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

Reported Decision:
56 ACSR 528
65 NSWLR 281
(2006) 24 ACLC 165

New South Wales

Supreme Court

CITATION:
ASIC v Vines [2005] NSWSC 1349

HEARING DATE(S): 15 & 16 December 2005

JUDGMENT DATE :

23 December 2005

JURISDICTION:
Equity

JUDGMENT OF:
Austin J

DECISION:
Relief from liability not granted to first or second defendant

CATCHWORDS:
CORPORATIONS - failure by first and second defendants as officers to discharge statutory duty of care and diligence - whether they should be relieved from liability under s 1317JA or s 1318 - history of provisions - legal requirements for relief - discretionary factors - significance of whether conduct was reasonable

LEGISLATION CITED:
Corporations Act 2001 (Cth), ss 1400, 1403
Corporations Law, ss 232, 1317EA, 1317JA, 1318
Trustee Act 1925 (NSW), s 85

CASES CITED:
Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464
ASIC v Adler (2002) 42 ACSR 80
ASIC v Plymin (No 2) (2003) 21 ACLC 1237
ASIC v Vines [2005] NSWSC 738
ASIC v Whitlam (No 2) (2002) 42 ACSR 515
Circle Petroleum (Qld) Pty Ltd v Greenslade (1998) 16 ACLC 1577
Commonwealth Bank v Friedrich (1991) 5 ACSR 115
Daniels v Anderson (1995) 37 NSWLR 438
Dimond Manufacturing Co Ltd v Hamilton [1969] NZLR 609
Edwards v Attorney General (2004) 60 NSWLR 667
Gamble v Hoffman (1997) 24 ACSR 369
Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430
Lasscock’s Nurseries Ltd (in liq) v Lyons & Leader Ltd [1940] SASR 251
Lawson v Mitchell [1975] VR 579
Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 7 ACLC 1232
Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304
Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29
Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149
Permakraft (NZ) Ltd (in liq) v Nicholson (1982) 1 ACLC 488
Re Brazilian Rubber Plantations and Estates Ltd [1911] 1 Ch 425
Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
Re Claridge's Patent Asphalte Co Ltd [1921] 1 Ch 543
Re HIH Insurance (in prov liq); ASIC v Adler (2002) 42 ACSR 80
Reiffel v ACN 075 839 266 Ltd (2003) 45 ACSR 67
Rich v ASIC (2004) 78 ALJR 1354
Standard Charted Bank of Australia v Antico (Nos 1 & 2) (1995) 38 NSWLR 290
The Duke Group Ltd (in liq) v Pilmer (1998) 16 ACLC 567
Travel Compensation Fund v Tambree [2005] HCA 69
Wall v Timbertown Community Enterprises Ltd (in liq) (2002) 42 ACSR 1

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

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

FRIDAY 23 DECEMBER 2005

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

JUDGMENT

1 HIS HONOUR: On 22 August 2005 I published my reasons for judgment in these proceedings (ASIC v Vines [2005] NSWSC 738, "my August judgment"), holding that each of the three defendants contravened, in various ways, their statutory duty of care and diligence under s 232(4) of the Corporations Law. I held that the third defendant, Mr Fox, also failed in specified respects to discharge his statutory duty of honesty under s 232(2) of the Law. Subsections 232(2) and (4) are declared by s 232(6B) to be civil penalty provisions.

2 As foreshadowed in my August judgment, para 1495, there is an additional question raised in the pleadings, namely whether any of the defendants should be relieved, under s 1317JA or s 1318 of the Law, from such liability as they have or may have for contraventions of s 232(4). Although these provisions of the Corporations Law were repealed by the Corporations Act 2001 (Cth), the effect of either s 1400 or s 1403 of the Act is that the question of relieving the defendants from liability is to be assessed under, in substance, s 1317JA and s 1318 of the Law, in the form in which they stood at the time of the contraventions.

3 The question of exoneration was raised in Mr Vines' Defence, paras 122-125, and in Mr Robertson's Defence, para 82. My finding against Mr Fox that he failed to act honestly prevents him from invoking the statutory defence, and he did not contend otherwise (indeed, his legal representative was excused from attending at the hearings on 15 and 16 December 2005). The present judgment deals with whether Mr Vines and Mr Robertson should be relieved wholly or partly from their liability or potential liability. Since, for the reasons set out below, I have decided not to grant relief from liability, in whole or in part, to Mr Vines or Mr Robertson, the next stage of the proceedings will be to consider ASIC's applications for orders. If the court is satisfied that a person has contravened a civil penalty proceeding, it is required by s 1317EA(2) to make a declaration of contravention. It then has discretions as to the appropriate orders, including the discretion to make a disqualification order under s 1317EA(3)(a), the discretion to make a pecuniary penalty order under s 1317EA(3)(b), and the discretion to make a compensation order under s 1317HA (my references are to the Corporations Law provisions, the substance of which is applicable in this case). The existence of these further discretions means that some of the matters raised in submissions about the application of ss 1317JA and 1318 will become relevant again at the " orders" stage. For example, I have received submissions with respect to the significance of lack of contrition and the importance or gravity of the contravention. These are matters relevant to the " orders" stage: Rich v ASIC (2004) 78 ALJR 1354 at [43], [49] per McHugh J.

4 In para 83 of his Defence, Mr Robertson pleaded that he had exercised his business judgment, in good faith and for proper purposes in the best interests of the company, after informing himself about the subject matter to the extent he thought reasonably appropriate. Senior counsel for Mr Robertson did not contend in submissions that the pleading about "business judgment" was in terms a defence to liability for contravention of s 232(4). Instead, the matters pleaded in para 83 were advanced to establish a case under s 1318 or s 1317JA, and to contend (unsuccessfully, according to my August judgment) that there was no contravention.

5 The detailed written and oral submissions I have received reveal that the law governing ss 1317JA and 1318 is not clear in important ways. It is therefore necessary to spend some time dealing with the scope and history of the two sections.

Section 1318

6 Section 1318(1) of the Corporations Act 2001 (Cth) provides as follows:

“If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.”

7 The person seeking relief under the section bears the onus of proving the existence of facts to justify the granting of relief (Gamble v Hoffman (1997) 24 ACSR 369 at 387), but in the present case where a large amount of evidence is before the court, the outcome does not turn on who bears the onus.

8 Subsection (4) makes it clear that the court's jurisdiction is available to be used for the benefit of, inter alios, officers and employees of a corporation and therefore, in light of the findings in my August judgment, it is available to be invoked by Mr Vines and Mr Robertson.

9 In ASIC v Whitlam (No 2) (2002) 42 ACSR 515, Gzell J granted relief in respect of one of the contraventions found against the defendant. It appears from the law report (at [4]) that his Honour made a declaration of contravention under s 1317EA(2) (a provision that also applies in the present case), but then made an order relieving the defendant from liability for the declared contravention. Unquestionably the legislation authorises the procedure adopted by his Honour, but there is an issue whether it is necessary, in a case where the court decides to grant relief in full, to subject the defendant to the enduring stigma of a declaration of contravention, which may prove to have consequences in other proceedings. Both parties submitted that in an appropriate case, the court would be able to grant relief in a manner that would avoid the need to make a declaration, notwithstanding the duty imposed on the court by s 1317EA(2) to make a declaration when it is satisfied that a contravention has occurred. In view of the conclusions I have reached, it is unnecessary for me to resolve this question.

Legislative history of s 1318

10 Section 1318 is the latest formulation of an "exoneration provision" stemming from s 32 of the English Companies Act 1907, which was later adopted in Australian states. The 1907 provision applied only to directors, required the director to have acted reasonably as well as honestly, and applied only to proceedings for "negligence or breach of trust". It was otherwise substantially equivalent to the modern provision.

11 The provision was recommended in the Report of the Company Law Amendment Committee (Cd 3052, 1906), initially under the chairmanship of Sir Robert Reid (later Lord Loreburn). The recommendation was as follows:

“We have already expressed an opinion that the number of companies into the formation or management of which fraud enters is small in comparison with the number of sound undertakings registered and working under the Acts, and this being so the dishonest director is the exception. We think that nothing could be more unfortunate than that provisions designed for checking or punishing dishonesty or gross negligence should be turned into an engine of oppression for honest and prudent men. Now there are a variety of sections in the Companies Acts which impose upon directors and other persons connected with a company the duty of doing certain acts, making certain disclosures and returns, and furnishing certain information at the risk of incurring a penalty or liability to damages. It would not in our opinion be either safe or wise to diminish these obligations otherwise than as in this Report suggested, but we do think that it would be both safe and wise to make some amendment in the law which shall prevent such penal provisions from operating unfairly. We therefore recommend that the law be amended:-

(1) By giving power to the Court to relieve any director or promoter from liability for breach of any duty imposed on him by the Companies Acts, 1862 to 1900, provided that the breach has been occasioned by honest oversight, inadvertence, or error of judgment on his part.

(2) By giving the Court power, in an action for negligence or breach of trust against a director, to relieve him from his liability on such terms as the Court may consider proper, where the Court is satisfied that he has acted honestly and reasonably.

An analogous power, we may point out, has been already given to the Court in the case of trustees by Section 3(1), (a), of the Judicial Trustees Act, 1896.”

12 Recommendation (1) was not accepted by the House of Commons (HC Debates, 21 August 1907). Recommendation (2) was adopted in s 32 of the 1907 Act.

13 The 1907 provision was replaced in England by the Companies Act 1929, following recommendations by the Company Law Amendment Committee (Cmd 2657, 1926), chaired by Mr Wilfred Greene KC. The Greene Committee responded to the practice of companies seeking, in their articles of association, to exempt directors from liability for loss other than for dishonesty or for wilful neglect or default (citing, as examples, the articles of association in Re Brazilian Rubber Plantations and Estates Ltd [1911] 1 Ch 425 and Re City Equitable Fire Insurance Co Ltd [1925] Ch 407). The Committee recommended (para 47) that the law should invalidate such clauses: see now ss 199A-C of the Act. It added that if this recommendation were adopted (as it was), the exoneration provision should also be amended by adding a proviso to the effect that in determining whether a director ought to be excused, the court should take into account all the circumstances relating to his appointment.

14 The 1929 exoneration provision was in substantially similar terms to the 1907 provision, except in three respects:

15 As to the first change, in Lawson v Mitchell [1975] VR 579 at 588-9, the majority in the Full Court of the Supreme Court of Victoria noted that the statutory invalidation of exempting articles of association had used the wider language of "default" and "breach of duty". They said the reason why this wider language had also been adopted in the exoneration provision was to permit the court to relieve directors, managers, officers and auditors from liability in circumstances where the articles of association would previously have given protection: "thus, some amelioration was provided for the loss of protection under articles of association …". Those remarks are of general assistance because they support the view that the section is not to be construed narrowly.

16 As to the second change, the reason for expanding the scope of the provision to include managers, officers and auditors as well as company directors was probably also connected with the invalidation of exemption clauses. The offending clauses often extended to managers, officers and auditors (see, for example, the clause in the City Equitable case). As a result of this extension, the modern provision is available to protect non-director officers such as Mr Vines and Mr Robertson (vis-a-vis GIO Australia Holdings).

17 As to the third change, the Greene Committee explained that "such a provision would meet the case of a director who has been appointed because of his special knowledge or for a special purpose and not to direct the business of the company generally". Presumably the intention was to facilitate exoneration in such a case (although the statutory language may not have been wholly successful: see Re J Franklin & Son Ltd [1937] 4 All ER 43). Although today company law does not cater for "special purpose" directors, the wording recommended by the Greene Committee remains, and serves to emphasise that all the circumstances connected with an officer's appointment must be taken into account before any decision is made to relieve that person from liability. In the present case there are detailed findings as to the circumstances of appointment of Mr Vines and Mr Robertson.

18 The changes of wording introduced in England in 1929 were adopted in Australia and (as far as officers of a corporation are concerned) the section remained in that form until 1982, eventually as s 365 of the Uniform Companies Act of 1961. The Companies Act and Codes of 1982, legislation forming part of the national co-operative companies and securities scheme, replaced s 365 with s 535, a provision substantially the same except in three respects: the new provision was made available to employees, it was expressly limited to civil proceedings, and the reference to acting "reasonably" was removed. Subsequently there were some changes in drafting style, and the section was re-numbered as s 1318 upon the introduction of the Corporations Law in 1991, but there have been no relevant changes of substance to the provision since 1982.

"Civil" proceedings

19 In Lawson v Mitchell it was held that s 365 the Uniform Companies Act was confined to relief from civil liability, although there was no express wording to that effect. In the view of the majority judges, Young CJ and Newton J (Kaye J delivering a concurring judgment), there was no justification for the view that the section was intended to operate as a proviso to the multitude of statutory offences created by the companies legislation: [1975] VR at 584.

20 The National Companies Bill 1975, clause 561 (reflecting proposals in the Whitlam Government's Corporations and Securities Industry Bill 1974, clause 278) proposed a re-formulation of the provision which would have expressly limited it to cases where it appeared to the court that a person was or might be under a civil liability in respect of his or her conduct as a director or other officer etc. The 1975 Bill was never enacted, but it has had a strong influence on company law reform because of the eminence of its principal author, Professor HAJ Ford. Although the Explanatory Memorandum to the 1975 Bill did not say so (see para 359), it appears that the drafter's decision to limit the scope of the provision to civil liability was influenced by the Full Court's decision: see RP Austin, HAJ Ford and IM Ramsay, Company Directors: Principles of Law and Corporate Governance (2005), para [17.18].

21 Clause 365 of the exposure draft of the Companies Bill for the national co-operative scheme, March 1980, retained the ambiguous language of its predecessor, but by August 1980 the re-numbered clause 535 of the Bill, as introduced into Parliament, had added the word "civil" before "proceeding", so as to confirm the Lawson v Mitchell decision. While there is no explanation of this change in the Explanatory Memorandum to the August Bill (see para 830), it seems likely that the drafters were influenced by the National Companies Bill: see Companies and Securities Law Review Committee, Discussion Paper No 9, para [104], Austin, Ford and Ramsay, op cit, para [17.18]. The word "civil" was retained when the Companies Act and Codes commenced in 1982 and it has remained in the provision since that time.

22 In the present proceeding ASIC alleged, successfully in part, that the first two defendants failed to discharge their statutory duty of care under s 232(4) in various ways, and it seeks pecuniary penalty orders, disqualification orders and compensation orders under the civil penalty provisions of Part 9.4B of the Corporations Law. Plainly this is a "civil proceeding" for negligence, for the purposes of s 1318.

Removal of the reference to acting "reasonably"

23 Until 1982 the provision was not available unless it appeared to the court that the person concerned had acted reasonably as well as honestly. The word "reasonably" was dropped upon the commencement of the Companies Act and Codes in 1982, although it had been retained in the National Companies Bill 1975. The Explanatory Memorandum to the 1980/1981 Bill drew attention to the change but did not explain it (see para 830). It was later suggested that the deletion of the word "reasonably" was in response to a passing comment by North P in Dimond Manufacturing Co Ltd v Hamilton [1969] NZLR 609 at 645, where his Honour said he found it "difficult to understand how a negligent officer or auditor could nevertheless be held to have acted 'reasonably'": Companies and Securities Law Review Committee, Discussion Paper No 9, paras [114]-[115]. The idea that the amendment had been made in order to avoid an implication that the same conduct would be both negligent and reasonable was adopted by Olsson J in Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 7 ACLC 1232 at 1250, a case involving the duty of care of the liquidator.

24 In Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464, the directors of a listed company had authorised telephone soliciting of shareholders by the use of material that was not, according to the trial judge, the sort of information to which shareholders were entitled; and they authorised a chairman's letter and soliciting script which were found by the trial judge to contain information that was irrelevant, prejudicial and misleading, and did not contain countervailing information which directors would place before the shareholders if they were properly discharging their duty. Although it was found that the directors acted honestly and in good faith and substantially upon legal advice, their conduct was an abuse of their authority as directors, for the primary purpose of securing the re-election of the retiring directors, as Kirby P noted (at 491). It was not a case of failure to exercise due care or diligence.

25 The directors appealed against the trial judge's refusal to make orders under the exoneration provision. Kirby P (with whom Glass JA generally agreed) said (at 490) that the removal of the requirement that the person should have acted reasonably "serves to focus the attention of the Court primarily on the honesty of the directors". It is not clear from the judgment whether his Honour was intending, by that statement, to express his own opinion or merely to give an account of the appellants' submission. In the next paragraph of his judgment, Kirby P said that the difficulty of "this argument" was that it had overlooked the fact that, for relief to be provided, "honesty is a requirement but it is not alone sufficient".

26 In Commonwealth Bank v Friedrich (1991) 5 ACSR 115 at 196, an insolvent trading case under the pre-1993 legislation, Tadgell J noted the removal of the word "reasonably" but said that "in having regard to all the circumstances of the case, it will be permissible and appropriate, and usually necessary, to consider whether the defendant has acted reasonably". He decided that although Mr Eise's conduct might have been honest, it was conduct of the "utmost folly; and it involved clear and flagrant breaches of both the letter and intent of the Code" (at 198).

27 The same approach was taken, though with a fuller analysis, by Olsson J in Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 7 ACLC 1232 at 1250-3.

28 The observations in those cases were applied in Circle Petroleum (Qld) Pty Ltd v Greenslade (1998) 16 ACLC 1577 at 1598. In that case it was held that the managing director of Circle had breached his general law duty of care and skill by allowing the level of debt owed by a commercial customer to grow, notwithstanding that the board of directors had reached a consensus that no additional credit should be extended to the customer. Muir J held, citing the two authorities just mentioned, that it was relevant to consider whether the defendant's conduct had been reasonable. He found that it was not reasonable. The defendant had deliberately and persistently failed to observe a direction of the board of directors. He had knowingly caused the company to assume a high degree of risk, by allowing the customer to incur an unusually large debt in the hope that the customer would be able to re-finance, without being in a position to make an informed assessment of the prospect of re-financing. He had failed to provide the board of directors or the court with a satisfactory explanation of his conduct.

29 In Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430, a case under the post-1993 insolvent trading provisions, Bergin J referred to Kirby P's observations and treated them as an expression of opinion rather than a summary of argument. She expressed the view (at [159]) that "the removal of the requirement serves to focus the attention of the court primarily on the honesty of the director", although she noted that honesty alone is not sufficient to ground the proper exercise of the discretion under the section. Bergin J said (at [160]) that the reasonableness of conduct is a relevant consideration in the exercise of the discretion as to whether the relevant party ought "fairly" to be excused from liability.

30 In ASIC v Plymin (No 2) (2003) 21 ACLC 1237, also a case under the post-1993 insolvent trading provisions, Mandie J refused to excuse Mr Plymin under s 1317JA on the ground that his contravening conduct was in all the circumstances "unreasonable and inexcusable" and "reckless and grossly negligent", showing no regard to the position of those who dealt with the company (at [101]).

31 In Wall v Timbertown Community Enterprises Ltd (in liq) (2002) 42 ACSR 1, a case involving the statutory duty of care and diligence under s 232(4), Heydon JA (with whom the other members of the Court of Appeal of New South Wales agreed) held that the trial judge was "unquestionably correct in holding that the appellant had not acted reasonably", and said that "those findings make the trial judge's refusal to exclude the appellant invulnerable". There was no express analysis of the relationship between negligence and failure to meet the statutory standard of care and diligence.

32 Senior counsel for the first and second defendants placed emphasis on the statements by Kirby P and Bergin J that the amended section focused the court's attention "primarily" on the honesty of the director, a submission implying that once honesty was established, there would be some kind of presumption or pre-disposition to apply the section. But that would be inconsistent with the statutory wording, which sets out, relevantly, two requirements for the exercise of the jurisdiction, as both judges recognised: namely honesty and that having regard to all the circumstances the person concerned ought fairly to be excused.

33 It seems to me that, in using the word "primarily", Bergin J (and Kirby P, if his observation was a statement of opinion rather than a summary of argument) simply intended to contrast the absolute requirement of honesty with the relegation of reasonableness from the status of a requirement to a mere factor. It is clear from the cases I have cited that reasonableness remains a relevant consideration under s 1318, in cases other than duty of care cases. In my view, the honesty of a defendant does not of itself contribute to the court's determination of the second requirement, except in the sense that unless honesty is present the second requirement need not arise for consideration (although in Duke Group Ltd (in liq) v Pilmer (1998) 16 ACLC 567, Mullighan J, who had found that the directors acted dishonestly and personally benefited from their conduct, nevertheless thought it appropriate to make an additional finding (at 686) to the effect that they did not act reasonably).

34 What does it mean to say, as most of the cases do, that the reasonableness of contravening conduct may be taken into account under the exoneration provision, where the case is one of negligence?

35 The Reid Committee evidently did not see any "conceptual dilemma" (see Maelor Jones Investments, 7 ACLC at 1252) in finding that a person had acted both negligently and reasonably. But a finding that a person has failed to discharge his or her statutory duty of care and diligence under s 232(4) is necessarily a finding of unreasonable conduct or omission. This is because s 232(4) expresses the statutory standard as the degree of care and diligence that a reasonable person in a like position in the corporation would exercise in the corporation's circumstances, and so a finding of departure from the standard is necessarily a finding of failure to act as a reasonable person would act in a like position.

36 The problem was adverted to by Moffitt J in Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29 at 80, 119. He observed that the exoneration provision allowed the court to consider the reasonableness of conduct occurring after the contravention, and it was therefore open to the court to find both negligence (and therefore failure to meet the relevant standard of reasonableness at the point of contravention) and reasonableness in subsequent conduct. In Maelor Jones Investments, 7 ACLC at 1253, Olsson J agreed with Moffitt J’s analysis. But the other cases I have cited indicate that the degree of unreasonableness of contravening conduct itself, not merely subsequent conduct, is relevant to be taken into account, even in a duty of care case.

37 Moffitt J also recorded some submissions giving examples that were designed to show that certain kinds of contravening conduct might be both in breach of an auditor's duty of care and also reasonable, but he expressly reserved his opinion on the point. In Maelor Jones Investments, 7 ACLC at 1253, a case involving the duty of care of a liquidator, Olsson J cited Moffitt J's judgment and said that the section was wider in scope, as well as in time frame, than the law of negligence, and he accepted that the examples were apt illustrations of the issues involved.

38 Two examples of "reasonable negligence" were noted by Moffitt J: first an auditor forming an honest judgment in accordance with prevailing practice, subsequently held by the court to have been erroneous and negligent; and secondly, an auditor whose negligence was casual or minor. In my opinion, these examples could not be used as examples of conduct that is both reasonable and in contravention of the statutory duty of care in its post-1993 formulation (s 232(4)), having regard to the statutory language. If an officer is found to have contravened his or her statutory duty of care by following some prevailing practice, that finding is made precisely because a reasonable person in a like position in the corporation's circumstances would not have followed the prevailing practice. Similarly, casual and minor departures from the statutory standard are departures precisely because they fail to meet the standard of reasonableness. In my respectful opinion, notwithstanding the observations of Moffitt and Olsson JJ, a finding that a defendant's conduct has contravened the statutory duty of care and diligence under s 232(4) implies that the conduct was not reasonable.

39 However, "reasonableness" is not black and white concept. It seems to me sensible, and relevant to the exercise of the statutory discretion, to consider the degree to which the defendants' conduct has fallen short of the statutory standard of reasonable care and diligence. In that sense reasonableness (more precisely, the degree of unreasonableness) is a relevant consideration for the court when considering whether to relieve a defendant from contravention of the statutory duty of care and diligence. That, it seems to me, is the concept underlying the judicial pronouncements that reasonableness is still a factor to be considered in applying the exoneration provision, notwithstanding the removal of the word "reasonably".

40 The observation of Heydon JA in Wall v Timbertown, that the trial judge's finding of unreasonableness made his refusal to excuse the defendant "invulnerable", might seem to be at odds with this analysis, or even to suggest that any finding of failure to meet the statutory standard of care and diligence would prevent the application of s 1318 because such a finding would always involve unreasonableness. But Heydon JA's comments were in response to his detailed explication of the trial judge's findings. The appellant had represented, during the course of negotiations for a lease, that the company had obtained subscriptions for shares in the sum of $700,000 after issuing a prospectus. One of his fellow directors wrote to the lessor, asserting that he held more than $700,000 in his trust account when in fact he had less than $200,000. The trial judge's finding that the defendant was "involved" in the writing of that letter was upheld on appeal. Heydon JA observed (at [43]) that an investor had suddenly dropped out and the directors "scrambled around to obtain various companies of no or little apparent substance to subscribe for the shares", including one company associated with the appellant which, like the others, did not advance the appropriate subscription moneys. He said it was unreasonable of the defendant not to tell the lessor and the shareholders of the problem, in the hope that the company's development project could somehow proceed. In my opinion his Honour's conclusion was not that a finding of unreasonableness necessarily excludes the application of s 1318; but that the trial judge's specific findings, which were accepted by the Court of Appeal, and which had the effect that there was a high degree of unreasonableness, made the judge's discretionary refusal to excuse the appellant invulnerable on the facts.

41 This reasoning leads to the conclusion that a person may be excused from liability even though the contravening conduct has been found to have been unreasonable. It is impracticable and probably undesirable to attempt to define "unreasonableness" for present purposes. A relevant consideration may be, in some circumstances, whether competent expert advice was sought and obtained (Maelor Jones Investments, 7 ACLC at 1252). It appears that unreasonableness in post-contravention conduct is relevant to be taken into account (Pacific Acceptance Corporation Ltd v Forsyth, 92 WN (NSW) at 119 per Moffitt J).

The first requirement: honesty

42 Once it appears that the person concerned falls within one of the categories set out in s 1318(4) and it appears to the trial court that the person is or may be liable in proceedings for negligence, default, breach of trust or breach of duty, the first requirement for the exercise of the court's jurisdiction to relieve the person from liability is that it appears to the court that the person has acted honestly.

43 In Commonwealth Bank v Friedrich, 5 ACSR at 196, Tadgell J identified as one of the areas of inquiry, "whether the defendant has acted honestly, i.e. without moral turpitude" (see also at 198). That observation was cited without disapproval by Santow J in Re HIH Insurance (in prov liq); ASIC v Adler (2002) 42 ACSR 80 at [153]-[154]. It is not an essential prerequisite to establish that, before he or she acted, the person seeking relief obtained competent advice: Maelor Jones Investments, 7 ACLC at 1251-2.

The second requirement (in all the circumstances of the case …, ought fairly to be excused) and the court's discretion

44 The second requirement for the exercise of the court's jurisdiction under s 1318 is that it appears to the court that "having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence" or other wrongful conduct. When this requirement and the honesty requirement are satisfied, the court has a discretion to relieve the person either wholly or partly from liability on such terms as it thinks fit. Thus, there are two discretionary elements to the section, namely the terms of the second requirement, and the discretionary power of the court if the two requirements are met. These are discretions to be exercised in deciding whether to relieve a defendant from liability that has arisen or may arise. As I have mentioned, if relief is not granted, then, in civil penalty proceedings, the court has further discretions to exercise when deciding what orders to make.

45 Plainly the two discretions conferred by the exoneration provision are very wide in their scope: see Daniels v Anderson (1995) 37 NSWLR 438 at 525; Reiffel, 45 ACSR at 102; Advance Bank, 9 NSWLR at 491; Maelor Jones Investments, 7 ACLC at 1253. Of course, the court when exercising its discretion must ascertain the scope and purpose of the statutory enactment and exercise the power judicially, that is to say, not arbitrarily or capriciously so as to frustrate the legislative intent: Edwards v Attorney General (2004) 60 NSWLR 667 at 689 [15].

46 At a general level, the observations of Olsson J in Maelor Jones Investments are particularly helpful. He pointed out (at 1251) that the authorities "render it abundantly clear that it is extremely difficult to attempt to lay down general principles because, of necessity, each case will very much depend on its own circumstances". Later (at 1253) his Honour referred to an "unfettered judicial discretion of a nature which renders any attempt at definition in terms of principle well nigh impractical". He continued:

Re Allsop; Whittaker v Bamford

47 In the AdvanceBank case (9 NSWLR at 491) Kirby P observed that the "case" referred to in the section directs attention to the way in which the default or breach has occurred. The degree of care with which a person has acted is relevant to the question whether he or she ought fairly to be excused (Austin, Ford and Ramsay, op cit at [17.18]). The degree to which the contravening conduct departed from the standard of reasonableness prescribed by the statutory duty (see above) is a closely connected consideration.

48 In ASIC v Plymin (No 2), the extent to which the defendants had fallen short of discharging their duties and the degree to which their conduct was unreasonable were very influential factors in the trial judge's decision to decline relief. Mr Plymin's conduct was not only "unreasonable and inexcusable" but also "reckless and grossly negligent" (at [101]). Mr Elliott, though "significantly less culpable" than Mr Plymin, had engaged in a "sustained and continuous course of inexcusable and unjustifiable neglect" of his duties as a non-executive director, showing "continuous disregard for the position of unsecured creditors" (at [107]).

49 Kirby P's observation about the word "case" suggests that the second requirement is about the facts and circumstances relating to the contravention, rather than the defendant's subsequent conduct or present financial or other circumstances. But if such contemporary matters are not to be taken into account in applying the second requirement, they are nevertheless relevant to the exercise of the court's discretion once the two requirements for jurisdiction are established.

50 The exoneration provision permits the court to grant relief from "liability" (including liability that may exist). In civil penalty proceedings, liability arises from the making of orders after a finding of contravention, rather than directly from the finding of contravention itself. The making of the orders is discretionary, and the court may take into account a wide range of factors, summarised by Santow J (as he then was) in Re HIH Insurance Ltd (in prov liq); ASIC v Adler (2002) 42 ACSR 80 at 97-99 (cited with approval by McHugh J in Rich v ASIC (2004) 78 ALJR 1354 at [49]). Logically, if a matter is relevant to be considered by the court in deciding on the orders that it will make following a contravention, from which orders a liability will flow, that matter is relevant to be considered by the court in deciding whether to grant relief from the liability.

51 On this basis, I see no ground for excluding from consideration the presence or absence of contrition by a defendant after the event, notwithstanding that the same matter may become relevant on the question of penalties if relief from liability is not granted (see ASIC v Whitlam (No 2), 42 ACSR at [15]). On the same reasoning, it is relevant to the exercise of the court's discretion in the present case under s 1318 to take into account that ASIC published a media release (Exhibit D 32) on 20 June 2001 alleging that the first two defendants had improperly used their positions contrary to the Corporations Law, as well as failing to exercise their statutory duty of care and diligence, and that there is no evidence of withdrawal of the allegation of impropriety by later media release.

52 Another relevant consideration is the seriousness of the contravention. This has three components: the importance of the provision contravened, in terms of public policy (as in Reiffel v ACN 075 839 266 Ltd (2003) 45 ACSR 67); the degree of flagrancy of the contravention; and the consequences of the contravention in terms of harm to others. In a case where the contravention amounts to mere inadvertent and temporary non-compliance with a procedural requirement having no damaging consequences (say, a contravention constituted by being late by a few days in filing a form) the court is likely to be much more ready to provide relief than in a case where the contravention is of a provision that has substantial importance from the point of view of public policy, or the defendant's contravention is reckless, or the contravening conduct has caused substantial loss.

53 All three components were influential in Mandie J's decision not to excuse Mr Elliott (ASIC v Plymin (No 2) at [107]). He stressed that Mr Elliott's contraventions were "serious" and that his course of conduct amounted to an "inexcusable and unjustifiable neglect of important duties of a non-executive director", showing "continuing disregard of the position of unsecured creditors given his awareness of grounds for suspecting insolvency".

54 Similarly in Commonwealth Bank v Friedrich, Tadgell J declined to grant relief, emphasising that the defendant had signed a directors' report at a time when he should have made inquiries that would have uncovered fraud, thereby representing to every member and creditor of the company that the accounts were reliable. To grant relief would do serious disservice to the administration of company law and to the commercial community: 5 ACSR at 199.

55 The court's consideration of the third component of the seriousness of the contravention, namely the consequences of the contravention, can give rise to some awkward and difficult questions of causation, especially where (as here) it is not otherwise necessary to decide that the contraventions have caused particular losses to investors. Where the contravening conduct is misleading conduct constituted by false or incomplete representations (as here), the correct approach to causation was recently explained by the High Court: Travel Compensation Fund v Tambree [2005] HCA 69. There Gleeson CJ said (at [32]):

Sellars v Adelaide Petroleum NL

Henville v Walker

56 It was sufficient for Tadgell J in Friedrich and for Mandie J in Plymin to advert to the effect of the defendants' contravening conduct in general terms, without making any specific findings about causation for the purpose of exercising the discretion. Consistently with that approach, it seems to me adequate, in the case of negligently misleading statements, to consider the degree of plausibility, in a general sense, of the contention that the contravening conduct caused or did not cause loss, having regard to the applicable principles of causation. The stronger the likelihood that loss has been caused, the more powerful this factor becomes as a factor against granting leave. Conversely, the weaker the likelihood is that the contravening conduct caused loss, the weaker is the "serious contravention" factor.

57 Other matters that appear to me to be relevant to the exercise of the court's discretion under the second requirement, and/or its discretion to grant relief, are:

· whether the person concerned obtained and followed competent advice before acting in contravention (Austin, Ford and Ramsay, op cit at [17.18]);

· whether the conduct was in accordance with some established practice (Maelor Jones Investments, 7 ACLC at 1252-3, discussing the Pacific Acceptance case); and

· whether the person concerned was paid for undertaking the contravening conduct (Maelor Jones Investments, 7 ACLC at 1250-3).

58 The weight to be given to payment raises for consideration the comparison between the exoneration provisions of the Corporations Act and the Trustee Act. Under the latter, paid professional trustees are unlikely to obtain relief (Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149 at 165). But company directors and officers occupy a more entrepreneurial position than trustees. Bearing that in mind, it has been suggested that the court will be "a little less severe" in the case of company directors and officers than in the case of trustees: Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304 at 1313.

59 In ASIC v Whitlam (No 2), 42 ACSR at [17] [24]-[25], Gzell J took into account testimonials relating to the defendant's service to the community on the boards of directors of commercial and charitable organisations, the effect of the proceedings on his reputation and career, and the suffering caused to him and his family. As in the case of some other factors, these matters may also be relevant to the "orders" stage of the proceedings if relief from liability is not granted.

60 In his written submissions, senior counsel for Mr Vines identified some "negative criteria" that have emerged from the case law, each of which points against the granting of relief:

· the obtaining of personal gain (e.g. Lasscock’s Nurseries Ltd (in liq) v Lyons & Leader Ltd [1940] SASR 251; Permakraft (NZ) Ltd (in liq) v Nicholson (1982) 1 ACLC 488);

· the flagrancy of the breach;

· impropriety;

· consciousness of another's impropriety (in Re HIH Insurance Ltd (in prov liq);ASIC v Adler (2002) 42 ACSR 80, Santow J said (at [169]) that Mr Fodera's consciousness of impropriety on the part of another was a "negative factor", even if it did not of itself amount to failure to act honestly);

· deceptiveness.

61 Senior counsel for ASIC accepted this analysis. I agree with counsel.

A guiding principle?

62 In the cases and literature there are suggestions that, in addition to the grab-bag of discretionary factors identified above, there might be some underlying principle or public policy objective that should drive the courts' application of the power of exoneration. It seems to me that there are three possible candidates for this role:

· a principle derived from the analogy between directors' and trustees' liabilities;

· a principle based on "business judgment" considerations;

· a principle based on relief to avoid oppression.

The directors/trustees analogy

63 The trustee provision was originally introduced in England by s 3 of the Judicial Trustees Act 1896, and is now found in s 85 of the Trustee Act 1925 (NSW), which has preserved the word "reasonably". There were, in 1906, some similarities in the exposure to liabilities of company directors and trustees. Trustees were then, and continue to be, exposed to strict liability in various circumstances. Trustees who misapply trust assets (by, for example, paying a non-beneficiary) or who act outside the terms of the trust instrument and legal authority (by, for example, making an unauthorised investment) may find themselves exposed to liability however honestly and carefully they have acted, and even in circumstances where they have acted on legal advice (see Underhill and Hayton's Law Relating to Trusts and Trustees (14th edn, 1987), Article 56). Similarly, company directors were until recently exposed to liability if they caused their company to act ultra vires or contrary to restrictions in the articles of association. An example of this kind of liability may be found in Re Claridge's Patent Asphalte Co Ltd [1921] 1 Ch 543, where Astbury J used the statutory exoneration provision to relieve the director from liability.

64 If the single policy underlying the statutory exoneration provision were to provide relief to honest and reasonable directors from strict liability similar to the liability of trustees, then the section would have no application in a case of contravention of their statutory duty of care and diligence not relating to misapplication of company assets or contravention of the corporate constitution. But for several reasons, it would be wrong to conclude that the trustee analogy, if relevant at all, is the sole policy underlying the section.

65 First, although the Reid Committee described the protected class as "honest and prudent men", recommendation (2) expressly contemplated relief from liability for negligence for a director who had acted honestly and reasonably. Secondly, the analogy between directors and trustees is imperfect. Directors, though fiduciaries, are permitted as businessmen to "display entrepreneurial flair and accept commercial risks" in dealing with the equity capital entrusted to them by shareholders, while the duty of trustees is "to exercise a degree of restraint and conservatism in investment judgments": Daniels v Anderson (1995) 37 NSWLR 438 at 494; other cases are referred to in RP Austin, HAJ Ford and IM Ramsay, op cit, para [5.16]. This difference suggests that it may be appropriate to exonerate directors from liability in circumstances where trustees ought not to be relieved. Thirdly, if the exoneration provision was intended to do no more than provide relief to company directors in circumstances of strict liability analogous to the liabilities of trustees, the justification for the provision may have evaporated with the abolition of the doctrine of ultra vires (see the discussion by Austin, Ford and Ramsay, op cit at [11.7]-[11.9]).

66 For these reasons, I do not find that the analogy between the liabilities of directors and the liability of trustees provides any guiding principle for the use of the statutory discretion, in a case involving contravention of the statutory duty of care and diligence by corporate officers.

Protection of business judgments

67 The second candidate for a principle might be the idea that the exoneration principle exists to provide a "safe harbour" for honest and reasonable business judgments (perhaps anticipating the business judgment rule enacted in s 180(2) by the 1999 amendments). It is evident from their Report as a whole that the Reid Committee was committed to promoting entrepreneurial activity by means of the corporate form. The quoted section of the Report suggests that they wanted to protect directors from the consequences of their entrepreneurial business judgments taken honestly and reasonably. The idea that the exoneration provision might be used to operate as a "safe harbour" for honest and reasonable business judgments is reflected in some cases applying the exoneration provision, such as Re Claridge's Patent Asphalte Co Ltd, and the "business judgment" theme was more fully developed by Companies and Securities Law Review Committee in Discussion Paper No 9 at [107]-[109].

68 In Daniels v Anderson (1995) 37 NSWLR 438, Clarke and Sheller JJA also referred to "business judgment" considerations. They said (at 525):

"The purpose of the section is to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are business men and women who act in an environment involving risk in commercial decision-making [citing para 24 of the Reid Committee Report and Discussion Paper No 9]. The courts have a wide discretion to relieve in whole or in part".

69 If the protection of honest and reasonable business judgments were the sole policy underlying the provision, it would be hard to see a case for the application of the provision to the circumstances of the present case. Here the first and second defendants' contravening conduct was not the taking of entrepreneurial business decisions. It was conduct in the course of a relatively formal disclosure and due diligence process, by which they influenced the content of draft documents and information placed before the board of directors of GIO Australia Holdings for decision. But the better view appears to be that, while considerations relating to the protection of honest and reasonable business judgments are relevant in appropriate circumstances, they are not the sole policy underlying the conferral of the discretion. The section expressly extends to auditors and experts, who are not expected to be engaged in entrepreneurial risk-taking when acting as such. It would be irrational to deprive the directors and officers from access to the section when their conduct happens to be non-entrepreneurial, while making it available to them in respect of their entrepreneurial decisions.

70 In summary, while "business judgment" considerations might be invoked to provide a case for exoneration whether contravening conduct is honest and reasonable entrepreneurial risk-taking, those considerations are unhelpful in a case such as the present one, even though the section can be invoked.

Relief to avoid oppression

71 In the passage cited above from Daniels v Anderson, Clarke and Sheller JJA asserted that the purpose of the section is to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising "business judgment" considerations.

72 Read literally, this passage might be taken to suggest, in a case where business judgment considerations are not relevant, that relief from liability should be granted only in extreme cases where it would be unjust and oppressive not to do so. That approach would be at odds with other dicta, set out above, which have emphasised the breadth of the statutory discretion - including the approach outlined by Olsson J in Maelor Jones Investments, where his Honour said the court ought not to shrink from giving effect to its sense of fairness and justice.

73 In my opinion, the court in Daniels v Anderson did not intend to lay down that the exoneration provision should be used only in extreme circumstances of injustice or oppression. The injustice and oppression to which their Honours were referring is the injustice and oppression that would arise if relief were not given, rather than some continuing unjust or oppressive state of affairs at an earlier stage. They were not saying that the section is to be used to relieve against injustice and oppression, but that it is to be used to avoid injustice and oppression. In cases where the court is satisfied that the defendant has acted honestly and in all the circumstances ought fairly to be excused, little (if anything) more will be required to justify the conclusion that it would be unjust and oppressive to the defendant not to grant relief.

74 For these reasons, the passage from Daniels v Anderson does not provide any guiding principle applicable in the present case. Indeed, none of the three candidates for the role of guiding principle is of any utility here. All one can do, recognising the breadth of the discretions, is to have regard to the statutory language and the various factors that I have set out, with all due caution but without any predisposition to grant or refuse relief.

Section 1317JA

75 Section 1317JA gives the court jurisdiction in civil penalty proceedings ("eligible proceedings") to relieve a person from liability in circumstances virtually identical with the requirements of s 1318. It was introduced into the Corporations Law by the Corporate Law Reform Bill 1992. The Bill made major reforms by, inter alia, restating the statutory duty of care and diligence following recommendations by the Senate Standing Committee on Constitutional and Legal Affairs (The Social and Fiduciary Duties and Obligations of Company Directors), concurrently introducing the civil penalty regime into corporations legislation, and overhauling the corporate insolvency provisions (including the provision about insolvent trading) following the recommendations of the Australian Law Reform Commission in its General Insolvency Inquiry (Report No 45).

76 The Explanatory Memorandum to the Bill, paras 189-190, did not explain why it was thought necessary to introduce a special exoneration provision for civil penalty proceedings, when recourse was already available to s 1318 in civil proceedings for negligence, default, breach of trust or breach of duty. One consideration may have been to overcome uncertainty as to the availability of an exoneration provision in proceedings for insolvent trading under the predecessors to s 588G: see Commonwealth Bank of Australia v Friedrich, 5 ACSR at 192; Standard Charted Bank of Australia v Antico (Nos 1 & 2) (1995) 38 NSWLR 290 at 370; Kenna & Brown Pty Ltd v Kenna at [144]-[152].

77 Section 1317JA is not materially different from the present s 1317S, and therefore it is available to be applied by force of s 1400 or s 1403 of the Corporations Act.

78 The main difference between s 1317JA and s 1318, as regards contraventions of the statutory duty of care and diligence, is that s 1317JA applies to "eligible proceedings" and to contravention of a civil penalty provision, whereas s 1318 applies to any civil proceeding against a person identified in subsection 1318(4) for negligence, default, breach of trust or breach of duty. It is clear, and not contested by the first and second defendants, that the present civil penalty proceedings against the three defendants are "eligible proceedings" as defined in s 1317JA(1), and (as noted above) they are civil proceedings for negligence for the purposes of s 1318(1). In such a case, the substantive questions are the same whether one proceeds under s 1317JA or s 1318. Subsection 1317JA states that nothing in s 1317JA limits, or is limited by, s 1318.

79 For convenience, I shall express my findings about relief from liability by reference to s 1318, but they are intended to apply equally and for the same reasons to s 1317JA.

Findings of contravention by Mr Vines

80 In my August judgment I made detailed findings in response to the multitude of allegations against Mr Vines made in ASIC's pleading. I rejected many of the allegations made against Mr Vines, including those surrounding the making of the American Re agreement, but I found that various contraventions had been proven.

81 In its written submissions resisting Mr Vines' application for relief, ASIC provided a "summary of relevant circumstances" running to some 43 paragraphs ([6]-[48]). Although it purports to be an account of the matters said by ASIC to be especially pertinent to the question of relief against liability, the summary is more in the nature of a summary of all of my findings, as they apply to Mr Vines. I do not disagree with its description of my factual findings, judged as a summary, but I would caution against placing undue reliance on it. It omits some matters that I would regard as important: for example, my findings about Mr Vines' extra responsibilities (Judgment at [30]-[36]), and my findings about what was represented to PwC at the meeting on 7 December (Judgment at [861]-[916]).

82 Attempting to summarise factual findings made at the level of detail found in my August judgment is perilous, because of the risk of over-emphasising or under-emphasising component parts of complex and connected determinations, or excluding relevant material. It is also unnecessary for present purposes. But a summary of my findings of contravention is needed, for the purpose of dealing with the parties' submissions on Mr Vines' application for relief under the exoneration provision. I have considered ASIC's summary (written submissions, paras [50]-[60]) but I would prefer to summarise my findings as to Mr Vines' contraventions of s 232(4), in my own words, 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 (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 (Judgment at [1168]).

(3) At the DDC meeting on 8 December 1998, in circumstances where reliance on the American Re agreement was no longer possible, Mr Vines failed to ensure that the DDC was informed of all matters material to the estimate of loss from Hurricane Georges so that the committee could exercise its judgment as to the viability of the forecast and the disclosure to shareholders that should be made. Mr Vines failed to draw the DDC's attention to the fact that Mr McClintock's figures had been taken from Mr Fox's statement about management's best estimate of liability, the accuracy and reliability of which had become crucial because of the unavailability of the American Re agreement and reliance on an unders and overs analysis (Judgment at [1172]).

(4) Mr Vines should not have given the kind of unqualified assurance about the Group forecast that he gave to the DDC meeting on 8 December, in circumstances where real doubts had emerged about a material component of that forecast, without making accurate and complete disclosure of all the material circumstances that had led him to believe that, on balance, the Group forecast could still be achieved and should be adopted. Given the existence of substantial doubts emerging from the unavailability of the American Re agreement and the need to rely on unders and overs, and the need for judgment to be exercised, he should have ensured that the DDC had before it the information necessary for it to make the appropriate judgment, rather than to make his own assessment and then give the DDC his conclusions without the judgmental steps in his reasoning process (Judgment at [1174]).

(5) On 8 December 1998, Mr Vines failed to disclose to the DDC PwC's negative attitude to the American Re agreement, which was in terms a matter making it improbable that the profit forecast would be achieved, and he failed to disclose some other balancing matters that might have assisted the company to reach the profit forecast (Judgment at [1175]).

(6) In the delicate circumstances that existed on 8 December 1998 (namely: PwC had decided not to accept the American Re agreement; the due diligence process for which Mr Vines had central responsibility was due to be finalised; Mr Vines was aware of some adverse claims movement up to the end of October and the prospect that further adverse movement may have occurred in November; an unders and overs analysis acceptable to PwC had been developed at the meeting on 7 December), Mr Vines should not have confirmed to PwC that "appropriate inquiries of other Directors and officials of GIO" had been made, in the solemn circumstances in which that confirmation was given (Judgment at [1178]-[1179]).

(7) After 8 December 1998, Mr Vines failed to give directions to ensure that monitoring arrangements were continuing at the divisional level and that the results were brought forward promptly to the appropriate senior corporate officer so that an assessment could be made about further disclosure to the market (Judgment at [1184]).

(8) On 9 November 1998, Mr Vines should not have given the board an unqualified assertion of management's confidence that the GIO Re profit forecast could be met. His statement to the board was incomplete and misleading, in the absence of disclosure that a problem had arisen out of management disagreement leading him to rely on the proposed retrocession agreement and his unders and overs schedule to protect the forecast (Judgment at [1234]-[1237]).

(9) On 17 November 1998, Mr Vines failed to disclose to the board, before the media release of that date was approved and issued, that

· the October results had been supported by the American Re agreement;

· the American Re agreement had not been approved by APRA or the auditors;

· it was not certain that the American Re agreement could be accounted for in a way that would protect the profit forecast and the first four months' profit;

· if the American Re agreement were effective, it would follow that claims recoveries from American Re in the 1999 year would have to be repaid in premiums in later years; and

· he believed that there would be sufficient redundancy in his unders and overs analysis to protect the forecast (Judgment at [1245]-[1246]).

(10) Mr Vines' e-mail to the DDC dated 22 November 1998 failed to disclose that the October results assumed that the American Re agreement would qualify as reinsurance and would effectively protect the results from adverse claims movement, and failed to disclose the doubt that existed about that matter. It failed to disclose Mr Vines' belief that if the American Re agreement were ineffective, redundancies would be available to compensate for it. The e-mail of 22 November was materially misleading in those respects (Judgment at [1247]-[1252]).

(11) Mr Vines should not have endorsed the GIO Re profit forecast in his report to the DDC on 22 November, by reiterating the substance of Mr Robertson's views in his 4 November memorandum, without addressing the new ultimate loss figures in the catastrophe model, which had invalidated Mr Robertson's view as to the adequacy of the $25 million reserve. The report was materially misleading in that respect (Judgment at [1254]).

Application of the statutory discretion in the case of Mr Vines

83 ASIC did not contend, at the hearings on 15 and 16 December 2005, that Mr Vines failed to act honestly. My findings of contravention were, as I have said, about misleading or inadequate disclosure to the board of directors or DDC, but I did not find that the defective disclosure was deceptive, and I made findings that certain specific conduct was not undertaken with any intention to deceive (eg, Judgment at [1236]). In light of my findings and the parties' submissions, I am satisfied for the purposes of the exoneration provision that Mr Vines has acted honestly. The critical questions are whether, having regard to all of the circumstances of the case including those connected with Mr Vines' appointment, he ought fairly to be excused from his negligent contraventions, and whether in the exercise of its discretion the court should relieve him wholly or partly from the liability that will otherwise arise upon the making of orders.

84 I agree with senior counsel for Mr Vines that none of the "negative criteria" listed above (and in Mr Vines' written submissions at [12]) is present in the findings against Mr Vines. There was no finding that he obtained personal gain or benefit from his contraventions, or that any of his contraventions was "flagrant", or that he engaged in impropriety or deceptiveness, or that he was conscious of impropriety on the part of others.

85 I have accepted ASIC's submission that lack of contrition on the part of the defendant may be relevant where that defendant applies for relief against liability. But here I give that consideration no weight. Mr Vines was entitled to resist the allegations made against him, and he has achieved a significant degree of success. This is not a case of a defendant guilty of obvious and palpable wrongdoing who has maintained his innocence against the overwhelming weight of evidence. The contraventions that I have found against Mr Vines were the product of a long and intricate process of fact-finding and the consideration of detailed submissions not of the kind that could be rejected out of hand.

86 In my opinion the considerations that point most strongly against granting relief to Mr Vines are those that arise out of reflections on the nature and seriousness of the contraventions.

The nature of the contraventions

87 Except for item (7), my findings of contravention were failures to exercise due care and diligence by misleading or inadequate disclosure of material information to the board of directors or the DDC. The defective disclosures related to matters within Mr Vines' personal knowledge, in circumstances where the directors or the DDC were relying on him to make timely, accurate and complete disclosure of material matters.

88 The elements of materiality, knowledge and reliance make it difficult, per se, to present a case for excusing the contraventions which have those ingredients. These elements also make it difficult to argue that Mr Vines' conduct was in any meaningful sense "reasonable" or (given the finding of failure to meet the standard of reasonable care and diligence) "unreasonable only on balance". In respect of the contraventions other than item (7), Mr Vines was aware of material information that he ought to have presented to the board or the DDC, which (as he knew) were relying on him to present them with financial information material to their decisions on important matters relating to disclosure to investors, and he did not do so. That is unreasonable conduct. As regards item (7) of the contraventions, it was also unreasonable for Mr Vines not to take appropriate steps to ensure that the monitoring arrangements in respect of Hurricane Georges claims continued after publication of the Part B statement, so that an assessment could be made at a senior level about further disclosure to the market, given his knowledge by 8 December of the progress of Hurricane Georges claims.

89 Further, I agree with ASIC (written submissions at [89]) that the contraventions are not eleven separate, isolated incidents. One can perceive in them a continuity and a pattern. Considered together, the contraventions paint a picture of an executive whose responsibility was to provide the board with all the information available to him and material to their decisions concerning the Part B statement and the profit forecast. Rather than discharging that responsibility, he limited the disclosure of material information to the board and its committee in a manner that deprived board members of the opportunity to make fully informed decisions on some important matters. To the extent that he decided not to give the board information on certain material matters, he effectively substituted his own decisions for board decisions.

The seriousness of the contraventions

90 Under our system of corporate governance it is the board of directors who have the ultimate decision-making responsibility on matters of management. But they cannot discharge their responsibility unless the senior executives of the company, having responsibility to do so, lay before them all the matters material to their decision. Mr Vines' pattern of contraventions is incompatible with these principles governing the board/senior executive relationship and has the tendency to undermine the efficacy of corporate boards. The contraventions are therefore matters of real significance, not trivial matters or matters of inadvertence.

91 These general considerations of corporate governance are reinforced in the special context of defending a hostile takeover. The corporations legislation imposes heavy civil, and sometimes criminal, liability on those who provide misleading information to the public securities markets about the price or value of quoted securities. The law seeks to protect investors, and in particular target shareholders, by endeavouring to ensure that the information upon which they make their decisions is materially accurate and complete.

92 Where the vehicle for provision of information to investors is a Part B statement, the law prescribes the required content in some detail, while also demanding that the document must disclose all information material to the making of a decision by target shareholders whether or not to accept the offer, being information known to any of the directors and not previously disclosed (see, at the time relevant to these proceedings, Corporations Law, s 750, Part B, para 13).

93 The principal responsibility for ensuring that the target company complies with its statutory obligations and that the information in the Part B statement is materially accurate and complete is borne by the directors of the target. They are not expected to treat their disclosure obligation as an occasion for exercising entrepreneurial flair and risk-taking. They are expected to satisfy a standard of reasonable care and diligence that is informed by the seriousness of the disclosure obligation. Correspondingly, the executives who provide information to the board must meet a standard of reasonable care and diligence that reflects their position in the process of assisting the directors and the company to discharge their duties.

Mr Vines' asserted grounds for relief

94 The grounds for relief advanced on behalf of Mr Vines may be grouped into five categories (see Mr Vines' written submissions at [54]-[63]):

· circumstances highlighting the great pressure he was under at the time, because of his expanded responsibilities;

· the assertion that the breaches were honest breaches not involving moral turpitude, in circumstances where there were various express findings as to the genuineness of Mr Vines' beliefs and the proactive and diligent steps taken by him in the discharge of his duties;

· the assertion that the breaches found against him did not cause any loss to the company;

· ASIC's asserted conduct in publishing a media release on 20 June 2001, making allegations of impropriety as well as negligence against Mr Vines, and amending its pleadings in September 2001 to allege dishonesty and additional impropriety, without ever correcting the publicly stated position after the abandonment of the dishonesty and impropriety claims in October 2003;

· the fact that Mr Vines has had to endure a lengthy trial in which the vast majority of allegations made against him were dismissed.

95 I shall consider each of these categories in turn.

Expanded responsibilities and pressure

96 The circumstances connected with Mr Vines' appointment, which are the subject of detailed findings in my August judgment, have two components. One was his initial appointment as chief financial officer (Judgment at [28]-[29]). The other component was the expansion of his role and responsibilities after Mr Steffey arrived, and in particular, his additional responsibilities in connection with the Part B statement and the due diligence process (Judgment at [30]-[34]; additionally, Mr Vines was involved in undertaking a valuation of the Group prior to Grant Samuel's engagement: T 2564). He had only a small team to assist him, whose size did not increase commensurately with the expansion of his responsibilities [Judgment at [36]). Consequently during the period in which the contraventions occurred, Mr Vines was labouring under a very heavy workload.

97 These circumstances count generally in favour of Mr Vines, although there are some countervailing considerations noted below. But in my opinion the submissions made on his behalf overstate their significance. It was submitted that the breaches found were "the non-deliberate failure of an extremely busy man genuinely conveying management's position to add qualifications or clarifications to that conveyed position" (written submissions at [25]). I partly agree with that description. Mr Vines was an extremely busy man, and ASIC did not contend that the position of management that he conveyed to the board and DDC was other than his genuinely held view. But the expression "non-deliberate" seems to me to be ambiguous and best avoided, for it might be taken to suggest, contrary to my findings, that the deficiencies in disclosure did not at any stage involve decisions by Mr Vines not to disclose matters of which he was aware.

98 The findings amount to this: Mr Vines was aware, at the times of contravention, of certain matters; the specified matters were, in the circumstances that obtained at the times of contravention, material to the decisions that the board or its committee were to make; and those material matters were not disclosed. There were no findings that Mr Vines intended to deceive, and no express findings that he gave conscious consideration to whether particular material matters ought to be disclosed. However, as ASIC pointed out (written submissions at [91]-[92]), I accepted evidence given by Mr Vines which implied that there had been, on one occasion, a conscious decision not to disclose. His explanation of why his e-mail dated 22 November 1998 made no mention of doubt about the efficacy of the American Re cover, and his evidence that his report to the DDC on 22 November 1998 would not have been different had he first read and considered Mr Schneider's fax, implied that he had made a decision at the time not to disclose doubts about the American Re agreement. More importantly and generally, in respect of all of the contraventions the findings imply that Mr Vines ought to have considered whether to disclose material information of which he was aware. And the findings show that in each case, he acted in a manner having the effect of excluding disclosure of material information although he was aware of it.

99 Further, to describe the deficiencies in disclosure as "qualifications or clarifications" to the conveyed position is to reduce their significance. The matters not conveyed were material to the important decisions of the board and its committee with respect to the Part B statement and its profit forecast. If disclosed, they would have qualified or clarified what Mr Vines actually conveyed, but they were much more than mere qualifications or clarifications. Mr Vines' failure to provide the directors with that material information left them to make their decisions, on each occasion of contravention, on the basis of a significantly incomplete factual matrix.

100 Although I accept that Mr Vines' expanded responsibilities and the associated pressure are relevant mitigating factors, must be considered in context. Mr Vines was an experienced, senior executive of a public company and had previously been an audit partner with PwC, and then the firm's managing partner. His responsibilities as chief financial officer and his additional responsibilities in connection with the Part B statement were voluntarily undertaken. In its submissions, ASIC described the chief financial officer of a listed public company as the "gatekeeper" in respect of financial information to be disseminated to management, the board, the stock exchange and the investment community at large. I accept that description, as long as it is understood that the gatekeeper's function is to enhance the quality and quantity of traffic flow rather than to keep the gate shut. This role was supplemented for Mr Vines by his special responsibilities in relation to the Part B statement. His duty of care and diligence under s 232(4) was set having regard to all these responsibilities (or more precisely, those of a reasonable person in like position in the corporation's circumstances).

(7) Mr Robertson should not have signed the representation letter and the December management sign-off, which had the effect of affirming the profit forecasts, knowing the contents of the HG table, without making further inquiry to determine whether the figures in the table should be taken into account or discounted (Judgment at [1377], [1378], [1380], [1383]). His mental calculation of "unders and overs" depended crucially on the profit impact of Hurricane Georges property losses, net of reinstatement premiums, not exceeding $60 million and a reasonable person in his position would have had grave concerns that this assumption would prove to be invalid (Judgment at [1382]).

(8) Mr Robertson should not have signed the representation letter and the December management sign-off without making inquiries about the availability of any results of the various classes of GIO Re business since 30 September, given the general content of those documents and the specific statement in the representation letter about good performance of the attritional property book in the 1999 year to date (Judgment at [1389]).

(9) Mr Robertson should not have signed the representation letter and the December management sign-off, having regard to his state of knowledge, without making inquiries to ascertain whether GIO Re had determined whether there would be any benefits arising from any "changes in retrocession arrangements under consideration" (one of the matters identified in the representation letter as justifying the view that no adjustment was needed to the reinsurance profit forecast notwithstanding deterioration in the performance of the catastrophe portfolio) (Judgment at [1399], [1403]).

123 While recognising the dangers of an assessment made with hindsight, I said that the breaches that I had found to exist in each case were "quite basic breaches that ought to have been obvious to a reasonable person in Mr Robertson's position at the time" (Judgment at [1409]).

Application of the statutory discretion in the case of Mr Robertson

124 ASIC expressly acknowledged in its written submissions (at [1]) that the court was at liberty to approach the exercise of the exoneration power on the basis that Mr Robertson was a "person who acted honestly" within the meaning of the exoneration provision.

125 Although there is no challenge to Mr Robertson's honesty, two additional observations are appropriate, going to the exercise of the statutory discretion.

126 First, Mr Robertson willingly and openly co-operated with ASIC in its investigations, giving evidence over a period of three days in a private examination before an ASIC examiner (Judgment at [100]). He was not legally represented at the examination and he did not follow the usual practice of claiming privilege before giving answers because, he said, he did not consider that he had done anything wrong and he was happy to help ASIC in its investigations. He spent no time refreshing his memory from documents before the examination and, not surprisingly, some of the answers he gave on that occasion were inconsistent with his affidavit and oral evidence at the hearing. It was conceded on Mr Robertson's behalf that in hindsight, his actions might be taken to have been naive, but it was submitted that the episode spoke volumes for Mr Robertson's honesty and his preparedness to account for his actions. I agree.

127 The second aspect of Mr Robertson's honesty was his honesty as a witness. I rejected his evidence in favour of other evidence on occasions, but in doing so I did not make adverse credit findings: in respect of his evidence on his tracking exercise, which was (to say the least) jumbled, I concluded that he had persuaded himself through reconstruction that he must have undertaken such an exercise; and when I found that he had been told about the contract-by-contract analysis on 5 November, I noted that his evidence to the contrary gave me no reason to doubt that he was endeavouring to tell the truth (Judgment at [403]). Overall, I accepted his version of events more often than I rejected it (Judgment at [104]), and I found that he was an honest witness who was prepared to make admissions against his interest (Judgment at [103]). A particular matter worth mentioning is that he proffered evidence to the effect that, upon his return from Boston in November 1998, he had been shown the HG table by Mr Schneider, even though Mr Schneider did not make that claim in his evidence in chief. The evidence given by Mr Robertson on this point proved to be important. It was an ingredient of the court's findings of contravention in items (5), (6), (7) and (10) above.

128 While these matters may not be part of "all the circumstances of the case" having regard to the observations of Kirby P in the Advance Bank case, 9 NSWLR at 491, they are matters relevant to the exercise of the court's discretion to relieve from liability, having some persuasive force, as well as being matters relevant to the discretion to make appropriate orders. I have given them careful consideration. But for the reasons I shall explain, I have come to the conclusion that they are outweighed by other considerations pointing against the granting of relief from liability.

129 As in the case of Mr Vines, none of the "negative criteria" that I have listed (set out in Mr Vines' written submissions at [12]) is present in the findings against Mr Robertson. There was no finding that he obtained personal gain or benefit from his contraventions, or that any of his contraventions was "flagrant" (the finding that they were "basic" being quite a different matter), or that he engaged in impropriety or deception, or that he was conscious of impropriety on the part of others.

130 As in the case of Mr Vines, ASIC submitted that lack of contrition on the part of Mr Robertson was a relevant factor against granting relief. But here, again, I have given that consideration no weight. Like Mr Vines, Mr Robertson was entitled to resist the allegations made against him, and he has achieved a measure of success, although not as much success as Mr Vines. In his evidence, Mr Robertson showed an honest and firm belief that he had complied with his statutory duty of care and diligence, but he reacted frankly and openly to questions put in cross-examination even where it was clear that the answers would support the case against him. In some important respects I rejected his evidence, but I found him to be an honest witness (Judgment at [103]). I think it would be unfair to hold "lack of contrition" against him for the purpose of denying relief from liability.

131 Here, as in the case of Mr Vines, the considerations that point most strongly against granting relief relate to the nature and seriousness of the contraventions.

The nature of the contraventions

132 In their written submissions, counsel for Mr Robertson reviewed the individual findings of contravention in some detail, and offered explanations or partial justifications for Mr Robertson's conduct.

133 As to item (1) (written submissions at [147]-[166]), they pointed out that Mr Robertson was under considerable time pressure; his report was over two weeks late; his replacement as executive director was arriving on the following day and he wanted to create a "sign off" of his work; he was leaving for Boston on 6 November; there had been delays caused by problems in the reinsurance valuation models, which he had endeavoured in various ways to overcome; he was given little time to analyse new valuation figures provided by Mr Schneider; and he had received some reassurance about Hurricane Georges losses from Mr Burton.

134 Against these particular considerations, one must weigh the consideration that Mr Robertson did not seek to identify in his report any areas that he had not been able to check, or to explain that, not having had the time and opportunity to check certain matters, his opinions were based on assumptions that would need to be verified later. Knowing the importance that would be attached to his 4 November report, he did not make the inquiries that I found he should have made, and he did not explain the deficiency or otherwise seek to address it. I do not agree that the matters identified in the written submissions provide a basis for relief against liability for this contravention.

135 As to the execution of the due diligence questionnaire (items (2), (3) and (4) - written submissions at [167]-[193]), the written submissions drew attention to Mr Robertson's physical location in Boston, where he did not have easy access to Mr Fox, Mr Schneider, Mr Vines or anyone involved in managing the due diligence process. The submissions noted that Mr Robertson had "agonised" over what to say about the level of Hurricane Georges claims to the end of October 1998, so that his error of judgment in that respect was not made capriciously. Mr Robertson gave evidence of five justifications for giving an incomplete answer, and it was submitted that though the court found they were inadequate, they explained Mr Robertson's thought processes at the time. The written submissions characterised Mr Schneider's statement about the contract-by-contract analysis on 5 November as a "passing remark" which did not reveal the nature of the analysis or the level of resources devoted to it. As to failure to disclose the proposed American Re agreement, the written submissions noted my observation (Judgment at [1320]), that there was room for argument as to whether the mere possibility of a retrocession agreement was a matter that needed to be disclosed, although I was persuaded by expert evidence that it should have been.

136 I agree that the matters noted in the written submissions go some way to explaining how Mr Robertson's mistakes occurred (though I do not think it accurate to describe Mr Schneider's statement on 5 November as merely a "passing remark"). But they do not, in my opinion, provide grounds for justifying inadequate disclosures on important occasions.

137 As to the PwC meeting on 7 December (items (5) and (6) - written submissions at [194]-[205]), the written submissions drew attention to Mr Robertson's evidence that he did not know there was to be a meeting with PwC on 7 December until the PwC representatives appeared, and he did not know what the meeting was to be about. It was submitted that the lack of prior notification denied Mr Robertson any opportunity to review figures with which he no longer dealt on a day-to-day basis, make inquiries or give due consideration to the matters requiring disclosure. I accept that he did not have any advance opportunity to do these things. But as he was aware, the meeting was a significant one. If he felt the need to conduct any inquiry or review or to give further consideration to a matter, it was open to him to say so.

138 The written submissions also noted Mr Robertson's limited involvement with GIO Re after his return from Boston. But his involvement in the meeting with PwC was significant, and my findings indicate that he contributed actively.

139 As to the execution of the representation letter and December management sign-off (items (7)-(10) - written submissions at [206]-[231]), the written submissions drew attention to the circumstances in which the documents were produced for execution and contended that in reality, Mr Robertson had few options but to rely, more heavily than hindsight now reveals was prudent, on the information given by Mr Fox at the PwC meeting. But Mr Robertson was being invited to give a personal certification of the matters contained in the documents, by signing them. The contingencies of the situation should not be allowed to provide a basis for exoneration, for it will be frequently the case that such documents are signed in circumstances of pressure, and the effect of granting exoneration on such grounds would be to devalue their significance.

140 Submissions were also made to the effect that Mr Fox had participated in the meeting with PwC in a principal role and Mr Robertson was in a marginalised position, from which he would not challenge his apparently better qualified successor who was making pronouncements within his competence and sphere of responsibility, without having the information to hand to support his challenge. I shall deal with the unusual position occupied by Mr Robertson later. But the point to be made here is that Mr Fox's assertions were inconsistent with information known to Mr Robertson, and yet he did not intervene.

141 The written submissions drew attention to my findings concerning Mr Robertson's mental calculation of unders and overs. It is relevant to take these findings into account and they do provide some support for Mr Robertson's statement to the PwC meeting. But his affirmation of the profit forecast at the meeting was unqualified except by reference to the difficulty of making such forecasts in any case. I have found that he was aware of material information to which he did not refer in doing so, and he chose to make his statement without further inquiry as to the HG table. The effect was to feed unreliable and incomplete information into the process which led to the publication of the Part B statement. The circumstances in which he was shown the HG table seem to have had an era of casualness about them, as the written submissions pointed out, but the content of the table was clear and it represented a summary of the results of the contract-by-contract analysis, and exercise of some importance.

142 The detailed review of findings of contravention by counsel for Mr Robertson raises many matters appropriate for consideration when the court comes to exercise its discretion concerning orders. But having considered those submissions, I am not persuaded that, in the case of any of the contraventions, they provide a basis for relief from liability, whether considered together or in isolation.

143 There are two striking aspects of the contraventions found against Mr Robertson. First, each of them relates to the information supplied on crucially important occasions in the course of preparation of the Part B statement and the due diligence process. Item (1) occurred on the occasion of Mr Robertson's "sign-off" at the point of handing over the executive directorship to Mr Fox, at a time when the profit forecast had been developed and was to be used in the Part B statement. Items (2), (3) and (4) related to Mr Robertson's answers to the due diligence questionnaire and his November management sign-off, documents plainly prepared for the purposes of the due diligence inquiry and to be relied upon by the DDC. Items (5) and (6) related to the important meeting of the GIO executives with PwC on 7 December, the day before the final due diligence and board meetings for approval of the Part B statement. Items (7), (8), (9) and (10) related to the representation letter and December management sign-off, again crucial documents which were to be relied upon by the DDC and the board.

144 The second aspect is that the contraventions all relate to inadequacy of disclosure on those important occasions, the inadequacy being of one of four kinds. First, at the meeting with PwC on 7 December he failed to query or correct statements that were wrong or open to question, having regard to the level of knowledge he possessed. Secondly, on various occasions he made general oral or written statements which were incorrect in the absence of some appropriate qualification. Thirdly, on various occasions he failed to disclose additional information that was material to the matters under consideration. Fourthly, on various occasions he ought to have made further inquiries, having regard to what he knew, before making the statements that he made.

145 I agree with counsel for ASIC (written submissions at [9]) that it is appropriate to consider the totality of the contraventions, rather than focusing on each of them separately. Like the contraventions by Mr Vines, they reflect a pattern of defective disclosure. Baseband the period between 4 November and 7 December 1998, a critical time for the takeover defence process.

The seriousness of the contraventions

146 As in the case of Mr Vines, the contraventions found against Mr Robertson go to the adequacy and quality of the information presented to the board and DDC for the purpose of their decisions about the Part B statement and in particular, the profit forecast. My remarks, made in the context of the contraventions by Mr Vines, about the fundamental importance of senior executives providing their boards with all information material to their decisions, under our system of corporate governance, are equally applicable here. My observations about the special context presented by the process of responding to a hostile takeover bid are also applicable.

147 The deficiencies of information supplied by Mr Robertson occurred, as I have said, on crucial occasions in the Part B and due diligence process. In many other contexts, making a general statement that is misleading because it is in need of some qualification might be a minor or venial breach of duty, if it is a breach at all. But the occasions for disclosure in this case required careful attention to the accuracy of all statements that would be relied on in the process, and the need to qualify general statements where the qualification was on a material matter. The fact that in this case, some of the contraventions related to a failure to make further inquiries, rather than a positive misstatement or a non-disclosure, does not lessen the gravity of the contraventions, given the relatively "solemn" context in which the contraventions occurred and the fact that the failure to make inquiries lead to information going forward that had not been properly reviewed or verified.

Mr Robertson's asserted grounds for relief

148 Senior counsel for Mr Robertson made submissions in the following categories, to support his contentions that in all the circumstances of the case Mr Robertson ought fairly to be excused from his breaches of duty, and that the court should exercise its discretion in favour of relieving him wholly, or at least partly, from liability:

149 Matters (i)-(vi) need to be addressed at length, and I shall do so below. Matters (vii)-(xii) can be dealt with more briefly. I have already said that absence of personal benefit (item (vii)), one of the "negative criteria", is not present here. I have set out my consideration of the submissions that Mr Robertson openly co-operated with ASIC (item (viii)) and that he was an honest witness (item (ix)).

150 As to item (x), I briefly considered Mr Robertson's professional background in paras [37]ff of my August judgment. I am prepared to infer from the evidence that, prior to his retirement, he was held in high regard professionally and for the integrity of his behaviour in a corporate environment (see, in particular, Mr Vines' evidence at T 2516-7).

151 My decision not to relieve him from liability means that I am obliged to make declarations of contravention in respect of each of the matters of contravention that I have found. Although the declarations will not suggest impropriety or lack of integrity, they will reflect multiple findings of failure to exercise due care and diligence, matters very damaging to professional reputation. Indeed, substantial damage has already been done by the publication of my August judgment and its attendant publicity. The making of penalty or disqualification orders will add to that damage.

152 The effect of civil penalty orders on a professional person, and a person with a high reputation for integrity in a corporate environment, is a matter deserving serious consideration. However, the damage to reputation is principally a consequence of the findings of contravention themselves, rather than of any decision to refuse to excuse the contraventions or to make certain kinds of orders. It is unavoidable that professional reputation will be damaged once adverse findings are made. And all these considerations have to be balanced against other matters including the nature and seriousness of the contraventions.

153 As to items (xi) and (xii), it was submitted on behalf of Mr Robertson that he has no serious character flaws which would lead the court to believe that he would contravene again.

154 I was informed from the bar table that Mr Robertson is 64 years old, retired, and not a director of any company or otherwise in any active commercial interest, save for the maintenance of himself and his wife in their retirement. I accept the accuracy of these matters.

155 It was submitted that even if Mr Robertson were not retired, there was no allegation or finding in the case that would lead to the conclusion that his contraventions were anything but an aberration in an otherwise untarnished career. I generally accept these submissions, except that it is putting the matter too highly to say that Mr Robertson's contraventions were merely an "aberration". They amounted to a series of failures to discharge his duties in matters of disclosure on important occasions. They would be consistent with a finding that Mr Robertson did not properly understand his role as an executive providing information to the board and DDC in the course of preparation of a Part B statement containing a profit forecast, and in the course of a due diligence process. It is unnecessary for me to make any such finding, although I note that in Mr Robertson's written submissions (at [77]) it is said that he had not been involved in a hostile takeover bid of a public company prior to August 1998, and that the processes adopted in response to the takeover bid were novel to him. In the circumstances, I have proceeded on the basis that there is no practical risk that Mr Robertson would contravene again. Any lack of understanding of his role ought to have been addressed by the outcome of these proceedings.

Mr Robertson's highly unusual position

156 In their written submissions (at [65]-[89]), counsel for Mr Robertson reviewed in some detail what they described as Mr Robertson's highly unusual position. The submissions usefully draw together some detailed findings that I endeavoured to make with precision in my August judgment, for the very reason that Mr Robertson's position, particularly after the arrival of Mr Fox, was "very special" (Judgment at [1027]).

157 It is unnecessary for me to reiterate the findings that I have made. There is nothing in the review in the written submissions with which I would disagree. The question is whether my findings provide a reason for relieving Mr Robertson from liability for breaches of his duty of care and diligence.

158 Given the evidence indicating that Mr Robertson was being marginalised from the central management team of the GIO Group (Judgment at [135]-[140], [161]), and the evidence about his tense relationship with Mr Schneider (Judgment at [65]), it is understandable that he would have endeavoured to be firm and decisive so as to protect and re-establish his position. That might go some way towards explaining his categorical statements, especially in his memorandum of 4 November and his remarks at the meeting with PwC on 7 December. But in my opinion they do not provide a proper basis for excusing him from his contraventions, even on those occasions. He was a senior executive officer in the GIO Group and a man of extensive experience in the insurance business, as well as an intelligent person of mature years. He should have realised the importance of resisting the pressures that may have encouraged him to be more firm and decisive than the circumstances allowed. He should have recognised the importance of making full disclosure to the board and DDC of all material matters of which he was aware, and of not providing information to them which had not been properly reviewed and verified.

159 After Mr Fox arrived, and acquired the unqualified responsibilities of executive director, staff in the reinsurance business reported to Mr Fox rather than Mr Robertson (although Mr Robertson was not "in substance inhibited from obtaining information": Judgment at [1412]), and Mr Robertson became "a man without portfolio" (Judgment at [1024]). But he retained joint responsibility with Mr Fox with respect to the profit forecast, a responsibility he purported to exercise in various ways, including his remarks at the meeting with PwC on 7 December, his answers to the due diligence questionnaire, and his execution of the representation letter and the November and December management sign-offs.

160 I was invited to take into account that the person with whom Mr Robertson shared responsibility was a man the court has found to have acted dishonestly. But it does not seem to me that this consideration affects the findings of contravention that I have made or their nature or seriousness. I was also invited to take into account the "unusual and ill-defined" nature of the shared responsibility. The shared responsibility was unusual but a key component of it was Mr Robertson's direct responsibility for matters to do with the profit forecast and in particular, responsibility for the matters in the performance of which he breached his duty of care and diligence. In relevant respects, there was nothing "ill-defined" about his responsibility. Nor does the fact that Mr Robertson was entitled in certain respects to rely on Mr Fox affect my findings of contravention.

161 There is some evidence indicating that Mr Robertson respected Mr Fox, who was described as having "a really deep background in the reinsurance business" (Mr Robertson's affidavit, Annexure FWR 5). It was submitted that he had a reasonable expectation that Mr Fox was performing the role which Mr Robertson had previously performed. But these matters do not, in my view, contribute to exonerating Mr Robertson from the precise contraventions that I have found. When he heard Mr Fox making assertions to PwC, at their meeting on 7 December, that were inconsistent with what he knew, no amount of respect or reasonable expectation could exonerate him from at least querying, and perhaps correcting, what was being said. As to the signing of the representation letter and the December sign-off, it must have been obvious to Mr Robertson that the point of having him sign was for him to take personal responsibility for the matters certified. It would be very wrong for this court to take an approach which implied that those who sign such documents can do so, without carefully attending to the matters certified, whenever they have a reasonable belief that someone else is primarily responsible for those matters.

162 The unusual nature of Mr Robertson's position does, to a degree, provide a basis for appreciating how he made the mistakes that led to his contraventions (Mr Robertson's written submissions at [89]). But, for reasons I have given, they are not matters to which any substantial weight can be given in exercising the discretions with respect to relief from liability.

The notoriously difficult nature of profit forecasts in reinsurance

163 In my August judgment I noted the notoriously difficult nature of profit forecasting in the reinsurance industry, and pointed out the consequent difficulty in applying the statutory standard of care and diligence (Judgment at [24]-[25], [1077]). A discrepancy of millions of dollars between a profit forecast and the actual results achieved just months later is not, per se, an indication of negligence in the making of the forecast. I kept this problem in mind in making my findings about contraventions, holding (Judgment at [1410]) that there were contraventions by Mr Robertson notwithstanding the difficulties associated with forecasting, as the court should not condone exercises of judgment made without proper investigation or proper regard to relevant matters.

164 Although I had regard to this problem in making my findings of contravention by Mr Robertson, it is appropriate to take the matter into account again on the question of relief from liability. But difficulties about forecasting have no real impact on the findings of contravention that I have made. On each occasion the problem was defective disclosure, produced by failure to query or correct, or qualify in material ways, or make further inquiries as to material matters. The contraventions did not relate to the making of the profit forecast as such, but rather to giving the board and the DDC the material information necessary for them to make decisions about what would be disclosed to target shareholders in the Part B statement.

Errors of judgment

165 It was submitted (Mr Robertson's written submissions at [96]) that Mr Robertson's contraventions involved errors of judgment on his part. My attention was drawn to para [1076] of my August judgment, where I drew attention to dicta to the effect that not every mistake by a professional person founds liability in negligence. But that observation is beside the point, since I have found that Mr Robertson's mistakes did amount to contraventions of the statutory duty of care and diligence.

166 It was submitted (at [98]) that where business men and women act in an environment involving risk in decision-making, there is a fine line between a mistake in negligence. But for reasons I have explained, Mr Robertson's mistakes were not made in the course of entrepreneurial risk-taking but rather in the course of a much more formal disclosure process. While I accept that Mr Robertson's contraventions involved "errors of judgment", being errors of judgment as to what should be disclosed and what should be investigated, I do not regard that categorisation a itself contributing to the case for relief from liability. They were, as I have said, "basic" errors and I do not regard them as close to the line between mere mistakes and negligent mistakes.

Information supplied to Mr Robertson that was not necessarily reliable

167 In their written submissions (at [100]-[109]), counsel for Mr Robertson reviewed my findings about the steps that Mr Robertson had taken to improve governance and reporting practices, and they submitted that "serious deficiencies remained and confronted Mr Robertson on an almost daily basis". This, they submitted, made it difficult for Mr Robertson to have confidence in the information provided to him by his subordinates (noting Judgment at [195], and a number of ongoing and persistent problems with valuation, noted throughout the Judgment). They said it was not unusual for Mr Robertson to be presented with two sets of inconsistent data, and they invited comparison between the Status of Registers Events Report as at 31 October 1998 (PTB 0792, relevant to item (2) of the contraventions) and a document entitled "GIO Re's involvement in Large North America Market Losses - status as at 31 October 1998" (PTB 1020C). They drew attention to Mr Robertson's evidence (Judgment at [250]) that he could not understand the space result in the first quarter highlights and spoke to Mr Schneider about the matter, to find eventually that Mr Schneider, after having defending the figures, admitted that he had made an error in the valuation data.

168 These inadequacies of the information, generated within GIO Re, were said to be important for understanding the actions and reactions of Mr Robertson in the circumstances in which he found himself, and the errors of judgment which the court has found that he made. It was submitted that they tended to explain his reluctance to accept figures presented to him at face value, and his scepticism of the benefit of further investigation.

169 I do not accept these submissions. Indeed, it would be dangerous to accept them, for to do so would imply that a degree of unreliability in the information generated by a company internally would justify a senior executive supplying information to the board which had not been verified against current internal information. I do not agree that a degree of uncertainty about the reliability of data within GIO Re could be relied upon by Mr Robertson as support for a decision not to give some weight to the information presented to him (such as the information in the HG table), or a decision not to make further inquiries in circumstances where I have held that further inquiries were needed.

Mr Robertson acted bona fides and for a proper purpose

170 I agree (Mr Robertson's written submissions at [110]-[118]) that Mr Robertson's bona fides were not questioned in ASIC's submissions or the court's findings. The court found that he did not participate in the negotiation of the American Re agreement and he had no knowledge of Mr Fox's "side letter" of 13 November 1998 (Judgment at [563]). It therefore seems to me irrelevant to refer to the court's findings as to GIO Re's collateral purpose in entering into the American Re agreement. I agree that the court's adverse findings against Mr Fox on these matters should not be allowed to tarnish Mr Robertson, but I do not believe that this has occurred.

The context in which Mr Robertson acted

171 Counsel for Mr Robertson (written submissions at [119]-[121]) drew attention to a number of findings to the effect that Mr Robertson had not acted unreasonably. Thus, it was found that no reasonable person acting on the basis of the limited analysis and reasoning in the first quarter highlights would have immediately revised and adjusted the $80 million profit forecast in the manner recommended by Mr Schneider (Judgment at [241]). It was found to be not unreasonable for Mr Robertson to interpret the "best estimate" of liability given by Mr Fox at the PwC meeting on 7 December to be net of adjustments for precautionary claims, retrocessions and reinstatement premiums (Judgment at [906]). It was found to be reasonable for Mr Robertson to make reference to Mr Ikin regarding the space account in the course of preparing his memorandum of 4 November 1998, and to affirm the profit forecast in that document (Judgment at [1299]-[1301]). The submission that Mr Robertson had acted unreasonably in not amending the profit forecast in his answers to the due diligence questionnaire, completed in Boston, was rejected (Judgment at [1322]).

172 These matters were said to support the conclusion that, while it was found that Mr Robertson failed to meet the standard of care and diligence of a reasonable person in like circumstances, nevertheless his conduct was not so unreasonable as to be an impediment to granting relief. I agree that it is appropriate to take these findings into account in assessing the degree of unreasonableness of Mr Robertson's conduct, considered as a whole. But they do not overcome the element of unreasonableness involved in Mr Robertson failing, at crucially important stages during the Part B and due diligence process, to make adequate disclosure of material matters or to conduct appropriate inquiries, by contraventions that I have described as "quite basic breaches" (Judgment at [1409)).

Conclusion as to Mr Robertson

173 Once again, doing my best to weigh up the discretionary considerations laid before me in favour of and against granting relief, as reviewed above, I have decided that this is not an appropriate case in which to grant relief to Mr Robertson, wholly or in part. I am influenced, in particular, by considerations relating to the nature and importance of the contraventions and their inherent unreasonableness. As with Mr Vines, the contentions in favour of granting relief, to the extent that they have some validity, are of less weight. Again, many of the matters raised on behalf of Mr Robertson may be addressed in the exercise of the court's discretion as to the appropriate orders to be made.

Conclusions

174 Both Mr Vines and Mr Robertson have failed in their attempts to be relieved wholly or in part from liability under the statutory exoneration provisions. The next substantive step will be to have one or more hearings on the question of the appropriate orders to be made.

175 I have stood the proceedings over for further directions at 9:30am on 3 February 2006. On that occasion I shall expect to hear from the parties whether they have reached agreement as to whether there should be one hearing or separate hearings on the question of orders, and if they have not reached agreement I shall hear their submissions on that issue. I shall also expect the defendants to let me know whether they intend to call witnesses and if so how many witnesses, and to give me their estimates as to the length of the hearing concerning orders as it affects them respectively. Counsel's diaries should be available, in case it becomes feasible to fix the hearing date or dates.

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CITATION:	ASIC v Vines [2005] NSWSC 1349
HEARING DATE(S):	15 & 16 December 2005
JUDGMENT DATE :	23 December 2005
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Relief from liability not granted to first or second defendant

CATCHWORDS:	CORPORATIONS - failure by first and second defendants as officers to discharge statutory duty of care and diligence - whether they should be relieved from liability under s 1317JA or s 1318 - history of provisions - legal requirements for relief - discretionary factors - significance of whether conduct was reasonable
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss 1400, 1403 Corporations Law, ss 232, 1317EA, 1317JA, 1318 Trustee Act 1925 (NSW), s 85
CASES CITED:	Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464 ASIC v Adler (2002) 42 ACSR 80 ASIC v Plymin (No 2) (2003) 21 ACLC 1237 ASIC v Vines [2005] NSWSC 738 ASIC v Whitlam (No 2) (2002) 42 ACSR 515 Circle Petroleum (Qld) Pty Ltd v Greenslade (1998) 16 ACLC 1577 Commonwealth Bank v Friedrich (1991) 5 ACSR 115 Daniels v Anderson (1995) 37 NSWLR 438 Dimond Manufacturing Co Ltd v Hamilton [1969] NZLR 609 Edwards v Attorney General (2004) 60 NSWLR 667 Gamble v Hoffman (1997) 24 ACSR 369 Kenna & Brown Pty Ltd v Kenna (1999) 32 ACSR 430 Lasscock’s Nurseries Ltd (in liq) v Lyons & Leader Ltd [1940] SASR 251 Lawson v Mitchell [1975] VR 579 Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 7 ACLC 1232 Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304 Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29 Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149 Permakraft (NZ) Ltd (in liq) v Nicholson (1982) 1 ACLC 488 Re Brazilian Rubber Plantations and Estates Ltd [1911] 1 Ch 425 Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 Re Claridge's Patent Asphalte Co Ltd [1921] 1 Ch 543 Re HIH Insurance (in prov liq); ASIC v Adler (2002) 42 ACSR 80 Reiffel v ACN 075 839 266 Ltd (2003) 45 ACSR 67 Rich v ASIC (2004) 78 ALJR 1354 Standard Charted Bank of Australia v Antico (Nos 1 & 2) (1995) 38 NSWLR 290 The Duke Group Ltd (in liq) v Pilmer (1998) 16 ACLC 567 Travel Compensation Fund v Tambree [2005] HCA 69 Wall v Timbertown Community Enterprises Ltd (in liq) (2002) 42 ACSR 1
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:	Jan Redfern, Solicitor for Australian Securities and Investments Commission (P) Sparke Helmore (D1) Henry Davis York (D2) Gadens (D3)