Australian Securities and Investments Commission v Wilson (No 3)

[2023] FCA 1009

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Wilson (No 3) [2023] FCA 1009

File number:

WAD 259 of 2018

Judgment of:

JACKSON J

Date of judgment:

28 August 2023

Catchwords:

CORPORATIONS - directors' duties - duty of care and diligence - s 180(1) of the Corporations Act 2001 (Cth) - alleged failure by managing director to tell board of termination of material agreements - consideration of hypothetical reasonable director - finding that managing director knew of possibility of termination - finding that hypothetical reasonable director would not have informed board of impending termination - factual foundation of case that managing director knew of actual termination not made out - no breaches of duty of care and diligence established

CORPORATIONS - continuous disclosure obligations - s 180(1) and s 674 of the Corporations Act - exposure of company by managing director to risk of adverse consequences - consideration of breach of director's duty of care and diligence in said exposure - no allegation that company did breach s 674 of the Corporations Act - board lost opportunity to make disclosures about termination of material agreements - hypothetical reasonable director would have brought termination of material agreements to board's attention, if known - no such knowledge held by managing director - factual foundation of managing director receiving copy of termination agreement not made out - no breaches of duty of care and diligence established

CORPORATIONS - misleading and deceptive conduct in relation to a financial product - s 180(1) and s 1041H of the Corporations Act - alleged failure by managing director to ensure company did not mislead market - announcement 'potentially' misled market as to ongoing supply to former customer - risk of exposure of company to breach of continuous disclosure obligations - hypothetical reasonable director would have prevented issue of misleading announcement - allegation that managing director knew of termination of ongoing supply agreement not made out - no breaches of duty of care and diligence established
CORPORATIONS - alternative plea - s 180(1) of the Corporations Act - whether managing director should have enquired as to status of material agreements before approving market announcement - hypothetical reasonable director would not have made such enquiries

EVIDENCE - standard of proof - where main witness called by each party unsatisfactory - use of objective factual surrounding material, inherent commercial probabilities and documentary evidence - drawing of inferences from available evidence

EVIDENCE - expert evidence - objections to admissibility of expert report - whether witness has necessary specialised knowledge - whether opinion based on specialised knowledge - objections overruled

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth)

Corporations Act 2001 (Cth) ss 180, 674, 677, 1041H, 1317E, 1317G, Part 5.3A

Evidence Act 1995 (Cth) ss 76, 79 140

Cases cited:

Arcus Shopfitters Pty Ltd v Western Australian Planning Commission [2002] WASC 174

Asden Developments Pty Ltd (in liq) v Dinoris [2017] FCAFC 117

Australian Broadcasting Corporation v Chau Chak Wing [2019] FCAFC 125; (2019) 271 FCR 632

Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] FCA 855

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2020] FCAFC 130; (2020) 278 FCR 450

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 540

Australian Securities and Investments Commission v Big Star Energy Ltd (No 3) [2020] FCA 1442

Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) [2009] FCA 1586

Australian Securities and Investments Commission v GetSwift Ltd [2021] FCA 1384

Australian Securities and Investments Commission v Helou (No 2) [2020] FCA 1650

Australian Securities and Investments Commission v King [2020] HCA 4; (2020) 270 CLR 1

Australian Securities and Investments Commission v Lindberg [2012] VSC 332

Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589; (2015) 241 FCR 502

Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052

Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098

Australian Securities and Investments Commission v Vocation Limited (In Liquidation) [2019] FCA 807

Australian Securities and Investments Commission v Wilson [2020] FCA 873

Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1

Briginshaw v Briginshaw (1938) 60 CLR 336

Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52; (2020) 275 FCR 533

Chant v Curcuruto [2021] NSWSC 751

Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438

Davie v Lord Provost, Magistrates and Councillors of the City of Edinburgh [1953] SC 34

Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328; (2015) 230 FCR 469

Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15

Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2015] FCA 149

Grant-Taylor v Babcock & Brown Limited (in liquidation) [2016] FCAFC 60; (2016) 245 FCR 402

HG v The Queen [1999] HCA 2; (1999) 197 CLR 414

James HardieIndustries NV v Australian Securities and Investments Commission [2010] NSWCA 332

Jones v Dunkel (1959) 101 CLR 298

Jubilee Mines v Riley [2009] WASCA 62; (2009) 40 WAR 299

Krolczyk v Winner [2022] NSWCA 196

Kuligowski v Metrobus [2004] HCA 34; (2004) 220 CLR 363

Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705

National Australia Bank v Pathway Investments [2012] VSCA 168

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449

New South Wales v Fahy [2007] HCA 20; (2007) 232 CLR 486

Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463; (2000) 120 FCR 146

O'Connor v O'Connor [2022] NSWCA 97

Palmer v Dolman [2005] NSWCA 361

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191

Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370

Ramsay v Watson (1961) 108 CLR 642

Rhesa Shipping Co SA v Edmunds (The Popi M) [1985] 2 All ER 712

Roberts-Smith v Fairfax Media Publications Pty Limited (No 41) [2023] FCA 555

Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [1901] AC 373

Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465

Spencer v Commonwealth (1907) 5 CLR 418

Steffen v Ruban (1966) 84 WN (Pt 1) (NSW) 264; [1966] 2 NSWR 622

Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451

Vrisakis v Australian Securities Commission (1993) 9 WAR 395

Wyong Shire Council v Shirt (1980) 146 CLR 40

Division:

General Division

Registry:

Western Australia

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

752

Date of hearing:

30-31 August, 1-3, 6-7, 13, 20-23 September and 20 October 2021

Counsel for the Plaintiff:

Mr MD Howard SC with Mr S Wong and Ms P Honey

Solicitor for the Plaintiff:

Australian Securities and Investments Commission

Counsel for the Defendant:

Mr GR Donaldson SC with Mr T Russell and Mr J Sippe

Solicitor for the Defendant:

Mizen + Mizen

ORDERS

WAD 259 of 2018

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Plaintiff

AND:

FRANK CULLITY WILSON

Defendant

ORDER MADE BY:	JACKSON J
DATE OF ORDER:	28 AUGUST 2023

THE COURT ORDERS THAT:

1.By 4.00 pm on Monday, 4 September 2023 the parties must submit a consent minute concerning the disposal or further conduct of the proceeding (including as to costs), or if necessary, competing minutes.

2.Today's hearing is adjourned to 2.15 pm AWST on Wednesday, 6 September 2023.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Table of Contents

I.         BACKGROUND	[5]
II.       THE ISSUES	[21]
The pleadings and particulars	[21]
Mr Wilson's duties and responsibilities	[22]
The Galderma Agreements and Benzac	[24]
The termination of the Galderma Agreements and Mr Wilson's knowledge	[26]
The first alleged breach of s 180	[30]
The second alleged breach of s 180	[34]
The third, fourth and fifth alleged breaches (the 27 March Response)	[43]
The consequences of the alleged conduct	[53]
Outline of the issues	[58]
III.      THE WITNESSES	[59]
Paul Charles Castella	[61]
Gillian Anne Franklin	[74]
Other lay witnesses called by ASIC	[76]
Lee Bowers	[81]
Frank Cullity Wilson	[84]
IV.      PRINCIPLES	[98]
Proof	[98]
Burden and standard of proof	[99]
Inferences and circumstantial proof	[108]
Unreliable witnesses and the objective framework	[113]
The statutory provisions	[115]
The duty of care and diligence as a civil penalty provision	[115]
Potential breaches	[127]
Civil penalties	[136]
Continuous disclosure	[141]
Section 1041H - misleading or deceptive conduct in relation to a financial product	[153]
V.       NARRATIVE OF THE EVIDENCE	[155]
Supply agreements between Quintis, ViroXis and Santalis	[156]
The Galderma Agreements	[159]
Market announcements about the Galderma Agreements and Benzac in 2014	[164]
Benzac is launched	[179]
Announcements about Galderma and Benzac, January to August 2015	[182]
Quintis acquires 100% of ViroXis and Santalis	[190]
Mr Wilson's responsibilities as Managing Director after the acquisition	[192]
Concerns about the viability of Benzac	[202]
Galderma unhappy about Benzac sales	[202]
Galderma seek a price reduction - August to September 2015	[205]
Santalis proposes a price reduction to Galderma	[214]
Mr Wilson meets Mr Harrison of Galderma - October 2015	[216]
Quintis's 2015 Annual General Meeting - November 2015	[220]
Galderma forecast - November 2015	[223]
The draft letter about discounts and the 'final' Discount Letter	[224]
Galderma proposes a discount - November 2015	[226]
Progress in January 2016	[230]
Galderma sends a revised version of the Discount Letter - February 2016	[235]
Mr Wilson's 'long and cordial call' with Galderma - 9 February 2016	[243]
Conclusion regarding the Discount Letter	[248]
February to November 2016	[252]
Mr Coetzer is introduced to Santalis	[276]
The termination of the Galderma agreements	[290]
Galderma tells Dr Castella that it wants to terminate the Galderma Agreements	[290]
Dr Castella's evidence about the key conversation(s) with Mr Wilson	[303]
Mr Wilson's evidence about the key conversation(s) with Dr Castella	[316]
The telephone records	[323]
The option clause is added to the draft Termination Agreement	[324]
Dr Castella emails Mr Wilson on 5 December 2016	[332]
The Termination Agreement is finalised and executed	[338]
January 2017	[346]
The Board meetings of February 2017	[352]
The ASX queries and Quintis's responses	[361]
The Glaucus Report	[361]
The ASX queries	[362]
The 27 March Response	[364]
Mr Wilson resigns	[369]
The Board finds out about the Termination Agreement	[373]
Contact from the Australian Financial Review	[374]
Dr Castella sends the Termination Agreement to Mr Stevens and Mr Matthys	[376]
Further communications between Mr Matthys and Dr Castella	[379]
Mr Matthys speaks to Mr Wilson	[384]
Quintis makes releases to the ASX about the Termination Agreement	[398]
Mr Wilson and Dr Castella exchange more text messages	[402]
Quintis shares are suspended on ASX	[405]
Quintis makes several announcements.	[407]
Class actions are commenced	[409]
Quintis goes into administration	[411]
VI.      TWO EVIDENTIARY MATTERS	[412]
Dr Castella's credibility	[413]
The admissibility of Mr Bowers' evidence	[432]
Mr Bowers' field of specialised knowledge	[441]
Whether Mr Bowers' opinion was based on his specialised knowledge and experience	[458]
Principles	[459]
Mr Bowers' reasoning	[465]
The general behaviour of Relevant Investors (Questions 1 and 2)	[466]
The impact that knowledge of the execution of the Termination Agreement would have had (Question 3)	[482]
The impact that knowledge of the execution and terms of the Termination Agreement would have had (Question 4)	[497]
The impact on Relevant Investors of knowledge of the things that Quintis did disclose on 6 June 2017 (Question 5)	[499]
Whether Mr Bowers' opinion would change if the Relevant Period were extended to 27 March 2017 (Question 6)	[501]
Mr Bowers' opinions are based on his expert knowledge	[506]
VII.     RESOLUTION OF THE ISSUES	[519]
(1)    What were Mr Wilson's duties and responsibilities as Managing Director of Quintis?	[520]
(2)    What was conveyed by the ASX announcements, financial statements and annual reports?	[532]
(3)    How important were the Galderma Agreements to Quintis by December 2016?	[539]
Evidence given by directors of Quintis	[540]
Mr Bowers' evidence	[546]
Quintis's Offering Memorandum for Senior Secured Notes released in July 2016	[549]
The Galderma Agreements were important to Quintis	[550]
(4)    Did Mr Wilson know by July 2016 that there was a real possibility that Galderma would seek to end the Galderma Agreements?	[555]
(5)    Did Mr Wilson know that Galderma wanted to terminate the Galderma Agreements?	[567]
Dr Castella's version of the conversation	[568]
Mr Wilson's version of the conversation	[571]
Findings as to the conversation	[572]
The inherent plausibility of the witnesses' competing versions of events	[577]
The plausibility of the witnesses' evidence about the key conversation	[604]
Dr Castella's evidence is supported by the documentary record and Mr Matthys's evidence	[615]
(6)    What would the hypothetical reasonable director, knowing that Galderma wanted to and was taking steps to terminate the Galderma Agreements, have done?	[638]
(7)    When did Mr Wilson find out that the Galderma Agreements had been terminated?	[665]
The case that ASIC has put	[665]
ASIC has not made out its case in this respect	[671]
(8)    How likely is it that Quintis breached its continuous disclosure obligations?	[679]
(9)    What would the hypothetical reasonable director with knowledge of the termination of the Galderma Agreements have done?	[693]
(10)  What did the 27 March Response convey to the market?	[714]
(11)  Was the 27 March Response potentially misleading or deceptive?	[722]
(12)  What would the hypothetical reasonable director have done before authorising and approving release of the 27 March Response?	[724]
(13)  What enquiries would the hypothetical reasonable director have made before authorising the 27 March Response (the alternative case)?	[728]
(14)  What adverse consequences did the alleged failure to disclose the termination, and the release of the 27 March Response, have for Quintis?	[742]
(15) Which of the five alleged contraventions of s 180 occurred?	[747]
(16)  Did any contraventions that are found to have occurred materially prejudice the interests of Quintis or its members, or were they serious?	[751]
VIII.    OUTCOME	[752]

REASONS FOR JUDGMENT

JACKSON J:

1. The plaintiff (ASIC) claims that the respondent, Frank Cullity Wilson, contravened s 180(1) of the Corporations Act 2001 (Cth), which imposes statutory obligations of care and diligence on directors and other officers of corporations. ASIC alleges that Mr Wilson breached those obligations when he was Managing Director of a then publicly listed company, Quintis Limited (now called ACN 092 200 854 Ltd) (Quintis).  In broad terms, ASIC claims that Mr Wilson failed to tell the board of directors of Quintis (Board) that certain material agreements were going to be terminated, and then that they had been terminated.  ASIC also alleges that Mr Wilson failed to ensure that Quintis did not mislead the market about the termination of the agreements.  These alleged failures are said to have exposed Quintis to various adverse consequences, including a risk of breaching continuous disclosure requirements.  ASIC alleges that in this way, Mr Wilson failed to exercise his powers and discharge his duties with the requisite degree of care.

2. ASIC seeks declarations that Mr Wilson contravened s 180(1), a pecuniary penalty order in respect of all but one of the alleged contraventions, and an order disqualifying Mr Wilson from managing corporations for a period that the court considers appropriate. Mr Wilson defends the proceeding, and denies that he has breached the Corporations Act and denies that ASIC is entitled to any relief.

3. The question of whether Mr Wilson did breach s 180(1) was tried in August, September and October 2021 over 13 days. Also part of that trial was a question that must be answered in the affirmative if the Court is to have power to impose civil penalties: whether any breaches materially prejudiced the interests of Quintis or its members, or were serious, for the purposes of s 1317G of the Corporations Act. But due to an order for a separate question made on 29 October 2020 the question of what penalties or disqualification orders, if any, should be imposed were not part of that trial.

4. In any event, for the following reasons, I have determined that ASIC has not made out any of the contraventions of s 180 alleged against Mr Wilson.

   I.         BACKGROUND

5. It is helpful to describe the facts that are relatively uncontentious, in order to provide a framework for the many issues that are contentious.

6. Quintis listed on the Australian Securities Exchange (ASX) on 21 December 2004 and remained listed until it was suspended from official quotation on 17 May 2017.  For almost all of that time, it was called TFS Corporation Limited.  Its name changed to Quintis Limited on 22 March 2017.  In what follows I will refer to it as Quintis, but I will not amend references to it in quotations from the evidence or submissions, where 'TFS' or 'Quintis' may be used interchangeably.

7. Quintis was engaged in the business of the cultivation, sale, distribution, management and ownership of plantations of sandalwood trees.  Many of those trees were owned by investors through investment schemes which Quintis managed, and from which it earned management and performance fees.  But Quintis also managed and operated its own plantations (through subsidiaries) and extracted sandalwood oil from wood that it harvested.  Quintis derived part of its income from the sale of pharmaceutical grade East Indian sandalwood oil (EISO).

8. Mr Wilson was a director of Quintis between 2000 and 2011 and then from 2012 until his resignation on 27 March 2017.  He was Executive Chairman from December 2006 to November 2011 and Managing Director from at least September 2015 until 27 March 2017.  He was also Quintis's largest shareholder, through his family trust, which during the period material to this proceeding held approximately 13.5% of the issued ordinary shares in the company.  Mr Wilson also held over a million Quintis performance rights during the relevant period.

1. Throughout the period relevant to this claim, the Non-Executive Chairman of the Board of Quintis was Dalton Gooding.  Other Board members were Julius Matthys, Giovanni (John) Groppoli, Gillian Franklin and Michael Kay.  Alistair Stevens was the Chief Financial Officer (CFO).  Each of those people gave evidence at the trial.

2. The material agreements I have mentioned were between two American companies that became subsidiaries of Quintis, and Galderma SA, a global dermatology company which is wholly owned by Nestlé.  The Quintis subsidiaries were based in Texas; one was called Santalis Pharmaceuticals Inc (Santalis) and the other, ViroXis Corporation (later renamed Santalis Healthcare Corporation) (ViroXis).

3. ViroXis was founded by Paul Castella and his business partner Ian Clements in 2006, originally to commercialise a particular pharmaceutical use of sandalwood oil.  Dr Castella was the Chief Executive Officer (CEO) of ViroXis.  Santalis was formed in 2010 as a 50/50 joint venture between Quintis and ViroXis for the purpose of commercialising other pharmaceutical and healthcare applications for sandalwood oil.

4. In December 2011, each of Santalis and ViroXis entered into licence and supply agreements with Galderma.  There were further iterations of those agreements, the last of which were each styled 'Definitive Supply Agreement' and dated 20 February 2014 (Galderma Agreements).  Each of the Galderma Agreements was effectively backed by a further agreement under which Quintis would supply EISO to Santalis or ViroXis for on-supply to Galderma.  It was contemplated that Galderma would use the EISO in products with prescription (Rx) or over the counter (OTC) pharmaceutical applications, in particular for the treatment of acne.

5. Towards the end of 2014, Galderma launched a product range branded 'Benzac Acne Solutions'.  EISO obtained under the Galderma Agreements was an ingredient in the products.  It is not in dispute that Quintis referred to the Galderma Agreements and the Benzac product range in numerous releases to the ASX between February 2014 and February 2017, although the significance of those references is in dispute.

6. On 16 December 2016, Galderma entered into an agreement with Santalis and ViroXis terminating the Galderma Agreements, with effect as of 1 January 2017 (albeit with an option until 1 July 2017 for Galderma to reinstate the agreements) (Termination Agreement).

7. On 22 March 2017, Glaucus Research Group California LLC (Glaucus), a self-described short seller, published a report that was highly critical of Quintis (Glaucus Report).  That appears to have led to a drop in Quintis's share price which prompted the ASX to ask Quintis, among other things, whether it was aware of any information concerning it that had not been announced to the market which, if known by some in the market, could explain the recent trading in its shares.  Quintis responded referring to the Glaucus Report and its response led to a further query from the ASX dated 24 March 2017 asking, among other things, for the names and any material information about buyers who had been referred to in previous Quintis announcements.

8. On 27 March 2017, Quintis gave a response to the ASX which included a list that was said to be of 'customers Quintis has supplied wood or oil to under multi-year contracts' (27 March Response).  Details referable to the Galderma Agreements were included in the list, including a price of US$4,500 per kg and a term of 20 years starting in 2014.  On the same day, Mr Wilson resigned as a director and Managing Director.

9. On 9 May 2017, a journalist from the Australian Financial Review called FTI Consulting, a firm managing Quintis's corporate communications, to say that Nestlé had told her they had 'cancelled' the Galderma Agreements.  On 10 May 2017, before the market opened, Quintis made an announcement to the ASX which disclosed the termination of those agreements as having taken place on 16 December 2016.  Its shares had closed the evening before the announcement at AU$1.07.  When the market opened they were quoted at AU$0.85.  By the close for the day they were at AU$0.60.

10. On 6 June 2017, Quintis made an announcement to the ASX which included a statement to the effect that it would need to write off an intangible asset of AU$7.9 million relating to the Galderma Agreements which had formed part of a larger balance for intangible assets and goodwill that had been in the company's half year results as at 31 December 2016.

11. In September and November of 2017, representative proceedings were commenced against Quintis in this court (NSD 1568 of 2017 and NSD 1983 of 2017) alleging that the company contravened s 674 of the Corporations Act, which imposes continuous disclosure obligations on listed companies.

12. The Board appointed administrators to Quintis under Part 5.3A of the Corporations Act on 20 January 2018 and receivers and managers were appointed on 23 January 2018.

    II.       THE ISSUES

    The pleadings and particulars

13. The case that ASIC makes within that framework of uncontentious facts was ultimately pleaded in a Fourth Further Amended Statement of Claim filed on 17 September 2021 (SOC).  Mr Wilson initially filed a defence in which he admitted a few uncontentious introductory allegations and relied on the privilege against exposure to penalties so as to avoid pleading to anything else.  Pursuant to his claim of privilege, he did not put on any written evidence or notice of evidence before trial.  But after ASIC closed its case at trial, Mr Wilson elected to go into evidence and, in accordance with the directions of the court, on 15 September 2021 filed a substituted defence (Defence).  The issues that arise from the SOC and the Defence are as follows.

    Mr Wilson's duties and responsibilities

14. The SOC sets out certain matters which ASIC says were among Mr Wilson's duties and responsibilities as Managing Director of Quintis.  In broad terms these pertain to keeping the Board informed, monitoring matters affecting Santalis's commercial position, prospects and performance and informing the Board of those things, approving public statements and ensuring that they are not misleading, and ensuring that Quintis complies with its disclosure obligations under the Corporations Act and the ASX Listing Rules.  Mr Wilson does not admit these duties.  Particulars of the bases on which these duties are said to have arisen were provided.  ASIC relies on:

    (a)the fact that Mr Wilson was a senior executive officer within Quintis;

    (b)his skills and experience as a director of an ASX listed company, as a businessman and, before that, as managing partner of a law firm specialising in taxation, property and commercial law (these are also pleaded in the SOC but not admitted);

    (c)the monthly written reports to the Board which Mr Wilson gave (providing a basis for the monitoring and reporting duties pleaded);

    (d)the fact that Mr Wilson was one of only two people who were directors of both Quintis and Santalis, and as Managing Director of Quintis received reports directly from Dr Castella as CEO of Santalis (also providing a basis for the monitoring and reporting duties);

    (e)the fact that Mr Wilson had been represented in, at least, Quintis's 2016 Annual Report as being among the company's 'Key Management Personnel' (also providing a basis for the monitoring and reporting duties);

    (f)the fact that Mr Wilson effectively owned approximately 13.5% of the shares in Quintis (providing, for reasons that are not explained, a basis for the duty of selecting matters to be brought to the attention of the Board and of informing the Board of matters affecting the company's commercial position, prospects and performance); and

    (g)the fact that Mr Wilson signed and authorised and approved ASX market announcements (providing a basis for the duties pleaded in relation to market disclosure).

15. The SOC then effectively pleads that Mr Wilson was subject to the obligations of care and diligence in s 180(1) of the Corporations Act.  Mr Wilson admits this in so far as it applies to his powers and duties as a director of Quintis.

    The Galderma Agreements and Benzac

16. After setting out the relevant terms of the Galderma Agreements, and the fact that Galderma launched the Benzac range in November or December 2014, both of which are largely admitted, the SOC alleges that from 26 February 2014 to 27 March 2017, Quintis made 84 announcements to the ASX which referred to the Galderma Agreements and/or Benzac.  Quintis also referred to those things in its annual reports and financial statements for FYE 2014, 2015 and 2016 (this judgment will use the convention 'FYE' to designate financial year ending on 30 June in the relevant year).  ASIC alleges that by those various public references, 'Quintis represented to the market that the Galderma Agreements were significant agreements for Quintis and to the long-term value of its business' (SOC para 14B).  Mr Wilson does not admit any of these allegations.  ASIC has also provided further particulars of the announcements and what they are said to have conveyed.  The particulars include a detailed schedule giving particulars of each of the 84 announcements and the passages in them that mentioned Galderma.

17. As to the making of the announcements, and whether they referred to the Galderma Agreements and/or Benzac, I understand Mr Wilson to be putting ASIC to proof.  The announcements and reports are matters of public record and, as will be seen, there were frequent references in them to the Galderma Agreements and/or Benzac.  But what exactly was conveyed by those public statements, and what significance the asserted representations about Galderma had, were more contentious issues at trial.  Mr Wilson's case was based, in part, on the contention that by the time of the termination of the Galderma Agreements in December 2016, and also by the time of the ASX announcement of late March 2017, the Galderma Agreements were not material to Quintis, particularly in light of the fact that no oil sales had been made under the agreements since June 2015.  In other words, according to Mr Wilson, whatever the ASX announcements may have said, the reality was that the Galderma Agreements were not very important to Quintis by at least the end of 2016.

    The termination of the Galderma Agreements and Mr Wilson's knowledge

18. The SOC goes on to allege that by no later than July 2016, Mr Wilson knew that there was a real possibility that Galderma would seek to end the Galderma Agreements. This goes, not to ASIC's primary case as to breaches of s 180, which I will soon describe, but to an alternative case. That alternative, ASIC contends, leads to the conclusion that Mr Wilson breached the section even if it is not established that he knew that the Galderma Agreements had been terminated.

19. The plea of knowledge in support of the alternative case is particularised by reference to several email chains involving Mr Wilson and reports to the Board that were sent over the course of July to September 2016.  In the Defence, Mr Wilson says that by July 2016 he understood that there was a possibility that Galderma would seek to end the distribution of Benzac.  He pleads that this understanding was shared by all other directors of Quintis, and otherwise denies the allegation as to his knowledge.

20. Then, the SOC alleges that on 28 November 2016, Galderma told Santalis that it wanted to terminate the Galderma Agreements.  This is said to have occurred in a telephone conversation between Dr Castella and Scott McCrea (a senior executive of Galderma) on that day, and to have been followed by an email from Mr McCrea to Dr Castella on 1 December 2016.  Mr Wilson does not admit this in the Defence, but did not contest it at trial.

21. What was more contentious was whether, as ASIC pleads, from early December 2016 Mr Wilson knew that Galderma wanted to terminate the Galderma Agreements and was taking steps to do so.  Dr Castella is said to have informed Mr Wilson of this in a series of telephone conversations in early to mid-December which are particularised in a schedule to the SOC.  The particulars also refer to an email from Dr Castella to Mr Wilson dated 5 December 2016 although, as will be seen, that email only alludes to the issue obliquely, if at all.  Mr Wilson simply denies that from early December 2016, he knew that Galderma wanted and were taking steps to terminate the Galderma Agreements.

    The first alleged breach of s 180

22. ASIC then pleads that a reasonable director of a corporation in Quintis's circumstances and who occupied the office of Mr Wilson, and had the same responsibilities and knowledge as Mr Wilson, acting with care and diligence as required by s 180(1) of the Corporations Act (whom I will call the hypothetical reasonable director) would have (SOC para 16A):

    a.recognised that the Board would need to:

    i.be kept informed of any steps taken by Galderma to terminate the Galderma Agreements;

    ii.consider what steps Quintis should take at that point in time, including what steps it might be able to take to avoid a termination of the Galderma Agreements; and

    b.taken all necessary steps to ensure that the Board was promptly informed that Galderma wanted and was taking steps to terminate the Galderma [A]greements.

23. In this regard, ASIC expressly relies on Mr Wilson's alleged knowledge of the ASX announcements made between February 2014 and March 2017, of the annual reports and financial statements, and of Galderma's desire and steps to terminate the Galderma Agreements.  Mr Wilson's plea to this is to refer to his previous responses to those allegations and to otherwise deny that the hypothetical reasonable director would have recognised the matters and taken the steps that ASIC pleads.

24. The SOC alleges that Mr Wilson failed to inform the Board in early December or at all that Galderma wanted to terminate the Galderma Agreements and was taking steps to do so.  Once again, Mr Wilson refers to his previous pleas to the allegations of his knowledge, and to otherwise deny that he failed to inform the Board.  ASIC alleges that by reason of the alleged failure to inform, the Board lost the opportunity to take the steps mentioned in the paragraph quoted above.  Mr Wilson denies this.

25. Thus is placed in issue the first alleged breach of s 180(1), which is said to have taken place before the Galderma Agreements were actually terminated. ASIC does not, however, seek any civil penalty for this alleged breach. The sole remedy sought is a declaration of contravention.

    The second alleged breach of s 180

26. The termination of the Galderma Agreements is alleged to have occurred on 16 December 2016 and is pleaded to have been effective as of 1 January 2017.  Mr Wilson does not admit that termination.  But at trial he did not contest that the Termination Agreement had been entered into.  While he suggested in evidence that Dr Castella (and presumably Mr Clements) entered into it without authority of the board of directors of Santalis (and presumably the board of ViroXis), his case did not rely on that alleged lack of authority, or any assertion that the Termination Agreement was legally ineffective for any other reason.

27. ASIC then alleges that Mr Wilson knew of this termination by February 2017 at the latest.  The particulars given for this plea are telephone conversations between Mr Wilson and Dr Castella on 8 December and 15 December 2016, and an allegation that in February 2017, Dr Castella delivered a copy of the Termination Agreement to Mr Wilson prior to a meeting of 'the Board' in Perth.  This appears to be referring to the Board of Quintis although, as will be seen, there was also a potentially relevant meeting of the board of directors of Santalis which took place in Perth at around the same time.  Mr Wilson denies all this.

28. ASIC then pleads that the hypothetical reasonable director would have (SOC para 19):

    a.        recognised that:

    i.the Board would  need to determine whether in order to comply with its continuous disclosure obligations it needed to inform the market of the existence of the Galderma Termination Agreement, and to do so in a timely manner;

    ii.if the Board failed to comply with its continuous disclosure obligations in a timely manner it would harm Quintis' reputation, jeopardise market perceptions of Quintis and expose it to the risk of legal and regulatory proceedings being brought against it, including for contravention of section 674(2) of the Corporations Act; and

    b.taken all necessary steps to ensure that the Board was promptly made aware of the execution of the Galderma Termination Agreement.

29. Section 674(2) of the Corporations Act contains an obligation for companies such as Quintis to make continuous disclosure of price sensitive information to the market.  Once again, Mr Wilson pleads to this by referring back to his pleaded position on ASIC's allegations as to his state of knowledge and otherwise denying it.

30. ASIC alleges that Mr Wilson did not inform the Board of the execution of the Termination Agreement in February 2017 or at all. Mr Wilson admits this, of course in the context where he denies knowing about the Termination Agreement himself at that time. ASIC alleges that the Board thereby lost the opportunity to determine whether, in order to comply with its continuous disclosure obligations, it needed to inform the market of the existence of the Termination Agreement in a timely manner. Mr Wilson denies this. So arises the issue of the second alleged breach of s 180(1) by Mr Wilson, for which a civil penalty order is sought.

31. It is worth noting that nowhere does ASIC plead that Quintis did breach its continuous disclosure obligations.  The allegation is that Quintis's Board lost an opportunity to determine whether it needed to disclose the existence of the Termination Agreement to the market. The question of whether it is open to ASIC to put its case this way - that is, to allege a contravention of s 180 by a director associated with breach of the law by the company without also pleading and proving the company's breach - is addressed later in these reasons. But assuming that it is open, an issue is nevertheless raised as to how likely it is that the continuous disclosure obligations would be breached in these circumstances.

32. It is raised because it is inherent in the plea that the hypothetical reasonable director would have recognised that if the Board (that is, Quintis) failed to comply with its continuous disclosure obligations in a timely manner, it would lead to the pleaded adverse consequences for Quintis.  As an abstract proposition that is hardly contentious:  if a company fails to comply with the continuous disclosure obligations that are imposed by the Corporations Act and the ASX Listing Rules, and monitored and enforced by ASX and ASIC, the company is exposed to a risk of consequences from the failure to comply.  But there can be no breach of a director's duties of care and diligence in particular circumstances if the possibility of a breach of the continuous disclosure obligations in those circumstances is far-fetched or remote.  The hypothetical reasonable director will see no need to raise a possibility of that kind with the board.  So it is necessary to make, if not a finding of breach of the continuous disclosure obligations, at least an assessment of the seriousness of the risk of breach if the Termination Agreement was not disclosed.  While ASIC has made no plea as to how serious the risk must be before the duty of care and diligence is breached, Mr Wilson did not claim to be prejudiced by that.  He fought the matter on the basis that there was no breach of the continuous disclosure obligation (specifically, because ASIC had not established that the termination of the Galderma Agreements was price sensitive).

33. It may be that ASIC chose to avoid the need to prove that Quintis breached s 674 because it thought that this would make its case easier, but with respect, any such choice would be problematic. For one thing, it has substituted a well-established standard - that of breach of s 674(2) - for a less defined criterion (indeed, in the way the case is pleaded, an implicit one). But setting that aside, let it be supposed that, by setting the bar for itself lower than proof of an actual breach of s 674, ASIC has made it easier to prove that Mr Wilson breached s 180. Even so, whatever ASIC has thus gained is then lost by the need to assess, not just whether Mr Wilson has breached his duties under s 180, but also the consequences of the breach. Those consequences may be relevant at two points. They are relevant first in determining whether the breach of s 180 was serious or materially prejudicial, so as to meet the criteria for civil penalties imposed by s 1317G. And the second point at which they may be relevant in is determining penalty. The problem is that by eschewing any allegation of actual breach, ASIC removes the Court's ability to proceed on the basis that a breach occurred, even if the elements of a breach were otherwise established. It would not be fair to Mr Wilson if the Court were to make no finding that Quintis did breach s 674, but nevertheless to proceed for the purposes of s 1317G and any later assessment of penalty as if such a breach is established.

1. That conundrum would face the Court in this case (were it to decide that Mr Wilson had the pleaded knowledge). Despite avoiding any allegation of breach of s 674, in its particulars of why the alleged contraventions of s 180 were serious for the purposes of s 1317G, ASIC says that the information that Mr Wilson failed to disclose was 'significant' and that the failure to disclose the existence of the Termination Agreement in a timely manner 'denied the market accurate information' and 'had a distorting effect on the market for Quintis shares' (ASIC particulars 17 September 2021 paras 15(b)(i)(1), 15(c)(ii)(3), 15(d)(ii)(2)). So the Court is invited to make a finding of serious market-distorting consequences by reason of non‑disclosure of significant information, and yet cannot proceed on the basis that s 674 is breached. While other findings I have made mean it will not be necessary to grapple fully with these involutions in ASIC's case, they are liable to make the Court's task harder.

   The third, fourth and fifth alleged breaches (the 27 March Response)

2. Next, the SOC turns to the 27 March Response which Quintis made to the ASX queries which followed the Glaucus Report.  It is alleged that Mr Wilson authorised and approved that response to be sent to the ASX for publication.  Mr Wilson admits that Quintis made the 27 March Response and admits that he approved it (it took the form of a letter from him as Managing Director).  But, he pleads, all the other directors approved it too.  The Defence otherwise denies these allegations, although it is not clear what is left to deny.

3. ASIC pleads that by the 27 March Response, Quintis represented to actual and potential investors that as at 27 March 2017, Galderma was one of its customers, and that it would continue to sell EISO to Galderma at US$4,500 per kg until 2034 (plus CPI capped at 3%).  Mr Wilson denies this.  Therefore the question of what the 27 March Response conveyed is in dispute.

4. ASIC alleges that the publication by Quintis of the 27 March Response on the ASX announcements platform was conduct 'in relation to a financial product' within the meaning of s 1041H of the Corporations Act, which prohibits misleading or deceptive conduct in relation to a financial product or a financial service. Mr Wilson does not admit this but it was not seriously in dispute at trial. Then ASIC pleads that because Galderma had informed Santalis that it wanted to terminate the Galderma Agreements, and because the Termination Agreement had been executed, the making of the alleged representations 'was conduct that was potentially misleading or deceptive or likely to mislead or deceive' in contravention of s 1041H (SOC para 26). ASIC also pleads (SOC para 27) that the making of a representation that Quintis would continue to sell EISO to Galderma at US$4,500 per kg until 2034 was conduct that was 'potentially misleading or deceptive or likely to mislead or deceive' in contravention of s 1041H because, in essence, the termination of the Galderma Agreements meant that there was no reasonable basis for the representation. Mr Wilson denies all these allegations.

5. I pause to note that the word 'potentially' appears in each of the pleas of misleading or deceptive conduct.  As with the continuous disclosure breaches, it is expressly not part of ASIC's case that the 27 March Response was misleading or deceptive (or likely to mislead or deceive) in contravention of s 1041H. ASIC submits that it is sufficient for its case that Mr Wilson breached his duties of care and diligence under s 180(1) if the Court finds that the conduct was only potentially misleading. It follows that I cannot make a finding that the 27 March Response was misleading and then find that Mr Wilson breached his duties by reason of his involvement in that.  ASIC did not contend otherwise.

6. At first blush, it appeared (once again) that ASIC may have considered that it would be easier to prove that the 27 March Response was potentially misleading than that it was actually misleading. But ASIC nevertheless does go on to allege that Mr Wilson's alleged conduct in relation to the 27 March Response 'denied the market accurate information by publishing misleading information'. Only, it makes that allegation, not in relation to whether there were breaches of s 180, but in the particulars it gives of why the breaches were serious for the purposes of s 1317G. The Court may still, therefore, be required to make a finding as to whether the 27 March Response was 'misleading' (there is no apparent difference between that and the phrase used in s 1041H, 'misleading or deceptive or likely to mislead or deceive': see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 (Gibbs CJ); Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] FCA 855 at [31]‑[32] (Murphy J)). But it if it does make that finding, the Court will be in the artificial position of being unable to apply it for the purposes of determining whether s 180 has been breached. ASIC has pleaded all the elements of a misleading and deceptive conduct case without pleading that the prohibition on such conduct was contravened. Once again, these intricacies are liable to make the Court's task harder.

7. To return to the survey of the pleadings, ASIC goes on to allege that when Mr Wilson authorised and approved the 27 March Response, he knew that Galderma wanted to terminate the Galderma Agreements, was taking steps to terminate them, and had executed the Termination Agreement.  That is based on the earlier allegations that Dr Castella told Mr Wilson of these things in December 2016 and had given him a copy of the Termination Agreement in February 2017.  Mr Wilson denies this knowledge.

8. So, ASIC pleads, the hypothetical reasonable director would have (SOC para 29):

   a.taken all necessary steps to ensure that the Board was promptly informed of the execution of the Galderma Termination Agreement prior to the publication of the [27 March] Response to ASX Query; and

   b.would not have authorised and approved the [27 March] Response to ASX Query without also taking all necessary steps to ensure that the execution of the Galderma Termination Agreement was disclosed to the market prior to, or at the same time as, the publication of the [27 March] Response to ASX Query.

9. Once again, it is inherent in this that the potentiality that the 27 March Response was misleading or deceptive was sufficiently serious to have prompted the hypothetical reasonable director to take the pleaded steps to inform the Board and the market.

10. In failing to do these things, ASIC pleads, Mr Wilson engaged in two contraventions of the Corporations Act. First, he authorised and approved the 27 March Response when it was potentially misleading in that it conveyed that Galderma was still one of Quintis's customers. Second, he authorised and approved the 27 March Response which was potentially misleading in that it conveyed that Quintis would continue to sell EISO to Galderma at US$4,500 per kg until 2034. Thus arise the issues about the third and fourth alleged contraventions of s 180(1).

11. At this point ASIC also pleads its alternative case of breach which, it says, can proceed even if the Court does not find that Mr Wilson knew about the Termination Agreement. The alternative case is that the hypothetical reasonable director, with knowledge of the numerous ASX announcements and annual reports and financial statements referring to the Galderma Agreements and Benzac, and knowledge that there was a real possibility that Galderma would seek to end the Galderma Agreements, 'would have taken steps to inform himself as to whether the Galderma Agreements remained on foot before he authorised and approved' the 27 March Response. It is said that Mr Wilson ought to have made enquiries of officers or employees of Santalis, including Dr Castella. Under this alternative case, that is something Mr Wilson did not do, which is the fifth and final alleged breach of s 180(1) of the Corporations Act.  Mr Wilson's response to this in the Defence is to repeat his prior pleas about his state of knowledge and to otherwise deny.

    The consequences of the alleged conduct

12. ASIC then pleads, and Mr Wilson admits, that Quintis's Board first became aware of the Termination Agreement on 9 May 2017.  He also admits the disclosure to the market on 10 May 2017.  ASIC pleads the effect of that on the share price, which Mr Wilson does not admit.  Mr Wilson similarly admits a subsequent announcement that Quintis made on 6 June 2017 of the write off of AU$7.9 million in an intangible asset relating to the Galderma Agreements in the company's accounts.

13. ASIC's claim in relation to the 27 March Response is then stated to be that the making of the representations said to be contained in it 'exposed Quintis [to] the risk of … legal proceedings being brought against it' (SOC para 36). Mr Wilson does not admit this. ASIC then pleads that by failing to inform the Board of the Termination Agreement and by authorising and approving the 27 March Response, 'Mr Wilson harmed Quintis' reputation, jeopardised market perceptions of Quintis and exposed Quintis to the risk of legal and regulatory proceedings being brought against it, including for contraventions of s 674 of the Corporations Act' (SOC para 36A). Mr Wilson denies this. ASIC relies by way of particulars on alleged adverse market reaction to the announcement of 10 May 2017 and on the fact that two representative proceedings have been commenced against Quintis in this Court for alleged contraventions of s 674.

14. The place that these pleas as to consequences have in ASIC's case is not clear. Paragraph 36, which pleads a consequence of the making of alleged representations, appears to concern the alleged potential breach of s 1041H. Paragraph 36A, which refers to s 674, appears to concern the alleged failures to ensure continuous disclosure, or to give the Board the opportunity to do so. But it is unclear whether these pleas form part of the allegation of breach, or are only part of the alleged consequences of breach for the purposes of s 1317G and assessment of penalty. It will be necessary to return to this in Section VII(9) below.

15. In sum, then, there are five alleged contraventions: one that arose in the lead up to the termination of the Galderma Agreements; one that arose after the agreements were terminated and before the 27 March Response to the ASX; and three that arose as a result of the 27 March Response, one of which is put in the alternative to the other two. ASIC seeks declarations under s 1317E(1) of the Corporations Act in respect of each of these contraventions. That section provides that if the court is satisfied that a person has contravened a civil penalty provision, which s 180(1) is (see s 1317E(3)(a) and first item in the table to the subsection), the court must make a declaration of contravention.

16. There are pleas that each of the alleged contraventions, other than the first (failure to inform the Board that Galderma wanted and was taking steps to terminate the Galderma Agreements), materially prejudiced the interests of Quintis or its members for the purposes of s 1317G(1)(b)(i) of the Corporations Act and was serious for the purposes of s 1317G(1)(b)(iii). Mr Wilson denies those pleas. ASIC has also provided further particulars of these matters, as follows:

    (1)The first alleged breach where a civil penalty is sought - the alleged failure to tell the Board that Galderma had terminated the Galderma Agreements - materially prejudiced the interests of Quintis and its members and was serious because the nature of the information that was not disclosed was significant. This significance is said to be demonstrated by the numerous ASX announcements that Quintis made referring to Galderma and Benzac and by the AU$7.9 million write off on intangible assets after the termination was disclosed. Also, ASIC contends, the 'failure to provide the information left the Board to make their decisions based on incomplete information and deprived the Board of the opportunity to take any appropriate steps', including to determine whether it needed to inform the market of the termination in a timely manner. ASIC alleges that the Board would have announced the status of the Galderma Agreements to the ASX had it been made aware of the Termination Agreement. Once again, inherent in all this is an allegation that the possibility of a breach of s 674 was sufficiently serious to require consideration by the Board.

    (2)ASIC further alleges that this breach of s 180 materially prejudiced the interests of Quintis and its members and was serious because the failure to make timely public disclosure exposed Quintis to legal proceedings for breach of s 674 (the continuous disclosure action) including the two class actions brought in this Court. The breach is also said to have been serious because the failure to make timely disclosure denied the market accurate information and had a distorting effect on the market for Quintis's shares, as evidenced by the 44% fall in the price when the termination was disclosed.

    (3)In relation to the breaches alleged in ASIC's primary (not alternative) case about the 27 March Response, these are said to have materially prejudiced the interests of Quintis and its members and were serious because they potentially exposed Quintis to legal proceedings for misleading conduct, giving false information, and similar breaches of the Corporations Act and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) in relation to financial products.  They are said to have been serious because:  the representations contained in the 27 March Response were in response to a written query from ASX; Mr Wilson's actions were deliberate and intentional, because he knew that Galderma intended to terminate the Galderma Agreements or that they had been terminated; and Mr Wilson's actions denied the market accurate information by publishing misleading information.

    (4)Finally, the breach alleged in ASIC's alternative case is said to have materially prejudiced the interests of Quintis and its members and was serious because it exposed Quintis to legal proceedings for the same misleading conduct and similar breaches.  It is said to have been serious because the 27 March Response was in response to a written query from ASX and Mr Wilson's actions denied the market accurate information by publishing misleading information.

    Outline of the issues

17. The main issues that emerge from the pleadings as just described can be stated as follows:

    (1)What were Mr Wilson's duties and responsibilities as Managing Director of Quintis? That is a question of fact concerning the specific kinds of things Mr Wilson was required to do by reason of holding that office. These duties and responsibilities are not the same as the statutory duty of care and diligence which s 180 of the Corporations Act imposes, and which Mr Wilson admits.  But as will be seen they do provide necessary context for assessing whether that statutory duty was breached.

    (2)What was conveyed by the 84 ASX announcements from 2014 to 2017 which mentioned the Galderma Agreements or Benzac, as well as the financial statements and annual reports that mentioned them?  That too is a question of fact.

    (3)By December 2016, how important were the Galderma Agreements to Quintis?  On ASIC's case, this depends in part on the outcome of the previous issue, because the tenor of that case is that Quintis inflated market expectations by its many announcements, so that any puncturing of those expectations by news of termination of the Galderma Agreements was likely to have a material adverse effect on Quintis's share price.  The tenor of Mr Wilson's case on this point, on the other hand, was that by December 2016, the Galderma Agreements were in fact not material to Quintis's commercial position and prospects.

    (4)Did Mr Wilson know by July 2016 that there was a real possibility that Galderma would seek to end the Galderma Agreements? That is against the background that Mr Wilson admits that by July 2016 he and all the other members of the Board did understand that there was a possibility that Galderma would seek to end the distribution of Benzac. It appears that this issue is relevant to ASIC's alternative case, that Mr Wilson breached s 180 of the Corporations Act by authorising and approving the 27 March Response to the ASX without satisfying himself that the Galderma Agreements remained on foot, even if he did not know of Galderma's firm intention to terminate, or of the actual termination.

    (5)Did Mr Wilson find out before the execution of the Termination Agreement that Galderma had told Santalis that it did want to terminate the Galderma Agreements, and was taking steps to do so?  This depends on the written and oral communications that Mr Wilson and Dr Castella had in early December 2016.  It is common ground that they did communicate during that period, including by telephone, but the content of those communications was a matter of hot dispute.

    (6)Assuming that it is established that Mr Wilson did know of Galderma's intention, would the hypothetical reasonable director with that knowledge have told the Board about that intention, in order that it could consider what Quintis should do at that time, that is, before the Galderma Agreements were actually terminated?  Within that issue is the question of what opportunity, if any, the Board lost.  Since ASIC is not seeking a civil penalty in relation to the omission to tell the Board about the prospective termination of the Galderma Agreements, no question of material prejudice or seriousness arises.

    (7)By when did Mr Wilson know that the Galderma Agreements had been terminated?  Was it by the time of the board meeting in Perth in February 2017 when, according to ASIC, Dr Castella gave Mr Wilson a copy of the Termination Agreement?  ASIC alleges that this is the latest that he found out.  The SOC also provides particulars of other occasions in which, it appears, it is alleged that he was told.  But as will be seen when I come to consider this issue below, those occasions did not end up as part of ASIC's case.

    (8)How likely is it that Quintis would have breached its continuous disclosure obligations, if it had been aware of the termination of the Galderma Agreements and failed to disclose them to the market in a timely manner?  That question goes both to the following issue, about what the hypothetical reasonable director would have done, and to the issues about material prejudice and seriousness that arise in the civil penalty context.  Given the way ASIC has put its case, if there are gradations of certainty about the answer to this question, that needs to be taken into account.  It is not necessarily going to have a clear cut answer informed by binary findings of fact on the balance of probabilities.

    (9)What would the hypothetical reasonable director with knowledge of the execution of the Termination Agreement have done?  In particular, would he (this is how the parties referred to the hypothetical reasonable director and so I will do the same) have informed the Board of the termination so that it could consider whether and how it needed to disclose that to the ASX, so that Quintis could fulfil its continuous disclosure obligations?  This issue arises in the context of the plea that Dr Castella gave Mr Wilson a copy of the Termination Agreement before a board meeting in February 2017, so the question is what the hypothetical reasonable director would have done upon being informed at that time.

    (10)What did the 27 March Response convey to the market?  Did it make representations that as at the time of the response, Galderma was one of Quintis's customers, and that Quintis would continue to sell EISO to Galderma at a certain price until 2034?

    (11)Was the 27 March Response potentially misleading or deceptive because Galderma had informed Santalis that it wanted to terminate the Galderma Agreements and because the Termination Agreement had been executed?  As has been said, what is not in issue, and what the Court will not find, is that the 27 March Response was misleading or deceptive in breach of s 1041H of the Corporations Act.

    (12)In light of the resolution of the issues about Mr Wilson's knowledge that have already been described, what would the hypothetical reasonable director with that knowledge have done before authorising and approving release of the 27 March Response, including taking steps to disclose the termination of the Galderma Agreements to the market?

    (13)Returning to ASIC's alternative case, if the hypothetical reasonable director had known only that there was a real possibility that Galderma would seek to end the Galderma Agreements, what enquiries (if any) would that director have made of Santalis in order to be satisfied that the agreements were still on foot before authorising the 27 March Response?

    (14)Broadly, what adverse consequences (if any) did the alleged failure to disclose the termination of the Galderma Agreements, and the release of the 27 March Response, have for Quintis in light of the subsequent disclosure of the termination?  Did it harm Quintis's reputation, jeopardise market perceptions of the company, and expose it to regulatory and other legal proceedings?

    (15)In light of the resolution of all these issues, which (if any) of Mr Wilson's five alleged contraventions of s 180 occurred, recalling that the last is put in the alternative?

    (16)Did any contraventions that are found to have occurred materially prejudice the interests of Quintis or its members, or were they serious, for the reasons alleged by ASIC in its particulars?  Very broadly (and without distinguishing between the different alleged contraventions at this point) those reasons are that the information about the termination of the Galderma Agreements was significant and should have been disclosed to the market, and that the failure to disclose exposed Quintis to legal and reputational risk, and distorted the market by denying it accurate information.  An allegation that Mr Wilson's actions in relation to the content of the 27 March Response were intentional and deliberate is an aspect of this.

    III.      THE WITNESSES

1. I will give my general impression of the witnesses.  I recorded these impressions during the trial.  The content of their evidence and the findings I make about it are contained in subsequent sections.

2. This was a case where each party sought to impugn the credibility of the main witness for the other party, so it will be necessary to address the subject at some length.  To be clear, when I speak of credibility in this judgment I mean the believability of the evidence.  This can of course be affected by assessments of the honesty of the witness, but it is not necessarily the same thing; it can also refer to other reasons why the evidence of the witness is more or less reliable.

   Paul Charles Castella

3. Dr Castella has a PhD in Cell Biology.  He founded ViroXis along with his business partner Mr Clements in 2006.  As has already been described, ViroXis and Quintis formed Santalis as a joint venture company owned in equal shares in 2010.  Quintis acquired both ViroXis and the 50% of shares in Santalis it did not already own in June 2015.  From that time on, which is the period most relevant to this proceeding, Dr Castella was employed as CEO and President of both ViroXis (renamed at this time Santalis Healthcare [Inc]) and Santalis (that is, Santalis Pharmaceuticals, Inc.).

4. Dr Castella's evidence was central to ASIC's case.  It was to the effect that he told Mr Wilson about the termination of the Galderma Agreements close to the time that he learned of it, so that Mr Wilson was aware of the prospect of termination from early December 2016, and was aware that it had actually happened 'sometime' after the execution of the Termination Agreement on behalf of ViroXis and Santalis on 16 December 2016.  Mr Wilson disputes that he was told about the termination.  As a result, robust challenges to Dr Castella's credibility were made during cross examination.

5. Dr Castella gave his oral evidence by video link from San Antonio, Texas.  It was given over four mornings in Perth, which for him were evenings.  The last of those evenings was a short one; the other three ended at about 10.30 pm in San Antonio.  The audio-visual quality of the link was good throughout and Dr Castella's reactions were clearly visible on large screens in court and on a screen before me.  I could see those reactions better than I could see those of the witnesses who were present in person in the witness box.  Despite reservations I held at the time of Australian Securities and Investments Commission v Wilson [2020] FCA 873, I did not perceive that the video link was any obstacle to the ability of senior counsel for Mr Wilson to subject Dr Castella to a rigorous cross examination. As I am about to describe, that cross examination did expose inadequacies in Dr Castella's evidence which significantly undermined ASIC's case.

6. Often, Dr Castella's recollection appeared to be imprecise and he occasionally presented as disengaged from the questions he was being asked.  He frequently shuffled around and swayed backward and forward in his chair.  His evidence about certain crucial conversations with Mr Wilson was adduced orally in chief and, without guidance from leading questions, was quite vague.  He summarised his current impression of the overall import of the conversations, and did not remember specific things that were said.  Details that could be inferred from the surrounding correspondence were lacking from his recollection, at least until he was specifically referred to that correspondence.

7. By itself, that is all unremarkable.  Dr Castella was being asked to recall conversations which took place some five years previously, of which he had no contemporaneous record, and which did not have the significance for him at the time which they now have in the context of this proceeding.  His shuffling and swaying could have been a product of the nerves that inevitably accompany being cross examined in court.  Nevertheless, his description of the conversations often lacked conviction, and I formed the impression that he did not have a very strong recollection of them at all.

8. For other reasons, I did not find Dr Castella to be a satisfactory witness.  Too often he could not give a simple and straightforward answer to the questions put to him.  Rather than answer 'yes' or 'no', or say he did not know, he would respond in an equivocal way, or appear to evade the question, or embark on long and often tangential explanations.  He was in the habit of answering questions calling for a yes or no answer with 'Okay'.  The cross examiner would sometimes pointedly ask whether he meant to express agreement by that but, understandably, did not do that every time.  I was left with the impression that answering that way often reflected Dr Castella's unwillingness to commit to an answer.  He was often hesitant about doing so.  The following passage from his cross examination is illustrative of his approach throughout much of it (ts 182-183):

   And your evidence is, when you said that, this is what you say at 51 of your affidavit:

   The mention of TFS in my email was, in fact, a reference to the understanding and general principles of TFS based on my dealings with Mr Wilson.

   Is that what you say?---Okay.

   Is that what you say today?---That's what's written.

   In your affidavit?---Yes.

   Is that your evidence?--- .....  TFS - - -

   So your email - - -?---Okay, so what's the question?

   Well, when you said:

   TFS would prefer we buy new oil from them rather than product already sold.

   You had no communication from anybody at TFS about that on 28 November or, I put to you, at any other time.  Is that correct?---Well, if you're telling me I hadn't spoken to Frank at that point, I would say that was me making a presumption about TFS' interest or TFS' preference.

   So you've just made this up, have you, when you say:

   TFS would prefer we buy new oil from them rather than product already sold.

   You are guessing that that is what TFS's position would be, are you?---I think 'guessing' is the incorrect word.

   Predicting?---All right.  I think it's a reasonable assumption to make that TFS would prefer oil be bought from them rather than from someone we had previously sold it to and buying it back, so however you want to phrase that.

   Well, it's just obvious?---Obvious, yes.  Obvious.  There you go.  Obvious.

   All right.  It's just - and so it wasn't based on an understanding of the general principles of TFS based on your dealings with Mr Wilson, was it?---I think 'obvious' is a fairly good word.  I think it's consistent with all my interactions with Frank, that he would agree with - preferring me to buy oil from them.  So what do you want me to say here?

   Could the transcript record that there was a substantial delay prior to the provision of that answer by the witness …

9. As the cross examiner noted, Dr Castella paused for a very long time before giving the final answer in this passage.  More broadly the impression given in the passage, and much of Dr Castella's other evidence, was of someone who was reconstructing the narrative as he went along, based on what was put to him or what he thought was likely, rather than someone remembering what had occurred.

10. Dr Castella also presented as someone who was unwilling to commit to that narrative.  For example, he frequently responded to cross examination about details such as telephone calls by asking what the call logs showed.  It is unrealistic to expect any ordinary person to remember precise details of telephone calls held several years ago, unless they were especially significant for the person.  But Dr Castella purported to recall them in his affidavit, yet in his oral evidence he consistently sought to defer to written records such as logs of telephone calls made, about which calls he appeared to have no actual knowledge.  On a number of occasions, Dr Castella would respond to questioning by saying, for example, 'if that's what the calls show then that's … what happened' (ts 180), or, in response to a question on whether he recalled a decision being made regarding his margin loan, '[n]ot specifically, but if you say so' (ts 277).

11. Dr Castella's cross examination also exposed inadequacies in the affidavits that had been prepared for him and that he had affirmed.  For example, at paragraph 79 of his first affidavit (PC1) (which paragraph was not formally read into evidence, but came out in cross examination), Dr Castella said that he gave a hard copy of the Termination Agreement to Mr Wilson before a Quintis Board meeting in Perth, but in his oral evidence he said it was before a Santalis board meeting, also held in Perth, two days before the Quintis meeting.  While nothing in particular turned on the difference, it is regrettable that Dr Castella and those drafting the affidavit were so imprecise about an occasion that was of crucial importance in his evidence.

12. Dr Castella sometimes came up with new details on important matters during cross examination that were not mentioned in the affidavits.  For example, it emerged that, according to him, Mr Wilson had not only told him on 1 December 2016 that he did not want to be sent any copies of the Termination Agreement, which was in his first affidavit, but also that prior to that, Mr Wilson had somehow conveyed that he was 'circumspect' about the types of information that should be communicated to him by email about the Galderma arrangements, including a specific detail about a US$2,477 per kg rebate.  That was not mentioned in his affidavits.  I accept that new details can come to a person during cross examination which do not come to mind when preparing an affidavit, and I do not consider that it necessarily means that either the affidavit or the subsequent recollection is fabricated.  When asked why he did not put certain material in his affidavit in 2018, Dr Castella responded that he would have 'If it had occurred to me' (ts 202).  But the frequency with which Dr Castella revealed new details in oral evidence or altered the story he had presented in his affidavit reflected poorly on the reliability and completeness of the affidavits and, potentially, on the reliability of the oral evidence.

13. However Dr Castella's level of engagement with the questioning, and his level of conviction, increased markedly when he was subject to direct challenge in cross examination.  It was put to him that he had concealed a number of matters from Mr Wilson.  Each time he replied clearly and robustly that he had told Mr Wilson of the matters.  It was put to him that he was a liar and a con man.  He appeared unperturbed by those accusations and refuted them clearly.  He expressed exasperation with the notion that Quintis personnel, including Mr Wilson and Mr Gooding, did not know about the termination of the Galderma Agreements before May 2017, and his exasperation appeared genuine.

14. On occasion Dr Castella was prepared to concede that he had not behaved irreproachably; for example he accepted that his failure to tell the boards of Santalis and Quintis about the rebate on EISO sold to Galderma could have resulted in those boards being misled.  In general I found that candour enhanced the credibility of his evidence.  He accepted that he had followed instructions from Mr Wilson which led him to conduct aspects of Santalis's business in an irregular way.  While this was less than honest, it was not, in my view, the 'gross dishonesty' which senior counsel for Mr Wilson put to Dr Castella.  It was a truthful account of Dr Castella's complicity in what was (in his account) the withholding of the termination of the Galderma Agreements from Quintis's Board.

15. As will be explained when I make findings below, despite these numerous reservations I have accepted Dr Castella's evidence on some key points.  I do not accept Mr Wilson's attempt to paint Dr Castella as a liar and a con man.  But I do accept that his evidence was unreliable, except to the extent that it was supported by the inherent objective probabilities of the situation, the evidence of other, reliable witnesses, or the documentary record.  In some cases where it had such support, I have accepted Dr Castella's evidence.  At other points where it has lacked that support, I have not.  The difference has proved to be crucial to the outcome of the case, and it will be necessary to return to the subject of the reliability of Dr Castella's evidence below.

    Gillian Anne Franklin

16. Ms Franklin is the founder and Managing Director of the Heat Group, a cosmetics and personal care manufacturer and distributor.  She has 30 years' experience in that industry and is an experienced company director.  She was a non-executive director of Quintis from December 2014 until her resignation on 30 June 2017.

17. Like the other directors whom I mention in the next section, Ms Franklin was not challenged on any aspect of her evidence, but I am dealing with her separately because of her specific evidence that at the Quintis Board meeting on 24 February 2017, she asked Dr Castella about EISO sales to Galderma and received an answer.  The content of that evidence and its significance will be addressed below, but it is worthwhile to say at the outset that I found Ms Franklin to be a convincing witness with a clear recollection of events, so that I will give her evidence some weight.

    Other lay witnesses called by ASIC

18. The evidence of the remaining lay witnesses called by ASIC was largely not contentious.  They can be dealt with more briefly and together.

19. Dalton Leslie Gooding, Julius Luke Matthys, Giovanni (John) Groppoli and Michael Doveton Kay were each members of Quintis's Board during the period relevant to this proceeding.  They are all experienced company directors.  Mr Gooding was non-executive Chairman of Quintis's Board from November 2014 and was also a director of Santalis and ViroXis from around June 2015.  Mr Matthys was initially a director of Quintis from 2003 to 2005 and again from 2011 until 2018.  He took over as CEO of Quintis on 3 April 2017 following Mr Wilson's resignation as Managing Director on 27 March 2017.  Mr Groppoli is an experienced lawyer and was a non-executive director of Quintis from October 2014 to June 2018.  Mr Kay was a non‑executive director of Quintis from February 2015 to June 2018.

20. Alistair David John Stevens is the CFO of the Quintis group of companies.  He is a chartered accountant who has worked in CFO or deputy CFO roles for a number of companies in the United Kingdom and Australia.  He took great care in giving his answers.  Perhaps sometimes he deliberated or qualified what he said too much, but I did not form the view that he was doing so in order to be obstructive.

21. Phillip Lodewikus Coetzer is the Group Financial Controller of the Quintis group of companies, reporting to Mr Stevens.  He was given certain responsibilities concerning Santalis in late 2016, the evidence as to which will be described below.

22. Of these six witnesses, only Mr Stevens was subject to any real challenge in cross examination, and not on a subject that has proved material to the outcome.  Each of these witnesses gave their answers in a straightforward way.  I accept them all as witnesses of truth and have no reason to doubt the reliability of their evidence.

    Lee Bowers

23. Mr Bowers is the Managing Director of Fivemark Capital Pty Ltd, trading as Fivemark Partners, a corporate advisory and investor relations firm.  He worked from 2003 until 2013 as a mining equities analyst.  In 2013, he co‑founded Fivemark Partners, where he works as a corporate adviser and equity market consultant.  Mr Bowers described his role as involving impact analysis, which he said involved predicting share valuations and price movements and analysing market trading dynamics.  Examples he gave of the kind of work he was engaged in included asset evaluation and valuation, investment advice, trading decision making and scenario analysis.

24. Mr Bowers gave evidence on questions which, in broad terms, concerned the extent to which the information about the Galderma Agreements allegedly withheld from the market was likely to have influenced investors in deciding whether to buy or sell shares in Quintis.  ASIC sought to qualify Mr Bowers as an expert witness.  Mr Wilson, however, made a comprehensive challenge to the admissibility of Mr Bowers' evidence based, in part, on his asserted areas of experience and expertise, so it will be necessary to return to those subjects in Section VI of this judgment.

25. In cross examination, Mr Bowers came across as a careful and thorough expert witness.  He was occasionally loquacious and there were times when his answers veered towards advocacy rather than impartial opinion.  But those times were rare; for the most part he gave his evidence in a measured and balanced way and was prepared to concede points to the cross examiner when appropriate.  Senior counsel for Mr Wilson confined his questioning to Mr Bowers' reasoning process and did not seek to impugn his impartiality or otherwise suggest that he had arrived at views were not independent or not genuinely held.  In broad terms I found his evidence to be helpful.

    Frank Cullity Wilson

26. As I have indicated, the defendant, Mr Wilson, relied on the privilege against exposure to a penalty so as to decline to put on any evidence until ASIC closed its case.  At that point, and in accordance with directions made by the court, Mr Wilson elected to go into evidence.  He filed the substituted defence which I have described and relied on one affidavit (FW), sworn by him on 15 September 2021, setting out evidence about the relevant events.

27. According to Quintis's 2016 Annual Report, before becoming Quintis's founding Chairman in 2000, Mr Wilson was the Managing Partner of the legal firm Wilson & Atkinson, which at that time specialised in taxation, property and commercial law.  He practised for some 15 years, and was an experienced tax and commercial lawyer.  The Annual Report also said that Mr Wilson was an experienced businessman who had a long standing involvement in the forestry industry.  I have already given his history as a director and executive officer of Quintis.

28. In the witness box Mr Wilson displayed a good grasp of the commercial and legal details surrounding the Galderma Agreements, but he did not profess to be proficient in technical details such as the pharmaceutical properties of Benzac or matters such as clinical trials.  My impression was that he left that aspect of the dealings with Galderma to Dr Castella and Mr Clements.

29. Senior counsel for ASIC cross examined Mr Wilson for nearly 3½ days.  He was generally confident and assured in the witness box.  Generally, he listened to questions and answered them directly, although I will refer to some exceptions to that below.  He appeared physically uncomfortable under some lines of questioning but I do not read much into that; being cross examined for over three days is bound to make anyone uncomfortable from time to time.  Mr Wilson occasionally became agitated when he was confronted with allegations of dishonesty, but that quickly subsided when the questions moved to the next topic and in general he approached the questioning in a cooperative way.

30. It was not the manner in which Mr Wilson gave evidence, but the content of the evidence which gave me concern.  That is because when pressed on important matters, Mr Wilson consistently retreated to implausible positions and unsubstantiated generalities.  Necessarily, that broad observation will be developed in the narrative of the evidence I give below.  For now I will give two examples.

31. One example concerned Mr Wilson's evidence that he was aware of a draft letter from Galderma dated 17 November 2015 which proposed significant changes to Galderma's relationship with Santalis, but not the final signed version of the letter which Galderma sent to Dr Castella on 5 February 2016.  The draft letter of 17 November 2015 said that Galderma would analyse 'the long-term financial viability of Benzac and any other factors deemed appropriate by Galderma to determine Galderma's position with respect to the future of its partnership with TFS and Santalis relating to the Benzac brand'.  Mr Wilson refused on several occasions to accept that this was notice that Galderma was thinking about cancelling the Galderma Agreements.  He even refused to accept that it was a reading of the letter that was reasonably open.  Plainly, it was at least open.

1. Finally, I am further satisfied that the hypothetical reasonable director, recognising those things, would have promptly informed the Board of the execution of the Termination Agreement.  While that conclusion rests on my assessment of what, objectively, that hypothetical person would have done, it is relevant that the general view of several of Quintis's directors was that, in their time, they expected that a matter significant enough, like the termination of the Galderma Agreements, would be brought to the attention of the Board so that it could decide whether disclosure was necessary.

2. The conclusion that the hypothetical reasonable director would have promptly informed the Board is also supported by the evidence of several directors who referred to Quintis's continuous disclosure policy which was available to all employees.  That policy 'established procedures for the internal reporting of information which may be significant' (JM1 para 13).  Mr Matthys, Mr Gooding, Mr Groppoli, Ms Franklin and Mr Kay also gave evidence of a standing agenda item for the Board to consider whether any information about Quintis ought to be disseminated to the market via an announcement (JM1 para 12).  According to Mr Matthys, the policy required that company officers 'should err on the side of caution and report information even if they were unsure of its materiality' so that the Board could consider it (JM1 para 14).  The standing agenda item to discuss issues of disclosure would have prompted the hypothetical reasonable director to inform the Board of the Termination Agreement so that it could decide whether disclosure to the market was required.

3. For all the reasons canvassed, the termination of the Galderma Agreements was a matter of significance that would be appropriate to be addressed at Board level, the hypothetical reasonable director could have done it easily, and there would have been no countervailing responsibilities, or risks to the corporation, as reasons not to do it.  If, contrary to my findings, ASIC had established that Mr Wilson knew about the Termination Agreement, then this aspect of ASIC's case would have been made out.

   (10)     What did the 27 March Response convey to the market?

4. This issue arises out of ASIC's plea that the 27 March Response was potentially misleading.  ASIC alleges that the response included representations that as at 27 March 2017, Galderma was one of Quintis's customers, and that it would continue to sell EISO to Galderma at US$4,500 per kg until 2034.

5. The relevant parts of the 27 March Response are set out at [367] above. It was given in response to a query from the ASX for the names and any material information in relation to each of buyers in specified countries or regions referred to in particular announcements Quintis had made, all from 2016 and 2017. One of the countries specified in the response was the US. Many but not all members of the relevant audience for the announcement - investors, stock brokers and investment advisers - could be expected to read the announcement attentively without necessarily focussing on every detail or comparing it with announcements that Quintis had made in prior years, such as the February 2014 announcement of the execution of the Galderma Agreements.

6. The relevant section of the 27 March Response was headed simply 'Names of customers'.  It then said 'Quintis sells sandalwood to a variety of buyers across a range of both markets and countries.'  This speaks in the present tense.  The rest of the section is then divided by headings into 'High value Indian Sandalwood (Album)', 'Lower value Australian Sandalwood (Spicatum)' and 'New institutional plantation investor in 2016'.  Under the first of these, the relevant table is described as listing 'customers Quintis has supplied wood or oil to under multi‑year contracts'.  All of the contracts are listed out with signing years (in one case also an 'effective' year) and contract terms (durations) which suggest that they are current as at the time of the announcement in 2017.  The Galderma Agreements are listed as having been signed in 2014 and having a term of 20 years.  There is no indication that the term has in fact been curtailed by termination of that agreement.  Finally, the text immediately after the table contrasts the customers in it with those who 'acquire' (again, present tense) its Indian Sandalwood products but 'have not entered into long-term contracts'.

7. In my view all this, taken together, does make a representation that Galderma was one of Quintis's customers as at 27 March.  For the most part, it speaks of customers in the present tense, implying that the businesses identified in it are present customers of Quintis.  The sole potential qualification to that - the statement that the table lists customers to which Quintis 'has' supplied wood or oil - is too mild and equivocal to negative that overall implication.  That is especially so given that the table does not distinguish between present and past customers.  The implication that Galderma was a present customer as at 27 March 2017 was only likely to have been cemented by the reference to a contract term of 20 years starting in 2014, with no statement that the 20 years had been reduced by agreement to just under three years.  The contrast between customers including Galderma and other customers who 'have not entered into long term contracts' further implies that the contract with Galderma is long term and hence on foot.

8. For the same reasons, I find that the 27 March Response also conveyed that Quintis would continue to sell EISO to Galderma at US$4,500 per kg until 2034.  That is simply the ordinary natural meaning of the details given in the row in the table.  Once again, the hint contained in the term 'has supplied' is insufficient to displace that in all its context.

9. Mr Wilson submitted that no reasonable person reading the 27 March Response would have understood it to have conveyed this particular representation because the announcement of the Galderma Agreements in February 2014 said that they were terminable on two years notice, and in any event a reasonable person reading the 27 March Response would understand that agreements are often terminated before the end of their term.  He further submitted that the lack of any minimum volume commitment in the Galderma Agreements, as stated in the table in the 27 March Response, meant that the statement said nothing about the supply of EISO in the future.  But these submissions both exaggerate the representation actually pleaded and conveyed and place too much emphasis on the precise minimum contractual commitments.

10. The submissions exaggerate because they try to convert the pleaded representation to being one where it is said that Quintis's supply of EISO to Galderma would not cease before 2034 under any circumstances.  That is not what the 27 March Response is said to convey.  Read sensibly without straining to extract an extreme meaning, the representation is that there is a present state of affairs under which supply to Galderma will continue.  That this might change in the future, including because of Galderma's exercise of its disclosed contractual rights, does not detract from the making of that representation.

11. Mr Wilson's submissions place too much emphasis on the precise contractual terms because the test is what the announcement would have conveyed to an ordinary reasonable member of the class of investors in securities in Australia, not to a lawyer attentively considering all possibilities which the text of the announcement may have left open.  That hypothetical investor would have understood the reference to Galderma as a customer of Quintis, at a specified price and for a specified contractual term, to mean that EISO would continue to be sold to Galderma at that price and for that term.  It may be that if the investor had turned their mind to it, he or she would have assumed that there would be circumstances in which that contractual term may have been curtailed.  But that possibility is not identified in the 27 March Response.  A reasonable person reading the announcement attentively, but without focus on all the possibilities inherent in the legal position, would have understood it to refer to a state of affairs that was on foot, and that was projected to continue for 20 years from 2014.

    (11)     Was the 27 March Response potentially misleading or deceptive?

12. It follows from my findings as to the representations made in the 27 March Response, from the uncontentious point that the 27 March Response was conduct in relation to a financial product, and from the fact that the Termination Agreement had been executed in December 2016 with effect from 1 January 2017, that the 27 March Response was, at least, potentially misleading or deceptive or likely to misleading or deceive, and so potentially in breach of s 1041H of the Corporations Act.  Contrary to the first representation found above, the Termination Agreement meant that at least since 1 January 2017, Galderma had not been one of Quintis's customers.  It also meant that there was no reasonable basis for the second representation that Quintis would continue to sell EISO to Galderma at US$4,500 per kg until 2034.  Mr Wilson does not submit that the presence in the Termination Agreement of the six month option to reinstate the Galderma Agreements meant that either of the representations were not misleading or deceptive as at that date.

13. ASIC has, as it happens, pleaded and proved every element of an actual contravention of s 1041H, and it is difficult to see how the Court can then find only that the contravention is potential. But given my ultimate conclusion (explained immediately below) that ASIC has not established its pleaded case that Mr Wilson contravened s 180 in relation to the issue of the 27 March Response, it is not necessary to try to square that circle. It is enough to say that this element of ASIC's case has been established.

    (12)     What would the hypothetical reasonable director have done before authorising and approving release of the 27 March Response?

14. This issue arises on ASIC's plea that the hypothetical reasonable director with the same responsibilities and knowledge as Mr Wilson acting with care and diligence would have informed the Board of the execution of the Termination Agreement before the 27 March Response was published, and would not have authorised and approved that response without also taking all necessary steps to ensure that the execution of the Termination Agreement was disclosed to the market before or at the same time as the response.  ASIC's case breaks this into the third and fourth alleged contraventions because one contravention is pleaded to arise out of the first potentially misleading representation conveyed by the 27 March Response (that Galderma was one of Quintis's customers), and one contravention arises out of the other representation (that Quintis would continue to sell EISO to Galderma at US$4,500 per kg until 2034).

15. It is important to note that what ASIC alleges should have been disclosed to the Board and the market so as to dispel those representations is the execution of the Termination Agreement, not that Galderma wanted to and was taking steps to terminate the Galderma Agreements. This makes it clear that only if ASIC establishes that Mr Wilson knew of the execution of the Termination Agreement could he be found to have breached s 180 by permitting the 27 March Response to be released (on ASIC's primary, not alternative case). Mr Wilson's submissions emphasised that point repeatedly and ASIC did not cavil with it. Since ASIC has not established that knowledge, its case as to the third and fourth breaches must fail. Nevertheless I will make findings of fact concerning other aspects of these alleged contraventions, in case I am wrong about Mr Wilson's state of knowledge.

16. In my view, the potentially misleading nature of the 27 March Response was apparent on its face, or at least should have been apparent to a reasonable director in Mr Wilson's position.  The representations I have found it to have contained are not obscure or hidden in the document.  A person taking reasonable care to look after the interests of the company would have seen that to include Galderma in a table of Quintis's customers when it had terminated the contractual relationship some three months before would have the potential to mislead the market.  It is not necessary to couch the issue in terms of some calculus of risk versus benefit and ASIC's case of contravention does not do so.  It is axiomatic that a listed company should not issue a potentially misleading announcement to the market, and that a reasonable director acting with due care and diligence would not permit it to do so.

17. That, coupled with the findings I have made above that one of Mr Wilson's responsibilities was to monitor and inform the Board about matters affecting Santalis's commercial position, prospects and performance, means that the hypothetical reasonable director assumed to have knowledge of the Termination Agreement would have disclosed its existence to the Board before it authorised the release of the 27 March Response, and would have ensured that the fact that Galderma was no longer a customer of Quintis was disclosed to the market in or before the 27 March Response.

    (13)     What enquiries would the hypothetical reasonable director have made before authorising the 27 March Response (the alternative case)?

18. It will be recalled that the tenor of the alternative case is that even if Mr Wilson did not know that the Galderma Agreements had been terminated, he knew that there was a real possibility that they might have been, and so should have made enquiries about their status before authorising and approving the 27 March Response.

19. However it is necessary of course to address the case, not on the basis of its general tenor, but on the basis of the specific way in which ASIC has pleaded it.  When that is done, it becomes apparent that the alternative case must proceed on a basis that is inconsistent with findings I have already made.  The alternative case is that the hypothetical reasonable director with knowledge of the matters pleaded in paragraphs 14 to 14C of the SOC would have taken steps to inform himself as to whether the Galderma Agreements remained on foot before he authorised and approved the 27 March Response:  SOC para 30.  Importantly, and as has been said, paragraphs 14 to 14C do not include the knowledge I have found Mr Wilson did have that is pleaded at paragraph 16, that Galderma wanted and were taking steps to terminate the Galderma Agreements.  So the alternative case requires me to assess Mr Wilson's conduct in March 2017 on the premise, contrary to my findings, that he did not know by early December 2016 that Galderma was taking steps to terminate.  Nor does that case include Mr Wilson's evidence, which I have not accepted, that Dr Castella told him Galderma were piling on the pressure to discontinue Benzac.

20. I have found that paragraphs 14 to 14B of the SOC are made out; they essentially cover the many ASX announcements, annual reports and financial reports mentioning the Galderma Agreements and/or Benzac and the representations that they conveyed.  Mr Wilson knew about them.

21. The plea of knowledge at 14C has also been made out, and is considered under Issue (4) above.  It will be recalled that the plea is particularised by reference to seven documents (plus two other matters) which establish comfortably that by September 2016 at the very latest, Mr Wilson did know that there was a real possibility that Galderma would seek to end the Galderma Agreements.  Mr Wilson did not seriously contend to the contrary.  The main basis on which he fought this claim of breach was instead that all the other members of the Board knew of that possibility as well, and they participated in the authorisation and approval of the 27 March Response, and they made no inquiries about the status of the Galderma Agreements.

22. I have already explained why that is not to the point.  Further, the attempt to draw equivalence between Mr Wilson's state of knowledge and circumstances, and that of the non-executive directors, is of doubtful validity.  Mr Wilson was the person who was in constant contact with Dr Castella about the Galderma Agreements and the business of Santalis generally.  He is the one who repeatedly expressed concern and asked for news about Benzac.  It is not relevant that bare information, from which it can be inferred that there was a real possibility that Galderma would seek to terminate the Galderma Agreements, can be shown to have been communicated to the other directors (even where they give evidence, in hindsight, that they knew of that possibility).  We are assessing the behaviour of human beings, not automata programmed with certain pieces of information.

23. There is, however, a simpler, and in my view stronger, reason to hold that the hypothetical reasonable director in Quintis's circumstances with Mr Wilson's knowledge and responsibilities would not have made inquiries to ascertain the status of the Galderma Agreements.  The reason is that, having been in constant contact with Dr Castella throughout 2016 about the continuation of the agreements, not to mention with Galderma personnel, the hypothetical reasonable director would have been acting reasonably to assume that if Galderma were to take steps to terminate, he would have been told about it.  Dr Castella was reporting regularly to Mr Wilson throughout 2016.  For reasons canvassed in detail above, he must have known that Mr Wilson wished to know of any step by Galderma to terminate the agreements.  And the hypothetical reasonable director would have known that Dr Castella was aware of that wish.

24. The contractual context was also relevant; Mr Wilson was entitled to assume that if Galderma did wish to terminate the Galderma Agreements, it would do so on two years' written notice.  That was an event which was unlikely to be kept from him.  It transpired differently but given the way the case is pleaded I cannot take the actual events of December 2016 into account, and there is no hint in the course of events before then that Galderma would insist on a waiver of the two years' notice.

25. Despite Mr Wilson's strenuous efforts at trial to paint Dr Castella as a deceitful person, looking at the matter objectively as at 27 March 2017, he had no reason to think that Dr Castella would have been anything less than forthcoming.  And although I cannot take into account my findings on the contested conversation of December 2016, it seems to me that I can take into account that Mr Wilson and Dr Castella were in frequent contact about numerous matters up to and during that month and there is no reason to think that changed moving into early 2017.  In relation to this alternative case no facts presented themselves to Mr Wilson to indicate that he could not rely on Dr Castella:  cf Maxwell at [119] above.

26. Also, although I have not found that Dr Castella should have told Mr Coetzer about the termination of the Galderma Agreements, the fact that Mr Coetzer was in place as another line of communication from Santalis to Quintis would have given the hypothetical reasonable director in Mr Wilson's position further comfort that if steps were taken to terminate the Galderma Agreements, he would be told.

27. Further, Ms Franklin, who I have found was a convincing witness, said in cross examination that when a brand is not performing there are processes of re-evaluating and taking action (see [544] above). She gave the examples of modifying the percentage ingredients, taking a lower margin or investing more in marketing and pointed to the inclusion of TFS's logo on Benzac's packaging as an encouraging development. Mr Gooding also said in cross examination that he recalled that the 'packaging was going to be redone' with 'TFS put on packaging' as well as 'some more marketing dollars put to it'. He said 'it was still alive because of the new packaging and, hopefully, things may have improved' (ts 299).

1. In circumstances where Mr Wilson had been told as late as September 2016 that TFS's logo was on packaging and being sold in Walmart, and that Santalis and Galderma were reviewing the options available to them, Mr Wilson was entitled to think that the Galderma Agreements would not have been terminated without him receiving prior notice.

2. Finally, although it was important to make sure that the 27 March Response was accurate, it was prepared in response to wide ranging queries prompted by the Glaucus Report.  Galderma was not its focus and it was prepared under circumstances of some urgency.  That too must be taken into account in deciding whether the hypothetical reasonable director would have checked on the status of the Galderma Agreements.

3. For those reasons, on the counterfactual assumption that Dr Castella did not tell Mr Wilson in December 2016 that Galderma wanted to and was taking steps to terminate the Galderma Agreements, I do not consider that the hypothetical reasonable director in Mr Wilson's position as at late March 2017 would have made inquiries of the status of the Galderma Agreements before authorising and approving the release of the 27 March Response.  Consequently, ASIC's alternative case of breach fails.

4. For completeness I record once again that I do not accept Mr Wilson's submission that if inquiries had been made of Dr Castella, he would not have given a truthful response.

   (14)     What adverse consequences did the alleged failure to disclose the termination, and the release of the 27 March Response, have for Quintis?

5. Because of the way that ASIC put its case at trial, I have already had occasion to make findings about this under Issue (9) above.  I have found that the 27 March Response did jeopardise market perceptions of Quintis and did expose it to risk of legal and regulatory proceedings, but it has not been established that it harmed Quintis's reputation.

6. It is important to appreciate that these findings are about exposure to risk, not about harmful events consequent on risks being realised.  In that regard, the only evidence of potentially adverse events consequent on the failure to disclose until 10 May 2017, or on the 27 March Response, is the commencement of the two class actions, and the write off of AU$7.9 million in intangible assets.

7. As to the first of these, it can be inferred that if the termination of the Galderma Agreements, had been disclosed in a timely manner, the class actions would not have contained any allegations of failure to disclose it.  That abstract proposition must, however, yield for the purposes of this judgment to the finding that ASIC has not discharged its burden of establishing its pleaded case that Mr Wilson was informed of the execution of the Galderma Agreements in February 2017.  It is also not clear whether disclosure in February 2017 would have been sufficiently timely to have precluded any allegation of breach of continuous disclosure obligations.

8. As to the AU$7.9 million write off, there was no evidence that this accounting entry prejudiced Quintis.  ASIC does not rely on it as an adverse consequence of the alleged breaches, but rather as a basis to say that the breaches were significant, because the write off demonstrates that the nature of the information not disclosed was significant.

9. Therefore the evidence does not permit any finding that Mr Wilson's alleged breaches resulted in actual damage to the interests of Quintis or its shareholders, as distinct from a risk of such damage.

   (15)     Which of the five alleged contraventions of s 180 occurred?

10. In summary, ASIC has not succeeded in establishing that Mr Wilson breached s 180 in any of the five ways alleged.

11. In relation to the first alleged breach, that is essentially because I do not consider that the hypothetical reasonable director would have told the Board that Galderma wanted to and was taking steps to terminate the Galderma Agreements, when it has not been established that there was anything that the Board could have done to prevent that termination or to minimise the harm to Quintis's interests it would cause.

12. The second, third and fourth alleged breaches have not been made out because ASIC has not discharged its burden of proving that Dr Castella gave a copy of the Termination Agreement to Mr Wilson before a board meeting in February 2017.

13. The fifth, alternative, breach has not been made out, essentially because I consider that the hypothetical reasonable director would have been acting reasonably by proceeding on the basis that if Galderma had terminated the Galderma Agreements, or told Santalis that it wished to do so, he would have been told.  Due to the way the alternative case was pleaded, I reach that conclusion on the assumption, contrary to my findings, that Dr Castella did not in fact tell Mr Wilson in December 2016 that it wanted and was taking steps to terminate the Galderma Agreements.

    (16)     Did any contraventions that are found to have occurred materially prejudice the interests of Quintis or its members, or were they serious?

14. Since none of the alleged breaches of s 180 have been made out, it is not appropriate to consider this question. If I were to consider it, I would not go beyond the findings of fact I have already made. No evidence was adduced on this point other than that already canvassed. To evaluate the questions of material prejudice and seriousness flowing from contraventions that have not been established to have occurred would be an arid exercise, in which a number of hypothetical combinations of contraventions or of alternative contraventions would need to be entertained.

    VIII.    OUTCOME

15. ASIC has not established any of the alleged breaches of s 180. I will hear from the parties as to the appropriate orders.

I certify that the preceding seven hundred and fifty-two (752) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.

Associate:

Dated:       28 August 2023