future but not adequate certainty. Then at 1627 ‑ ‑ ‑
GUMMOW J: It means a much greater likelihood, does it not?
MR GLEESON: Yes. Your Honour, bound up in that seem to be two different concepts, I would submit. One is once we vest the assets in the charitable trust we can never have them – never get them back, never use them to meet asbestos claims, so in that sense it is better for claimants. The second is the value of those assets plus the $70‑odd million we are contributing together is expected to meet the likely claims tail, even though that is an almost impossible thing to have any certainty about.
In that sense the claimants have access to net present value of $70 million more than they might otherwise presently have if Putt is correct and applicable. Your Honours, the concept of no certainty follows through in the draft questions and answers at page 1627 and following and 1629R puts it – as I think your Honour Justice Crennan or Justice Hayne put to me – that the ultimate cost simply cannot be measured reliably at this time. So there is no doubt that is what was being said.
Then if your Honours go to page 1634 at letter N, “The key messages” - this is now for the foundation as opposed to the company, are “increased certainty”. There is no key message of absolute certainty of sufficiency of funding.
BELL J: Could I just inquire as to this aspect. I think the Court of Appeal made or laid considerable emphasis on the fact that these papers circulated in advance of the board meeting had a different tenor to the ASX announcement, one that did not have the flavour of certainty to it. The emphasis though is very much on the significance of the communication strategy in papers which were prepared not later than 7 February. The Court of Appeal accepted the primary judge’s finding that Mr Baxter had taken the 7.24 am release with him to the meeting.
Against that background and having regard to the content of the minutes, one might have thought it reasonable to think that the announcement itself would have been the subject of some focus. The announcement after all was drafted in the preceding day, was it not? I am just wondering the significance of taking us to material prepared more than a week before the meeting.
MR GLEESON: Can I seek to address your Honour’s question this way. It is prepared and available up to a week before the meeting. As one plank in the exercise of understanding what a director would have gone to the meeting thinking was the business to focus on, it is important, it is not the whole picture but it is important. A director, at least from this plank, we submit, would have had two thoughts in mind. It is really our proposition 3. I am not being told it is my job to consider and approve the announcement because what is being presented to me is that that is part of management’s role which is a work in progress. That is the first thing they would have in mind. The second is to the extent I am being informed about key messages which will be transmitted in all sorts of ways to all sorts of people, their message is less than complete certainty.
I need to come to what your Honour is raising which is assuming Baxter having hurriedly prepared the document between the evening of the 14th and the morning of the 15th brought it to the meeting as the Court of Appeal found, why? For what purpose did he bring it to the meeting? Was it to table at the meeting and if it was to table, was it for discussion or was it for approval as the document to go out or did he simply have it at the meeting without generally circulating it? That, I accept, is the next step. Our short answer to that is, as I am really coming to it perhaps, your Honour, with proposition 2(e), is that the document he brought to the meeting was not a document in a form which he knew was fit for directors to consider because he had not finished his work on it, the whole of management had not finished their work on it, Allens had not approved it and the external advisers had not given their consents. Can I come straight to give your Honours the references to Mr Baxter’s evidence to show the matters in paragraph 2(e).
HAYNE J: Just before you do that, this notion of work in progress, when did work in progress stop?
MR GLEESON: At 10.10 pm on 15 February.
HAYNE J: It did not stop at the board meeting when the board decided?
MR GLEESON: No, that is the very thing that did not happen and what occurred during the day was the balance of the work in progress which was required by the company’s procedures to make this a proper release to the market and so I wish to show your Honours in due course that progress that occurred during the day.
CRENNAN J: Is the progress covered by point (b) of the resolution, namely, that the ASX announcement be executed by the company?
MR GLEESON: No, your Honour, that comes back to the question of the precise case that was run. If I can go to the ‑ ‑ ‑
HAYNE J: Sorry, how does it come back to the precise case that was run?
MR GLEESON: The case run was that at a board meeting which had concluded by about 1.00 pm the board has assented to and directed, as it were, the appropriate person to – it misuses English by saying it says “execute by the company”, that obviously does not happen, but the board had agreed that document called the 7.24 am draft is to go to the market as the company’s announcement under listing rule 3.1.
What was never run was a case which said what happened was the board gave some in principle approval to management continuing to work on a document in the form of that draft, making such changes as they and Allens and external advisers required during the day and then sending the end product of that work to the market some time late that evening or the next morning. That was never the case that was run. That is the key point of how – if, your Honours, if there be any suggestion by ASIC that they can broaden the case in that manner, I would wish to show your Honours where it was made perfectly clear by Mr Bathurst in cross‑examination that he objected to any questions outside the pleaded case and he asked if ASIC was to seek any amendment, they do so and it be tested and ASIC did not seek any amendments.
So it was made perfectly clear, and I will come to it in due course, that it was confined to a case, a highly artificial case, that the directors would approve a document which, ex hypothesi, management and Allens knew was not yet ready to go. That was the case and one difference between the trial judge and the Court of Appeal was the trial judge did not really focus on that critical improbability whereas the Court of Appeal said, that really is a very significant factor in determining whether you persons made a resolution in terms of this particular minute.
HAYNE J: That is, the directors’ answer was that the minute is false. For it seems to me there is no middle ground. If there is, I would like you to identify it.
MR GLEESON: I am going to come to the minute later, but I will try and answer your Honour’s question now in broad terms if I can. If your Honour says the director’s answer was the minute was false, it is proper, in my submission, to distinguish between the evidence they gave as to their involvement in the matter Justice Gummow raised, which is what happened on 3 April when you got your board papers and you allowed the minute to go through, which they could do from their recollection and on that subject matter, each of the directors gave evidence as to their recollection and each said that they perused the minutes in varying degrees; some said not at all, some said, “I looked at parts” and each of them said, “I have no recollection of seeing that part of the minute”.
Now, they can be criticised for that along with, “I will show every other person who had their hands anywhere near these minutes” in not giving them sufficient care. It is also a factor that can be taken in account in the overall assessment. It is not, however, the ultimate contravention. That is the first part of my answer. That is the evidence they gave.
If your Honour says, “What is the ultimate submission that was put on the basis of all of the evidence”, on the basis of all of the evidence it is the logic of the directors’ case, certainly my client’s case, that this minute is inaccurate and incomplete in at least this matter. It is also inaccurate in a range of other matters and, taking up a matter your Honour Justice Hayne raised this morning, it does not really reflect the substance of the way the meeting was conducted. That is the proposition I will try and develop a bit later on.
Your Honours, the topic I was then going to deal with was paragraph 2(e) in answer to your Honour Justice Bell’s question, or at least in reference to the question if not answer, which is, what was it that Mr Baxter was doing by bringing the document to the meeting?
BELL J: Well, it is what was Baxter doing by bringing the document to the meeting. It is also when you say that the minute is inaccurate we have a minute that the chairman tabled an announcement to the ASX, we have concurrent findings that Mr Baxter had on him the announcement. We know its importance, having regard to the emphasis in the material circulated in advance concerning the communications strategy and, in particular, the announcement. It is those matters that ‑ ‑ ‑
MR GLEESON: Yes. At least I can only deal with them in an order and I want to do the force of the minutes when we see the body of evidence that built up to it, but can I indicate, your Honour, just in summary form, even in that minute itself, these are the parts that we know are inaccurate for these reasons. The first inaccuracy is the chairman did not table any announcement. Your Honours, the reason for that is that the Court of Appeal at paragraph [362], Mr Baxter’s cross-examination, he was asked this question:
Q – Who tabled the press release, do you say?
A – I’m not sure.
Q – It couldn’t have been Mr McGregor because he didn’t have it, did he?
So it had not even got to McGregor, the chairman –
A – It would have been myself or Mr Macdonald.
So already, the minute is wrong in terms of the chairman tabling it –
Q – Do you remember tabling it?
A – No.
Q – You didn’t table it, did you?
A – I don’t recall.
Q – Mr Macdonald didn’t table it, did he?
A – I don’t remember –
Your Honour sees the balance of that evidence of Mr Baxter. That is the first aspect of it being, on any view, inaccurate. The second is a point we submit is important. The third line refers to something called ASX announcement. This minute is a business record, to take up its status that Justice Gummow raised, is and always was an incomplete document. It never at any stage in its life, draft, work in progress or final minute as approved, had an announcement ever attached to it. It was always pregnant, as it were, with that gap. The reference for that, your Honours, is in the Court of Appeal’s judgment at [377] where the court found that the company, JHIL, was unable to produce a copy of the 7.24 am draft news release in answer to a notice to produce. That is the second matter, namely, on its face, it speaks of something. As a properly prepared minute, it would have attached to it the document ‑ ‑ ‑
BELL J: Did not Mr Cameron give some evidence about the practice in that respect which would explain that?
MR GLEESON: Mr Cameron’s evidence, which your Honour may be referring to, is on this page at [378] and what he is saying in one sense makes sense, we do not keep drafts forever, we keep final announcements, but it lends point to this question. If the allegation is you approved a document at a meeting and that is the document that was to go to the market, if you are keeping proper company minutes of the meeting you would need to attach to the minute the document, otherwise the document is incomplete.
HAYNE J: No, you would not, Mr Gleeson. You would go to the April meeting. You would discover that the minutes had been approved. You would go back to the minutes. You would find that a draft had been approved. You would go to the exchange. You would find a release had been made. Why would you not connect those three events as sufficient to identify what was the announcement that was approved?
MR GLEESON: The three events your Honour has put to me do not include the document that is said to be the subject of the case. That is the third matter. I will just pass over execution by the company, it is obviously inaccurate. More important is the last matter. The ASX announcement having been executed by the company be sent to the ASX. On any view – the Court of Appeal dealt with this at [488] to [495] – that was not what happened. At [488] the court is recording the submission by the directors and all that is familiar. About halfway through that paragraph part of the submission is the press release was not sent to the ASX, rather, all of these persons worked on it and the final was in materially altered language. So your Honour might say, well, are these just small points I am taking ‑ ‑ ‑
FRENCH CJ: Well, that term, “materially altered” critical reference to full funding was continued, was it not? What does it mean by materially altered?
MR GLEESON: What that means is – it means this, your Honour. The correlation of the draft of the final is in the green book. ASIC asks the Court to look at page 516. Conscious of what Justice Hayne raised with us yesterday, we beg to suggest that the colour comparison at page 464 is more illuminating, not just a piece of advocacy. The point of 464 is it is easier to see what was taken out and what was put in, blue left and red arrived. But apart from that, what actually happened in this process of material alteration was this. Your Honours see in the third paragraph that the 7.24 had read the company:
will have sufficient funds to meet all legitimate compensation claims from people injured by asbestos products manufactured in the past by two former subsidiaries of JHIL.
If your Honours were to keep that open but to go to volume 5 of the blue book at page 2185, what you have is the first of two versions of the 7.24 am announcement produced by Allens. The point of me asking your Honours to look at it is this. It is clear from the words that have been added in hand, one edition is “On the basis of detailed actuarial analysis”. That is one suggested change. Another one is “The Foundation is expected to have” as opposed to “will have” and on one view the words “is expected to” have been ruled through. They are a first thought by Allens to soften the message. Instead of “will have”, “is expected to” and then the second thought seems to be why do we not just make the qualification express, namely, it is “On the basis of detailed actuarial advice”.
Your Honours also see down the page at letter T, instead of speaking of meeting “all future claims”, “all” has been struck out. The second Allens version is at 2187 and again one can infer that the initial thought which is to soften the claim with an expectation claim has been changed to a “On the basis of detailed analysis from actuaries”. This is the type of material alteration that is occurring during the day.
What is happening is that Mr Robb is, clearly enough, unhappy with the 7.24 am draft. He is unhappy because it is too definite in its claim. He is thinking of and dealing with Mr Baxter on the basis of softening the claim. The end result of that debate, your Honours, going back to the green book at 464, is that they between them have settled on the word “anticipated” as a sufficient softening of the claim. What has really happened is an announcement which at 7.24 was too absolute, Allens have tried to water down properly. Somehow between Allens and management the claim has been pumped up a bit and the end claim is it is enough if we tell them “anticipated”, that will convey the element of doubt.
The other thing your Honours will see at 464, and one can infer this the trade off occurring between Mr Baxter, Mr Macdonald and Allens, is that Mr Macdonald’s previous statement in the 7.24, which was anodyne, the establishment of the fully‑funded foundation provided the best resolution for all stakeholders. Well, that is not misleading, perhaps puffery, but not misleading – has been built up.
Mr Peter Macdonald said that the establishment of a fully‑funded Foundation provided certainty for both claimants and shareholders –
So he has wanted to get that word “certainty” in there for claimants and part of the reason that the trial judge in the Court of Appeal said there is a problem with this ultimate release is that you have linked a paragraph about certainty, as it were, too closely to a paragraph about sufficiency of funding and the word “anticipation” is not good enough to soften the pain. If I could just continue in that theme. When you drop down the page in the Allens version, they did not like the words “all future claims”. That is the paragraph commencing, “In establishing the Foundation”. Your Honours will see they won that tussle because those words left the final release.
FRENCH CJ: At page 63 they are in, are they not, “When all future claims have been concluded”, which carries its own pretty clear implication. Page 465, I am sorry.
MR GLEESON: I am not defending that the end document ‑ ‑ ‑
FRENCH CJ: What I was going to was the materiality of the alteration.
MR GLEESON: Your Honour asked me if they were material and my answer to your Honour’s question, the longer answer to what I am doing is, they were material in the sense that there was a very considerable process of debate going on between Allens and management as to how to soften the 7.24 enough to make it non‑misleading. They failed in that ultimate endeavour, but all of that is consistent with the directors not being asked at the meeting – to come back to what your Honour Justice Bell asked me whether my comments on the minutes are important or not – not being asked at the meeting to approve the 7.24 and send that the to the market because that was clearly, to use my crude expression, immature.
What your Honour sees though, just concluding this process, the other critical change that came in is in the last paragraph on 464 there has a been change so that Hardie sought advice from various people. The new sentence is:
This advice, supplementing the company’s long experience in the area of asbestos –
with this –
the directors of JHIL determined the level of funding –
Now, that came because PWC said we will not have our name in the document unless you shift the burden of the determination of sufficiency back to the directors. We would have submitted, your Honours, that to make that sort of change where you directly attribute to the directors the determination of sufficiency is something which ought to have been referred to the board so they could form their view on it.
On the top of 465 your Honours see probably the work of Allens with anticipation coming back in instead of all claims. I accept what the Chief Justice has put to me that the sentence “When all future claims have been concluded” is pregnant with an unproven proposition that they will all be able to be concluded without using up all the money and that one never got fixed by anyone. So our submission is the changes were material. So then in relation to proposition 2(e), which was that the usual practice had not been followed prior to the meeting, and this is one of the critical reasons the Court of Appeal disagreed ‑ ‑ ‑
FRENCH CJ: I know this is tangential to the point perhaps you have made, but if – if contrary to your contention the draft announcement or the draft release was approved at the meeting, the misleading element of the message thus approved was contained in the final version of the release.
MR GLEESON: The short answer is yes, through a different selection of offensive words. Now, could I ask your Honours to go to volume 1 of the black book so I can establish the breach of practice. This is through the evidence of Mr Baxter. His cross‑examination commenced at page 317, and at 318 to 319 there was the evidence I referred to that the disclosure policy was in force and a little further than that, 318N:
And Mr Macdonald was, generally speaking, the arbiter of whether or not announcements went to the board or went out, as it were, directly through him?
The problem in this case, your Honour, is that Mr Macdonald is the person who caused this misleading announcement to be sent, and critical to our case is that the directors did not approve the 7.24 am draft and to the extent all these changes were made during the day the culprit is Mr Macdonald and Mr Baxter who did not ask the board to approve the document.
If your Honours could then go to page 351, at about line N, there is the conclusion of a series of questions as to all of the people that needed to sign off in accordance with established procedure before the company could bring the press release to the board. Your Honours see those persons further up on the page, management Allens, UBS and Macdonald, possibly Harman. He is then asked whether he went through those procedures. He initially gave an answer at R. Then when he is pressed a little that his procedures were not followed, it was his language:
it was work in progress.
Q. It wasn’t done by the time the board meeting took place, was it?
He agrees with that. This is fairly important, over the page Mr Bathurst asked him:
Q. You don’t go to the board, do you, in the normal course and say, “Well, it’s all work in progress, but here it is, and if we get the approval it will all be all right”, do you?
A. Well, that wasn’t the normal procedure, but that’s what happened on this occasion.Q. It was highly irregular. If it –
happened this way. He agrees:
it was unusual.
Then, an important question at letter I which is really critical to destroying Baxter’s practice evidence:
Q. If it was unusual, and it was done, the unusual nature of it was something which would need to be expressly drawn to the attention of the board?
A. That’s correct.Q. And you did not, at any stage, say anything about the press release during the meeting on 15 February, did you?
A. I can’t recall.Q And no‑one else said anything…
A. I’m not sure.
At letter T:
It wasn’t read out loud, was it?
A No.Q. What happened? It was handed around, was it?
A. I think so.Q. Who handed it around?
A, I don’t know.
And so on. It descends into a collapse of fog and mire of recollection but what is critical is there is no evidence in ASIC’s case that Baxter did the thing that you would expect to happen if he was bringing this 7.24 am draft to the meeting, namely, in all honesty say, “Mr McGregor, could I please inform the board that they should know before they approve this document that it has not been through any company procedures and we do not really know whether it is a proper document to send out”.
That, we would submit, is part of the key answer why even if Baxter brought something with him he did not present it to the board because he would have been left exposed trying to explain to his board that the release was not ready to go and the consequence that might have had, coming back to your Honour Justice Hayne’s questions about urgency, is that this whole proposal may never have got from management to approval by the board if the board knew that it was not even ready to be properly announced to the market.
The other evidence on this topic – if your Honours were to go to page 367 – at letter G the only person who seemed to have seen the 7.24 release was Ms Rotsey from Gavin Anderson, the media advisors. He confirmed at letter T and following, not seen by MacDonald, not seen by Shafron. Morley? Not too sure about him. Over the page:
at the very best you could say about it, it was in draft subject to approval from all those persons; correct?
A. Subject to final approval, yes.Q. And between that time and the time you went to the board meeting, you didn’t send it to any of those persons to obtain final approval, did you?
A. Well, I don’t think so –
At 369 he is cross‑examined on whether he had sent to Robb before the meeting. Initially, he said he thought he had sent it to Robb but when he is pressed he does not think he had sent it to Robb or UBS or anyone. At 370 is the evidence I have read to the Court through the Court of Appeal judgment about McGregor not tabling it.
At 372, Mr Bathurst came back to his “entirely irregular” question and this time the witness properly, after the evidence he had given, gave a candid, “Yes.” So the entire suggestion that Baxter would have brought it to the board for tabling and approval did not hang together unless Baxter was honest enough to tell the board the document was completely unfit for their consideration, and that never happened. If that be right – and this is one of the key planks in the Court of Appeal – if he brought it, he might have given it to Allens because they had to look at it and advise on it. He might have given it to the Brierley director at or after the board meeting. I will come back to that later. That is because they had a special line of communication, but beyond that it just does not look likely that this man tabled this document at the meeting. Your Honours, at 377, the post‑meeting changes are raised with Mr Baxter. At 377, H, is the evidence that PWC wanted changes and the question was put to him:
Q. The changes were made without any reference to the directors, weren’t they?
Initially he denied that. He is pressed –
Q. What, you say that you went back to the directors and asked for their permission?
A. No.
Q. There they were made without any reference to the directors, weren’t they?
A. I believed Mr Macdonald discussed the final version of the release with Mr McGregor, certainly.
Q. There’s nothing in your evidence to suggest that, is there?
A. That’s my recollection.
Q. Are you saying that this press release was approved by Mr McGregor and Mr Macdonald, as distinct from the board –
and this is an important answer –
A. I don’t know about the rest of the directors. I certainly know that Mr Macdonald approved it, and my understanding –
that is not evidence of recollection –
is that he would have discussed it with the chairman.
So all of that looks like a document is never submitted to the board in the morning because it is not ready. It is worked on all day. Macdonald takes responsibility for it. Whether he speaks to McGregor we will never know and Baxter has no knowledge that this was a document the directors approved.
HAYNE J: Was Mr Baxter examined or cross‑examined about the slide that I think was used at the board meeting in February, as reproduced in blue volume 5 at 1987? First, am I right in thinking that this is one of the slides that was for the board presentation in the February meeting or am I wrong?
MR GLEESON: Could I inquire whether your Honour is at 1987?
HAYNE J: Page 1987, yes. It seems to run in a batch of slides “Communications strategy”, GB to provide.
MR GLEESON: Yes. I will check whether there was cross‑examination. What occurred was that this was the work in progress, to use that terrible term, on the slides the afternoon before the meeting and this document came into existence at about 2.26 pm on the 14th. At that stage the communications strategy was empty and so in the final slides that the board did see, the completed material commences at page 2227.
HAYNE J: And the fill in then of the communications strategy commences at?
MR GLEESON: Page 2227. I will look for whether there was cross‑examination on the missing pages. If your Honours’ questions were directed ‑ ‑ ‑
HAYNE J: But at 2284 we seem to have the final version of the communication strategy, is that right, as presented to the board in the slideshow?
MR GLEESON: Yes, that is the second version of the document at 2227. So the slides as a whole in the version the board received start at 2197 and the submission we were going to put on the slides, which is partly covered by our proposition 2(c), is that (a) they were silent on the terms of a press announcement, they were silent on the directors being asked to approve a press announcement and otherwise, in terms of a message, they were at the level of expectation and they were not at a message of certainty of sufficiency of funding, and it is a matter that we also take up in our proposition 5. Could I draw attention to these parts of the slides if it is convenient to do that now, your Honours?
At 2198 we see the three issues that the board was dealing with: separation, which the board approved, gypsum which the board commenced a sale of and financial restructuring where the board continued progress. At 2200 the essential business in relation to the meeting was relevantly to consider whether to approve the immediate establishment of the foundation. At 2203 the recommended solution had three elements, relevantly, element 1. At 2205, under separation, the change since the previous meeting was noted of the additional funding and at the foot of that page we see one of many claims about an expectation of sufficiency but not a guarantee. The structure is over the page. Then at 2208 there is a summary page which identifies seven or eight subtopics which the balance of the slides will deal with.
This is important, your Honour, for our submission that the way this meeting ran, it ran by the slides. Whether that is good or bad in terms of company practice is someone else, but essentially what was occurring was a presentation through slides at the end of which the matters in the slides were brought together by the chair saying something like, do we agree separation, and that is what the board assented to. What is implicit in ASIC’s case is that sometime through this presentation by slides someone said, by the way there is something extra we have to do. We have to approve a draft announcement which you do not have in your board paper, you do not have in your slides and which has not yet gone through the proper processes.
Your Honours, it may assist on that page 2208 to note the various pages at which those topics are then dealt with in the slides. The topic of “Foundation establishment” is dealt with 2209; “Quantum of funds” is 2210; “relationship post separation” is 2213; the decisions for the directors are 2214; the decisions for the directors of the subsidiaries are 2216; “Financial effects” 2217; stakeholders are 2220. At 2210, the second topic is discussed which is the quantum of funds, whether it is likely to be sufficient, and there is a reference there to the Allsop advice. It is likely that if the advice was made available and discussed in the meeting, this is when it occurred. The evidence is it is likely that Mr Shafron spoke to this page. The reference for that is blue 12, 5654.
The next page, 2211, deals with the life expectancy and sensitivity and there is a reference to the Trowbridge analysis and the future funds availability depends upon the Trowbridge cashflows. The (“most likely”) means they have taken Trowbridge’s best estimate of future claims. Your Honours, the page at 2210 would have been critical had the case been that the directors negligently approved separation because if your Honours were to wonder why the funds ended up being so short as they clearly did, part of it may relate back to assumptions and the assumptions are on this page and, really, in determining whether there were sufficient funds, a whole lot of things were relevant.
One was whether Trowbridge actuarial data was good or bad. The assumption as to what you could earn on your investment portfolio of 11.7 per cent, that is obviously an important assumption. Then there are a whole lot of other assumptions. The conclusion on that page is that the surplus was the most likely outcome and the analysis was reviewed by PWC and Access Economics. The evidence of Mr Morley was that it was likely that he or Mr Macdonald was speaking to this page. That is blue 12, 5654.
When they spoke to that page what they were speaking to was the cash flow model. The cash flow model, if I could cross‑refer to that, commences at page 2311. This is how management thought there was likely to be a small surplus. Your Honours see the assumptions on page 2311. At 2312, if you assume an investment return of 11.7 per cent which is the second column, and if you assume the “Most Likely Scenario” of claims from Trowbridge, you get the happy outcome after I believe it is 50 years of a surplus of $38,000. If other assumptions play out you do not receive that and the sensitivity analysis is on the following page.
So what is being presented to directors for consideration is here is the work of management plus the experts. If you act on Trowbridge most likely, and if the other assumptions are good the expectation would be a very tiny surplus after many, many years.
Returning to the slide show, at page 2214 – this is the page we rely upon as confirming that the essential nature of the business for directors is separation. It is not the approval of a release. To the extent the last diamond point is the “Resolutions are recommended to directors” the only resolutions they had notice of at this time were those in the board paper which were the four summary resolutions I took the Court to at volume 4, page 1599. The second‑last diamond point on that page is probably overly simplistic in its reference to the advice of Mr Allsop.
Over on page 2216, there is a reference to the resolutions which the subsidiary companies have to consider. On 2217 “Financial effects”, Mr Morley’s evidence is this is him speaking, volume 5, 5689. That goes over for the next few pages. At 2220 there is an update on the board paper, presumably that is on the 7 February board paper. These are the extra things that have happened. The messages are being strengthened and simplified, we have got “powerful arguments”. They are doing “media training”.
Our submission is that if management or Mr McGregor as the chair wanted to expand the business of this meeting beyond the board papers to have the directors consider the terms of an ASX announcement this is the spot you would expect it and it is just not there. There is then a whole lot of material about what advisors were doing, which I make no submissions about. Then, at page 2226 there are the key messages.
GUMMOW J: What do you say about bullet point 4?
MR GLEESON: Two things. The bullet point says:
The Foundation expects to have enough funds to pay all claims –
Firstly, that the message being presented to the board, consistent with the board paper, is, as a matter of expectation or likelihood, but certainly not certainty, there would be sufficiency of claims. So that that is the sort of message the directors are being asked to consider in general terms will be presented. Secondly, if the ASX draft announcement was seriously being put to these directors for consideration it would never have been passed because all the directors would have said, “But hold on. Why are we making claims about absolute certainty of sufficiency when you are busy telling us the most we can ever have is an expectation or a likelihood?” So the gross disparity between the 7.24 am announcement and what the directors were told at the very meeting speaks against that press announcement being put up.
GUMMOW J: The expression “certainty” in the next bullet point.
MR GLEESON: “[M]uch greater certainty” and that is consistent with what is in the board paper:
The position of claimants is substantially improved because the Foundation provides much greater certainty that compensation will be available –
That is in the two sentences I sought to put to your Honour earlier. The assets are vested and cannot be clawed back. The extra payment means we are now at the best actuarial estimate, subject to our other assumptions being right. Without wishing to weary your Honour with an answer I was giving to your Honour Justice Bell’s earlier question, why would Baxter not hand out the document, let us say, he had in his back pocket? Two reasons; one is he would have been subject to extensive criticism and exposure as to why he was putting up an incomplete work. Secondly, and perhaps due to the fact it was still incomplete, it presented a picture substantially inconsistent with everything these directors were being told and it would have been likely to be exposed to significant criticism on that ground.
The role of Mr Baxter in the media is seen on the next slide at the last point, and then if I could go to 2228, this is the most the directors are told about an announcement. There will be announcement in conjunction with the results. The fifth diamond point on that page is one that, on any view, was not achieved.
KIEFEL J: In relation to the ASX announcement being handed out, the trial judge seemed to place considerable weight upon the – adopt the 7.24 am draft being found amongst the papers of BIL in addition to the Allens people. How did the Court of Appeal deal with that?
MR GLEESON: Yes, your Honour. They approached it, as it were, from the reverse end which is what inferences can be drawn from Allens having the document, which the answer is in paragraph [382]. There is a perfectly good explanation why Allens would have it other than it being distributed at the meeting, namely, they had to give legal advice and the document had not yet been through the process and the handwriting I have shown your Honour on the Allens document is consistent with Allens during the day working on the draft. To answer your Honour’s question directly, then, when it comes to the BIL document at [384], the court says:
The production by BIL does not significantly support that it was given to Mr O’Brien or Mr Terry at the meeting.
That is also in the context of earlier at [375] the court records a submission that we do just not know when BIL got it. They may have got it at a later period of time.
KIEFEL J: But it would seem to follow from the trial judge’s approach that there was no evidence which explained how it could have been amongst the company records or papers of BIL other than as produced at the meeting.
MR GLEESON: Yes, and the error in the trial judge is the matter that we had submitted below at paragraph [375] that there was another explanation for how BIL could have got it. If I could give your Honour that other evidence.
KIEFEL J: I see, they received it later.
MR GLEESON: That they could have received it either – well, one possibility is later. ASX says, well, that might be speculation but, much more critically, because there were separate lines of communication between BIL and the management – your Honours, we deal with this point in the green book at page 426, in paragraph 73 of our submissions and in footnote 8. The separate lines of communications point, not to be too crude about it, was that the Brierley camp did not much like giving anything other than net assets and had very particular views on exactly how this proposal should run given their extensive stake holding.
As one document to show that, your Honours, we give a reference there to volume 4 of the blue book at 1812 which is a strong example of this. On 5 February, Macdonald as the managing director says that he has been reviewing the latest draft of the board paper with Mr O’Brien. O’Brien:
has some comments on detail – most of which will be addressed as we move to a final version.
O’Brien is actually involved in wanting “an indemnity for all actions of JHIL”. The next paragraph refers to the deed of covenant indemnity:
Overall, Dan is comfortable with our proposal and would be happy for the Board paper to go out with the recommendations in line with those shown in the draft.
Now, he appears to be the only director, I make no submission about Mr Terry, who has got this inside line into management as to how the company will proceed on important matters. If your Honour wish to see that it did go to O’Brien, that is at page 1806.
HAYNE J: Did any witness give positive evidence about how Allens got the document or how BIL got the document or are we left simply to it might have happened this way or that way?
GUMMOW J: Bear in mind, Mr O’Brien did not give evidence, did he?
MR GLEESON: The answer is the latter, your Honour.
HAYNE J: No one.
MR GLEESON: No one. At one stage Mr Baxter tried to say, “I must have given it to him beforehand”, but he conceded that was wrong, so that went. So you were left with the possibility with Allens that either at the meeting or shortly thereafter they, which is quite understandable, would be given the document because they had to advise on its terms. That does not allow you to infer it was given to everyone.
KIEFEL J: But if that was the case they would have got the later draft, not the 7.24 am draft. Is that not the effect of Mr Baxter’s evidence?
MR GLEESON: With respect, no, your Honour, because there was a problem as to 7.24 and 9.35 and that was one of the debates very much in the trial.
KIEFEL J: I think it is a subject of a finding, is it not, by the trial judge that if Mr Baxter had returned to his office and faxed it to Allens he would have had the later draft to send; the 9.30.
MR GLEESON: I accept what your Honour says. The way I was seeking to put it was that what is open is whether it is at the meeting as a document is given to one person or whether it is immediately after the meeting before he has gone back. It makes perfect sense that Allens, who have not yet had a chance to do their lawyer’s job, would be given the document, and we know from that handwriting they were then doing their lawyer’s job and we know from Mr Baxter’s evidence that he said he incorporated the spirit of Allens’ amendments, so that is ‑ ‑ ‑
KIEFEL J: Your point is that it does not amount to an inference of general distribution.
MR GLEESON: That one does not amount to an inference of general distribution. The BIL one is perhaps slightly higher because here we have got it going to a director, and our answer to that is there is at least an available alternative explanation about this line of communication and so, as the Court of Appeal said, you cannot dismiss the BIL matter. You have got to put that in the weight, but when you stand back and look at ‑ ‑ ‑
HAYNE J: The weight against what, Mr Gleeson? The weight against the minute? Is this not to approach it, as the Court of Appeal did, as a wholly circumstantial case, treating the minute as but one of an array of circumstances, each of equal weight?
MR GLEESON: Let me go back one step. The trial judge came to his conclusions without placing any critical reliance on the minute at all. He relied upon a very narrow prism. He had what your Honour Justice Kiefel has asked me about. It turned up in Allens’ possession. It turned up in BIL’s possession. Mr Baxter’s email said he was taking it to the meeting and the one matter I have not yet done, the correlation of messages. He put that together and said, “On that basis I find, consistent with section 140, you have established your proposition”. One of the things the Court of Appeal did correctly, we submit, is to say that involved appealable error because at the least, that was not conducting a full examination of the various pieces of evidence and coming to a richer and more textured analysis of what was available. That is the first thing.
The second answer to your Honour’s question is, should, in effect, the minutes have been put up as, well, there is the prima facie case, as Mr Gageler opened it, they ought to be given, as it were, very substantial weight for reasons that are obvious, and then what do you have to contradict that which would otherwise detract from what might be a simple case?
KIEFEL J: Could I interrupt you to ask this about the minute? Was it ever suggested during the trial that it was incumbent upon the directors, that is to say they had an evidentiary onus of proof to explain the minute and how it was prepared, that is to call the persons who settled it themselves or was it - did people just proceed upon the assumption that ASIC was going to call the person in question and it just did not happen? Was there ever any discussion that there was some evidentiary onus about the minute?
MR GLEESON: An onus on ASIC, your Honour?
KIEFEL J: On the directors.
MR GLEESON: On the directors. I am not aware of that, your Honour. What happened was, and without straying too far into the Robb problem, ASIC said, “We propose to prove our case by calling the persons, other than the defendants, that we seek a ‑ ‑ ‑
KIEFEL J: I was not really inviting you to go into that area. It is an indirect way of asking you why would not the directors be required to explain the terms of the minute and its approval in April?
MR GLEESON: In relation to my four clients, your Honour, because they chose to give evidence they – and I will be coming to their evidence – they explained in‑chief what their involvement was in the process. They submitted themselves to cross‑examination and that material was all addressed. What the trial judge was left with was, “What do I do with the fact that a couple of directors did not give evidence and can I use that to draw an adverse inference against someone and if so is it only against them or does that somehow weaken the cogency of the case of the four people who chose to give evidence?”
KIEFEL J: I was really talking about them calling Robb themselves to explain how it came to be in the form in which they approved it but this was never gone into. It is just that it would appear prima facie to be a very important piece of evidence that called out for explanation.
MR GLEESON: I do not think there is anything more I can put to directly answer your Honour’s question.
KIEFEL J: Yes, I understand that.
MR GLEESON: I do want to deal, as a discrete topic, with Mr Robb’s involvement and when I come to that part of the case, we will be submitting that before you get to any adverse inferences, there are affirmative inferences to be drawn from this material which count against ASIC’s case and they relate to the whole involvement of Mr Robb and, put in a nutshell, perhaps I will come to that shortly tomorrow morning, but know what happened is immediately prior to this meeting Allens get the news that the Trowbridge material might be unreliable and Mr Robb and Mr Cameron are concerned by that and have a conversation with Mr Macdonald and Mr Shafron.
The trial judge correctly found that Mr Robb must have gone into that meeting knowing not only have I not yet done my work of settling the minutes, but there is a real issue as to precisely what claim can properly be made publicly on the question of sufficiency of funding, and that is the work he engages in later in the day. Just on that part of it, your Honour, we would submit, how could Mr Robb have sat there if this was the way the meeting ran, and said, I am going to allow these directors to approve a document which is to go to the stock exchange as a final, which is it what it is, knowing that I have not done my job yet because I have not been able to and, secondly, I am going to need to do some real thinking about how we properly express the sufficiency claim? So that is the first part of Mr Robb’s evidence.
When we come to his role in the minutes, the inference which arises from the material is he had a role in preparing a draft prior to the meeting. The one thing he did not do was ever communicate the draft minutes to Mr McGregor or anyone else prior to the meeting. So they could not be used, as sometimes happens, as a template by which a meeting can run. The next thing we know is that six weeks after the meeting Mr Macdonald and Mr Shafron start looking at the minutes and they start trying to amend a draft that is now six weeks old and then Mr Robb has, what I will show hopefully tomorrow, is an unestablished role in that process of settling the minutes. Now, for all those reasons, you would not expect the defendants to come along and call Mr Robb to say this is what I did.
FRENCH CJ: I may have misheard you before, but I thought you might have said that the trial judge did not really rely upon the minute.
MR GLEESON: Yes, your Honour, that is because ‑ ‑ ‑
FRENCH CJ: We are looking at paragraphs [1202] through to [1205] in his judgment - explain to me the nuance in that.
MR GLEESON: The critical paragraph – there are two reasons why he did not rely upon the minutes. The first is when he came to his positive findings, the critical ones are between paragraphs 219 and 234, and they do not rely upon the minutes. The second is paragraph 1150. The whole topic of what am I to do with subsequent events and with credit particularly because some defendants were called and some were not:
I have reached my decision without resort to this evidence. But where a response was called for if my decision on a matter in issue was incorrect and none was forthcoming ‑ ‑ ‑
FRENCH CJ: This was evidence going to credit.
MR GLEESON: So there is that. So in general the minutes fall into the broad category of a subsequent event. Then your Honour is correct that a specific analysis of the minutes, it is all in this alternative, if I were incorrect, commences around 1192. I would wish to know, your Honour Justice Gummow asked Mr Gageler where the Court of Appeal dealt with the 3 April meeting and his initial answer was they did not. Then he said they might have said something but not much. We would beg to differ. If I could just give the references of where they dealt with it. Paragraphs [480] ‑ ‑ ‑
GUMMOW J: It starts at [470], does it not:
The minutes would ordinarily be good evidence ‑ ‑ ‑
MR GLEESON: It starts there. Yes, and then what the trial judge looked at is squarely addressed in paragraph [484], it is set out. And then at [485] the Court of Appeal finds a series of errors in what the trial judge did. Perhaps not a major one but an error, Robb was not at the meeting. Secondly, more important:
LJ [1199] did not accurately reflect Mr Morley’s evidence.
That is found to be an error. [486] there is an error in LJ [1200]. Then that leads to the submission at [488] and following. So that is one section.
The other section Mr Gageler did not go to is in the credit area. Your Honours, it commences at 783 and it explained the error in this alternative if I be incorrect finding, that you cannot simply say the chorus of denial is rejected because someone must have recalled it without making a finding and giving reasons for why you say you are rejecting the evidence of a particular person and then those matters in 791 are incorporated in the court’s ultimate assessment.
GUMMOW J: You are submitting at paragraph [470], as is recorded, that the April minutes had little evidentiary value. At [497] the Court of Appeal said that they were significant:
However, their reliability and thus their weight in that case is very much open to question.
Does that mean that the minutes are false minutes of this company? Very significant finding, I would have thought, against a public listed company.
CRENNAN J: That seems to link up with 791 and 796?
MR GLEESON: And the minutes were inaccurate and thereby ‑ ‑ ‑
HEYDON J: We have to call a spade a spade, do we not? Either they are true or false. You must say they are false.
MR GLEESON: They are false in a number of ‑ ‑ ‑
GUMMOW J: No, in this particular respect?
HAYNE J: In this respect.
MR GLEESON: They are false in this respect. They are false in other respects.
GUMMOW J: No, that they are false in this respect about the statement as to fully funded, caught up in the stock exchange announcement, that is what we have to reach.
MR GLEESON: The answer to that is yes.
FRENCH CJ: We will adjourn until 9.45 tomorrow morning for pronouncement of orders and 10.15 for the resumption of this matter.
AT 4.20 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 26 OCTOBER 2011
Key Legal Topics
Areas of Law
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Civil Procedure
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Commercial Law
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Statutory Interpretation
Legal Concepts
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Appeal
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Jurisdiction
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Procedural Fairness
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Standing
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Statutory Construction
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