Gillfillan v Australian Securities and Investments Commission - [2012] NSWCA 370

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Gillfillan & Ors v Australian Securities & Investments Commission [2012] NSWCA 370
Hearing dates: 20, 21, 22 August 2012
Decision date: 12 November 2012
Before: Beazley JA at [1]
Barrett JA at [3]
Sackville AJA at [18]
Decision:
See orders at [363] - [365]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
CORPORATIONS - contraventions of s 180(1) of the Corporations Act by seven non-executive directors of a listed corporation - contraventions relate to approval at a Board meeting of an Announcement by the corporation - declarations of contravention not in dispute following an appeal to the High Court - primary Judge disqualified each director for five years and imposed a pecuniary penalty of $30,000 - whether penalties involved error - whether primary Judge correctly applied the parity principle - assessment of penalties - factors to take into account - significance of "de facto" period of disqualification pending High Court appeal - significance of absence of finding of dishonesty - materiality of testimonial evidence.

CORPORATIONS - two non-executive directors attend meeting by telephone from the United States - they neither see the Draft Announcement nor ask to see it - whether the US Directors should be relieved from liability under ss 1317S(2) or 1318(1) of the Corporations Act - whether circumstances justify different penalties being imposed on the US Directors.
CORPORATIONS - agreed penalties - whether court should accept joint submissions concerning penalties to be imposed on an officer of the corporation.
Legislation Cited: Civil Procedure Act 2005
Criminal Appeal Act 1912
Supreme Court Act 1970
Suitors' Fund Act 1951
Acts Interpretation Act 1901 (Cth)
Corporations Act 2001 (Cth)
Corporations Law (Cth)
Cases Cited: Australian Coal and Shale Employees' Federation v Commonwealth [1953] HCA 25; 94 CLR 621
Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; 238 ALR 595
Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1020; 55 ACSR 411
Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; 85 ACSR 654
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 286 ALR 501
Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; 256 ALR 199
Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714; 259 ALR 116
Australian Securities and Investments Commission v Vizard [2005] FCA 1037; 145 FCR 57
Australian Securities and Investments Commission v Whitlam (No 2) [2002] NSWSC; 42 ACSR 515
Commonwealth v McCormack [1984] HCA 57; 155 CLR 273
Elliott v Australian Securities and Investments Commission [2004] VSCA 54; 10 VR 369
Forrest v Australian Securities and Investments Commission [2012] HCA 39
Gill v The Queen [2010] NSWCCA 236
Green v The Queen [2011] HCA 49; 244 CLR 462
Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123
House v The King [1936] HCA 40; 55 CLR 499
Lovell v Lovell [1950] HCA 52; 81 CLR 513
Lowe v The Queen [1984] HCA 46; 154 CLR 606
Mill v The Queen [1988] HCA 70; 166 CLR 59
Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; [2004] ATPR 41-993
Morley v Australian Securities and Investments Commission [2010] NSWCA 331; 81 ACSR 285
Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; 83 ACSR 620
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
O'Brien v Australian Securities and Investments Commission [2009] NSWCA 312; 74 ACSR 324
Pearce v The Queen [1998] HCA 57; 194 CLR 610
Postiglione v The Queen [1997] HCA 26; 189 CLR 295
R v Kollas and Mitchell [2002] NSWCCA 491
Re HIH Insurance Ltd (In prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; 42 ACSR 80
Re GIGA Investments Pty Ltd (1995) 17 ACSR 472
Re One.Tel Ltd (in liq); Australian Securities and Investments Commission v Rich [2003] NSWSC 186; 44 ACSR 682
Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129
Shafron v Australian Securities and Investments Commission [2012] HCA 18; 286 ALR 612
Vines v Australian Securities and Investments Commission [2007] NSWCA 126; 63 ACSR 505
Warren v Coombes [1979] HCA 9; 142 CLR 531
Category: Principal judgment
Parties:
CA 2012/194766
Michael John Gillfillan (Appellant)
Australian Securities and Investments Commission (Respondent)

CA 2012/194824
Michael Robert Brown (Appellant)
Australian Securities and Investments Commission (Respondent)

CA 2012/194856
Meredith Hellicar (Appellant)
Australian Securities and Investments Commission (Respondent)

CA 2012/194902
Gregory James Terry (Appellant)
Australian Securities and Investments Commission (Respondent)

CA 2012/194958
Geoffrey Frederick O'Brien (Appellant)
Australian Securities and Investments Commission (Respondent)

CA 2012/195054
Martin Koffel (Appellant)
Australian Securities and Investments Commission (Respondent)

CA 2012/195065
Peter Willcox (Appellant)
Australian Securities and Investments Commission (Respondent)
CA 2012/195077
Peter James Shafron (Appellant)
Australian Securities and Investments Commission (Respondent)
Representation: Counsel:
J T Gleeson SC and R Hardcastle (Mr Brown and Ms Hellicar)
D M J Bennett QC and R Hollo SC (Mr Gillfillan and Mr Koffel)
R G McHugh SC, S M Nixon and S A C Patterson (Mr Terry)
P M Wood and M S Henry (Mr O'Brien)
T Jucovic QC and R Scruby (Mr Willcox)
A Bannon SC and S Pritchard SC (Australian Securities and Investments Commission)
Solicitors:
Atanaskovic Hartnell (Mr Gillfillan, Mr Brown, Ms Hellicar and Mr Koffel)
Arnold Bloch Leibler (Mr O'Brien)
Ashurst (Mr Terry)
Kemp Strang (Mr Willcox)
Middletons Lawyers (Mr Shafron)
Clayton Utz (Australian Securities and Investments Commission)

File Number(s):
Decision under appeal

Citation:

Australian Securities and Investments Commission v Peter Donald Macdonald and Others

Date of Decision:

2009-08-27 00:00:00

Before:

Gzell J

File Number(s):

SC 1490 of 2007

Judgment

INDEX

Basic Facts[24]

Legislation[26]

Course of Proceedings[33]

Proceedings at First Instance[33]

Stay Orders[47]

Proceedings in the Court of Appeal[50]

The High Court Appeals[61]

Conduct of the Remitted Appeals[64]

The Facts[77]

Material Before the Board Prior to the Meeting[78]

Papers Provided to the Meeting[88]

Project Green Presentation[91]

The Exchange Between Mr Brown and Mr Macdonald[99]

The Draft ASX Announcement[103]

Penalty Judgment[113]

High Court Judgment[146]

Submissions[148]

Appellants' Submissions[148]

Mr Brown and Ms Hellicar[148]

Mr Terry[155]

Mr O'Brien[159]

Mr Willcox[163]

The US Directors[165]

Reasoning on Penalties[173]

Principles Relating to Disqualification Orders[173]

Did the Primary Judge Err?[191]

Reconsideration of Disqualification Orders Imposed on the Australian Directors[209]

Mr Brown and Ms Hellicar[216]

Mr Terry[266]

Mr O'Brien[270]

Mr Willcox[284]

The US Directors[292]

Relief from Liability[292]

Disqualification[317]

Pecuniary Penalties[321]

Mr Shafron[333]

Costs[345]

ASIC's Cross Appeal[345]

Costs of the Liability Appeal[354]

Remaining Costs Issues[360]

Orders[363]

BEAZLEY JA: I have had the opportunity to read in draft the reasons of Sackville AJA and the additional comments of Barrett JA. The matter which I have found particularly vexing is whether the directors located in the United States ought to be visited with the same penalties as the directors who were physically present at the meeting on 15 February 2001.

Not without some hesitation, I have concluded that a lesser penalty is warranted in the particular circumstances of this case. Accordingly, I agree with the orders proposed by Sackville AJA and with his reasons. I also agree with the comments of Barrett JA.

BARRETT JA: I am of the opinion that the orders proposed by Sackville AJA should be made for the reasons his Honour gives.

I wish to make some observations about two matters of company procedure emphasised by the circumstances of this case.

The first concerns the way in which decision-making by a board of directors should be undertaken.

Section 248G of the Corporations Act 2001 (Cth) enacts replaceable rules that a resolution of the directors of a company must be passed by a majority of the votes cast by directors entitled to vote on the resolution and that the chair has a casting vote, if necessary, in addition to any deliberative vote to which he or she is entitled as a director. Experience suggests that, where articles within the company's constitution operate to the exclusion of these replaceable rules, the constitution will very likely make substantially similar provision.

Under a regime of this kind, the required method of decision-making is the passing of a resolution of the body of persons; and the passing of a resolution depends on the casting of individual votes. It follows that procedures actually adopted must be such that each member of the body who is entitled to vote and wishes to do so may communicate his or her vote and have it taken into account.

Value is often attached to collegiate conduct leading to consensual decision-making, with a chair saying, after discussion of a particular proposal, "I think we are all agreed on that", intending thereby to indicate that the proposal has been approved by the votes of all present.

Such practices are dangerous unless supplemented by appropriate formality.

The aim is not to consult together with a view to reaching some consensus, although it may well be, as a practical matter, that such consultation facilitates the making of the decision that is ultimately required. The aim is rather that the members of the board should consult together so that individual views may be formed and the individual will of each member may be made known in a clearly communicated way.

The culmination of the process must be such that it possible to see (and to record) that each member, by a process of voting, actively supports the proposition before the meeting or actively opposes that proposition; or that the member refrains from both support and opposition. And it is the responsibility of an individual member to take steps to ensure that his or her will is expressed in one of those ways.

This leads to the second matter. It concerns participation in board meetings by telephone, audio-visual link or other like means of communication.

Specific provision in that connection is made by s 248D of the Corporations Act, a section that applies to all companies and is not a replaceable rule:

"A directors' meeting may be called or held using any technology consented to by all the directors. The consent may be a standing one. A director may only withdraw their consent within a reasonable period before the meeting."

This provision presents, in general terms, two main possibilities: first, that some participating directors are physically together at one location while the other participating directors (or director) are at one or more other locations; and, second, that every participating director is physically separated from every other participating director.

The statutory permission for a meeting of directors to be "held" by means of agreed technology entails, as a bare minimum, a requirement that each participating director can, for the duration of the meeting, hear and be heard by every other participating director - or, as it was put by Branson J in Re GIGA Investments Pty Ltd (1995) 17 ACSR 472, is "able to be aware of the contributions to the meeting made by each other director and to contribute himself or herself to the meeting without significant impediment". But more may be required in a given case. For example, where the directors discuss the content of a particular document in the course of the meeting and that document is not already in the possession of every director entitled to participate, the agreed technology by means of which the meeting is "held" must enable each participating director to see the document's content at the relevant point during the meeting. In the same way, if a document is to be "tabled" at a meeting of directors (see, for example, s 192(3) of the Corporations Act), the agreed technology must be such as to allow the full content of the document to be placed before every participating director. Other aspects of a particular meeting's agenda may, in the same way, dictate attributes of permissible technology.

Under s 248D, particular technology may be employed for the holding of a meeting only if that technology is "consented to by all the directors". It must therefore be seen that every one of the directors in office when the meeting is held has separately and individually consented to the holding of the meeting by means of the technology in fact to be used. The section states that the consent "may be a standing one", but this does not mean that technology consented to on a "standing" basis by each of A, B and C (being all the directors in office at the time of the consent) is available after the board comes to consist of A, B and D.

The decision whether or not to consent to a particular mode of technology for the purposes of s 248D is a personal decision for each director. Any director giving conscientious consideration to that question is bound to assess whether the proposed technology will satisfy the requirements outlined at [15] above.

SACKVILLE AJA: The High Court has remitted to this Court so much of the appeals by seven former non-executive directors of James Hardie Industries Ltd ("JHIL") as relate to relief from liability for breaches of s 180(1) of the Corporations Act 2001 (Cth) ("Corporations Act") and to penalties: Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 286 ALR 501 ("HC Judgment"). I refer to the seven former non-executive directors collectively (Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel, Mr O'Brien, Mr Terry and Mr Willcox) as "the appellants". I refer to Mr Gillfillan and Mr Koffel as "the US Directors". For convenience, I refer to the remaining five appellants as "the Australian Directors", although in fact they were not the only Australian-based directors of JHIL. I refer to the respondent to each of the appeals, the Australian Securities and Investments Commission as "ASIC".

The High Court has also remitted to this Court so much of the appeal by the former secretary and general counsel of JHIL, Mr Peter Shafron, as relates to penalty, together with ASIC's cross-appeal against Mr Shafron on penalty: Shafron v Australian Securities and Investments Commission [2012] HCA 18; 286 ALR 612 ("HC Shafron Judgment"). Mr Shafron and ASIC have reached agreement on the appropriate penalties to impose on Mr Shafron and have asked the Court to impose the agreed penalties. I shall deal with their joint application later.

The remitted appeals are the latest stage of proceedings commenced on 14 February 2007 in which ASIC sought, among other relief, pecuniary penalties and disqualification orders against the appellants. ASIC alleged that each of the appellants had approved the release by JHIL to the Australian Stock Exchange ("ASX") of a draft announcement that was misleading in a number of respects. The approval was said to have been given at a meeting of the Board of directors of JHIL held on 15 February 2001 ("the Meeting"). I refer to the draft announcement approved at the Meeting as the "Draft ASX Announcement", although I sometimes abbreviate this to "Announcement".

The primary Judge made a declaration that each appellant had contravened s 180(1) of the Corporations Act 2001 ("Corporations Act"), which in substance provides that directors of a corporation must exercise their powers and discharge their duties with a reasonable degree of diligence. His Honour made orders disqualifying each appellant from managing corporations for a period of five years and imposing on each a pecuniary penalty of $30,000: Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; 256 ALR 199 ("Liability Judgment"); Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714; 259 ALR 116 ("Penalty Judgment").

The Court of Appeal allowed appeals by the appellants against the declarations of contravention made against them. In consequence, the disqualification and pecuniary penalty orders were set aside: Morley v Australian Securities and Investments Commission [2010] NSWCA 331; 81 ACSR 285 ("CA Liability Judgment").

ASIC sought and was granted leave to appeal to the High Court, which allowed the appeal. The High Court restored the declaration of contravention and the disqualification and pecuniary penalty orders made by the primary Judge against the appellants. By reason of the High Court's decision, the primary Judge's declarations of contravention are no longer in dispute. The appeals by the appellants against the disqualification and pecuniary penalty orders remain to be resolved.

Basic Facts

The "basic facts" of the case were recounted in the HC Judgment, (at [12]-[18]), as follows:

"12. Until October 2001 JHIL was the ultimate holding company of the James Hardie group of companies. JHIL was a listed public company; its shares were listed on the ASX. Two wholly owned subsidiaries of JHIL, James Hardie & Coy Pty Ltd ('Coy') and Jsekarb Pty Ltd ('Jsekarb'), had manufactured and sold products containing asbestos. Each of Coy and Jsekarb was subject to claims for damages for personal injury suffered by those who had come in contact with its asbestos products.

13. In 2001 the board of JHIL expected that there would be further claims made against Coy and Jsekarb. The board of JHIL decided to restructure the James Hardie group by 'separating' Coy and Jsekarb from the rest of the group. This was to be done by JHIL establishing a foundation (the Medical Research and Compensation Foundation ...) to manage and pay out asbestos claims made against Coy and Jsekarb and to conduct medical research into the causes of, and treatments for, asbestos-related diseases. Jsekarb and Coy would make a Deed of Covenant and Indemnity with JHIL under which Jsekarb and Coy would make no claim against and indemnify JHIL in respect of all asbestos-related liabilities and, in return, JHIL would, over time, pay Jsekarb and Coy an amount of money. New shares would be issued by Coy and Jsekarb to be held by or for the ultimate benefit of the [Foundation]; JHIL's shares in both Coy and Jsekarb would be cancelled. A new company, James Hardie Industries NV ("JHINV"), would be incorporated in the Netherlands and that company would become the immediate holding company of JHIL and ultimate holding company of the James Hardie group.

14. On 15 February 2001, the board of JHIL met to consider the separation proposal. What happened at that board meeting is the focus of these proceedings.

15. Minutes of the meeting of the directors of JHIL held on 15 February 2001 were confirmed by the board, at a meeting held on 3-4 April 2001, as a correct record and subsequently '[s]igned as a correct record' by the chairman of the board at or after that April meeting. All of the directors of JHIL had received the minutes of the February meeting with their board papers for the April meeting. One of the respondents in this Court, Mr Willcox, did not attend the April meeting; all other respondents did.

16. The minutes of the meeting of 15 February 2001 recorded a number of matters relating to the separation proposal. They included the board's resolution that 'it is in the best interests of [JHIL] to effect the Coy and Jsekarb Separation' and a number of other resolutions relating to the separation. Critical to the present matters, the minutes recorded:

'ASX Announcement

The Chairman tabled an announcement to the ASX whereby the Company explains the effect of the resolutions passed at this meeting and the terms of the Foundation (ASX Announcement).

Resolved that:

(a)the Company approve the ASX Announcement; and

(b)the ASX Announcement be executed by the Company and sent to the ASX.'

17. On 16 February 2001, JHIL sent to the ASX a media release entitled 'James Hardie Resolves its Asbestos Liability Favourably for Claimants and Shareholders' ('the final ASX announcement'). The document referred to the establishment of the [Foundation]. It said, among other things:

'The Foundation ... has sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products that were manufactured in the past by two former subsidiaries of JHIL [Coy and Jsekarb].

JHIL CEO Mr Peter Macdonald said that the establishment of a fully-funded Foundation provided certainty for both claimants and shareholders.

...

In establishing the Foundation, James Hardie sought expert advice from a number of firms, including PricewaterhouseCoopers, Access Economics and the actuarial firm, Trowbridge. With this advice, supplementing the company's long experience in the area of asbestos, the directors of JHIL determined the level of funding required by the Foundation.

"James Hardie is satisfied that the Foundation has sufficient funds to meet anticipated future claims," Mr Macdonald said.

(Emphasis added)

18. The [Foundation] did not have sufficient funds to meet all legitimate compensation claims which were reasonably anticipated in February 2001 from people injured by asbestos products that were manufactured in the past by Coy and Jsekarb."

The media release of 16 February 2001 was not in precisely the same terms as the Announcement approved by the Board at the Meeting. The differences between the two versions are set out by the High Court (HC Judgment, at [82]), in a form which reproduces the text, strikes out deletions and underlines insertions. The plurality found (at [88]) that the amendments subsequently made to the draft Announcement approved by the Board were "textual rather than substantive" and that both versions contained the same misrepresentations (see also at [290], per Heydon J).

Legislation

Section 180(1) of the Corporations Act provides as follows:

"A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)were a director or officers of a corporation in the corporation's circumstances; and

(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer."

If the Court is satisfied that a person has contravened a civil penalty provision, including s 180(1), it must make a declaration of contravention: s 1317E(1). Section 1317(2) provides that the declaration must specify the following:

"(a)the Court that made the declaration;

(b)the civil penalty provision that was contravened;

(c)the person who contravened the provision; [and]

(d)the conduct that constituted the contravention ...".

A declaration of contravention is conclusive evidence of the matters referred to in s 1317E(2): s1317F.

Section 206C confers a power to make a disqualification order in the following terms:

"(1)On application by ASIC, the Court may disqualify a person from managing corporations for a period that the Court considers appropriate if:

(a)a declaration is made under:

(i)section 1317E (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision; or

(ii)...; and

(b)the Court is satisfied that the disqualification is justified.

(2)In determining whether the disqualification is justified, the Court may have regard to:

(a)the person's conduct in relation to the management, business or property of any corporation; and

(b)any other matters that the Court considers appropriate."

A person who is disqualified from managing a corporation under Part 2D.6 (including s 206C), commits an offence if, among other things, he or she makes decisions that affect a substantial part of the business of a corporation or exercises the capacity to affect significantly the corporation's financial standing: s 206A(1).

A court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if a declaration of contravention has been made of a civil penalty provision and the contravention is "serious": s 1317G(1).

Section 1317S provides for relief from liability for the contravention of a civil penalty provision. Section 1317S(2) is as follows:

"If:

(a)eligible proceedings [including proceedings for a contravention of s 180(1)] are brought against a person; and

(b)in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:

(i)the person has acted honestly; and

(ii)having regard to all the circumstances of the case ... the person ought fairly to be excused from the contravention;

the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention."

Section 1318(1) of the Corporations Act provides a further power to grant relief:

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

Course of Proceedings

Proceedings at First Instance

The hearing before the primary Judge occupied 46 days. All the appellants gave evidence, except Mr O'Brien and Mr Terry.

In the Liability Judgment delivered on 23 April 2009, the primary Judge found that each appellant had breached his or her duties under s 180(1) of the Corporations Act. In the subsequent Penalty Judgment delivered on 20 August 2009, his Honour dismissed claims by the appellants, pursuant to ss 1317S(2) and 1318(1) of the Corporations Act, to be relieved from liability for their contraventions. His Honour indicated in the Penalty Judgment that he proposed to make declarations of contraventions and to make disqualification and pecuniary penalty orders against each appellant. The orders were formally made on 27 August 2009. Thus, subject to the stay orders to which I refer later (at [47]-[49]), the periods of disqualification become operative from that date.

The declarations of contravention made in respect of the Australian Directors were in the same form. The declaration relating to Mr Brown was as follows:

"[Mr Brown] contravened s 180(1) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) ... in relation to [JHIL] by his conduct, as a director of that corporation, in voting on 15 February 2001 in favour of a resolution of the directors to approve a draft ASX announcement (Draft ASX Announcement) and authorise its execution and sending to the Australian Stock Exchange (ASX) in circumstances where:

(a)he knew that the Draft ASX Announcement conveyed or was capable of conveying that:

(i)the material available to JHIL provided a reasonable basis for the assertion in the announcement that it was certain that the amount of funds made available to the Medical Research and Compensation Foundation (Foundation) would be sufficient to meet all legitimate present and future asbestos claims brought against two of JHIL's former subsidiaries Amaca Pty Ltd (Amaca) and Amaba Pty Ltd (Amaba);

(ii)JHIL's Chief Executive Officer, Mr Macdonald, believed that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future asbestos claims brought against Amaca and Amaba;

(iii)all of the directors or at least a majority of them believed that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future asbestos claims brought against Amaca and Amaba;

(iv)JHIL had received expert advice from PwC [PricewaterhouseCoopers] and Access Economics that supported the statement that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future asbestos claims brought against Amaca and Amaba;

(b)he ought to have known that the Draft ASX Announcement was misleading in those respects."

The declarations made in respect of the US Directors reflected the fact that they had participated at the Meeting by telephone from the United States and were not provided with a copy of the Draft ASX Announcement at the Meeting. The declarations stated that each of Mr Gillfillan and Mr Koffel:

"contravened s 180(1) ... in that, as a director of that company, at a meeting of the board of directors of that company on 15 February 2001 during which it resolved to approve a draft ASX announcement (Draft ASX Announcement) and authorised its execution and sending to the Australian Stock Exchange (ASX) he failed to take any of the following steps:

(a)request that he be provided with a copy of the Draft ASX Announcement;

(b) familiarise himself with its terms; or

(c)abstain from voting in favour of the resolution to approve the Draft ASX Announcement and authorise its execution and sending to the ASX."

The primary Judge made orders pursuant to s 206C of the Corporations Act that each of the appellants be disqualified from managing a corporation for five years. His Honour also ordered, pursuant to s 1317G(1) of the Corporations Act, that each of the appellants pay a pecuniary penalty of $30,000.

The primary Judge made declarations of contravention against three other officers of JHIL and imposed penalties on each of them. The three officers were:

Mr Peter Macdonald, formerly the chief executive officer and a director of JHIL;
Mr Phillip Morley, formerly JHIL's chief financial officer; and
Mr Shafron, formerly JHIL's secretary and general counsel.

Neither Mr Macdonald nor Mr Morley is a party to the present appeal. However, the appellants referred extensively to the contraventions by Mr Macdonald and Mr Morley and the penalties imposed on them in support of the appellants' contention that the primary Judge had failed properly to give effect to the principle of parity when determining the appropriate penalties. It is therefore necessary to refer to the contraventions found against Mr Macdonald and Mr Morley and the penalties they received. It is also necessary to refer to Mr Shafron's position.

Mr Macdonald voted at the Meeting to approve the draft Announcement. The declaration against him was in identical terms to the declarations of contravention made against the appellants, except that subparagraph (b) contained the additional words marked in bold:

"he knew or ought to have known that the draft ASX Announcement was misleading in these respects" (Declaration 1).

In addition, declarations of contravention of s 180(1) of the Corporations Act were made against Mr Macdonald in that he failed to advise the board that:

the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of the funding to meet all present and future legitimate asbestos claims against JHIL's subsidiaries (Declaration 2);

the reviews undertaken by PwC and Access Economics of a Cashflow Model of the funding being made available to meet asbestos claims:

"(a)were limited to reporting on the logical soundness and technical correctness of the Cashflow Model;

(b)had not verified, and PwC and Access Economics had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being:

(i)fixed investment earnings rates;

(ii)litigation and management costs; and

(iii)future claim costs"

(Declaration 3); and

the Draft ASX Announcement should not be released or should be amended before release to remove the respects in which it was misleading (Declaration 4).

Further declarations of contravention were made against Mr Macdonald in that he made misleading statements to the same effect as the Draft ASX Announcement at a press conference on 16 February 2001 (Declaration 5); approved the release on 23 February 2001 and 21 March 2001 of misleading announcements to the ASX (Declarations 6 and 7); failed to advise the Board on and after 15 February 2001 as to whether certain information concerning a deed of covenant and indemnity ("DOCI") was required to be disclosed to the ASX (Declaration 8); and in 2002 approved the release of certain slides to the ASX and made presentations in London and Edinburgh that he knew contained false or misleading statements (Declarations 9-11).

The primary Judge made an order disqualifying Mr Macdonald from managing a corporation for a period of 15 years and ordered him to pay a pecuniary penalty of $350,000 (Penalty Judgment, at [482], [487]).

The primary Judge made a declaration of contravention against Mr Morley for his failure to advise the Board of the limited nature of the review of the Cashflow Model prepared by PwC and Access Economics (Penalty Judgment, at [474]). The declaration was in substantially identical terms to that made against Mr Macdonald for a similar contravention. His Honour disqualified Mr Morley from managing a corporation for five years and imposed a pecuniary penalty of $35,000 (at [484], [489]).

The primary Judge declined to make a finding that Mr Shafron had contravened s 180(1) of the Corporations Act by failing to advise the Board at the Meeting that the estimates contained in actuarial reports prepared by Trowbridge had not taken into account superimposed inflation (at [422]-[423]). (Superimposed inflation is an actuarial concept referring to the potential for the cost of claims to increase at a level above the general rate of inflation: CA Liability Judgment, at [1060]).

However, his Honour made a declaration of contravention against Mr Shafron in the same terms as Declaration 2 made against Mr Macdonald (that is, that Mr Shafron had failed to advise that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of funding and in that respect was misleading). A declaration of contravention was also made against Mr Shafron in respect of his failure to advise the board that the reviews of the Cashflow Model undertaken by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of the Model and that neither PwC nor Access Economics had been asked to consider the key assumptions. Finally, a declaration of contravention was made against Mr Shafron in similar terms to Declaration 8 made against Mr Macdonald (relating to the DOCI information). (Penalty Judgment at [473].) The primary Judge disqualified Mr Shafron from managing a corporation for a period of seven years and ordered him to pay a pecuniary penalty of $75,000 (at [483], [488]).

Stay Orders

On 27 August 2009, the date the declarations of contravention and penalty orders were made against the appellants, the primary Judge stayed the penalty orders against Mr Brown, Ms Hellicar, Mr Gillfillan, Mr Koffel, Mr O'Brien and Mr Terry until 24 September 2009. Mr Willcox did not seek a stay of the orders made against him.

Messrs Gillfillan, Koffel and O'Brien subsequently filed motions in this Court seeking an extension of the stay of the penalty orders made against them. Tobias JA dismissed their applications on 1 October 2009 (although his Honour had previously granted a short extension of the stay of orders against the US Directors, which extension had expired on 1 October 2009): O'Brien v Australian Securities and Investments Commission [2009] NSWCA 312; 74 ACSR 324.

From the date the Court of Appeal made its orders (17 December 2010) until the High Court allowed ASIC's appeal (3 May 2012) the disqualification and pecuniary penalty orders against the appellants were not in force. The orders were reinstated when the High Court pronounced judgment.

Proceedings in the Court of Appeal

Mr Macdonald did not appeal against the primary Judge's decision. However, the seven appellants, Mr Shafron and Mr Morley appealed to this Court against the findings of contravention. They contended, in the alternative, that they should be excused from liability and that, in any event, the penalties imposed by the primary Judge were too severe. ASIC filed cross-appeals, but the cross-appeals against the appellants were essentially defensive in nature.

On 17 December 2010, the Court of Appeal allowed the appeal on the ground that ASIC had not established that the Draft ASX Announcement had been tabled at the Meeting or that the appellants had approved the Announcement: CA Liability Judgment. The Court set aside the declarations and orders made against each of the appellants and ordered that ASIC's proceedings against them be dismissed. Since the findings of contravention were set aside, the Court had no occasion to consider the appeals against the primary Judge's refusal to relieve the appellants from their liability and against the penalties his Honour imposed on them.

The Court of Appeal went on to consider the position if, contrary to the Court's finding, the Draft ASX Announcement had been tabled at the Meeting and the Australian Directors had voted in favour of it. On this assumption, the Court found (at [821]) that the Australian Directors were not entitled to rely on assurances from management and had failed to exercise reasonable care by not applying their own minds to whether such an important Announcement was misleading. Moreover a reasonable director with the concerns expressed in their evidence by Mr Brown, Ms Hellicar and Mr Willcox, particularly in relation to the words "certainty" and "fully funded", would not have been exercising due diligence by voting to release the Draft ASX Announcement (at [823]). Accordingly, on the assumption the Draft ASX Announcement had been considered and voted upon at the Meeting, the Australian Directors would have contravened s 180(1) of the Corporations Act (at [831]). On the same assumption, the US Directors had also failed to exercise due care and diligence (at [863]).

Since the Court of Appeal found that the board had not voted on or approved the Draft ASX Announcement at the Meeting, it set aside the first declaration made against Mr Shafron (relating to the failure to advise that the Announcement was too emphatic) (at [931]). For different reasons, the Court set aside the second declaration (relating to the failure to advise as to the limitations of the reviews of the Cashflow Model) (at [968]). However, Declaration 3 (relating to the DOCI contravention) was left in place (at [1036]).

The Court of Appeal allowed in part ASIC's cross-appeal against Mr Shafron. The Court found in relation to the alleged superimposed inflation contravention (at [1073]) that:

"Mr Shafron had a primary involvement with Trowbridge's estimates, including knowledge of the significance of superimposed inflation. He made the slide presentation concerning Trowbridge's estimates at the February meeting. In the June 2001 draft report Trowbridge had pointed out that their estimates of asbestos liabilities did not allow for superimposed inflation, and the significant difference which such an allowance could make. It was not a matter of Mr Shafron second-guessing Trowbridge. He knew that JHIL's experience was that the cost of claims was increasing at a much higher rate than the general inflation rate. A reasonable person with his responsibilities would have made sure that the board knew of those matters, and in our opinion, would have drawn to the board's attention, as a matter highly significant to the reliance to be placed on the cash flow modelling, that no allowance had been made for superimposed inflation and that prudence warranted that an allowance should be made."

Accordingly, the Court made a declaration (at [1156]) that Mr Shafron contravened s 180(1) of the Corporations Act, in that he failed to advise the directors that the 20 and 50 year estimates of asbestos liabilities made by Trowbridge in their report of February 2001 had not taken into account superimposed inflation and that a prudent estimate would have done so.

The Court of Appeal dismissed Mr Morley's appeal against the finding of contravention against him, but also dismissed ASIC's cross-appeal (at [1120], [1143]).

The Court of Appeal delivered a separate judgment on 6 May 2011 dealing with:

Mr Morley's appeal against the primary Judge's refusal to relieve him from liability for his contravention and his appeal against penalty; and
Mr Shafron's appeal against penalty (Mr Shafron did not pursue his claim to be relieved from liability).

Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; 83 ACSR 620 ("CA Penalty Judgment").

The Court of Appeal dismissed Mr Morley's appeal against the refusal to relieve him from liability for his contravention, but allowed his appeal against penalty. It set aside the disqualification and pecuniary penalty orders made by the primary Judge and substituted orders disqualifying Mr Morley from managing a corporation for a period of two years (instead of five years) and imposing a pecuniary penalty of $20,000 (instead of $30,000).

In relation to Mr Shafron, the Court noted (at [55]-[56]) that it had set aside two of the three contraventions found against him by the primary Judge. However, in consequence of the success of ASIC's cross-appeal, Mr Shafron's superimposed inflation contravention had been upheld. The Court upheld the order disqualifying Mr Shafron for a period of seven years as the penalty for his DOCI contravention. The Court considered (at [116]) that the superimposed inflation contravention warranted a period of disqualification for three years, but concluded (at [117]) that the two periods of disqualification should be made concurrent. In the result, the Court of Appeal did not disturb the primary Judge's order that Mr Shafron be disqualified from managing a corporation for a period of seven years.

The Court considered that the pecuniary penalty of $40,000 assessed by the primary Judge for the DOCI contravention was appropriate in view of the seriousness of Mr Shafron's failure to exercise due care and diligence (at [135], [138]). The Court of Appeal thought that a penalty of $25,000 was appropriate for the superimposed inflation contravention, taking into account the need for personal deterrence and protection of the public (at [139]). Having regard to the principle of totality, the Court ordered Mr Shafron to pay a pecuniary penalty of $50,000 (at [140]).

As a consequence of the Court of Appeal's decision, ASIC repaid to the appellants the pecuniary penalties they had paid pursuant to the orders made by the primary Judge on 27 August 2009, together with interest: see Commonwealth v McCormack [1984] HCA 57; 155 CLR 273, at 276. ASIC seeks an order from this Court, in the event that the appeals against the pecuniary penalty orders fail, that the appellants pay the penalties and refund the interest paid to them by ASIC.

The High Court Appeals

As I have noted, ASIC sought and was granted leave to appeal to the High Court against the orders made by the Court of Appeal setting aside the findings of contravention against the appellants. The High Court allowed ASIC's appeal in the HC Judgment, which was delivered on 3 May 2012.

The High Court found that the Court of Appeal had been wrong to overturn the primary Judge's finding that the draft Announcement had been tabled and approved at the Meeting by the directors: at [171], per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ; at [216], [280], [303], per Heydon J. The High Court set aside the orders made by the Court of Appeal (other than the order dismissing ASIC's defensive cross-appeals) and remitted the matter to this Court on the terms previously recounted. In allowing the appeal, the High Court also reinstated the declaration of contravention against Mr Shafron relating to his failure to advise the board that the Draft ASX Announcement was expressed too emphatically: HC Judgment, at [315]. In addition, the Court remitted a cross-appeal by ASIC relating to costs, to which I refer later.

In a separate judgment, the High Court dismissed Mr Shafron's appeal against the declarations of contravention against him. In doing so, the Court upheld the findings of contravention in relation to the DOCI information and to Mr Shafron's failure to advise about the superimposed inflation: HC Shafron Judgment, at [32]-[36], per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.

Conduct of the Remitted Appeals

On the hearing of the remitted appeals, each appellant was separately represented, except that Mr Gleeson SC appeared with Mr Hardcastle for both Mr Brown and Ms Hellicar, and Mr Bennett QC appeared with Mr Hollo SC for both US Directors. Mr Bannon SC appeared with Ms Pritchard SC for ASIC. In all, therefore, there were six separate sets of written submissions and six separate sets of oral submissions.

Five of the appellants applied for leave to adduce further evidence at the hearing pursuant to s 75A(7) of the Supreme Court Act 1970. In substance, the further evidence was intended to update testimonial evidence adduced at trial. The applications were made on the basis that the evidence would be relied upon only if this Court found error in the Penalty Judgment. ASIC did not object to the Court receiving the further evidence on this basis.

Although there was considerable overlap in the appellants' written submissions, Mr Gleeson dealt with most issues common to all appellants in his oral argument. For the most part, counsel for the remaining appellants confined their oral submissions to matters specific to their clients.

Not all the issues remitted by the High Court to this Court remain in dispute. Only the US Directors now seek to be relieved from liability for their contraventions. The Australian Directors no longer challenge the primary Judge's findings that they should not be relieved from liability for their contraventions of s 180(1) of the Corporations Act.

All appellants accept, as they must, that the findings made by the High Court are conclusive. It follows, among other things, that none of the Australian Directors dispute the findings, embodied in the declarations of contravention, that each of them knew that the Draft ASX Announcement conveyed or was capable of conveying the four representations identified in the declarations (see at [35] above). In other words, it is not open to the Australian Directors to contend that they did not appreciate or understand the contents of the Draft ASX Announcement when they approved its release at the Meeting.

The Australian Directors emphasise in their submissions that the declarations of contravention state only that they ought to have known at the Meeting that the Draft ASX Announcement was misleading in the four respects identified, not that they knew that the Draft ASX Announcement was misleading. They also point out that ASIC, in its submissions to the primary Judge on penalty, disavowed a case of dishonesty. ASIC's disavowals included the following statements made by senior counsel on its behalf to the primary Judge:

"[ASIC] has not pleaded and does not now allege that any of the non-executive directors acted dishonestly in approving the Draft ASX Announcement.

[ASIC] does not contend that the Court found in the [Liability Judgment] that any of the non-executive directors was aware 'at the time they approved the [D]raft ASX [A]nnouncement' that it was false and misleading .... However, [ASIC] also submits that the concession by the non-executive directors who gave evidence that the Draft ASX [A]nnouncement was false and misleading (which was part of their chain of reasoning to assert that they did not approve it) carries with it the necessary consequence that their negligence in approving it was that much more serious; ie it was so obviously false or misleading or deceptive that their negligence was that much more culpable for approving the statement. That process of reasoning applies equally to those non-executive directions who did not give evidence as to those who did."

It follows from these matters, so the appellants argue, that the primary Judge's reasoning and findings must be approached on the basis that the contraventions found against the Australian Directors involved negligence in the discharge of their duties, not dishonesty.

Mr Bannon's submissions in this Court directed attention to findings made by the primary Judge and the Court of Appeal (when considering the position if, contrary to its view, the board had approved the Draft ASX Announcement). Some of these suggested that the Australian Directors knew that the representations in the Draft ASX Announcement were false. In particular, the CA Liability Judgment, at [831], when considering whether ASIC had made out its case on the assumption (contrary to the Court of Appeal's finding) that the Meeting had approved the Draft ASX Announcement, said this:

"assuming approval of the draft news release as an ASX announcement, the judge correctly found that it conveyed or was capable of conveying the matters the subject of the declarations of contravention; that each of Mr Brown, Ms Hellicar, Mr O'Brien, Mr Terry and Mr Willcox knew that it was misleading in those respects; and that by voting in favour of the draft ASX announcement resolution they would have contravened s 180(1)."

Mr Bannon referred to this paragraph, apparently in support of a submission that this Court could assess the seriousness of the Australian Directors' contraventions for penalty purposes on the basis that they knew the contents of the Draft ASX Announcement were misleading.

In the face of protests that ASIC had not conducted the trial on the basis that the Australian Directors knew the Draft ASX Announcement was misleading when approved, Mr Bannon clarified ASIC's position. He accepted that in view of the allegations made by ASIC against the appellants, the approach taken by ASIC at trial and the limited form of the declarations, the contraventions by the Australian Directors could not be characterised as involving dishonesty. He also seemed to accept that the references by the primary Judge to the appellants' knowledge of the falsity of the Draft ASX Announcement related only to their understanding at the time they gave their evidence, rather than at the time the Meeting took place.

While not persisting with his original submission as to the appellants' knowledge of the falsity of the Draft ASX Announcement, Mr Bannon submitted that findings concerning the conduct of the appellants, to the extent they support and are consistent with the declarations of contravention, may be taken into account in determining the seriousness of the contraventions. This appears to be in accord with the position adopted by ASIC at trial. The appellants did not dispute that this was an appropriate course for the Court to follow.

I add this comment. The disagreement as to the nature of ASIC's case and of the precise significance of the contraventions found against the appellants is perhaps not entirely surprising in view of ASIC's pleadings. The Fourth Further Amended Statement of Claim ("FASC 4") pleaded (at [112]-[116]) that when each of the appellants voted to approve release of the Draft ASX Announcement, he or she knew or ought to have known that the Announcement conveyed certain representations. ASIC also pleaded that each appellant ought to have known that the Draft ASX Announcement was misleading in a number of respects because the appellants knew or ought to have known certain matters. For example, FASC 4 pleaded (at [112]) that the appellants ought to have known that the Draft ASX Announcement was false or misleading insofar as it represented that the material available to JHIL provided a reasonable basis for the assertion that the funding available to the Foundation would be sufficient to meet all legitimate present and future asbestos claims. The further particular of this allegation alleged that each appellant knew or ought to have known that any assessment of asbestos liabilities was inherently uncertain and that the amounts payable in respect of present and future claims could not be reliably estimated.

In Forrest v Australian Securities and Investments Commission [2012] HCA 39, judgment in which was delivered after argument in the present case had concluded, the High Court pointed out the difficulties that can arise if a regulator simply pleads that an alleged contravenor knew or ought to have known of certain matters. The plurality observed (at [22]) that:

"On their face, these allegations mixed two radically different and distinct ideas: that Fortescue [the alleged contravenor] knew that the statements were false (it had no genuine basis for making them) and that Fortescue should have known that the statements were false (it had no reasonable basis for making them)". (Emphasis in original.)

Their Honours went on to say (at [25]) that a fair trial requires the party alleging the contraventions to identify the case it seeks to make and to do so "clearly and distinctly".

Except to the extent I have indicated, no issue was raised on the appeal as to the fairness of the proceedings and no point was taken in the High Court concerning any lack of clarity in the pleadings. However, the uncertainty as to the scope of ASIC's case on the hearing of the remitted appeals seems to illustrate the point made by the High Court in Forrest v ASIC.

The Facts

The circumstances leading up to the Meeting and its aftermath have been canvassed at length in two judgments of the primary Judge, two judgments of the Court of Appeal and in the judgment of the High Court. With some relatively minor exceptions, the factual findings of the primary Judge are no longer in contest (although the appellants dispute his Honour's characterisation of their conduct). Nonetheless, it is necessary to recount the facts in some detail as they are material to the seriousness of the appellants' contraventions and thus to questions of penalty. The following account is largely based on the findings in the Liability Judgment, but includes references to some uncontentious documents and findings made by the Court of Appeal and High Court.

Material Before the Board Prior to the Meeting

JHIL had given consideration to the restructure of the James Hardie group well before the Meeting (at [80]). Throughout 2000, the papers distributed to Board members contained papers relating to a separation proposal known as "Project Green" (at [82]-[83]).

The appellants, other than Mr O'Brien (who became an alternate director in August 2000 and was appointed to the board later) were alerted in a paper prepared in June 2000 to the potential legal liability of any company which made statements that were false in a material particular or were misleading (at [258], [259]).

The papers for the May 2000 board meeting included draft accounts for the year ended 31 March 2000. These included a contingent liability note stating that JHIL could not measure reliably its exposure to future asbestos-related claims (at [263]).

In June 2000, Trowbridge prepared a draft actuarial report relating to present and future asbestos claims. The draft report assumed that there was no superimposed inflation and adopted a future inflation rate of four per cent per annum, in line with forecasts for wage inflation in the medium term. A sensitivity analysis showed that if a "high rate" of claims inflation was assumed, the estimated cost of claims would increase from $294 million to $424 million (see CA Liability Judgment, at [129], [1061]).

At the August 2000 meeting of the Board, a slide presentation explained the draft actuarial report prepared by Trowbridge. The draft report stated in a number of places that the estimates were uncertain and that significant deviations were to be expected (at [265]). The presentation reported that average settlement costs of mesothelioma claims had risen by 45 per cent over five years (at [267]).

In October 2000, a memorandum from Mr Shafron to the Board advised that the draft Trowbridge report did not need to be disclosed to the market, partly because it did not disclose definite outcomes (at [268]). In a memorandum of 13 December 2000 relating to accounting matters, Mr Macdonald said that the data were not precise enough for the estimates to be otherwise than misleading (at [269]).

The Board meeting of JHIL held on 17 January 2001 discussed a version of Project Green. A feature of the proposal was that only the net assets of Coy and Jsekarb (the subsidiaries of JHIL liable to compensate asbestos victims) would be available to meet present and future asbestos claims against them (at [88]). The material before the Board included a draft news release. It referred to the establishment of an independent trust to compensate asbestos victims, but made no claim that the "significant assets" made available for the purpose would be adequate to compensate all asbestos victims.

The papers for the January 2001 Board meeting included the following statement:

"there is no reliable basis for determining what amount any ... future contribution should be if attempting to fund all future claims. Previous indicative advice obtained as to the potential quantum of future claims has been quite variable and unreliable".

Handwritten notes of the discussion at the January board meeting summarised a contribution by Mr Willcox as follows:

"PR questions are important - potential for [Government] legislation - JHIL cannot say all debts are covered ...becomes a practical issue".

The Board rejected the net assets model presented to it at the January board meeting. Management was asked to do more work on the separation proposal to ensure that sufficient funds were available to meet all present and future asbestos claims (at [89]).

Papers Provided to the Meeting

The board papers for the Meeting (15 February 2001) included a paper prepared by Mr Macdonald (at [90]). It recommended that the shares in Coy and Jsekarb be vested in the Foundation to manage the assets in the interests of current and future creditors. An additional indemnity was to be paid over time (having a net present value of $70 million), in return for an indemnity and covenant by the subsidiaries not to sue JHIL. JHIL would contribute a further $3 million for research and establishment costs. In all, JHIL would write off around $256 million. The creation of the Foundation would "largely remove asbestos related issues from JHIL and the ongoing James Hardie Group".

Unlike the January meeting, the papers for the Meeting did not include a draft press release and the agenda contained no reference to any such release (at [91]). However, a communications strategy was distributed to board members with the papers. It included the following passages:

"COMMUNICATION STRATEGY

... Our central communications conundrum is that we will not be able to provide key external stakeholders with any certainty that the funds set aside to compensate victims of asbestos diseases will be sufficient to meet all future claims.

...

2.1.2Media

Media coverage of asbestos issues has increased markedly in the past year in most states. In the past several months, all major metropolitan newspapers and many radio and television networks have carried stories with increasing frequency about:

court cases resulting in large settlements

defendants, including JH, hiding behind confidentiality clauses

potentially large new sources of claims (e.g. wharf cases, South Australia)

the increase in the number of claims and settlement amounts (e.g. Trowbridge)

...

particularly tragic cases (e.g. [A], who died of mesothelioma shortly after giving birth)

We assume the general media environment in which we announce will be hostile.

2.1.3Government/Political

... [A]s most of James Hardie's Australian assets reside in NSW registered companies, so too does the major government risk. For this reason, our government stakeholder management strategy is principally focused on the NSW Government.

...

The government is likely to be concerned with:

the risk of financial exposure should the Foundation have insufficient assets to meet future liabilities

any perception of a hidden agenda behind the establishment of the Foundation

negative union sentiment, adverse media and public opinion etc which leads to a loss of political support among specific, influential constituencies, such as unions, or among voters generally.

...

2.1.4Other Stakeholders

Strong relationships exist between unions, plaintiff law firms and asbestos disease representative groups. While these stakeholders will probably recognise the positives, it is expected they will:

claim that the Foundation will have insufficient funds to compensate all future victims

use various 'experts' or adopt the position of 'experts' to claim that the incidence of asbestos diseases is rising sharply and that history is not a good guide to assess future incidence and costs

...

We have a strong case against the arguments which are likely to be put forward and we will prosecute our case aggressively with these stakeholders and with the people they would seek to influence.

...

3.THE COMMUNICATIONS STRATEGY

...

We will try to turn the question of uncertainty to our advantage. For shareholders and creditors, separation means there will be greater certainty than has ever before. For example, we can argue that it is uncertain that JH will exist in 5, 10 or 20 years but that separation provides much greater certainty that funds will be available to compensate victims past these time periods than if JH was merged into another company.

...

3.1Timing

The announcement will be made on Friday 16 February to coincide with the announcement of JHL's Q3 results and the related management presentations to analysts and business media. This will:

provide a ready made business forum for the announcement which provides unfiltered access to market analysts, one of the most important influencers in how the story is interpreted

help us position the Foundation as a 'business' story

enable us to announce separation in a pure business context and set the agenda for public debate in this context

focus attention on the financial outcomes

We will announce the Q3 results and separation simultaneously at 10am, ahead of an 11am management presentation. We normally announce at 8.30am and conduct results presentations at 11am. By limiting the time between the announcement and the presentation, we would aim to minimise the risk that non-business media and perhaps other stakeholders would attend and 'hijack' the briefing.

...

3.2 Shareholders and the Investment Community

...

A positive reaction from the market is ... the highest priority and we will use the management presentation to analysts, and subsequent dialogue with them, as our most important communication task.

...

5.0DRAFT QUESTIONS AND ANSWERS

...

1.How can James Hardie be confident that the Foundation has sufficient assets to meet all future claims?

The Foundation will start with assets of $284 million - all of which has been set aside for the sole purpose of compensating people injured by asbestos. This is almost three times the amount that the company has expended in the past 20 years to meet compensation claims.

...

While it is not possible to reliably measure what the total number or cost of claims will be, we have used our 20 year experience of asbestos compensation and a range of independent projections to form the view that there is a very real prospect that all claims can be met. Under certain scenarios, it is possible to project that there will actually be a surplus once all claims are met...

...

3.What does your actuarial advice say in relation to the ongoing exposure to claims?

We have learned that actuarial advice is not a reliable basis for assessing these kinds of liabilities. Within these limitations it can, however, provide a reference point which should be considered along with many other factors

...

7.Have you conducted any analysis on anticipated claims and what was the range of possible liability? Will you release it, if not why not?

We have taken advice from independent [sic] of JH and we have reviewed independent studies. It is apparent that there are many variables which, depending on the view you take, will result in a wide range of answers.

Even using the worst case scenarios the funds available for claimants will last for many, many years. Using more realistic forecasts, the Foundation would be able to meet all claims and have a surplus." (Emphasis in text added.)

The evening before the Meeting, material including a slide presentation entitled "Project Green Board Presentation" and documents constituting a "Cashflow Model" were sent to the US Directors, who were to attend the Meeting by telephone. The documents did not include the Draft ASX Announcement (at [108]). The Australian Directors did not receive any of this material prior to the Meeting, but the material was distributed to them at the Meeting.

Project Green Presentation

The slides comprising the Project Green Board Presentation were presented at the Meeting and management discussed a number of them (at [140], [147], [273], [274], [276]). In particular, Mr Baxter, JHIL's Senior Vice President of Corporate Affairs, recalled (at [140]) presenting slides 23-40 relating to the communications strategy. Those slides did not suggest that an announcement would be made that the Foundation would be fully funded to meet all future asbestos claims.

Among the slides were the following:

Slide 11 identified "Key issues for consideration" including "Quantum of funds ... expectancy" and "Positioning key stakeholder messages".

Slide 14, under the heading "Fund life expectancy/sensitivity" set out the following:

"♦Trowbridge analysis revised:

-same basic assumptions as previously

-higher claim numbers predicted

-predicted future cashflows

♦Future funds availability depends on:

-Trowbridge cashflows ('most likely')

-asset classes (land, debt, and invested cash)

-assets earnings (some known and some predicted)"

●Slide 15, under the same heading, set out the following:

"JH modelling

♦Key assumptions

-Trowbridge actuarial data

-earnings on investment portfolio 11.7%

-JHIL loan 8.13% p.a. return

-running costs of $2.4m p.a.

-inflation

-3% p.a. rent, running costs

-4% p.a. litigation costs

-no tax paid (no realisation of investment earnings in early periods)

-land increases in value by 3% p.a., buildings not depreciated, though $1m p.a. sinking fund

-properties disposed of in 2025 at carrying value

♦Surplus most likely outcome

♦Analysis reviewed by PWC and Access Economics"

(Some of these assumptions were explained further in the Cashflow Model: see at [94]-[95] below.)

●Slide 29, under the heading "Key messages" set out the following:

"♦JH has effectively resolved its asbestos liability for the benefit of shareholders and claimants

♦A new, independent Foundation has been established to manage JH's liabilities, compensate people injured by asbestos and fund medical research

♦The Foundation's assets will be used solely for compensating people with asbestos diseases

♦The position of claimants is substantially improved because the Foundation provides much greater certainty that compensation will be available to meet all future claims

♦The position of shareholders is also substantially improved because the company's results and financial strength will no longer be affected by asbestos costs"

●Slide 30, under the heading "Communication strategy" set out the following:

"Overall Approach

♦Attract as little attention as possible

♦Position as a business story

♦Win the support of shareholders and the investment community

♦Openly engage other stakeholders and address their concerns

♦Minimise the potential of government intervention

♦All media filtered by GB"

The Board was also taken through the Cashflow Model by Mr Morley (at [277]). This document was provided to the US Directors before the Meeting (at [280], [284]), but was apparently distributed to the Australian Directors at the Meeting itself.

The first page of the Cashflow Model set out a series of assumptions used to prepare the Model (at [287]):

"●Litigation costs, net of insurance recovery, are from Most Likely Trowbridge model, updated 9 February. The Trowbridge model assumes 4% inflation on claims amounts.

●Rental income assumes 3% CPI increases but ignores any Market Rate increases. A sinking fund of $1.0m pa (inflated at 3% annually) has been deducted from rental income, to allow for major capital renovations to the properties.

●Buildings maintain their nominal value, i.e. are not inflated or depreciated. Land increases in value at 3% pa. Properties are sold at March 2025, for their book value, and the cash proceeds invested.

●Management costs (legal services, Directors fees etc) have been assumed at $2.4m pa (inflated at 3% pa), but limited in later years an amount equal to the litigation outgoings, plus present day $100k pa. ...

●It is not necessary to include any cashflows in relation to tax payments because separate detailed modelling has shown that:

-during the early years, where there are significant cash inflows through a combination of loan principal receipts and indemnity receipts, there will be no need to realise investment earnings and thereby create a tax liability

-in subsequent years, when the deferred investment earnings are realised, there will be sufficient accumulated losses from litigation and other outgoings to shelter the taxable investment earnings.

●Investment earnings of 11.70% are assumed, before tax.

●Sensitivity analyses at various pre-tax earnings rates are attached.

●Cashflows occur evenly through year, except for repayment of JHIL [sic] principal, external investment earnings and property proceeds which are received on 31 March."

The second page (so identified by the primary Judge, although it appears as the fourth page in the Appeal Books) contained a series of columns based on "the most likely scenario and earnings rate of 11.70%" (at [288]). The columns identified cash inflows and outflows with projected figures extending over a period of 51 years. The figures presented assumed an earnings rate of 11.7 per cent applied to surplus investment funds (which funds rose to a maximum of $188.7 million by Year 11). The chart showed that in the "best estimate" of asbestos liabilities over the 50 year period, the Foundation would have net assets of $31.7 million in year 51. However, on the "high scenario" for claims, it would be necessary to provide for an additional $237 million in claims over the 50 year period.

The remaining page of the Cashflow Model contained sensitivity analyses, reproduced below:

Mr Morley gave a detailed explanation of the assumptions embodied in the Cashflow Model and of the figures in the columns of the detailed 50 year table (at [285]-[302]). Among other things, Mr Morley pointed out that the sensitivity analysis showed that even on the assumed earnings rate of 11.7 per cent per annum over the entire period, the fund would be depleted by year 20 on the "high scenario" for claims (at [301]). As the primary Judge noted (at [300]), on the "most likely scenario" for claims, the fund would be depleted before year 25 if investment earnings averaged 10.7 per cent per annum, rather than 11.7 per cent per annum. Of course on a "high scenario" for claims and if investment earnings were even slightly less than 11.7 per cent per annum, the fund would be exhausted much earlier than year 20.

Mr Morley also told the Meeting that the Cashflow Model had been reviewed by PwC and Access Economics and they had found it to be "logically sound and technically correct (at [302]). Mr Macdonald said that the Model showed a surplus was the "most likely outcome".

The Exchange Between Mr Brown and Mr Macdonald

The primary Judge found (at [148]-[150]), on the basis of Mr Brown's evidence, that the following exchange occurred between Mr Brown and Mr Macdonald at the Meeting:

"Mr Brown:'Can we be sure that the funds we allocate to the Foundation on the basis of the Trowbridge report are sufficient? Is the Trowbridge report sound and fit for purpose?'

Mr Macdonald: 'If we can't tell all of the interested stakeholders that there will be enough funds then we will have great difficulty getting acceptance of the plan and it won't work.'

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

Mr Macdonald: 'Yes there are. We have got the best actuarial modelling. We have shown that we can meet the cash requirements each year. We are providing enough funds for future claims'".

Mr Brown accepted in evidence that Mr Macdonald's first response in the exchange was a statement about the content of the Draft ASX Announcement.

The Court of Appeal found (CA Liability Judgment, at [409]) that recollection did not lie behind Mr Brown's evidence and that a basis had not been laid for reconstruction by him of the relevant exchange. The Court considered that Mr Brown was merely accepting that it was possible that a number of matters had been put by arrangement as key messages.

The plurality in the High Court twice quoted Mr Brown's evidence at length (HC Judgment, at [61], [125]). Their Honours said (at [130]) that it was doubtful whether the Court of Appeal had given sufficient weight to the advantages the primary Judge had in assessing the effect of Mr Brown's evidence, but they did not consider it necessary to decide the question. Heydon J endorsed without qualification (at [282], [284]) the primary Judge's findings in relation to acceptance of Mr Brown's evidence.

Once it is accepted (contrary to the Court of Appeal's finding) that the Meeting approved the Draft ASX Announcement, there is no sound basis for overturning the finding that Mr Macdonald said the words attributed to him by Mr Brown. A conversation to this effect was consistent with other presentations made at the Meeting. I therefore proceed on the basis that the primary Judge's finding on this issue should not be disturbed.

The Draft ASX Announcement

Mr Baxter took with him to the Meeting copies of the Draft ASX Announcement and he provided copies to those present (CA Liability Judgment, at [220]). The appellants who gave evidence that the Announcement was not before the Meeting were "mistaken" (at [222]).

Mr Baxter or Mr Macdonald spoke at the Meeting to the Draft ASX Announcement and discussed "the key message to be communicated to the market" (at [223]). The statements made by Mr Macdonald or Mr Baxter to the Meeting correlated to portions of the Draft ASX Announcement (at [153]-[161]).

The purpose of the distribution of the Draft ASX Announcement to those present and the discussion of its contents was to approve its release (at [224]). This contradicted the standard practice of obtaining the approval of a draft press release by senior executives before its submission to the Board, but the approval in this instance was "a last minute affair". None of the Board or management had seen the document before the Meeting, but its distribution to the directors provided all the more reason for a detailed consideration of its contents by each director (at [225]).

The Draft ASX Announcement was approved at the Meeting:

"The board had been forewarned in the board papers for the January 2001 board meeting that an announcement of the formation of the Foundation would be made after the February board meeting if management's proposal was accepted. The discussion of the Draft ASX Announcement at the 15 February 2001 Meeting could be for one purpose only - for the board to approve the release of the announcement."

Mr McGregor, the chairman of the Meeting (who had died before these proceedings) summarised the Board's approval of the Announcement by asking, in the usual fashion, "is the board happy with that?" Everybody present nodded or otherwise indicated their agreement (at [226]).

The US Directors were not provided with a copy of the Draft ASX Announcement and the text was not read out at the Meeting (at [231]). Neither raised an objection that they did not have a copy, nor did they ask for a copy or abstain from voting (at [233]). The practice of the Board was not formally to put a matter to a vote. Directors either indicated their approval or remained silent. In either case the directors regarded that procedure as the passing of a resolution by the Board. Neither Mr Gillfillan nor Mr Koffel voiced an objection to the expressions of approval by Board members of the release of the Draft ASX Announcement (at [234]).

The primary Judge found (at [259]) that all of the non-executive directors knew or ought to have known that if JHIL made statements in the Draft ASX Announcement as to the sufficiency of the Foundation's funding, there was the danger that JHIL could face legal action for publishing misleading statements, its reputation would suffer and the market would react adversely. The Announcement was a "key statement in relation to a highly significant restructure of the ... group" and none of the directors was entitled to delegate his or her duty to a fellow director (at [260]). Elsewhere (at [1161]), his Honour said that it was:

"extraordinary that none of the non-executive directors who gave evidence recalled seeing the document that announced a most significant event in the life of the James Hardie group, an event that they were at pains to ensure was well received by the market. Had they received copies of the Final ASX Announcement, and had it been true that they would not have approved the Draft ASX Announcement, they would have expressed the concern that it made forward-looking statements with which they disagreed. There is no evidence that any of the non-executive directors complained about the content of the Final ASX Announcement on or soon after 16 February 2001, or at all."

His Honour found (at [303]) that notwithstanding the comments made to the Meeting by Mr Morley and Mr Macdonald:

"the non-executive directors must have realised that unqualified statements that there were sufficient funds in the Foundation to cover all legitimate Asbestos Claims could not be made".

The primary Judge made (at [321]) the findings recorded in sub-paragraph (a) of the declarations of contravention made against the Australian Directors. He also made the following findings (at [320]):

"The unsophisticated notional class representative would labour under the misapprehension having read the Draft ASX Announcement that it was certain that the Foundation had sufficient funds to meet all future Asbestos Claims. The sophisticated notional class representative would ... labour under the misapprehension that JHIL had adopted highly conservative assumptions in determining the funding level of the Foundation."

His Honour rejected (at [325]) a submission that it was reasonable for the appellants to have approved the Draft ASX Announcement, bearing in mind that Trowbridge was a highly respected actuarial firm and that they were entitled to rely on management:

"[I]t is the emphatic nature of the Draft ASX Announcement that is at fault. And that is not a matter for reliance upon management or outside experts. The shortcomings of the Cashflow Model must have been obvious to the non-executive directions, or at least they ought to have been and they should have realised that they were prevented from approving the unequivocal and unqualified statements as to certainty of sufficient funding in the Draft ASX Announcement".

Penalty Judgment

The primary Judge first considered whether the appellants should be relieved from liability for their contraventions, pursuant to s 1317S(2) of the Corporations Act. This required his Honour to consider whether the appellants had established that they had acted honestly (Penalty Judgment, at [11]). He stated (at [22]) the relevant principle as follows:

The primary Judge imposed penalties in respect of contraventions (i), (ii) and (iii). His Honour made an order disqualifying Mr Shafron from acting as a director for a period of seven years and ordered him to pay a pecuniary penalty of $75,000. The Court of Appeal reconsidered the question of penalties on the basis that Mr Shafron had committed contraventions (iii) and (iv), but not (i) and (ii). The Court of Appeal considered that the disqualification orders made by the primary Judge was still appropriate, but reduced Mr Shafron's pecuniary penalty from $75,000 to $50,000.

The joint submission on penalty filed in this Court on behalf of ASIC and Mr Shafron request the Court:

to leave in place the order disqualifying Mr Shafron from managing a corporation for seven years commencing on 27 August 2009 and expiring on 26 August 2016; and

to set aside the pecuniary penalty order made by the Court of Appeal on 6 May 2011 and in lieu thereof order Mr Shafron to pay a pecuniary penalty of $75,000.

The joint submission also records the parties' agreement on the costs of the proceedings.

The joint submission advances two reasons supporting the proposed penalties. First, Mr Shafron has been found to have contravened the Corporations Act in three respects, the same number of contraventions found by the primary Judge. Secondly, the conduct underlying the Cashflow Model contravention (which the primary Judge took into account but which was set aside by the Court of Appeal) was substantially similar to the conduct underlying the Superimposed Inflation contravention (which the primary Judge found had not been made out but which the Court of Appeal found had been established). According to the joint submissions, the conduct in each case involved a failure by Mr Shafron to advise the Board of matters relevant to their consideration of the Draft ASX Announcement.

The agreement between ASIC and Mr Shafron as to penalty does not absolve this Court of its obligation to determine whether the proposed orders are appropriate in the circumstances of the case: NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285; Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1020; 55 ACSR 411, at [9], per Barrett J. However, the Court does not ordinarily reject a penalty agreed between the regulator and a contravenor merely because it might have been disposed to select a different penalty. The usual approach is for the court to determine whether the proposed penalty is within the permissible range. However, it is open to a court to consider the appropriate range of penalties independently of the parties' joint proposal and then to determine whether the proposed penalties fall within the range: Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; [2004] ATPR 41-993, at [51], [54], per curiam; ASIC v Elm Services, at [9].

The joint submission takes as its starting point the penalties imposed by the primary Judge. It proceeds on the basis that if the primary Judge had found the Superimposed Inflation contravention against Mr Shafron, rather than the Cashflow Model contravention, his Honour would still have arrived at a disqualification period of seven years and a pecuniary penalty of $75,000. This analysis of what the primary Judge would have done is probably correct. He regarded the DOCI contravention as very serious, itself warranting a period of disqualification of seven years. He attributed five years disqualification as the appropriate penalty for each of the other two contraventions, but considered that the disqualification should be for a period of seven years: Penalty Judgment, at [331].

If the question of Mr Shafron's penalty were to be considered without reference to the joint submission, it may be that the starting point would be the CA Penalty Judgment. The Court of Appeal, like the primary Judge, attributed seven years disqualification as the penalty for Mr Shafron's DOCI contravention, since (at [86]) he had been:

"the more seriously delinquent in his failure to exercise due care and diligence when the failure was moulded by a desire that an important item of market information not be disclosed".

The Court of Appeal considered that the Superimposed Inflation contravention was serious, since Mr Shafron knew that the Trowbridge analysis did not allow for superimposed inflation or, if he did not, he should have inquired (at [110]). Further, Mr Shafron's failure left the Board to its own decision-making without having important information before it (at [113]) (although, as I have explained, I do not think that this reduced the seriousness of the appellants' separate contraventions). The Court of Appeal found (at [116]) that Mr Shafron should be disqualified for three years for the Superimposed Inflation contravention, but considered (at [117]) that this period of disqualification should be made concurrent with the longer period imposed for the DOCI contravention.

It is arguable that the finding that Mr Shafron also committed the Draft ASX Announcement contravention would have led this Court to increase the total period of disqualification beyond seven years. If the matter were to be considered afresh, a longer period of disqualification might well be appropriate, notwithstanding that Mr Shafron was not a director of JHIL.

Nonetheless, I do not think that a total period of seven years disqualification for Mr Shafron's three contraventions is outside the permissible range. Nor do I think that a pecuniary penalty of $75,000 is inappropriate. Accordingly, in my view the orders jointly proposed by ASIC and Mr Shafron should be made.

Costs

ASIC's Cross Appeal

The matters not disposed of by this Court include ASIC's cross-appeals in relation to the costs orders made by the primary Judge. ASIC pursued its cross-appeal only in relation to the costs orders concerning Mr O'Brien and Mr Terry.

As between ASIC and each of the appellants, the primary Judge made no orders as to costs. He did so on the basis that the proceedings, so far as the appellants were concerned, essentially involved two sets of discrete issues (Penalty Judgement, at [443]). The first set related to the Draft ASX Announcement and the other announcements that followed approval of that Announcement at the Meeting. The second set of issues related to what his Honour described as "the Scheme of Arrangement". Since ASIC had succeeded on the first set of issues and the appellants on the second, and since the costs of each were basically equivalent, it was appropriate to make no order as to the costs of either set of issues.

ASIC does not contend that the primary Judge's reasoning was erroneous, except in relation to Mr O'Brien and Mr Terry. ASIC points out that neither Mr O'Brien nor Mr Terry was a defendant to ASIC's case relating to the Scheme of Arrangement. Therefore, unlike the other appellants, they did not succeed on the issues relating to the Scheme of Arrangement. ASIC submits that the primary Judge's discretion as to costs miscarried insofar as he declined to make a costs order against Mr O'Brien and Mr Terry, since they had not enjoyed success on the other major issue litigated at the trial.

Mr O'Brien makes several responses to ASIC's arguments on the cross-appeal:

the costs order sought in ASIC's written submissions in the cross-appeal differed from the order sought in the notice of cross-appeal;

ASIC did not ask the primary Judge to make the order it now seeks;

ASIC sought an order at the trial that the appellants jointly pay 90 per cent of ASIC's costs of the proceedings, but failed to obtain such an order for sound reasons, including the primary Judge's conclusion (at [439]) that in a multi-party, multi-issue case it was inappropriate to make an order against defendants jointly;

ASIC put an alternative submission at the trial that ASIC should be paid part of its costs apportioned to nine separate issues, but the primary Judge declined to take this approach; and

in any event, his Honour's discretion did not miscarry.

The differences between the orders sought by ASIC in its cross-appeal and in its written submissions do not constitute an obstacle to the success of the cross-appeal. However, ASIC's failure at the trial to seek a costs order of the kind it now seeks against Mr O'Brien and Mr Terry is a greater obstacle.

The primary Judge approached the question of costs as he did because ASIC's primary contention was that the appellants should be jointly liable for a proportion of ASIC's costs, including the costs relating to the Scheme of Arrangement issues. In effect, his Honour was invited to deal with costs as between the appellants and ASIC on the basis that the appellants were to be regarded as a group. On this basis, it was not material to his Honour's decision that Mr O'Brien and Mr Terry were not parties to ASIC's case based on the Scheme of Arrangement.

Had ASIC made to the primary Judge the submissions it now makes, his Honour is very likely to have specifically addressed the conduct of the litigation by Mr O'Brien and Mr Terry and the extent to which, if at all, they should be held responsible for the costs of the Draft ASX Announcement issues. Among other matters, his Honour may have wished to take into account his criticisms of the level of detail to which ASIC descended in its presentation of the case (Liability Judgment, at [1260]-[1266]). It is not practicable for this Court to resolve such issues at this stage of the litigation.

Having regard to the manner in which costs issues were argued, ASIC has not established that the primary Judge erred in declining to make a costs order against Mr O'Brien or Mr Terry.

The cross-appeal should be dismissed with costs.

Costs of the Liability Appeal

In the High Court appeal, ASIC sought an order that each appellant pay one eighth of ASIC's costs in the Court of Appeal in relation to the issue relating to approval of the Draft ASX Announcement. Heydon J considered (at [312]-[314]) that such an order should be made. However, the orders of the High Court reflected the view of the plurality that the costs of all proceedings in this Court should be in the discretion of the Court.

In its written submission to this Court, ASIC repeats its contention as to the costs of the Draft ASX Announcement issue, except that it recognises that each appellant should be liable for only one ninth of ASIC's costs incurred in relation to that issue. ASIC also seeks an order that each appellant pay interest on costs pursuant to s 101(1) and (4) of the Civil Procedure Act 2005.

Mr Brown, Ms Hellicar, Mr Koffel and Mr Gillfillan accept that each of them should be ordered to pay one ninth of the costs of the Draft ASX Announcement issue in this Court. Neither Mr Willcox nor Mr Terry appears to oppose such an order.

Mr O'Brien submits that if this Court reduces or sets aside the primary Judge's disqualification or pecuniary penalty orders against him, ASIC should pay Mr O'Brien's costs of the appeal. ASIC interprets this submission as intending to contend that if Mr O'Brien's penalties are reduced, ASIC should pay Mr O'Brien's costs of the appeal in this Court insofar as they related to the Draft ASX Announcement issue.

I doubt that ASIC's reading of Mr O'Brien's submissions is correct. However, if it is, I would reject the submission. It is sensible to treat the Draft ASX Announcement issue as severable, for costs purposes, from the issues of relief from liability and penalty. ASIC succeeded on the Draft ASX Announcement issue in the High Court and the usual consequences of that success should follow. The costs order sought by ASIC should therefore be made.

The appellants have not made any response to ASIC's claim for interest on costs. Since there are other costs issues to be resolved that may have a bearing on ASIC's claim to interest, this question should await further submissions.

Remaining Costs Issues

ASIC submits that the following costs issues should be deferred until this Court delivers judgment and an opportunity is provided for further submissions to be made by the parties:

the costs in this Court of the issues relating to exoneration and penalties; and

any other costs of the remitted appeals.

Having regard to the partial success of both ASIC and the appellants on the issues relating to penalties canvassed on the remitted appeals (other than the application by the US Directors to be relieved from liability) there seems something to be said for each party bearing its, his or her own costs in relation to those issues. However, I appreciate that the appellants other than the US Directors withdrew their applications to be relieved from their contraventions at a relatively late stage and that there may be other costs issues to be addressed. If the parties are unable to file agreed short minutes as to costs, further submissions will be required.

I encourage the parties to attempt to reach agreement on costs. If that is not possible, the appellants' submissions on the subject should avoid duplication.

Orders

I propose the following orders:

CA 2012/194824 (Mr Brown's Appeal)

1.Allow the appeal in part.

2.Set aside orders 1 and 2 made on 27 August 2009 against the appellant ("Mr Brown") in SC 1490 of 2007.

3. In lieu thereof, make the following orders:

(1) Pursuant to s 1317G of the Corporations Act 2001 (Cth), Mr Brown pay to the Commonwealth of Australia a pecuniary penalty of $25,000.

(2) Pursuant to s 206C of the Corporations Act 2001 (Cth), Mr Brown be disqualified from managing a corporation for the following periods:

(a) the period commencing on 24 September 2009 and concluding on 17 December 2010; and

(b) the period commencing on 3 May 2012 and concluding on 30 April 2013.

4.Mr Brown pay one ninth of the costs of the respondent ("ASIC") in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX Announcement.

CA 2012/194856 (Ms Hellicar's Appeal)

1.Allow the appeal in part.

2.Set aside orders 1 and 2 made on 27 August 2009 against the appellant ("Ms Hellicar") in SC 1490 of 2007.

3.In lieu thereof, make the following orders:

(1) Pursuant to s 1317G of the Corporations Act 2001 (Cth), Ms Hellicar pay to the Commonwealth of Australia a pecuniary penalty of $25,000.

(2) Pursuant to s 206C of the Corporations Act 2001 (Cth), Ms Hellicar be disqualified from managing a corporation for the following periods:

(a) the period commencing on 24 September 2009 and concluding on 17 December 2010; and

(b) the period commencing on 3 May 2012 and concluding on 30 April 2013.

4.Ms Hellicar pay one ninth of the costs of ASIC in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX Announcement.

CA 2012/194902 (Mr Terry's Appeal)

1.Allow the appeal in part.

2.Set aside orders 1 and 2 made on 27 August 2009 against the appellant ("Mr Terry") in SC 1490 of 2007.

3.In lieu thereof, make the following orders:

(1) Pursuant to s 1317G of the Corporations Act 2001 (Cth), Mr Terry pay to the Commonwealth of Australia a pecuniary penalty of $25,000.

(2) Pursuant to s 206C of the Corporations Act 2001 (Cth), Mr Terry be disqualified from managing a corporation for the following periods:

(a) the period commencing on 24 September 2009 and concluding on 17 December 2010; and

(b) the period commencing on 3 May 2012 and concluding on 30 April 2013.

4.Mr Terry pay one ninth of the costs of ASIC in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX Announcement.

5.ASIC's cross-appeal in relation to the disposition of the costs of the proceedings be dismissed, with costs.

CA 2012/194958 (Mr O'Brien's Appeal)

1.Allow the appeal in part.

2.Set aside orders 1 and 2 made on 27 August 2009 against the appellant ("Mr O'Brien") in SC 1490 of 2007.

3.In lieu thereof, make the following orders:

(1) Pursuant to s 1317G of the Corporations Act 2001 (Cth), Mr O'Brien pay to the Commonwealth of Australia a pecuniary penalty of $25,000.

(2) Pursuant to s 206C of the Corporations Act 2001 (Cth), Mr O'Brien be disqualified from managing a corporation for the following periods:

(a) the period commencing on 24 September 2009 and concluding on 17 December 2010; and

(b) the period commencing on 3 May 2012 and concluding on 30 April 2013.

4.Mr O'Brien pay one ninth of the costs of ASIC in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX Announcement.

5.ASIC's cross-appeal in relation to the disposition of the costs of the proceedings be dismissed, with costs.

CA 2012/195065 (Mr Willcox's Appeal)

1.Allow the appeal in part.

2.Set aside orders 1 and 2 made on 27 August 2009 against the appellant ("Mr Willcox") in SC 1490 of 2007.

3.In lieu thereof, make the following orders:

(1) Pursuant to s 1317G of the Corporations Act 2001 (Cth), Mr Willcox pay to the Commonwealth of Australia a pecuniary penalty of $25,000.

(2) Pursuant to s 206C of the Corporations Act 2001 (Cth), Mr Willcox be disqualified from managing a corporation for the following periods:

(a) the period commencing on 27 August 2009 and concluding on 17 December 2010; and

(b) the period commencing on 3 May 2012 and concluding on 31 March 2013.

4.Mr Willcox pay one ninth of the costs of ASIC in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX Announcement.

CA 2012/194766 (Mr Gillfillan's Appeal)

1.Allow the appeal in part.

2.Set aside orders 1 and 2 made on 27 August 2009 against the appellant ("Mr Gillfillan") in SC 1490 of 2007.

3.In lieu thereof, make the following orders:

(1) Pursuant to s 1317G of the Corporations Act 2001 (Cth), Mr Gillfillan pay to the Commonwealth of Australia a pecuniary penalty of $20,000.

(2) Pursuant to s 206C of the Corporations Act 2001 (Cth), Mr Gillfillan be disqualified from managing a corporation for the following periods:

(a) the period commencing on 24 September 2009 and concluding on 17 December 2010; and

(b) the period commencing on 3 May 2012 and concluding on 31 December 2012.

4.Mr Gillfillan pay one ninth of the costs of ASIC in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX Announcement.

CA 2012/195054 (Mr Koffel's Appeal)

1.Allow the appeal in part.

2.Set aside orders 1 and 2 made on 27 August 2009 against the appellant ("Mr Koffel") in SC 1490 of 2007.

3.In lieu thereof, make the following orders:

(1) Pursuant to s 1317G of the Corporations Act 2001 (Cth), Mr Koffel pay to the Commonwealth of Australia a pecuniary penalty of $20,000.

(2) Pursuant to s 206C of the Corporations Act 2001 (Cth), Mr Koffel be disqualified from managing a corporation for the following periods:

(a) the period commencing on 24 September 2009 and concluding on 17 December 2010; and

(b) the period commencing on 3 May 2012 and concluding on 31 December 2012.

4.Mr Koffel pay one ninth of the costs of ASIC in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX Announcement.

CA 2012/195077 (Mr Shafron's Appeal)

The following orders reflect the joint submissions made by the parties, with some editorial changes. Order 3 has been amended to correspond with the terms of the equivalent orders made in each of the other appeals.

1.Set aside the order made on 6 May 2011 in proceedings CA 2009/298416 that the Appellant ("Mr Shafron") pay to the Commonwealth of Australia a pecuniary penalty of $50,000 and, in lieu thereof, order that Mr Shafron pay to the Commonwealth of Australia a pecuniary penalty of $75,000.

2.Mr Shafron repay the respondent ("ASIC"):

(a) the sum of $25,000 representing the payment made to Mr Shafron by ASIC consequent upon orders made on 6 May 2011 in proceedings CA 2009/298416 (Reduced Penalty Amount); and

(b) $4,162.05 representing interest paid to Mr Shafron by ASIC on the Reduced Penalty Amount.

3.Mr Shafron pay one ninth of ASIC's costs of the proceedings in relation to the issue of approval of the Draft ASX Announcement in proceedings CA 2009/298408, 2009/298416, 2009/298425, 2009/298427, 2009/298428, 2009/298440 2009/298441, 2009/298442 and 2009/298524 in relation to the issue of approval of the Draft ASX.

4.Mr Shafron pay ASIC's costs of the appeal on penalty and costs in proceedings CA 2009/298416.

5.Each party to pay their own costs of proceedings CA 2012/195077.

6.The appeal be otherwise dismissed.

The Court notes the following:

7.Upon payment of the sums referred to in order 2 above, Mr Shafron's pecuniary penalty liability is discharged.

8.In relation to order 3, for the avoidance of doubt, ASIC's costs do not include those costs incurred in proceedings CA 2009/298426.

9.In relation to order 4, for the avoidance of doubt, ASIC's costs do not include those costs incurred in the appeal on penalty and costs in proceedings CA 2009/298408.

Directions

In all appeals, other than Mr Shafron's, directions need to be made for further submissions on costs. In addition, it might be necessary for the parties to draw attention to other orders that should be made. For example, ASIC will need to formulate any orders it seeks for the payment or repayment of interest by the appellants relating to the pecuniary penalty. In addition, it may be necessary to make orders finally disposing of ASIC's various cross appeals (which raised matters not confined to costs). The appellants may also wish to apply for certificates under the Suitors Fund Act 1951.

I propose the following directions in all appeals (other than Mr Shafron's):

1.The appellants file and serve brief written submissions in relation to remaining costs issues and any further orders that should be made, within 21 days.

2.ASIC file and serve its brief written submissions in response within a further 21 days.

**********

Decision last updated: 12 November 2012

Medium Neutral Citation:	Gillfillan & Ors v Australian Securities & Investments Commission [2012] NSWCA 370
Hearing dates:	20, 21, 22 August 2012
Decision date:	12 November 2012
Before:	Beazley JA at [1] Barrett JA at [3] Sackville AJA at [18]
Decision:	See orders at [363] - [365] [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	CORPORATIONS - contraventions of s 180(1) of the Corporations Act by seven non-executive directors of a listed corporation - contraventions relate to approval at a Board meeting of an Announcement by the corporation - declarations of contravention not in dispute following an appeal to the High Court - primary Judge disqualified each director for five years and imposed a pecuniary penalty of $30,000 - whether penalties involved error - whether primary Judge correctly applied the parity principle - assessment of penalties - factors to take into account - significance of "de facto" period of disqualification pending High Court appeal - significance of absence of finding of dishonesty - materiality of testimonial evidence. CORPORATIONS - two non-executive directors attend meeting by telephone from the United States - they neither see the Draft Announcement nor ask to see it - whether the US Directors should be relieved from liability under ss 1317S(2) or 1318(1) of the Corporations Act - whether circumstances justify different penalties being imposed on the US Directors. CORPORATIONS - agreed penalties - whether court should accept joint submissions concerning penalties to be imposed on an officer of the corporation.
Legislation Cited:	Civil Procedure Act 2005 Criminal Appeal Act 1912 Supreme Court Act 1970 Suitors' Fund Act 1951 Acts Interpretation Act 1901 (Cth) Corporations Act 2001 (Cth) Corporations Law (Cth)
Cases Cited:	Australian Coal and Shale Employees' Federation v Commonwealth [1953] HCA 25; 94 CLR 621 Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; 238 ALR 595 Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1020; 55 ACSR 411 Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; 85 ACSR 654 Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 286 ALR 501 Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; 256 ALR 199 Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714; 259 ALR 116 Australian Securities and Investments Commission v Vizard [2005] FCA 1037; 145 FCR 57 Australian Securities and Investments Commission v Whitlam (No 2) [2002] NSWSC; 42 ACSR 515 Commonwealth v McCormack [1984] HCA 57; 155 CLR 273 Elliott v Australian Securities and Investments Commission [2004] VSCA 54; 10 VR 369 Forrest v Australian Securities and Investments Commission [2012] HCA 39 Gill v The Queen [2010] NSWCCA 236 Green v The Queen [2011] HCA 49; 244 CLR 462 Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 House v The King [1936] HCA 40; 55 CLR 499 Lovell v Lovell [1950] HCA 52; 81 CLR 513 Lowe v The Queen [1984] HCA 46; 154 CLR 606 Mill v The Queen [1988] HCA 70; 166 CLR 59 Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; [2004] ATPR 41-993 Morley v Australian Securities and Investments Commission [2010] NSWCA 331; 81 ACSR 285 Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; 83 ACSR 620 NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 O'Brien v Australian Securities and Investments Commission [2009] NSWCA 312; 74 ACSR 324 Pearce v The Queen [1998] HCA 57; 194 CLR 610 Postiglione v The Queen [1997] HCA 26; 189 CLR 295 R v Kollas and Mitchell [2002] NSWCCA 491 Re HIH Insurance Ltd (In prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; 42 ACSR 80 Re GIGA Investments Pty Ltd (1995) 17 ACSR 472 Re One.Tel Ltd (in liq); Australian Securities and Investments Commission v Rich [2003] NSWSC 186; 44 ACSR 682 Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129 Shafron v Australian Securities and Investments Commission [2012] HCA 18; 286 ALR 612 Vines v Australian Securities and Investments Commission [2007] NSWCA 126; 63 ACSR 505 Warren v Coombes [1979] HCA 9; 142 CLR 531
Category:	Principal judgment
Parties:	CA 2012/194766 Michael John Gillfillan (Appellant) Australian Securities and Investments Commission (Respondent) CA 2012/194824 Michael Robert Brown (Appellant) Australian Securities and Investments Commission (Respondent) CA 2012/194856 Meredith Hellicar (Appellant) Australian Securities and Investments Commission (Respondent) CA 2012/194902 Gregory James Terry (Appellant) Australian Securities and Investments Commission (Respondent) CA 2012/194958 Geoffrey Frederick O'Brien (Appellant) Australian Securities and Investments Commission (Respondent) CA 2012/195054 Martin Koffel (Appellant) Australian Securities and Investments Commission (Respondent) CA 2012/195065 Peter Willcox (Appellant) Australian Securities and Investments Commission (Respondent) CA 2012/195077 Peter James Shafron (Appellant) Australian Securities and Investments Commission (Respondent)
Representation:	Counsel: J T Gleeson SC and R Hardcastle (Mr Brown and Ms Hellicar) D M J Bennett QC and R Hollo SC (Mr Gillfillan and Mr Koffel) R G McHugh SC, S M Nixon and S A C Patterson (Mr Terry) P M Wood and M S Henry (Mr O'Brien) T Jucovic QC and R Scruby (Mr Willcox) A Bannon SC and S Pritchard SC (Australian Securities and Investments Commission) Solicitors: Atanaskovic Hartnell (Mr Gillfillan, Mr Brown, Ms Hellicar and Mr Koffel) Arnold Bloch Leibler (Mr O'Brien) Ashurst (Mr Terry) Kemp Strang (Mr Willcox) Middletons Lawyers (Mr Shafron) Clayton Utz (Australian Securities and Investments Commission)
File Number(s):
Decision under appeal	Citation: Australian Securities and Investments Commission v Peter Donald Macdonald and Others Date of Decision: 2009-08-27 00:00:00 Before: Gzell J File Number(s): SC 1490 of 2007