Australian Securities and Investments Commission v Vines - [2006] NSWSC 760

No judgment structure available for this case.

Reported Decision:
58 ACSR 298

New South Wales

Supreme Court

CITATION: ASIC v Vines [2006] NSWSC 760
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 24, 27 March 2006

JUDGMENT DATE :
2 August 2006

JURISDICTION: Equity

JUDGMENT OF: Austin J

DECISION: See under heading "Conclusions"

CATCHWORDS: CORPORATIONS - statutory duties of executive officers of corporations - contraventions by all defendants of statutory duty of care - contraventions by one defendant of statutory duty of honesty - civil penalty provisions - form of declarations of contraventions - disqualification orders - whether defendants fit and proper persons to manage a corporation - whether contraventions serious - pecuniary penalty orders - compensation order - causation

LEGISLATION CITED: Corporations Law, ss 232(2), 232(4), 1317EA, 1317HA

CASES CITED: ACCC v Francis (2004) 142 FCR 1
ASC v Donovan (1998) 28 ACSR 583
ASIC v Loiterton (2004) 50 ACSR 693
ASIC v Rich (2004) 50 ACSR 500
ASIC v Vines [2005] NSWSC 1349
ASIC v Vines [2005] NSWSC 738; (2005) 55 ACSR 617
ASIC v Vizard (2005) 54 ACSR 394
Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863
Eva v Southern Motors Box Hill Pty Ltd (1977) 30 FLR 213
Forge v ASIC (2004) 52 ACSR 1
Forge v ASIC [2004] NSWCA 448; (2004) 52 ACSR 1
Mill v R (1988) 166 CLR 59
One.Tel Ltd (in liq) v Rich (2005) 190 FLR 443
Plymin v ASIC (2004) 10 VR 369
Postiglione v The Queen (1997) 189 CLR 295
Re HIH Insurance; ASIC v Adler (2002) 42 ACSR 80
Re One.Tel Ltd (in liq); ASIC v Rich (2003) 44 ACSR 682
Re Tasmanian Spastics Association (1997) 23 ACSR 743
Rich v ASIC (2003) 183 FLR 361
Rich v ASIC (2004) 183 FLR 361
Rich v ASIC (2004) 220 CLR 129
Rural Press Ltd v ACCC (2003) 216 CLR 53
Warramunda Village Inc v Pryde (2001) 105 FCR 437

PARTIES: Australian Securities and Investments Commission (P)
Geoffrey William Vines (D1)
Francis Timothy Robertson (D2)
Timothy John Henry Fox (D3)

FILE NUMBER(S): SC 3138/01

COUNSEL: S D Robb QC with R Beech-Jones & E A Collins (P)
B Oslington QC with A S Bell (D1)
D L Williams SC with M Fisher (D2)
J W J Stevenson SC with L P Menzies (D3)

SOLICITORS: Georgina Hayden, Solicitor for Australian Securities and Investments Commission (P)
Sparke Helmore (D1)
Henry Davis York (D2)
Gadens (D3)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

WEDNESDAY 2 AUGUST 2006

3138/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V GEOFFREY WILLIAM VINES & 2 ORS

JUDGMENT

1 HIS HONOUR: In my judgment published on 22 August 2005 (ASIC v Vines [2005] NSWSC 738; (2005) 55 ACSR 617), which I shall call "my August judgment", I found that each of the three defendants, Mr Vines, Mr Robertson and Mr Fox, had contravened the statutory duty of care found, at the relevant time, in s 232(4) of the Corporations Law. I also found that Mr Fox had contravened the statutory duty of honesty then found in s 232(2) of the Law.

2 After a further hearing directed towards the contentions of Mr Vines and Mr Robertson that they should have the benefit of the "honesty defence" then contained in ss 1317JA and 1318 of the Law, I delivered another judgment on 23 December 2005 (ASIC v Vines [2005] NSWSC 1349), which I shall call "my December judgment", in which I held that they should not be relieved from liability under either of those provisions.

3 The next and final stage of the proceedings was to conduct a hearing on penalties, in accordance with the procedures set down by the Court of Appeal in Forge v ASIC [2004] NSWCA 448; (2004) 52 ACSR 1. That hearing took place on 24 and 27 March 2006. No oral evidence was heard, but affidavits were read and extensive written and oral submissions were made on matters of fact and law. These are my reasons for judgment on penalties.

Statutory provisions

4 The contraventions occurred in the second half of 1998 when the Corporations Law was in force but the amendments to statutory directors' duties made by the Corporate Law Economic Reform Program Act 1999 (Cth) ("the CLERP Act") had not been made. At that time s 232(2) and s 232(4) were civil penalty provisions, for the purposes of Part 9.4B, by virtue of ss 232(6B) and 1317DA. A person who contravened either of those provisions was not guilty of an offence, unless the contravention was knowing, intentional or reckless, and either dishonest and intending to gain an advantage, or intending to deceive or defraud (s 1317FA). But a contravention of either provision gave rise to the consequences set out in Part 9.4B.

5 Those consequences were prescribed by s 1317EA, which said:

6 In s 9 of the Law, "civil penalty order" was defined to mean a declaration or order made under s 1317EA. Part 9.4B imposed no restrictions on the making of civil penalty orders in this case, other than the restrictions contained in s 1317EA. Since ASIC did not contend that the contraventions in this case have given rise to offences, and no relevant criminal proceedings have been taken, the restrictions on the making of such orders imposed by Division 4 of Part 9.4B have not been attracted.

7 Section 1317HA(1) was as follows:

8 The effect of subsequent changes to statutory company law was dealt with in my August judgment at [1033]-[1034]. To summarise, the CLERP Act of 1999 replaced ss 232(2) and (4) with other provisions and substituted a new Part 9.4B, but the operation of the former provisions in respect of contraventions occurring before 13 March 2000 was preserved by s 1473(1) of the 1999 Act. Although the Corporations Law was wholly repealed by the Corporations Act 2001 (Cth), the substance of ss 232(2) and (4) and Part 9.4B, in the form in which they stood in the second half of 1998, was "carried over" into the Corporations Act by ss 1400 and 1401, as regards the liabilities and obligations of the defendants in respect of the events of the second half of 1998. In effect, the provisions now applicable to the defendants are provisions of the Corporations Act modified to correspond with the relevant provisions of the Corporations Law in force in 1998. In this judgment, as an my August judgment, I shall for convenience refer to the old Corporations Law provisions, as in force in 1998, as if they were directly applicable, without making expressly the qualification that arises from this analysis.

9 It is worth bearing in mind, when considering other cases, not only that the 1999 amendments changed the content of the statutory duty of care and replaced the statutory duty of honesty with a duty of good faith, but also that the 1999 Act altered Part 9.4B in important respects. In particular, s 1317EA(4) was removed (see now s 206C(1)(b) and (2)).

10 For reasons given in my August judgment, I am satisfied that each of the three defendants has contravened a civil penalty provision, namely s 232(4), and that Mr Fox has contravened another civil penalty provision, namely s 232(2). Therefore, by virtue of s 1317EA(1), s 1317EA applies.

11 The effect of s 1317EA(2) is that the court is now under a statutory duty to declare, in respect of each defendant, that the defendant has by specified acts or omissions contravened s 232(4) in relation to a specified corporation or corporations in the GIO Group, and that Mr Fox has by specified acts or omissions contravened s 232(2) in relation to such a corporation or corporations. The only remaining issues about the declarations of contravention, discussed below, relate to drafting and in particular, the extent of specificity that is required.

12 Subsection 1317EA(3) authorises the court to make, against each defendant:

13 An order under s 1317EA(3)(a) prevents the defendant, during the specified period, from being a director or promoter of a local corporation (that is, a corporation formed in Australia), or from being in any way (whether directly or indirectly) concerned, or from taking part, in the management of the corporation (s 91A(2)). In the case of a corporation that is not a local corporation, there is a similar restriction but it is generally confined to such conduct in "this jurisdiction" (effectively, Australia). In my August judgment, at [1037]-[1056], I explored the concept of "management" and the meaning of "concerned, or takes part, in", for the purposes of the statutory definition of "executive officer", as it stood in 1998. The cases to which I referred demonstrate the breadth of these concepts. The same concepts are employed in s 91A, and I infer that they have the same meaning. Therefore orders under s 1317EA(3)(a), to which I shall refer as "disqualification orders", impose a very substantial restriction on the business activities of the person subject to the order. ASIC seeks a disqualification order against each defendant.

14 Subsection 1317EA(4) imposes an important qualification on the court's power to make a disqualification order. It requires the court to consider whether, despite the contravention, the defendant is a "fit and proper person to manage a corporation", and the court is not to make a disqualification order if it is "satisfied" that the defendant is fit and proper for that purpose. Once again, "manage a corporation" has the meaning given by s 91A. Importantly for present purposes, the concept is directed to the question whether the defendant is a fit and proper person to manage "a corporation". The application of the statutory language is difficult, because of the very wide range of activities conducted in corporate form. A corporation may be a private shelf company, a private investment company, a corner grocery business, a charitable body, a cashbox, a mining explorer without any present business revenue, an established middle-sized manufacturing business, the parent entity in a massive international group of businesses, and so on, through infinite possibilities. Which of these kinds of activities are encompassed by the expression "manage a corporation"?

15 In my opinion, the words "manage a corporation" refer to the management of corporations generally, not the particular corporation in respect of which the offence occurred, nor any particular subgroup of corporate business activities. It is directed to the overall suitability of the defendant to continue to engage in business management activities in the corporate sphere, encompassing both listed public corporations and unlisted corporate entities. Consequently, a defendant may be a fit and proper person to manage a corporation although the court has concluded that the defendant:

· is not a fit and proper person to continue to manage the corporation in respect of which contraventions occurred, for reasons limited to that particular corporation and not applicable more widely (for example, reasons to do with a bad personal relationship between the defendant and the chief executive of the corporation);

· is not a fit and proper person to manage any corporations pursuing a particular line of lines of business, for reasons to do with lack of expertise in those businesses.

16 However, in my view a conclusion that a defendant has demonstrated some deficiency or inadequacy with respect to a particular corporation or a particular subset of corporations may be a sufficient reason for the court to be satisfied that the defendant is not a fit and proper person to manage corporations generally. The question will be whether the deficiency or inadequacy relates to the defendant's overall suitability to engage in business management activities in the corporate sphere. For example, a finding that a defendant occupying an executive position persistently failed to inform the board of directors of information that the board needed in order to perform its duties might raise a question about that defendant's appreciation of the function of the board of directors of a corporation or willingness to play his or her part in effective corporate governance. Depending on the circumstances, that may be a sufficient basis for the court to conclude that the person was not a fit and proper person to "manage a corporation", even though the deficiency or inadequacy would be relevant to management of certain kinds of corporations (for example, a private investment company of which the person concerned was both sole shareholder and sole director).

17 In my opinion, a finding of deficiency or inadequacy with respect to the operations of a listed public company, of a kind suggesting failure to appreciate or unwillingness to contribute to aspects of corporate governance that are peculiar to listed companies (for example, the continuous disclosure obligation under companies legislation and listing rules) by also mean that the defendant is not a fit and proper person to "manage a corporation", even though the matter concerned has no relevance except for listed corporations. In such a case, a basis for the conclusion that the defendant is not fit and proper to manage any listed corporation is enough to prevent the court from being satisfied that the defendant is fit and proper to manage corporations generally.

18 ASIC also seeks a pecuniary penalty orders against each of the three defendants under s 1317EA(3)(b). The court is not to make such an order unless it is satisfied that "the contravention is a serious one" (s 1317EA(5)). There is another restriction on the court's power, in s 1317EA(6), but it is not applicable on the facts of the present case.

19 In ASIC v Vizard (2005) 54 ACSR 394 at 401 ([25]), Finkelstein J remarked, in passing, that in the case before him, "penalties must be imposed for the contraventions were in the words of the statute 'serious'". The proposition that if the contravention is serious the court must impose penalties would be inconsistent with other authorities, which indicate that the court has a discretion as to whether a pecuniary penalty order should be made (for example, Re One.Tel Ltd (in liq); ASIC v Rich (2003) 44 ACSR 682). Moreover, as senior counsel for Mr Robertson submitted, the language of s 1317EA(5) of the Corporations Law is expressed in terms of a pre-requisite for the making of the order rather than a duty to make it. Perhaps his Honour's point was that if the contravention is found to be serious, the court's discretionary decision will normally be to make a pecuniary penalty order. I intend to proceed on the basis that under s 1317EA(3)(b), the court has a discretion to make or decline to make a pecuniary penalty order when it is satisfied that the contravention is serious.

20 Thus, s 1317EA presents the following issues for determination:

(1) the proper form of the declarations of contravention;

(2) whether the court is satisfied, in the case of each defendant, that he is a fit and proper person to manage a corporation;

(3) if not, whether, in the exercise of its discretion, the court should make a disqualification order in respect of each defendant, and if so, the period of disqualification;

(4) whether the court is satisfied, in the case of each contravention by each defendant, that the contravention is a serious one;

(5) if so, whether, in the exercise of its discretion, the court should make a pecuniary penalty order against each defendant, and if so, the amount of the pecuniary penalty.

21 ASIC seeks a compensation order against Mr Fox, but not against the other two defendants. The amount sought is $489,069, plus interest from 3 June 1999. I am satisfied, for the reasons given in my August judgment, that Mr Fox has contravened civil penalty provisions in the way that I identified in that judgment. ASIC has applied for civil penalty orders (a disqualification order and a pecuniary penalty order) in relation to those contraventions. Therefore the court's power to make a compensation order under s 1317HA(1) arises if the court is satisfied, in respect of any such contravention, that the corporation in relation to which the contravention was committed has suffered loss or damage as a result of the act or omission constituting the contravention. If so, the subsection gives the court a discretion, whether or not it makes a civil penalty order, to order that compensation be paid, of such amount as the order specifies.

22 Section 1317HA(1) therefore raises the following additional issues:

(6) whether the court is satisfied, in relation to any of Mr Fox's contraventions, that the corporation in relation to which the contravention was committed has suffered loss or damage as a result of be contravening conduct or omission;

(7) if so, whether the court should order Mr Fox to pay compensation to that corporation, and if so, the amount of compensation to be ordered.

23 While it is convenient to set out separately the considerations relevant to ASIC's applications for disqualification orders, pecuniary penalty orders and (in the case of Mr Fox) a compensation order, it is important to bear in mind that decisions concerning an order of one kind have a potential impact on the exercise of the court's discretion with respect to orders of another kind. For example, as will be explained, the making of a disqualification order needs to be taken into account when deciding whether to make a pecuniary penalty order. Effectively, the decisions need to be taken together in the realisation that each kind of order is a factor influencing the discretion to make another order. This is not dissimilar to what Santow J described as the "totality" principle, namely that "where a penalty is being imposed for a number of offences, it is necessary to ensure that the penalties in aggregate are just and appropriate" (Adler at [128] to [134], citing Mill v R (1988) 166 CLR 59 at 63).

The form of the declarations of contravention

24 All of the defendants accepted the court should now make declarations of contravention in respect of its findings. In the case of Mr Vines, acceptance of that proposition was expressed to be subject to any decision by the High Court of Australia in the appeal in ASIC v Forge. The appeal was heard on 7 and 8 February 2006 (see [2006] HCA Trans 22 and 25) and judgment is reserved. In light of the constitutional challenge in that case, senior counsel for Mr Vines formally submitted that the transitional provisions of the Corporations Act 2001 (Cth) are invalid and that any liability Mr Vines may have had under the Corporations Law ceased to exist when the state law was repealed, and no corresponding liability was created under the Commonwealth law. On the present state of the law I reject Mr Vines' formal submission.

25 Senior counsel for Mr Robertson submitted, extending the reasoning in the dissenting judgment of McColl JA in Rich v ASIC (2003) 183 FLR 361 at 426, and citing the decision of Bergin J in One.Tel Ltd (in liq) v Rich (2005) 190 FLR 443 at [35], that a declaration of contravention made under s 1317EA is at least in part intended to operate in a penal manner. I do not find it necessary to decide whether that is so as a matter of law. There is ample evidence before me that the findings of contravention in my August judgment have had a very detrimental effect on each of the defendants. Consequently the making of declarations of contravention confirming those findings will perpetuate that effect. The significance of the point is that the court must consider whether, in addition to declarations, ASIC has made out a case for the other relief that it seeks against the defendants.

26 ASIC's proposed draft declarations conform closely to my summary of contraventions, given in the December judgment with respect to Mr Vines and Mr Robertson (at [82]). Senior counsel for Mr Vines criticised the proposed first declaration, on the ground that it omitted an important aspect of the summary in a manner that significantly distorted the summary. My summary said that Mr Vines had failed to inform the DDC that the achievement of the $80 million profit forecast was improbable, "given the unavailability of the American Re agreement, unless the unders and overs analysis that had been considered at the PwC meeting and the estimate of Hurricane Georges liability made by Mr Fox, were correct". The quoted words are missing from the draft declaration. But the quoted words are a statement of the context in which the contravention occurred rather than a qualification of the contravention. They are explanatory material. If explanatory material were to be included, the orders would come to approximate the length of the August judgment. In my view there is no distortion in ASIC's proposed first declaration.

27 Senior counsel for Mr Vines drew attention to my observations in my December judgment (at [82]), about the danger of attempting to summarise detailed factual findings of the kind made in my August judgment. He submitted that it was not appropriate for the court to make declarations by way of an attempted summary of the contraventions. He relied on Warramunda Village Inc v Pryde (2001) 105 FCR 437 at 440, where the Full Federal Court said that "the remedy of a declaration is not an appropriate way of recording in a summary form conclusions reached by the court in reasons for judgment". Mr Vines' submission was that the preferred form of declaration would simply be that "the First Defendant contravened s 232(4) in the manner set out in the court's reasons for judgment in ASIC v Vines [2005] NSWSC 738". He said that the court's reasons for judgment are freely available and the best and fairest approach is to give the reader of the declaration a reference, in the court’s orders, to the document where the full and accurate statement of the contraventions is to be found, rather than adopting a necessarily imperfect summary. In oral submissions, senior counsel for Mr Vines suggested a modification, by which the orders would referred not only to the judgment but also to the paragraphs of the judgment which explain or describe the contravention that has been found to exist.

28 The Warramunda Village case was not a case about declarations of contravention under civil penalty provisions. It was a case about the Federal Court's general power to make binding declarations of rights. The trial judge's declarations did not declare the rights of the parties, but merely resolved a point along the way to ascertaining their rights, giving no determination from which an appeal could be brought. The case has subsequently attracted some controversy (see ACCC v Francis (2004) 142 FCR 1 at [95]-[96]), although as Gray J remarked in the Francis case (at [97]), "it is hard to see that a declaration that a person, by engaging in certain conduct, has contravened a provision of a statute can amount to a declaration of rights". The problem in those cases is quite different from the problem facing the court in the present case.

29 Under the civil penalty provisions of the Corporations Law, when the court is satisfied that a person has contravened a civil penalty provision, it is required by s 1317EA(2) to declare that the person has "by a specified act or omission, contravened the provision in relation to a specified corporation". The subsection requires the declaration to identify the specified act or omission and the specified corporation, and to declare a contravention by the specified act or omission in relation to the specified corporation. A declaration of contravention in the form propounded in Mr Vines' written submissions would not identify any specified act or omission (or even any specified corporation in relation to the contravention, given that there is more than one relevant corporation), and it would not identify a contravention of contraventions by a specified act or omission. A declaration in such a general and uninformative terms might be objectionable per se (see Rural Press Ltd v ACCC (2003) 216 CLR 53 at [89]-[90]), and at least it would fail to comply with the statutory requirement. The modification proposed on behalf of Mr Vines in oral submissions would go too far the other way, because in many cases the paragraphs of my August judgment containing findings of contravention also contain expressions of reasons for my conclusions. What is necessary is for the declaration to set out the matters prescribed by subsection (2), without drifting into an explanation of the reasons for the finding of contravention. That appears to be the practice of this court, as indicated by such recent cases as ASIC v Loiterton (2004) 50 ACSR 693 (where the text of various declarations of contravention, made at an earlier hearing, is set out in the judgment). In my view ASIC's approach to the drafting of the declarations in this case conforms to the court's practice and more importantly, complies generally with the statutory requirement.

30 Senior counsel for Mr Vines criticised ASIC's draft declarations on the ground that a reader of the bed declarations would not be able to assess the importance or lack of importance of the matters to which they refer. But as I understand the requirements of s 1317EA(2), the declarations are not intended to provide a full explanation of the circumstances surrounding the contraventions but merely a statement of the specified acts or omissions constituting the contraventions in relation to the specified corporation. I agree with the submission that, in it cases such as the present one, attempting to specify the ingredients of contravening the acts or omissions in a manner that is succinct, accurate and misleading is a task fraught with difficulty, but that is the task that the legislation requires to be performed.

31 I have reviewed ASIC's draft declarations by reference to my reasons for decision in the August and December judgments. My view is that in the draft is adequate and I am prepared to make declarations in accordance with it, subject to resolving some matters with respect to Mr Robertson, upon which alternative formulations were presented. Senior counsel for ASIC informed me in submissions that ASIC's intention is to remove the footnote references to the judgments from the draft before the orders are made.

32 Senior counsel for Mr Robertson proposed some amendments to ASIC's draft declarations are affecting him. I was handed a marked up version of the draft and counsel for ASIC gave me his comments. I have reviewed the proposed changes and considered those comments. My decisions are:

· the amendments to draft paras 1 and 11 should be made;

· subparas (i)-(iii) of paras 5 and 15 should be made but the final 5 lines of the drafts of those paras should be restored;

· the amendments to paras 6 and 16 should not be made;

· the amendments to paras 10 and 20 should not be made.

33 My reason is that the drafts that I have preferred identify, more clearly and accurately than the alternatives, the specified acts or omissions that constitute the contraventions that I have found against Mr Robertson.

Disqualification orders - principles

34 In Re HIH Insurance; ASIC v Adler (2002) 42 ACSR 80, Santow J (as his Honour then was) reviewed the case law with respect to disqualification orders, observing (at [56]) that the courts had made disqualification orders ranging from life disqualification to three years. He continued ((2002) 42 ACSR 80 at 97-99):

ASIC v Hutchings

ASIC v Pegasus Leveraged Options Group Pty Ltd

ASC v Forem-Freeway Enterprises

ASC v Donovan

ASC v Roussi

Re Strikers Management Pty Ltd; ASC v Dimitri

Re Tasmanian Spastics Association; ASC v Nolan

ASC v Roussi

Re Gold Coast Holdings Pty Ltd; ASIC v Papatto

ASC v Roussi

Re Gold Coast Holdings Pty Ltd

Re Tasmanian Spastics Association

ASC v Donovan

Re Magna Alloys & Research Pty Ltd

ASIC v Pegasus Leverage Options Group Pty Ltd

ASC v Donovan

Re Tasmanian Spastics Association

ASC v Donovan

ASIC v Pegasus Leveraged Options Group Pty Ltd

ASIC v Parkes

ASC v Forem-Freeway Enterprises

ASC v Roussi

ASC v Donovan

ASIC v Parkes

ASC v Forem-Freeway Enterprises

Commissioner for Corporate Affairs v Ekamper

· Character of the offenders;

· Nature of the breaches;

· Structure of the companies and the nature of their business;

· Interests of shareholders, creditors and employees;

· Risk to others from the continuation of offenders as company directors;

· Honesty and competence of offenders;

· Hardship to offenders and their personal and commercial interests; and

· Offenders' appreciation that future breaches could result in future proceedings;

ASC v Roussi

Re Gold Coast Holdings Pty Ltd

· Large financial losses;

· High propensity that defendants may engage in similar activities or conduct;

· Activities undertaken in fields in which there was potential to do great financial damage such as in management and financial consultancy;

· Lack of contrition or remorse;

· Disregard for law and compliance with corporate regulations;

· Dishonesty and intent to defraud; and

· Previous convictions and contraventions for similar activities;

ASIC v Hutchings

ASIC v Pegasus Leveraged Options Group Pty Ltd

ASIC v Parkes

· Serious incompetence and irresponsibility;

· Substantial loss;

· Defendants had engaged in deliberate courses of conduct to enrich themselves at others' expense, but with lesser degrees of dishonesty;

· Continued, knowing and wilful contraventions of the law and disregard for legal obligations; and

· Lack of contrition or acceptance of responsibility, but as against that, the prospect that the individual may reform;

ASC v Forem-Freeway Enterprises

ASC v Donovan

ASC v Roussi

Re Strikers Management Pty Ltd

Re Gold Coast Holdings Pty Ltd

ASC v Roussi

· Although the defendants had personally gained from the conduct, they had endeavoured to repay or partially repay the amount misappropriated;

· The defendants had no immediate or discernible future intention to hold a position as manager of a company; and

· In Donovan's case, the respondent had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings;

ASC v Donovan

Re Tasmanian Spastics Association

35 Santow J's 15 propositions must now be reconsidered in light of Rich v ASIC (2004) 220 CLR 129. The High Court's decision, that proceedings in which an application is made for a disqualification order are proceedings for the imposition of a penalty, for the purposes of the privilege against exposure to a penalty, has very little effect on the propositions. It directly affects only proposition (v), to the extent that a disqualification order should now be regarded as involving the imposition of a penalty.

36 The majority judges in the High Court did not directly consider the principles to be applied by the court when considering whether to make a disqualification order, and if so, the period of disqualification. However, McHugh J considered that topic at some length. His general thesis, expounded at [41], was that although judges frequently said that the purpose of the disqualification provisions is protective, what they did in practice was little different from what judges do in determining what orders or penalty should be made for offences against the criminal law.

37 His Honour enumerated some factors that the courts take into account, in what he referred to as a "synthesis from which the judges make a value judgment concerning whether to order disqualification and, if so, the period of disqualification that should be imposed" (at [43]):

· whether the defendant now is or in future will be a fit and proper person to manage corporations;

· the size of any losses suffered by the corporation, its creditors and consumers;

· legislative objectives of personal and general deterrence;

· contrition on the part of the defendant;

· the gravity of the misconduct;

· the defendant's previous good character;

· prejudice to the defendant's business interests;

· personal hardship; and

· the willingness of the defendant to render assistance to statutory authorities and administrators.

38 He referred to Santow J's 15 propositions with approval, and set them out (at [49]). He remarked (at [50]) that some of the propositions go to the protection of the public, while others relate to considerations that reduce the period of disqualification and therefore benefit the defendant, and still others (such as propositions (v) and (vi)) recognise that the disqualification provisions also have objectives of personal and general deterrence, strongly resembling sentencing principles under the criminal law.

39 He found in Santow J's list of propositions (and also in the comments of the Victorian Court of Appeal in Plymin v ASIC (2004) 10 VR 369) "indications that the factors taken into account in the criminal jurisdiction - retribution, deterrence, reformation, contrition and the protection of the public - are also central to determining whether an order for disqualification should be made under the Corporations Act and, if so, the appropriate period of disqualification", concluding that the jurisdiction cannot properly be characterised as "purely protective" (at [52]). He drew attention to the special importance of retribution, which, he said, is "as much a factor as protection of the public". This was indicated, according to his Honour, by decisions to the effect that the larger the loss, the longer the period of disqualification that is justified; and decisions placing emphasis on personal benefits obtained by the defendants from their wrongdoing (at [56] to [57]).

40 In his written submissions, senior counsel for Mr Vines sought to distinguish the observations of McHugh J about retribution, on the ground that his Honour was speaking of a later version of the disqualification power, in s 206C of the Corporations Law. The submission was that the earlier jurisdiction to disqualify a person from managing a corporation was purely protective, without any punitive dimension, because the court was prohibited from making a disqualification order if it was satisfied that the defendant was a fit and proper person to manage a corporation (citing Re Tasmanian Spastics Association (1997) 23 ACSR 743 at 751, per Merkel J; and ASC v Donovan (1998) 28 ACSR 583 at 602, per Cooper J). In my opinion, while McHugh J's judgment referred to a later version of the disqualification power, the difference in the statutory provisions does not serve to distinguish his Honour's reasoning. The opinion of the majority judges in the High Court, including McHugh J, was that a disqualification order is necessarily punitive, for the purposes of the privilege against exposure to a penalty. That reasoning applies equally to the civil penalty provisions in force in 1998 and the amended provisions that came into force in March 2000. As McHugh J pointed out (at [42]), in a purely protective regime the only issue for the court would be whether the defendant was or would in future be a fit and proper person to manage corporations. But s 1317EA(4) does not make the defendant's suitability the sole criterion.

41 Retribution, as a factor influencing the exercise of the court's discretion with respect to an application for a disqualification order, was considered by Finkelstein J in ASIC v Vizard (2005) 54 ACSR 394. He said (at [33]):

"While retribution is important as a stamp of society's disapproval of particular conduct, the governing principle of 'sentencing' in cases of the kind with which we are concerned is general deterrence. The sentence must be exemplary and sufficient so that members of the business community are put on notice if they break the trust which has been reposed in them they will receive a proper punishment."

42 Later he added (at [40]):

"Formal retribution is a necessary element in imposing a proper punishment because it ensures the punishment is just and appropriate to the circumstances. Formal retribution takes into account the moral culpability of the offender, having regard to his motive for wrongdoing, his intentional risk-taking, the harm (if any) that has been caused by the offence, and the standard the offender's behaviour."

43 ASIC referred in submissions to other cases decided after Santow J's decision in Adler, on the ground that while other decisions as to penalties should not be applied by factual analogy, they may be used as a guide (Adler at [70]). I have considered those cases: Re One.Tel Ltd (in liq); ASIC v Rich (2003] 44 ACSR 682 (with respect to Mr Keeling); ASIC v Loiterton (2004) 50 ACSR 693; ASIC v Vizard (supra) and ASIC v Rich (2004) 50 ACSR 500 (with respect to Mr Greaves). I have not found them to be of any direct assistance, because of differences in the factual circumstances and the nature of the contraventions.

44 Plymin v ASIC (2004) 10 VR 369 provides some useful guidance at the level of principle. There the trial judge held that the managing director, who had contravened the insolvent trading provisions of the Corporations Law, should be disqualified for 10 years. He found that the defendant was not a fit and proper person to manage a corporation, and said that the protection of the public is the paramount objective. The Court of Appeal reduced the period of disqualification to 7 years. Their Honours acknowledged (at [145]) that deterrence, specific and general, and protection of the public are strong factors to be taken into account. But they decided to reduce the disqualification period having regard to some "mitigating factors” (such as the managing director's unblemished record, his remorse, the assistance he had rendered to the administrators, and the prospect of rehabilitation. It was also relevant that a number of the factors listed by Santow J in his proposition (xiv), for disqualifications ranging from 7 to 12 years, were not present. Additionally, they were influenced by the discrepancy between the disqualification period for the managing director and the periods fixed for other defendants.

45 The last point has particular resonance here. There must be a persuasive rationale for any differences in the disqualification periods for each of the defendants. This reflects the sentencing principle of parity in the criminal law, according to which there should not be a marked disparity between sentences imposed on co-offenders such as would give rise to a justifiable sense of grievance: Postiglione v The Queen (1997) 189 CLR 295; see Adler at [131].

46 Senior counsel for Mr Vines submitted that some guidance could be obtained by considering Santow J's findings in respect of Mr Fodera. I have considered that submission and his Honour's judgment. The facts are so different that I do not find the decision and reasoning in relation to Mr Fodera to have any useful application to the present case, except for the indication (at [174]) that it is relevant, taking into account the protective purpose of the disqualification provisions, to consider whether it is likely that the defendant will in future fail to appreciate the importance of the matter in respect of which contraventions have occurred.

Pecuniary penalty orders - principles

47 In the Adler case, Santow J reviewed earlier decisions dealing with the discretion to impose a pecuniary penalty, summarising the relevant principles as follows (at [126]):

ASC v Donovan

ASC v Forem-Freeway

Re Tasmanian Spastics Association

ASC v Forem-Freeway

ASC v Donovan

ASC v Forem-Freeway

· the defendant was aware of impropriety of actions;

· no intention to deprive company permanently of funds;

· amount in question is not large;

· no deliberate falsification of accounts;

· case classified as being serious misconduct, but not worst case;

Re Tasmanian Spastic Association

ASC v Donovan

· remorse and contrition shown;

· efforts to repay misappropriated funds;

· acted upon the advice of professionals;

· did not contest the proceedings, sought to save costs in proceedings;

· tended not to involve dishonesty, but negligence or carelessness;

· previously unblemished character;

· further contraventions unlikely;

ASC v Donovan

ASC v Spencer

48 There are some indications in the case law that pecuniary penalty orders are to be resorted to only if the court concludes that a disqualification order will not do justice. In Rich v ASIC, at [45], McHugh J quoted extensively from the first draft of the Corporate Law Reform Bill 1992 (Cth), in which it was said (at para 178):

"It is expected that the courts would consider imposing a pecuniary penalty only if it [sic] considered that a civil penalty disqualification provided an inadequate or inappropriate remedy."

49 Senior counsel for Mr Robertson cited some observations of Spigelman CJ in Rich v ASIC (2004) 183 FLR 361 at 382 (reversed: Rich v ASIC (2004) 220 CLR 129), where his Honour also referred to the explanatory paper, and observed that "the imposition of a pecuniary penalty was higher in the pyramid of sanctions than an order prohibiting a person from managing a corporation". He said that hierarchy was made clear by s 1317EA(5), which permits the court to impose a pecuniary penalty only if it is satisfied that the contravention is serious. There is no similar requirement in relation to disqualification orders.

50 Counsel for ASIC contended that the pyramid of enforcement was eroded by High Court's decision in Rich, which meant that disqualification orders were not purely protective and both disqualification orders and pecuniary penalty orders are now available for deterrence and retribution.

51 I agree with ASIC's submission, in this sense. If there is a pyramid or hierarchy, it yields where there is a good reason for the court to make a pecuniary penalty order as well as a disqualification order. The explanatory paper contemplated, in the passage quoted by McHugh J in the High Court, that in appropriate circumstances the court might choose to impose both a civil penalty disqualification and a pecuniary penalty in relation to one contravention. Such orders have been made: for example, in ASC v Donovan (1998) 28 ACSR 583 a disqualification order and a pecuniary penalty order were made against each respondent.

52 The approach to be taken by the court in fixing the amount of a pecuniary penalty, once a decision has been reached to impose a penalty, was explained by Santow J in the Adler case, at [127]-[132], [140]. It is appropriate to impose a single penalty against a defendant for all of that defendant's contraventions, but if the penalty is being imposed for a number of contraventions, it is necessary to ensure that the aggregate amount is just and appropriate. Care must be taken to bring into account the differences in conduct which are the subjects of the various findings of contravention, and to avoid artificial claims of disparity between co-contraveners. Santow J said he sought to apply the totality principle in a way that would act as a personal and general deterrent without being oppressive, bringing to bear what the High Court has referred to in sentencing as an "instinctive synthesis" of relevant factors (citing Wong v R (2001) 185 ALR 233 at 252). Inevitably a degree of artificiality is involved in allocating the aggregate amount to the individual contraventions.

ASIC's allegations of dishonesty and impropriety, and adverse publicity

53 It is appropriate to deal separately with this matter, because similar submissions were received from Mr Vines and Mr Robertson and it is necessary to make some findings of fact for the purpose of assessing the submissions.

54 When this proceeding began, ASIC was alleging, in addition to its claim that the defendants failed to exercise reasonable care and diligence (s 232(4)), that they made improper use of their positions in relation to the profit forecasts, and that Mr Vines and Mr Fox made improper use of their positions in relation to the American Re reinsurance contract (s 232(6)). In September 2001 ASIC amended its pleadings to include allegations that the defendants also acted dishonestly in relation to these matters (s 232(2)). The pleadings were amended again in October 2003, with the effect of abandoning the allegations of improper use of position and dishonesty, except for the allegation of dishonesty against Mr Fox.

55 Both Mr Vines and Mr Robertson made submissions referring to ASIC's initial announcement that it had commenced the proceeding. They emphasised the degree of adverse publicity their clients received at that time - in particular, adverse publicity arising out of the allegation of improper use of position. They pointed out that until 10 March 2006, ASIC's initial announcement remained on its website and no announcement was made that ASIC had withdrawn its allegations of dishonesty and propriety against them in October 2003.

56 The initial announcement was made by Media Release 01/217 on 20 June 2001. The announcement said ASIC was alleging that the respondents (identified as the three defendants) improperly used their positions and failed to exercise the duties of care and diligence required by the Corporations Law, when preparing forecasts and other relevant information for consideration by the board and the DDC. The announcement recorded ASIC's allegation that as a consequence of their failure properly to discharge their duties, information was released to shareholders that was seriously defective and misleading. It said ASIC also alleged that Mr Vines and Mr Fox made improper use of their positions as directors of GIO Insurance in respect of (in effect) the American Re agreement.

57 ASIC's announcement was widely reported in the media. The media reports conveyed the idea that there were charges of improper use of position against all defendants.

58 For example, on 21 June The Australian Financial Review referred to "improper conduct by the executives directly involved". On the same day The Sydney Morning Herald referred to ASIC's allegations that "these men" (naming the three defendants) improperly used their positions and failed to exercise the duties of care and diligence required by the Corporations Law when preparing forecasts and other relevant information for consideration by the board and due diligence committee. On the same day, a columnist in The Australian referred to ASIC's allegation, said to be that the "the trio" (who were named) improperly used their positions and failed to discharge their duty of care and diligence when preparing forecasts and other relevant information for consideration by the board and due diligence committee.

59 An article in a publication called "CFO" on 1 August 2001 grouped ASIC's complaints against the defendants with other corporate calamities, some of which had involved allegations of fraudulent conduct. Similar associations were made in an article in The Australian on 7 September 2001, headed "Knott's A-list is one to avoid". In a long article in The Weekend Australian on 4 January 2003 ("Headhunter - Inside David Knott's Trophy Cabinet") the present proceeding was noted in conjunction with discussion of cases involving allegations of insider trading and other criminal activity, with no indication of the nature of the allegations against the present defendants except that they were for breach of duty. It seems to me that if the allegations against Mr Vines and Mr Robertson were confined to failure to exercise reasonable care and diligence, with no allegation against them of dishonesty or impropriety, some differentiation would have been needed between their position and the position of others against whom charges of fraud or dishonesty had been made.

60 In some of the media coverage, an suggestion was implied that according to ASIC's case, the defendants' breaches of duty may have resulted in the reinsurance division reporting a loss for the year ended 30 June 1999 of $759 million. For example, in a program broadcast on the ABC's PM program on 20 June 2001, the presenter said the GIO urged shareholders to resist the takeover bid by the AMP, backing it up with strong profit forecasts; then asserted that by August 1999 GIO's reinsurance losses had blown out to a "shocking" $759 million; and then referred to ASIC's allegation that the three defendants played a key role in preparing the profit forecasts.

61 There were further newspaper articles during the period up to commencement of the hearing, during the hearing, and after publication of my August judgment. But none of them adverted to the fact that the pleadings had been amended to limit the case against Mr Vines and Mr Robertson to a case of breach of duty of care.

62 At the hearing on 15 and 16 December 2005 of the applications by Mr Vines and Mr Robertson for relief under ss 1317JA and 1318, senior counsel for those defendants drew attention to ASIC's website, which at that time still contained the initial announcement without any correction to say that the allegations of improper use of position were withdrawn in October 2003. That meant, as Mr Vines pointed out in his affidavit of 24 February 2006, that anyone using the "google" facility on a computer to search his name would identify the initial media release as well as a number of other reports on the initial allegations in the case. He said the "google" facility is a very public medium used extensively by companies as a source of reference for dealing with new business associates of a considering new applicants for work.

63 No adequate explanation has been given to the defendants or the court as to why ASIC brought claims based on allegations of impropriety and dishonesty and then abandoned them after two years. In their submissions Mr Vines and Mr Robertson emphasised the gravity of those charges and the scope of damage to their reputations, as well as the personal and professional distress to them involved in making and publicising the allegations.

64 Mr Vines' submissions cited Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at 867, where the Full Court of the Supreme Court of Victoria observed that if a claim is made against individuals in relation to their probity or competence, it is not hard to infer that the defendants are under a heavy burden, and added:

"But where a claim extends beyond mere casual negligence to acts which reflect upon the competence or probity of a defendant, especially when that competence or probity is critical to the defendant's future livelihood, then the delay in bringing an action on for hearing will probably be held to impose severe additional prejudice on a defendant."

65 Mr Vines' submissions also referred to Eva v Southern Motors Box Hill Pty Ltd (1977) 30 FLR 213 at 222-3, where Smithers J said that in assessing appropriate punishment for a crime, the court is required to take into account a variety of associated circumstances including adverse publicity. He said:

66 In my December judgment (at [118]-[119]) I found that the publicity with respect to allegations of impropriety that were later withdrawn was a factor relevant to the exercise of my discretion whether to grant relief under the "honesty defence", but I found that it was not a weighty matter on that issue. I expressed the view that if ASIC commences a proceeding for dishonesty or impropriety as well as negligence, and announces to the world that it has done so, and later withdraws the allegations of dishonesty and propriety, it should take scrupulous care to make a further announcement countermanding the previous one. But I decided that the primary remedy was for ASIC to correct the public record rather than for the court to use what was essentially a collateral matter as a ground for granting relief from liability for the contraventions.

67 On 10 March 2006, more than 2 1/2 months after publication of my December judgment containing these observations, ASIC published media release 06-072 on its website. The new announcement referred to and summarised the initial announcement, and then summarised the amendments to the pleadings made in September 2001 and October 2003, though without any explanation of the reasons for the amendments. The announcement noted that the court had found that the defendants breached the duty to act with reasonable care and diligence on certain occasions and that Mr Fox had breached his duty to act honestly, and that the court had subsequently rejected applications by Mr Vines and Mr Robertson for relief from liability, and would be conducting a hearing on penalties later that month.

68 I regard the announcement of 10 March 2006 as adequate to countermand the impression created by the earlier media release, but there is still no adequate explanation for the fact that ASIC did not make such an announcement in October 2003, or least well before March 2006. The observations of the courts in the Bishopsgate Insurance and Southern Motors cases need to be borne in mind by ASIC when it makes media releases of the kind made in this case in June 2001. Importantly for present purposes, a consequence is that Mr Vines and Mr Robertson have suffered avoidable prejudice over a substantial period of time, which is to be taken into account by the court in exercising its discretions with respect to disqualification orders and pecuniary penalties.

Mr Vines' circumstances and character evidence

69 Mr Vines is 57 years of age. He has been married for 29 years and has two children, aged 25 and 23. This year he is undertaking postgraduate studies in Environmental Science at Macquarie University. His only directorships are in two proprietary companies, which are the trustees of the Vines Investment Trust and the Vines Family Trust. The trusts have passive investments and the corporate trustees do not engage in any activity other than as trustees. The discretionary beneficiaries of the trusts are members of his family. He has not provided any specific evidence of his financial circumstances.

70 As noted in paras [26]-[28] of my August judgment, Mr Vines is by profession and training a chartered accountant and auditor. He worked with Price Waterhouse from 1968 to 1995, becoming an audit partner in 1981, specialising in banking while also being auditor of GIO Australia Holdings. He was the managing partner for New South Wales during his last five years at Price Waterhouse. One of the witnesses who gave evidence in his case called him one of the "stars" of PwC. He explained in his affidavit of 24 February 2006 that in his position as managing partner, he was accountable to the Management Committee and Board of the firm for the six offices he managed (comprising 120 partners and approximately 1200 staff) to ensure compliance with the firm's quality control standards. As a member of the Price Waterhouse Australasian firm's Management Committee and Policy Board, he was involved in setting the firm's professional standards, the implementation of compliance systems and the management of actions against the firm in respect of "troublesome practice matters". For approximately four years in the late 1970s/early 1980s he was a member of the Membership Committee of the Institute of Chartered Accountants, which assessed applicants for membership and had responsibility for issues such as the qualifications and suitability of applicants.

71 Mr Vines commenced his employment with GIO in July 1995. I reviewed his responsibilities at GIO in my August judgment (at [29]-[36]). After his employment with GIO ended in 1999, he became a senior executive officer with Reinsurance Australia Corporation Ltd (ReAC, the name of which was changed to Calliden Group Ltd in February 2005). At the time of commencement of the proceeding in June 2001, he was chief executive officer of ReAC, managing the solvent run-off of the company. His initial financial investigation and subsequent monitoring of ReAC's financial progress were carried out in close association with the Australian Prudential Regulation Authority (APRA).

72 Mr Vines says he is particularly proud of his work at ReAC, which had come close to extinction and, after his intervention, had embarked on the re-establishment of the general insurance business. One of his witnesses described his role at ReAC as "pivotal" in the company's turn-around. This is of some significance to the present case because, as one of Mr Vines' witnesses pointed out, ReAC's reinsurance contracts included some contracts covering risks similar to those the subject of the present proceeding, and there were a number of similarities between the reinsurance businesses of ReAC and GIO.

73 ReAC was a listed non-life reinsurer incorporated in New South Wales, with offices abroad. It had suffered serious underwriting and financial loss in 1998 and its capital base had been depleted. Shortly after Mr Vines arrived at ReAC, very strong windstorms caused substantial damage in Europe leading to further large reinsurance losses in ReAC. Its board considered whether the company should be put into voluntary administration, but the board's decision was to stop underwriting new risks and confine itself to running off its liabilities. Mr Vines' work involved establishing a system of monthly solvency reviews in conjunction with APRA, drastically reducing staff, closing several international branches and establishing new systems and standard procedures for run-off. During his first two years as chief executive, the board or its urgent issues subcommittee found it necessary to meet approximately 75 times. Mr Vines was frequently required to seek professional advice in Australia and overseas from actuaries, solvency experts, loss adjusters and lawyers, including advice in relation to commutation of claims and complex reinsurance litigation. This work appears to have been successful. During Mr Vines' tenure as chief executive, ReAC's capital base rose from a low of $35 million to $84 million and its insurance liabilities fell from $1.3 billion to approximately $40 million.

74 Not long after the ASIC announcement of 20 June 2001, the chairman of the board of directors of ReAC, Richard Hill, was approached by APRA with the suggestion that Mr Vines should be stood down from his role as chief executive, given the seriousness of the allegations that ASIC had made against him. The board considered that suggestion and determined, unanimously, not to do so, while agreeing to keep the matter under review. Mr Vines remained as chief executive of ReAC until 30 June 2004, though in the period from August 2003 to February 2004 he significantly reduced his involvement in management activities (with reduced remuneration), with the knowledge of acquiescence of the board, to concentrate on his preparation for the hearing.

75 In February or March 2004 Mr Vines attended a further meeting with APRA, together with Mr Hill, to discuss ReAC's future. ReAC was seeking to emerge from its position in run-off and to commence writing new business. After the meeting Mr Hill told him that he thought the senior representative of APRA had been uncomfortable at the presence of Mr Vines at the meeting. Mr Vines gave evidence that he reflected on Mr Hill's comments, and concluded he could not lead the company during the next phase, when it would be seeking to obtain a new insurance licence from APRA. At a subsequent board meeting of ReAC, Mr Vines outlined the position and the board accepted his proposal that he should resign from the company effective 2 July 2004, though each board member expressed their regret at losing him as chief executive. Mr Hill told him that, depending on the outcome of the case, he would be delighted if Mr Vines were to take a position as a non-executive director of ReAC, but they agreed that he would not do so pending the decision in this proceeding.

76 Mr Vines gave evidence of approaches made to him, and applications by him, for employment after he left ReAC and before conclusion of the hearing. He had interviews but the discussions did not come to anything. He disclosed the proceeding against him, which had not been resolved, and in some cases it was agreed that potential employers would have to inform their own clients were he to be engaged by them. Mr Vines said that while the judgment was reserved, he considered it untenable to actively seek out any full-time employment, because any potential employer would reasonably wish to know the outcome of the case.

77 According to Mr Vines' evidence, the past five years should have been a time when his earning capacity was at its height. In other circumstances, following his retirement from full time employment, he would have expected to have been offered non-executive directorships, having regard to his background and qualifications. It seems to me that such an expectation would have been reasonable. Indeed, the evidence given on his behalf leads me to conclude that offers of non-executive directorships on good-quality boards would have been likely. He said he was hoping to be in a position to emulate his father, Sir William Vines, who was chairman or a non-executive director of several major public companies and governmental and charitable bodies. In fact, he has not been in regular employment since June 2004, his only employment being limited professional coaching assignments from which he earned approximately $6,000.

78 Mr Vines gave evidence that he has always sought and striven to uphold the highest standards of moral and ethical integrity in his personal and professional life. His service for the Institute of Chartered Accountants and on the Management Committee and Policy Board of Price Waterhouse provide some support for that claim. He testified to the effects of the proceeding on him and his family. He spoke of the great distress he had felt when ASIC commenced the proceeding, particularly because of the allegations of dishonesty and improper use of position, which ASIC withdrew only after two years. He said they were a serious slur on his character and severely undermined his professional reputation and standing in the business community, which had been based on 30 years of exemplary behaviour.

79 Mr Vines said that the allegations of dishonesty and impropriety had potential ramifications as to the availability of professional indemnity cover for the defence of the proceeding. He said he was well aware of the high cost of legal services and was greatly concerned that a potential consequence of the making of the allegations would be to expose him and his family to enormously burdensome financial pressure in relation to the defence of the proceeding. He said the matter was raised with him by his initial legal adviser soon after the allegations were made. I accept Mr Vines' evidence that the risk of exposure to legal costs caused him considerable distress, but I infer that ASIC's withdrawal of the allegations of dishonesty and impropriety meant that his apprehensions about lack of professional indemnity cover were unfounded.

80 Mr Vines said that apart from the distress caused by ASIC's allegations, he found the trial and the preparation for it to be highly stressful, because of the sheer volume of evidence, requiring many weeks of intense study. His health suffered and his wife was also detrimentally affected by the extended period of high stress.

81 He gave evidence that my findings of contravention in the August judgment were deeply distressing to him, because he had always sought to live up to the highest professional standards and genuinely believed, at the time of the events in question, that he had done so. He said he accepted the court's decision and added:

"Were I ever to be in a similar position (which I now do not expect to be), I would unhesitatingly have regard to and seek to apply the standards in respect of which the court has held my conduct to have been deficient".

82 Evidence (including character evidence) has been given in support of Mr Vines in affidavits by the following:

· David Craig, currently chief financial officer of Australand Property Group and formerly a colleague of Mr Vines at PwC;

· Jack Lowenstein, executive director and deputy chairman of Hunter Hall International Ltd and a director of other companies, who had dealings with Mr Vines at ReAC because Hunter Hall was one of the largest investors in ReAC;

· Robert Tobias, a partner at Philips Fox solicitors, specialising in corporate and securities regulation and compliance, who was an adviser to Mr Vines at ReAC;

· Timothy Price, a partner at Phillips Fox in the insurance and risk management area, who also advised Mr Vines at ReAC;

· James Williams, group executive for corporate relations and culture at MBF Australia Ltd, who was general legal counsel at ReAC when Mr Vines was employed by that company;

· Donald Findlater, a senior partner in KPMG's audit practice and the audit partner at KPMG responsible for ReAC while Mr Vines was employed with that company;

· Richard Wilkinson, a director of KPMG Actuaries Pty Ltd specialising in the valuation of insurance companies, who was ReAC's approved actuary;

· David White, who was a senior partner with McKinsey and Co providing strategic consulting advice to GIO while Mr Vines was the chief financial officer of the GIO Group, and undertook a diagnostic review of ReAC after Mr Vines had become chief financial officer of that company;

· Mark Moyes, who held various offices with ReAC including General Manager Claims and Services, while Mr Vines was employed with that company;

· Richard Hill, who was chairman of ReAC while Mr Vines was employed with that company;

· Leslie Phelps, a senior executive at APRA from 1998 until July 2002, who had previously worked in banking supervision for the Reserve Bank of Australia.

83 A strongly positive impression emerges from this evidence as to Mr Vines' sound character, honesty and integrity, and his high ethical and professional standards. All of the deponents adhered to their favourable views of his character notwithstanding the court's findings of contravention, and some gave evidence to the effect that they regard those findings as out of character for him. On the contrary, they stressed such things as his open and professional approach, his very good understanding of the business of reinsurance and his particular strength on the accounting aspects, his careful attention to detail, his consistency in dealing with people, his ability to ask the appropriate questions, his willingness to seek and accept legal advice, and the transparency of his management and work style. Some of them said Mr Vines is the type of person that would treat the court's findings against him very seriously and ensure that in future, in similar circumstances, all relevant information was conveyed to the board of directors.

84 Those who were involved with him at ReAC, when Mr Vines had responsibilities for keeping directors informed about complex insurance matters, mentioned the quality of the briefings and advice that he gave to the ReAC board. Mr Wilkinson said Mr Vines was "at the top end of people in his position". Mr Hill said the continuing question whether ReAC should continue to trade or be put into liquidation placed an enormous strain on Mr Vines as its chief executive, and he always handled that "with great countenance, and with very clear and considered advice to the Board". Mr Price said that many of the issues confronting ReAC were "life-threatening" and often required decisions on complex issues to be made on an urgent basis, and yet in his assessment Mr Vines was no less cautious or diligent in his approach under those pressures. Mr White said that in 1999 ReAC was facing high risk exposures that were not well understood by the management team and the board; when he was appointed Mr Vines ensured that Mr White was given all the information he needed for the purposes of his diagnostic review, to which Mr Vines contributed with particular diligence. I was particularly impressed by the observations by Mr Phelps, from the perspective of ReAC's regulator. He found Mr Vines open and forthright, he had no reason to doubt Mr Vines' honesty or integrity or to believe that relevant information was being concealed, and he was impressed by Mr Vines' diligence and hard work which were reflected, he said, in ReAC's subsequent success as a profitable company.

85 Mr Vines does not expect to be offered any directorships or similar positions because of the findings of contravention against him, and effectively he is now retired, 13 years earlier than intended. But he asks the court not to disqualify him from acting as a director or managing corporations should an opportunity present itself. He says his professional and management experience over many years put him in a position to make a valuable contribution at board level.

86 The evidence indicates that there is a non-negligible prospect that he may be offered board positions and even a position in senior management if he is not disqualified from managing corporations. Mr Craig said in his affidavit that Mr Vines would make an extraordinary company director as he possesses a rare combination of skills, and that he would have no hesitation in recommending him for senior executive roles or non-executive board positions. Mr Lowenstein expressed the opinion that because of the "stigma" of the proceeding and the findings, boards would be reluctant to appoint Mr Vines, but he expressed the view that Mr Vines could make an excellent contribution to a number of boards in a reasonable range of industries, and pointed out that the "searching examination" he had endured in this case on matters of conduct and judgment would arguably only enhance his ability to contribute. Mr Moyes, who is now an independent consultant to the insurance industry with particular emphasis on reinsurance matters, said he would not hesitate working with Mr Vines in the future and would be happy to recommend him to clients, leaving it up to the client to decide whether they would retain Mr Vines given the findings made against him.

87 On the other hand, Mr Hill gave evidence of his conversations with representatives of two executive placement firms, both of whom said that my August judgment meant that they would not put Mr Vines forward for any positions. Mr Hill expressed the view that Mr Vines will find it extremely difficult to be appointed to a senior executive or non-executive director position. He said the Court's findings have had and will continue to have an extremely punitive effect on Mr Vines' career.

The court's findings against Mr Vines

88 I found that Mr Vines was chief financial officer of GIO Australia Holdings and that he had assumed a "special responsibility with respect to the integrity of the profit forecast" (August judgment, at [1128]). Although he was a director of GIO Insurance, I found that his contraventions were committed in his capacity as an executive officer of GIO Australia Holdings (August judgment, at [1129]).

89 My summary of findings in respect of Mr Vines, in my December judgment (at [82]) was as follows:

(1) Before or in the course of giving his management sign-off on 8 December 1998, Mr Vines failed to ensure that the DDC was properly informed of all material aspects of the maintenance of the reinsurance profit forecast. He failed to inform the DDC that the achievement of the $80 million profit forecast was improbable, given the unavailability of the American Re agreement, unless the unders and overs analysis that had been considered at the PwC meeting and the estimate of Hurricane Georges liability made by Mr Fox, were correct (August judgment at [1167]).

(2) On 8 December 1998, Mr Vines failed to draw the attention of the DDC to those parts of the draft Part B statement that implied that the reinsurance profit forecast would be achieved on the basis of assumptions that did not spell out the position known to him, and he failed to invite the DDC to consider some re-drafting in light of the matters of disclosure that he was obliged to bring to their attention (August judgment at [1168]).

236 The five remaining contraventions of the duty of care (propositions (6)-(9) and (11) in my list of contraventions) are, in my opinion, of equivalent seriousness, and also approximately equivalent to the individual contraventions of the duty of care by Mr Vines and Mr Robertson. In my view the pecuniary penalty for each of them should be, subject to mitigating factors, $10,000.

237 In the result, the pecuniary penalty should be $270,000, subject to mitigating factors. In my opinion that outcome is correct, considered at the aggregate level.

238 There are some mitigating factors that tend to reduce the disqualification period and the amount of the pecuniary penalty, but they are not particularly strong. They include the fact that Mr Fox has suffered by virtue of the long period between the commencement of the proceeding in June 2001 and its final resolution, and by virtue of the publication of the findings of contravention, which will be followed by declarations of contravention. His case, however, ASIC did not publish its intention to allege more serious contraventions than that it in fact alleged at the hearing. Mr Fox's dishonesty contraventions are, as I have said, not in the worst category, though very serious. The evidence indicates that there has been no previous misconduct, and so (as his counsel submitted) Mr Fox should not be regarded as a "serial offender" or a fraudster. While I accept that submission, I do not propose to follow counsel into the speculation about why Mr Fox might have acted the way he did, beyond what I said in my August judgment at [584]. The wrongdoing occurred over a relatively short period of time, although, counterbalancing that, there was a pattern of contraventions of a very serious kind.

239 It appears that Mr Fox is facing a very large bill for legal costs, both because his professional indemnity insurer has given notice that it will seek to recover more than $1.155 million from him and because there will be an order that he pay some of ASIC's costs, as well as costs he may have incurred on his own behalf in recent times. He is not receiving a pension and appears to have very few assets, although I would not infer on the basis of the evidence (as counsel for Mr Fox invited me to do) that Mrs Fox is supporting her husband. That is something that could easily have been proved directly. In the result, the evidence of financial hardship is somewhat ambiguous.

240 It is also relevant to take into account the combined effect of the various orders that are to be made, including the compensation order discussed below. After taking all these matters into account, and endeavouring to weigh them up as best I can, I have reached the conclusion that the correct disqualification period is a "notional" period of 12 years, and the correct aggregate pecuniary penalty is $220,000.

241 As in the case of Mr Vines and Mr Robertson, I intend to take into account the delays that have affected this case in fixing the actual period of disqualification for Mr Fox. I do so for the reasons set out in the case of Mr Vines. Therefore the disqualification period will commence to run when I make the order and will continue for an additional 9 years after 30 June 2007.

ASIC's claim against Mr Fox for a compensation order

242 ASIC claims, under s 1317HA(1), that the court should order Mr Fox to pay compensation to GIO Insurance (now Gordian Run-Off Ltd) in the sum of $489,069. In its written submissions dated 9 March 2006, ASIC sought interest on that sum from 3 June 1999, but in a supplementary written submission dated 24 March 2006, the claim for interest was withdrawn, for reasons I shall explain.

243 ASIC's claim to compensation arises out of my findings that Mr Fox contravened the duty of care and diligence in s 232(4) of the Corporations Law and the duty of honesty in s 232(2) in respect of the American Re agreement and the letter of offer of 13 November 1998. My findings of contravention are at [1470] and [1476]. It is said that those contraventions lead to an entitlement to claim compensation under s 1317HA(1).

244 To make out its case for a compensation order under s 1317HA(1), having established that a person contravened civil penalty provisions, ASIC must prove that "the corporation in relation to which the contravention was committed has suffered loss or damage as a result of the act or omission constituting the contravention". ASIC alleges that loss was suffered by GIO Insurance. If this ingredient is proved, the court "may (whether or not it makes an order under subsection 1317EA(3)) order the person to pay to the corporation compensation of such amount as the court specifies" - that is, the court has a discretion as to whether compensation should be ordered, and if so, the amount of compensation (ASIC v Loiterton (2004) 50 ACSR 693 at [110]). Therefore the questions to be considered are whether GIO Insurance has suffered loss or damage as a result of Mr Fox's acts of contravention in relation to the American Re agreement and the letter of offer, and if it had is, whether the court should exercise its discretion to order payment of compensation and if so, in what amount.

245 Section 1317HA(1) requires the court to identify the loss or damage suffered by the corporation "as a result of" the act of contravention. In Re HIH Insurance Ltd; ASIC v Adler (2002) 41 ACSR 72 at [752], Santow J accepted a submission that the concept of loss that has "resulted form" contravening conduct (the modified wording used in the successor to s 1317HA(1)) is the equitable test of causation applied in claims against fiduciaries, rather than the common law approach. His Honour's observation was obiter, because he found (at [768]) that the loss that had been identified had "resulted from" the identified contraventions, whether one applied the equitable or the common law test of causation. In the Court of Appeal Giles JA (with whom Mason P and Beazley JA agreed) disagreed with Santow J's view (at [707]). In his Honour's view, "the words 'resulted from' are words by which, in their natural meaning, only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation" (at [709]). The words should be given "their ordinary meaning of requiring a causal connection between the damage and the contravening conduct, free from the strictures of analogy with equitable claims against fiduciaries" (at [709]). In my view this approach is to be followed in the present case, even though the wording of the statutory provision before me for consideration is slightly different from the provision considered by the Court of Appeal.

246 When considering a claim for interest in the Adler case, Santow J again drew analogy with claims against defaulting fiduciaries (at [774]). But in the Court of Appeal, Giles JA held (at [728]) that the analogy with an award of interest against a defaulting fiduciary should not be adopted. Instead, the inquiry to be made under the statutory provision is an inquiry into loss resulting from the contraventions, and the suffering of loss through loss of use of money is a matter of fact and is to be determined by evidence. Presuming a use made by the recipient of the money, or by the company, is not a correct approach.

247 Assuming, correctly, that this court would follow the approach of Giles JA notwithstanding the slight differences in the wording of the provisions, ASIC has abandoned its claim for interest.

248 Applying the Court of Appeal's approach in Adler, it is necessary to consider whether, as a matter of fact, there is a causal connection between loss suffered by GIO Insurance and Mr Fox's contravening conduct in relation to the American Re agreement and the letter of offer. ASIC claims that GIO Insurance's losses the difference between the amount it paid in premium under the American Re agreement and the amount it received back when a commutation was negotiated. I shall return to that matter. First I shall consider the question of causal connection.

249 My findings of contravention against Mr Fox in paras [1470] and [1476] of my August judgment (and propositions (3) and (10) in the summary of my findings set out above) say that Mr Fox "caused or participated in causing" GIO Re to enter into the American Re agreement. The words "caused or participated in causing" reflect relevant parts of ASIC's pleading and submissions.

250 Occasionally in the course of giving my reasons for those findings, I used different language to express the relationship between entry into the American Re agreement and contravening conduct by Mr Fox. Thus, I observed that Mr Fox was "substantially engaged in the [American Re] transaction, as Mr Schneider's supervisor" (at [1459]). I said (at [657] and [1459]) that the terms of the placement slip and the evidence showed that "Mr Steffey and Mr Vines (to the extent that they were involved), and Mr Fox and Mr Schneider, caused GIO Re to enter into the American Re placement slip for the sole or primary purpose of protecting the profit forecast from adverse movement in Hurricane Georges claims". Although I used the word "caused" in that sentence, I might equally have said "caused or participated in causing". The focus of the sentence was to make a finding of purpose rather than a finding of causation. The reference to Mr Steffey and Mr Vines "to the extent that they were involved" was not intended to be a finding that either of them was involved in the making of the retrocession agreement, but only to acknowledge that their early involvement in negotiations and the development of the retrocession proposal might be relevant to the purpose of the transaction. In fact I found that Mr Steffey ceased to have any active involvement in the negotiations after about 4 November 1998 (at [569]), and Mr Vines dropped out of the direct discussions after 6 November (at [586], [1459]). I held that Mr Vines did not cause or participate in causing GIO Re to enter into the retrocession agreement (at [1185]-[1197], [1459]).

251 However, although I occasionally use different language, I regard it is reasonably clear from my August judgment that my findings did not go any higher than findings that Mr Fox caused or participated in causing GIO Insurance to enter into the agreement. Senior counsel for Mr Fox submitted that if his client merely participated in causing the company to enter into the agreement, he cannot be ordered to compensate the company for the loss had suffered "as a result of" entering into the agreement and eventually negotiating its termination. "Participation in causing" is not, on this submission, causing as a matter of fact. I think that submission is correct. The question then to be asked is whether the evidence supports the stronger finding that Mr Fox caused the company to enter into the agreement. I received submissions on that question at the penalty hearing and I am able to decide it now, before the making of orders.

252 In my view there are findings of fact in my August judgment which, when they are considered together, imply that Mr Fox caused, rather than merely participated in causing, GIO Insurance to enter into the American Re agreement. At the time when the agreement was negotiated and signed, Mr Fox was the executive director of GIO Insurance. As such, he had sufficient authority to purchase reinsurance, and to delegate authority to someone else, such as Mr Schneider, to negotiate for such a purchase (at [590]). As I have said, Mr Vines did not cause or participate in causing GIO Insurance to enter into the agreement (at [1459]). Mr Steffey ceased have any active involvement in the negotiations after 4 November (at [569]). Although Mr Schneider signed the agreement on behalf of GIO Insurance and conducted most of the face-to-face negotiations with American Re, Mr Fox as executive director was Mr Schneider 's supervisor (at [1459]), under Mr Robertson's business plan of May 1998, according to which Mr Schneider reported to the executive director (at [61]). The formal arrangements imply, therefore, that the person responsible for decisions about the proposed placement slip was Mr Fox as executive director.

253 The evidence of what Mr Fox actually did supports the finding that he was Mr Schneider 's supervisor with respect to the negotiations. I considered Mr Fox's role in the negotiations at [579]-[584]. He attended meetings on 9 and 12 November (at [599] and [627]ff), e-mails were copied to him during the course of the negotiations (at [61]) and he had a number of discussions with Mr Schneider on 12 or 13 November prior to the signing of the slip (at [634]-[636]).

254 I did not positively conclude in my August judgment that Mr Fox authorised Mr Schneider to sign the placement slip. I concluded that it was probable that Mr Schneider sought the authority of a superior before signing, and I was unable to conclude that the superior who gave authority was Mr Vines (at [639]). But I found that when American Re increased the amount of its margin during the negotiations, Mr Schneider asked Mr Fox whether GIO should accept, and Mr Fox made the decision (at [634]-[636]). As soon as the agreement was signed Mr Schneider sent his "rest easy" facsimile to Mr Fox, copied to Mr Steffey and Mr Vines. Finally, when Mr Fox wrote to Mr Murray on 23 November, Mr Fox referred to a protection that he had purchased the GIO Re and said he had put the cover in place (at [643]). I found that his explanation of this language as "a flight of ego" was unconvincing (at [583]).

255 I find that this evidence establishes that Mr Fox caused GIO Insurance to enter into the American Re agreement, for the purpose of the assessment that s 1317HA(1) requires the court to make.

256 I turn now to the question of GIO Insurance's loss. In my August judgment I traced the history of amendments to the placement slip after 13 November 1998 (at [662]-[683]). I found that the original American Re agreement of 13 November 1998 was renegotiated by Mr Schneider, who received instructions from Mr Fox. Mr Fox directly participated in the negotiations at a meeting on 15 December 1998. A replacement slip was executed on 18 December 1998. I found that the agreement reflected in the slip was essentially the same transaction as the original agreement, in commercial terms, except that a $150,000 fee component had gone.

257 I also found that on 18 December 1998 Mr Fox signed a handwritten authorisation to Mr McCormick, for immediate payment to American Re of US $1.8 million in respect of "cat X/L cover - reinsurance margin", and Mr McCormick sent an e-mail to Mr Fox on 22 December saying he had arranged the payment.

258 I found that Mr Fox and Mr Schneider negotiated the cancellation of the placement slip, and that it was ultimately agreed that the slip would be cancelled from its inception and American Re would retain a fee of US $250,000 out of the US $1.8 million it had received in premiums. A "commutation endorsement" to that effect was executed on behalf of GIO on 3 June 1999, and shortly afterwards GIO Insurance receive payment of US $1.55 million.

259 ASIC claims that the Australian dollar equivalent of the amount of US $1.8 million paid by GIO Insurance is $2,847,200, and the Australian dollar equivalent of the amount of US $1.55 million received by GIO Insurance is $2,358,131. I assume the exchange rates used are those applicable at the times of payment. The amount of compensation claimed is the difference between these figures, namely $489,069.

260 Accordingly, Mr Fox caused GIO Insurance to enter into the American Re contract, and the company suffered a loss of $489,069, by partly performing and then negotiating termination of the contract. Senior counsel for Mr Fox submitted that there were two causes of the loss that GIO Insurance suffered. One was the nature of the contract; that is, a contract that could not be accounted for as reinsurance, with an illusory transfer of risk. I found that Mr Fox knew the true nature of the contract (at [1474]), but in counsel's submission, my finding that there was an "element of uncertainty" in Mr Vines mind (at [727]) meant that he was also involved in this aspect of the matter. I reject this submission. I regard it as inconsistent with my findings, especially my finding that Mr Vines did not cause or participate in causing GIO Insurance to enter the American Re contract (at [1185]-[1197], [1459]).

261 Senior counsel for Mr Fox also submitted that the cause of loss was GIO Insurance's entering into the contract without auditor approval. He contended that this had nothing to do with Mr Fox. But I have now made a finding on this matter. While Mr Vines made the decision not to seek prior auditor approval, it was Mr Fox who caused the company to enter into a contract when, to his knowledge, there was no approval by the company's auditors. My conclusion is that the causal connection between GIO Insurance's loss on the contract and Mr Fox's contravening conduct has been established.

262 The next question is whether the court should, in the exercise of its discretion, make a compensation order in that amount. In ASIC v Loiterton at [111], Bergin J said that the court's discretion in relation to the amount of compensation is not limited to the choices of awarding "all or nothing". It is open to the court, taking into account the relevant circumstances, to decide that the defendant may be excused from paying the whole of the amount of the company's proven loss. Her Honour held that one of the defendants should not be required to pay the whole of the amount claimed, having regard to be discretionary consideration that he played a less significant role in the contravening conduct than his co-defendants.

263 While acknowledging that discretion, ASIC submitted that it should not be exercised in the present case, and that Mr Fox should be required to pay compensation for the whole of the company's loss. It submitted that Mr Fox did not adduce any persuasive evidence suggesting that a lesser amount the ordered. In particular, it contended that the evidence of Mrs Fox, while it suggested there may be an issue about Mr Fox's capacity to pay compensation in such a large amount, was not persuasive.

264 I think ASIC's submissions are correct, subject to two matters that I shall deal with. Subject to those matters, the position is that GIO Insurance has suffered a substantial loss caused by Mr Fox's contravening conduct, and I see no good reason for not making a compensation order in those circumstances. I have already commented on the evidence of financial hardship.

265 One matter relied on by senior counsel for Mr Fox arose out of a letter dated 2 October 2003 from the solicitors for GIO Insurance to ASIC, communicating their client's view that ASIC should deal with the question of compensation as it saw fit, and that their client would have no objection to the claim for compensation being abandoned as part of the resolution of part or all of the proceeding. Counsel said the letter suggested that the company does not now seek compensation. I do not agree with that construction of the letter. I take the solicitors to be saying that their client would leave the matter of compensation in ASIC's hands and would not object if ASIC negotiated a settlement of the claims on a basis that did not include a compensation order. In other words, the letter was intended to give ASIC negotiating flexibility. I do not regard the letter as providing a sound discretionary basis for refusing or discounting a compensation order.

266 There is, however, one discretionary matter which in my view should reduce the amount of compensation payable. There is evidence, not mentioned in my August judgment, that American Re wrote to Mr Schneider on 6 May 1999 offering to cancel the contract on terms that would provide for American Re to retain US $675,000 (PTB 2272). Mr Fox and Mr Schneider were able to negotiate that figure down to US $250,000. I think it is appropriate to give Mr Fox some of the credit for that success. The evidence does not allow me to allocate disproportionate weights to the contributions of Mr Fox and Mr Schneider to those negotiations, though it does indicate that they both made significant contributions that were considered by American Re (PTB 2273). In the circumstances I shall allocate the "achievement" between them equally. I must also discount their success by the consideration that, in all probability, American Re would have reduced its offer to some degree (albeit a lesser degree) if GIO Insurance were represented by less skilled negotiators. I think it is fair in the circumstances to see half of the reduction in American Re's claim as attributable to the skill of the negotiators - that is, US $212,500 out of the total reduction of US $425,000. Mr Fox's share of that "skill factor" is US $106,250.

267 The result is that there will be a compensation order against Mr Fox for the Australian dollar equivalent of US $250,000 minus US $106,250, that is US $143,750. The exchange rate to be used in converting this amount to Australian dollars should be the exchange rate used to convert American Re's payment to GIO Insurance of US $1.55 million in June 1999.

Costs

268 ASIC seeks an order that the defendants should pay its costs of the proceedings. It submits that there is nothing to suggest there should be any departure from the ordinary rule that costs should follow the event. I think that submission is generally correct, but subject to some qualifications. First, I agree with the submissions made on behalf of the defendants that the costs order should be expressed severally. It would be unfair to the defendants to put ASIC in the position of being able to recover the whole of its costs against one of the defendants, when the hearing related to separate allegations of contravention by each defendant. It seems to me that the appropriate costs order is, prima facie, that each defendant pay one-third of ASIC's costs of the proceeding.

269 It was submitted on behalf of Mr Robertson that the court should allocate substantially less than one-third of the costs to him, because a good part of the hearing time was taken up on matters relating to the American Re agreement, with which he was not involved. I have decided not to accept that submission. Matters to do with the American Re agreement had an important impact on findings of contravention by Mr Robertson, in the sense that they were part of the factual circumstances that provided the setting for Mr Robertson's participation in the meeting with a PwC on 7 December 1998 and his signing of the representation letter and December management sign-off. Further, one of my specific findings against Mr Robertson related to his failure to disclose, in answers to the due diligence questionnaire, the proposal to take up a retrocession contract to protect the company from further deterioration of Hurricane Georges claims (August judgment at [1323]).

270 A qualification to the prima facie approach is that in the case of Mr Vines, a substantial part of ASIC's case was unsuccessful. I was referred to Australian Prudential Regulation Authority v Holloway (2000) 35 ACSR 276, where the regulator's costs were reduced because it succeeded only in 18 out of 32 alleged contraventions. I do not regard it as satisfactory in the present case to make an apportionment simply by comparing the number of alleged contraventions with the number of findings of contraventions. I think the better approach is for the court to make an assessment based on its estimate of the amount of hearing time, preparation time and evidentiary material applied to the successful and unsuccessful parts of the case. In my view, about one-third of that part of the hearing apportioned to ASIC's claim against Mr Vines related to the matters upon which ASIC was unsuccessful, particularly with respect to the American Re agreement. I shall therefore reduce ASIC's cost recoverable from Mr Vines (one-third of the whole of ASIC's costs), by one-third of that recoverable amount - that is, I shall order Mr Vines to pay 22% of ASIC's costs.

271 In written submissions made on behalf of Mr Robertson it was contended that his degree of success should reduce the order for costs against him from 33% to 20%. I think that would substantially exaggerate the extent of Mr Robertson's success. In oral submissions senior counsel for Mr Robertson said that the 20% estimate did not take into account the American Re issues and that the percentage figure should be reduced, taking into account those matters, to something in the order of 10 to 15%. I have rejected the submission that the proportion of ASIC's costs payable by Mr Robertson should be reduced by excluding costs referable to the American Re agreement.

272 Having reviewed Part 7 of my August judgment, the chart handed up on behalf of Mr Robertson outlining the level of his success in the proceeding, and in light of the submissions I have received, I have decided that in terms of the volume of evidence, the time taken at the hearing and inferred preparation time, the correct course is to reduce the percentage of its costs that ASIC may recover from Mr Robertson by 5%, that is from 33% to 28%.

273 Finally, I agree with the submissions made on behalf of Mr Vines and Mr Robertson that ASIC should not be entitled to any costs of or incidental to the making of allegations of dishonesty and improper use of position against Mr Vines and Mr Robertson, which were withdrawn shortly before the commencement of the hearing. Bearing in mind the absence of an explanation for the making of those allegations and then their abandonment, the correct order in that respect is for ASIC to pay the costs of Mr Vines and Mr Robertson of and associated with those allegations.

Conclusions

274 My decisions are as follows:

275 I shall direct ASIC to bring in draft short minutes of orders, and stand the proceeding over to another date for the making of those orders, without further debate.

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10/08/2006 - In the last sentence of paragraph 248, the words "calls all" have been changed to "of causal". In the last sentence of paragraph 251, the word "unable" has been changed to "able". - Paragraph(s) 248, 251

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Citations

Australian Securities and Investments Commission v Vines [2006] NSWSC 760

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Statutory Material Cited

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Australian Securities and Investments Commission v Vines [2005] NSWSC 738

Australian Securities and Investments Commission v Vines [2005] NSWSC 1349

CITATION:	ASIC v Vines [2006] NSWSC 760 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	24, 27 March 2006
JUDGMENT DATE :	2 August 2006
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	See under heading "Conclusions"
CATCHWORDS:	CORPORATIONS - statutory duties of executive officers of corporations - contraventions by all defendants of statutory duty of care - contraventions by one defendant of statutory duty of honesty - civil penalty provisions - form of declarations of contraventions - disqualification orders - whether defendants fit and proper persons to manage a corporation - whether contraventions serious - pecuniary penalty orders - compensation order - causation
LEGISLATION CITED:	Corporations Law, ss 232(2), 232(4), 1317EA, 1317HA
CASES CITED:	ACCC v Francis (2004) 142 FCR 1 ASC v Donovan (1998) 28 ACSR 583 ASIC v Loiterton (2004) 50 ACSR 693 ASIC v Rich (2004) 50 ACSR 500 ASIC v Vines [2005] NSWSC 1349 ASIC v Vines [2005] NSWSC 738; (2005) 55 ACSR 617 ASIC v Vizard (2005) 54 ACSR 394 Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 Eva v Southern Motors Box Hill Pty Ltd (1977) 30 FLR 213 Forge v ASIC (2004) 52 ACSR 1 Forge v ASIC [2004] NSWCA 448; (2004) 52 ACSR 1 Mill v R (1988) 166 CLR 59 One.Tel Ltd (in liq) v Rich (2005) 190 FLR 443 Plymin v ASIC (2004) 10 VR 369 Postiglione v The Queen (1997) 189 CLR 295 Re HIH Insurance; ASIC v Adler (2002) 42 ACSR 80 Re One.Tel Ltd (in liq); ASIC v Rich (2003) 44 ACSR 682 Re Tasmanian Spastics Association (1997) 23 ACSR 743 Rich v ASIC (2003) 183 FLR 361 Rich v ASIC (2004) 183 FLR 361 Rich v ASIC (2004) 220 CLR 129 Rural Press Ltd v ACCC (2003) 216 CLR 53 Warramunda Village Inc v Pryde (2001) 105 FCR 437
PARTIES:	Australian Securities and Investments Commission (P) Geoffrey William Vines (D1) Francis Timothy Robertson (D2) Timothy John Henry Fox (D3)
FILE NUMBER(S):	SC 3138/01
COUNSEL:	S D Robb QC with R Beech-Jones & E A Collins (P) B Oslington QC with A S Bell (D1) D L Williams SC with M Fisher (D2) J W J Stevenson SC with L P Menzies (D3)
SOLICITORS:	Georgina Hayden, Solicitor for Australian Securities and Investments Commission (P) Sparke Helmore (D1) Henry Davis York (D2) Gadens (D3)