CITATION: Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 19, 20, 21, 22, 23, 27, 28, 29, 30 April 2010

JUDGMENT DATE:
17 December 2010

JUDGMENT OF: Spigelman CJ; Beazley JA; Giles JA

DECISION:
1. In each of 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524: (a) Appeal allowed; (b) Set aside the declaration and orders made against the appellant on 27 August 2009; (c) Order that the proceedings against the appellant be dismissed with costs. (d) Cross-appeal dismissed. (e) Order that ASIC pay the appellant’s costs of the appeal and cross-appeal.
...
2. In 2009/298408: (a) Appeal against the declaration made on 27 August 2009 dismissed; (b) Cross-appeal dismissed; (c) Stand over the appeal and cross-appeal to 9.30 am on 4 February 2011 before Giles JA for directions for their further conduct.
...
3. In 2009/298416: (a) Appeal allowed in part; (b) Set aside declarations 1 and 2 made on 27 August 2009; (c) Appeal against declaration 3 made on 27 August 2009 dismissed; (d) Cross-appeal allowed in part; (e) Declare that the appellant contravened s 180(1) in relation to JHIL by his conduct, as an officer of that corporation, on or about 15 February 2001 in failing to advise its board of directors that the best estimate contained in a schedule attached to an e-mail dated 9 February 2001 and in a report dated 13 February 2001 being estimates by Trowbridge Deloitte Ltd of JHIL’s liabilities for exposure to asbestos products for up to 50 years and for 20 years respectively had not taken into account superimposed inflation, and a prudent estimate would have; (f) Liberty to apply within 14 days in relation to the terms of the declaration in (e); (g) Cross-appeal otherwise dismissed; (h) Stand over the appeal and cross-appeal to 9.30 am on 4 February 2011 before Giles JA for directions for their further conduct.
***
[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 – misleading announcement sent to ASX – whether pleaded version of draft announcement taken to board meeting – whether resolution to approve draft announcement and authorise for sending to ASX passed at board meeting – detailed consideration of factual circumstances before, during and after board meeting – consideration of constraints in appellate review – discussion of advantages of trial judges – discussion of advantages in appellate courts – consideration of s 140 of Evidence Act and Briginshaw v Briginshaw – failure to call witnesses who were at board meeting – whether ASIC under obligation akin to prosecutorial duty – whether appropriate to reason by analogy from criminal procedure to civil penalty proceedings – discussion of civil penalty regime – not appropriate to reason by analogy – no prosecutorial duty – whether ASIC’s obligation to act fairly required witnesses to be called – discussion of obligation of fairness owed by government agencies – consideration of principles of fair trial – consideration of government agencies as model litigants – consideration of ASIC’s role as regulator – consideration of ASIC's powers under ASIC Act and Corporations Act – failure to call witnesses may constitute breach of obligation of fairness – consideration of evidentiary principles enunciated in Blatch v Archer, Jones v Dunkel and Whitlam v ASIC – failure to call witnesses taken into account in deciding whether onus of proof satisfied – breach of obligation of fairness taken into account in deciding whether onus of proof satisfied – obligation of fairness breached – burden of proof not discharged – not proved that resolution passed. CORPORATIONS – directors’ statutory duty of care and diligence under s 180 of Corporations Law – assuming resolution passed, whether non-executive directors contravened duty in voting for resolution – discussion of duty of care and diligence of non-executive directors – non-executive directors may rely on management and officers to a greater extent than executive directors – duty dependent on facts of each case – consideration of factual circumstances surrounding resolution – if resolution passed, contravention properly found. CORPORATIONS – definition of officer in s 9 of Corporations Law – consideration of company secretary as officer when also general counsel – whether participation in matters that affected the whole or a substantial part of the business – participation need not be as one of those in ultimate control – test is one of participation in making of decision – participation more than administrative arrangement – must be real contribution to making of decision – participation made out – whether statutory duty extends to any matter which falls within the scope of responsibilities as company secretary – duty extends to responsibilities actually carried out by company secretary – relevant acts and omissions were within responsibilities as company secretary. CORPORATIONS – statutory duty of care and diligence of company secretary – assuming resolution passed, whether duty of care breached in failing to advise draft announcement was misleading – would be breach – whether duty breached in failing to warn of limitations in cash flow models – no breach because knowledge of limitations not proved – whether duty breached in failing to advise or obtain advice for board or CEO concerning disclosure of Deed of Covenant and Indemnity – whether company secretary could rely on absence of warning by external advisers – reliance not available – breach properly found – whether breach of duty in failing to advise nature of “best estimate” – on facts, no breach – whether breach in failing to advise of failure to take into account superimposed inflation – breach properly found. CORPORATIONS – definition of officer in s 9 of Corporations Law – whether chief financial officer participated in decisions that affected the whole or substantial part of company's business – not confined to acts and omissions alleged to have been in breach of statutory duty as officer – first consider whether person is an officer – then consider whether breach of duty – participation made out – whether chief financial officer had capacity to affect company’s financial standing – test focuses on the particular officer, not an abstract officer – capacity made out. CORPORATIONS – statutory duty of due care and diligence of chief financial officer – whether duty breached in failing to warn of limitations in cash flow analysis –breach properly found – whether duty breached in failing to advise nature of “best estimate” and failing to take into account superimposed inflation – on facts, no breach. EVIDENCE – admissibility – admissibility of prior inconsistent statement for non-hearsay purpose – consideration of R v Adam and Adam v The Queen – no inconsistency identified – admissibility as admissions of documents stating resolution had been passed – consideration of Lustre Hosiery Limited v York – whether circumstances were such as to make it unlikely that erroneous statements would be allowed to pass unchallenged – no error shown in ruling not admissible.

CATEGORY: Principal judgment

CASES CITED: Adam v The Queen [2001] HCA 57; (2001) 207 CLR 96;
Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 504;
Adler v Director of Public Prosecutions (C'th) [2004] NSWCCA 352; (2004) 185 FLR 422;
Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253;
Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963;
Australian Securities and Investments Commission v Lindberg (No 2) [2010] VSCA 19;
Australian Securities and Investments Commission v Macdonald (No 3) [2008] NSWSC 1099;
Australian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169;
Australian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175;
Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) ACSR 341;
Australian Securities and Investments Commission v Rich [2009] NSWSC 312;
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; [2009] 236 FLR 1; (2009) 75 ACSR 1;
Australian Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282;
Barnett, Hoares & Co v South London Tramways Co (1887) 18 QBD 815;
re Belhaven and Stenton Peerage (1875) 1 App Cas 278;
Berkey v Third Avenue Railway Company 244 NY 84 (1926);
Blatch v Archer (1774) 1 Cowp 63; 98 ER 969;
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424;
Briginshaw v Briginshaw (1938) 60 CLR 336;
Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45;
Chamberlain v The Queen (No 2) (1984) 153 CLR 521;
Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA
49; (2003) 216 CLR 161;
Commissioner for Corporate Affairs v Bracht (1989) VR 821;
Commissioner for Revenue (ACT) v Slaven (2009) FCA 744;
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 160 FCR 466;
Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62;
CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 224 ALR 1;
CSR Ltd v Wren (1997) 44 NSWLR 463;
Daniels v Anderson (1995) 37 NSWLR 438;
Deputy Commissioner of Taxation v Clark (2005) 45 ACSR 332;
Dietrich v The Queen (1992) 177 CLR 292;
Re Doherty (Secretary of State for Northern Ireland Intervening) [2008] UKHL 33; (2008) 1 WLR 1499;
Dr Andrew Roberts-Szudzinski Pty Ltd v .au Domain Administration Ltd [2006] NSWSC 950;
Dwyer v Lippiatt (2004) 50 ACSR 333; [2004] QSC 281;
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118;
G v H (1994) 181 CLR 387;
Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504;
Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72;
Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572;
House v The King (1936) 55 CLR 499;
Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151;
Jago v District Court (NSW) (1989) 168 CLR 23;
James Hardie & Co Pty Ltd v Putt (1998) 43 NSWLR 554;
James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332;
Jones v Dunkel (1959) 101 CLR 298;
Kenny v State of South Australia (1987) 46 SASR 268;
Kuru v State of New South Wales [2008] HCA 26; (2008) 236 CLR 1;
Lee v The Queen (1998) 195 CLR 594;
Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537;
Lustre Hosiery Limited v York (1935) 55 CLR 134;
Mahenthirarasa v State Rail Authority (NSW) (No 2) [2008] NSWCA 2001; (2008) 72 NSWLR 273;
Manly Council v Byrne [2004] NSWCA 123;
Melbourne Streamship Co Limited v Moorehead (1912) 15 CLR 333;
Milwell Pty Ltd v Olympic Amusements Pty Ltd [1999] FCA 63; (1999) 85 FLR 436;
Minlabs Pty Ltd v Assaycorp Pty Ltd [2001] WASC 88; (2001) ACSR 509;
Morrison v Jenkins (1949) 80 CLR 626;
National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ASCR 369;
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; (1992) 67 ALJR 170;
Nicholas v The Queen (1998) 193 CLR 173;
O’Brien v Australian Securities and Investments Commission [2009] NSWCA 312;
P & C Cantarella v The Egg Marketing Board of New South Wales (1973) 2 NSWLR 366;
Payne v Parker (1976) 1 NSWLR 191;
Qantas Airways Ltd v Gama [2008] 1 FCAFC 69;
The Queen v Apostolides (1984) 154 CLR 563; (2008) 167 FCR 537;
R v Adam [1999] NSWCCA 197; (1999) 47 NSWLR 267;
R v Jenkins; Ex parte Morrison (1949) VLR 277;
Rejfek v McElroy (1965) 112 CLR 521;
Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129;
Ridgeway v The Queen (1995) 184 CLR 19;
SCI Operations v The Commonwealth (1996) 69 FCR 346;
Scott v Handley [1999] FCA 404; (1999) 58 ALD 373;
Seiwa Australia Pty Ltd v Beard [2009] NSWCA 240;
Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262;
Shalhoub v Buchanan [2004] NSWSC 99;
Shepherd v The Queen (1990) 170 CLR 575;
Tim Barr Pty Ltd v Nauri Gold Coast Pty Ltd [2008] NSWSC 657;
Transport Industries Insurance Co Ltd v Longmuir (1997) 1 VR 125;
Trevitt v NSW TAFE Commission [2001] NSWCA 363;
Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451;
Visy Industries Holdings Pty Ltd v Australian Competition and Consumer Commission [2007] FCAFC 147; (2007) 161 FLR 122;
Walton v Gardiner (1993) 177 CLR 378;
Warren v Coombes (1979) 142 CLR 531; (1979) 23 ALR 405;
West v Government Insurance Office of NSW (1981) 148 CLR 62;
Whitehorn v The Queen (1983) 152 CLR 657;
Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559;
Williams v Spautz (1992) 174 CLR 509;
Yarrabee Coal Company Ltd v Lujans [2009] NSWCA 85; (2009) 53 MVR 187.

PARTIES:
MATTER NO. 2009/00298408:
Phillip Graham Morley - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298416:
Peter James Shafron - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298425:
Gregory James Terry - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298427:
Meredith Hellicar - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298428:
Michael Robert Brown - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298440:
Michael John Gillfillan - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298441:
Martin Koffel - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298442:
Geoffrey Frederick O’Brien - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant
MATTER NO. 2009/00298524:
Peter John Willcox - Appellant/Cross-respondent
Australian Securities and Investments Commission - Respondent/Cross-appellant

FILE NUMBER(S): CA 2009/00298408; 2009/00298416; 2009/00298425; 2009/00298427; 2009/00298428; 2009/00298440; 2009/00298441; 2009/00298442; 2009/00298524

COUNSEL: B C Oslington QC, R A Dick SC & N M Bender - Morley
B W Walker SC, R Lancaster SC, N J Owen - Shafron
R G McHugh SC & S M Nixon - Terry
T F Bathurst QC, R S Hollo, R Hardcastle - Hellicar, Brown, Gillfillan, Koffel
P M Wood & M S Henry - O'Brien
T Jucovic QC & R Scruby - Willcox
A J L Bannon SC, R T Beech-Jones SC, S E Pritchard, J Single - Australian Securities and Investments Commission

SOLICITORS: Henry Davis York - Morley
Middletons - Shafron
Blake Dawson - Terry
Atanaskovic Hartnell - Hellicar, Brown, Gillfillan, Koffel
Arnold Bloch Leibler - O'Brien
Kemp Strang - Willcox
Clayton Utz - Australian Securities and Investments Commission

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 1490/07

LOWER COURT JUDICIAL OFFICER: Gzell J

LOWER COURT DATE OF DECISION: 23 April 2009 (Liability); 20 August 2009 (Penalty)

LOWER COURT MEDIUM NEUTRAL CITATION: Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287
Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714

CA 2009/00298408
CA 2009/00298416
CA 2009/00298425
CA 2009/00298427
CA 2009/00298428
CA 2009/00298440
CA 2009/00298441
CA 2009/00298442
CA 2009/00298524

ED 1490/07

SPIGELMAN CJ
BEAZLEY JA
GILES JA
Friday 17 December 2010

MORLEY v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

SHAFRON v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

TERRY v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

HELLICAR v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

BROWN v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

GILLFILLAN v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

KOFFEL v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

O’BRIEN v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

WILLCOX v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Judgment

THE COURT:

1 These reasons are arranged as follows -

Section	Subject	Paragraphs
1	OVERVIEW AND CONCLUSIONS	2
2	SOME STATUTORY PROVISIONS	27
2.1	Exercise of care and diligence by officers	28
2.2	Civil penalty proceedings	37
2.3	Relief from liability	45
3	LEADING UP TO THE FEBRUARY MEETING	49
3.1	Separation of asbestos liability	52
3.2	The net assets model	71
3.3	Rejection of the net assets model	91
3.4	The proposal for the February meeting	100
3.5	Trowbridge’s estimates and JHIL’s cash flow modelling	124
3.6	The slides	168
3.7	The versions of the draft news release	179
4	WAS THE DRAFT ASX ANNOUNCEMENT APPROVED?	219
4.1	General	219
4.2	ASIC’s allegation	227
4.3	The judge’s findings	232
4.3.1	The tabling finding	241
4.3.2	The approval finding	246
4.4	Appellate constraints	251
4.5	Review of submissions on the evidence	272
4.5.1	Introduction	272
4.5.2	Our approach to the review	280
4.5.3	A necessary part of establishing the Foundation	287
4.5.4	In accordance with JHIL’s practice	302
4.5.5	Taking a draft news release to the meeting	359
4.5.6	Correlation	385
4.5.7	The purpose of consideration	425
4.5.8	Absence of protest	433
4.5.8(i)	The Final ASX Announcement	436
4.5.8(ii)	The 23 February 2001 ASX Announcement	446
4.5.8(iii)	The 21 March 2001 ASX Announcement	455
4.5.9	The minutes of the February meeting	463
4.5.10	Later acceptance	498
4.5.10(i)	The teleconference	501
4.5.10(i)(a)	The 15 and 17 February 2001 e-mails	507
4.5.10(i)(b)	The 10 February 2001 e-mail and responses	521
4.5.10(i)(c)	The 20 February 2001 e-mail	529
4.5.10(ii)	Submissions to the Jackson inquiry	532
4.5.10(iii)	Declarations of interest in 2004 and 2005	542
4.5.10(iv)	The JHINV explanatory memorandum	618
4.6	Calling witnesses	626
4.6.1	The circumstances of Messrs Robb, Wilson and Sweetman	645
4.6.2	Prosecutorial duty	678
4.6.3	Obligation to act fairly	701
4.7	Credit findings	778
4.8	Decision	789
5	CONTRAVENTION BY MR BROWN, MS HELLICAR, MR O’BRIEN, MR TERRY AND MR WILLCOX	797
5.1	The pleaded contraventions	797
5.2	The contraventions found	803
5.3	Consideration of contravention	804
5.4	The defensive cross-appeal	832
6	CONTRAVENTION BY MR GILLFILLAN AND MR KOFFEL	838
6.1	The pleaded contraventions	838
6.2	The contraventions found	839
6.3	Consideration of contravention	858
6.4	The defensive cross-appeals	869
7	CONTRAVENTION BY MR SHAFRON	871
7.1	The pleaded contraventions	871
7.2	The contraventions found	879
7.3	Mr Shafron as an officer	880
7.3.1	Participation in decisions	885
7.3.2	Company secretary	899
7.4	Consideration of contravention	930
7.4.1	The draft ASX announcement	931
7.4.2	The cash flow analysis	949
7.4.3	DOCI disclosure	971
7.5	The cross-appeal	1037
8	CONTRAVENTION BY MR MORLEY	1075
8.1	The pleaded contravention	1075
8.2	The contravention found	1078
8.3	Mr Morley as an officer	1079
8.3.1	Participation in decisions	1083
8.3.2	Capacity to affect JHIL’s financial standing	1087
8.4	Consideration of contravention	1091
8.5	The cross-appeal	1123
9	WHERE TO FROM HERE?	1144
10	THE COSTS APPEAL AND CROSS-APPEAL	1150
10.1	Mr Morley’s appeal	1153
10.2	ASIC’s cross-appeal	1155
11	ORDERS	1156

1. OVERVIEW AND CONCLUSIONS

2 In 2001 the appellants Mr Michael Brown, Mr Michael Gillfillan, Ms Meredith Hellicar, Mr Martin Koffel, Mr Geoffrey O’Brien, Mr Gregory Terry and Mr Peter Willcox were non-executive directors of James Hardie Industries Ltd (“JHIL”) (later named ABN 60 Pty Ltd). The appellant Mr Peter Shafron was a joint secretary and general counsel of JHIL. The appellant Mr Phillip Morley was its chief financial officer. The managing director and chief executive officer of JHIL was Mr Peter Macdonald.

3 The respondent Australian Securities and Investments Commission (“ASIC”) is the corporate regulator established under the Australian Securities and Investments Commission Act 2001 (C’th) (“the ASIC Act”).

4 The functions and powers conferred on ASIC include the general administration of the Corporations Act 2001 (C’th) (“the Act”). Within the Act, it may apply for a declaration that a person has contravened a civil penalty provision of the Act (s 1317E) and an order for payment of a pecuniary penalty (ss 1317G, 1317J(1)), and for an order disqualifying a person from managing corporations for a period (ss 206C, 206E).

5 On 14 February 2007 ASIC brought proceedings against the appellants, Mr Macdonald, JHIL and JHIL’s later holding company James Hardie Investments NV (“JHINV”). As against the appellants and Mr Macdonald, it alleged that as directors or officers of JHIL they had contravened s 180(1) of the Corporations Law (“the Law”) as carried into the Act (s 1401) or s 180(1) of the Act. These were provisions concerning the exercise of care and diligence by a director or other officer of a corporation, and were civil penalty provisions under the Act. ASIC claimed declarations of contravention, pecuniary penalties and disqualification orders.

6 The proceedings were heard by Gzell J over the period September 2008-March 2009. On 23 April 2009 his Honour gave judgment on contravention: Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199. After a further hearing on 20 August 2009, his Honour gave judgment on relief from liability for contravention and on pecuniary penalties and disqualification orders: Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714; (2009) 259 ALR 116. On appeal the judgments were called the liability judgment and the penalty judgment respectively. Their paragraphs were identified in the manner LJ [200] and PJ [200]. We will adopt these practices.

7 The proceedings went to trial on a Fourth Further Amended Statement of Claim dated 1 October 2008 (“the FFASC”). Many contraventions were alleged.

8 Not all contraventions were found. Contraventions were found against the appellants in relation to approval of a draft announcement to the Australian Stock Exchange (“the ASX”) and entry into a Deed of Covenant and Indemnity (“the DOCI”), in both cases said to have been decided at a meeting of JHIL’s board on 15 February 2001 (“the February meeting”). Other contraventions were alleged against some of the appellants in relation to approval of the draft announcement or entry into the DOCI, but were not found.

9 Subject to later more detailed explanation, we briefly describe the background and the contraventions found.

10 JHIL was the holding company in the James Hardie group. Until 1937 it had manufactured and sold asbestos products. Thereafter and until 1987 two of its wholly owned subsidiaries, James Hardie & Coy Limited (“Coy”) and Jsekarb Pty Ltd (“Jsekarb”), later named Amaca Pty Ltd and Amaba Pty Ltd respectively, had manufactured and sold asbestos products.

11 As at February 2001 the three companies, but principally Coy and Jsekarb, had been and would in the future be subject to many claims for compensation arising from exposure to asbestos (“asbestos claims”), and to associated litigation costs.

12 Coy and Jsekarb were no longer operating entities. For some time JHIL had been looking to separate the liability to asbestos claims from the group’s operating businesses.

13 At the February meeting it was decided to create a trust, the Medical Research and Compensation Foundation (“the Foundation”), and to vest in the Foundation JHIL’s shares in Coy and Jsekarb and a capital sum of $3 million. It was decided also to enter into the DOCI. Under the DOCI JHIL covenanted to pay substantial annual sums to Coy and Jsekarb over a period, in return for covenants by Coy and Jsekarb not to sue JHIL in relation to their manufacture and sale of asbestos products, for an indemnity from claims against JHIL by asbestos claimants, and for a put option for Coy to acquire from a (future) sole shareholder in JHIL the shares in JHIL. The Foundation was to manage and pay out asbestos claims against Coy and Jsekarb, and to use the $3 million for research into asbestos-related diseases.

14 ASIC alleged, but the appellants disputed, that the non-executive director appellants voted at the February meeting in favour of a resolution to approve a draft announcement of the establishment of the Foundation. We will later set out the allegation in its terms, which were specific. This was a substantial factual issue at trial and on appeal, which our reasons address in some detail. It was not in dispute that it was decided to enter into the DOCI.

15 On 16 February 2001 an announcement of the establishment of the Foundation was sent to the ASX, although its terms differed to an extent from those of the draft announcement which ASIC alleged had been approved. The trust deed and the DOCI were executed. The shares and the $3 milliobn were vested in the Foundation. The DOCI was not disclosed to the ASX for some months.

16 ASIC alleged that the draft announcement approved at the February meeting misleadingly conveyed that the Foundation was fully funded to meet all present and future asbestos claims (“full funding”). It alleged that, under the continuous disclosure objections in s 1001A of the Law, the DOCI should immediately have been disclosed to the ASX.

17 The judge found that the appellants had contravened s 180(1) of the Law in that, in summary –

as to each of Mr Brown, Ms Hellicar, Mr O’Brien, Mr Terry and Mr Willcox, they had voted in favour of a resolution approving the draft announcement for sending to the ASX knowing that it conveyed or was capable of conveying full funding, when they ought to have known that it was misleading in that respect;

as to each of Mr Gillfillan and Mr Koffel, who participated in the February meeting by telephone from the United States, they had failed to take steps to request that they be provided with a copy of the draft announcement, to familiarise themselves with its terms, or to abstain from voting in favour of the approval resolution;

as to Mr Shafron, he had failed to advise the board that the draft announcement was expressed in too emphatic terms as to the adequacy of the Foundation’s funding; had failed to advise the board of the limited nature of the reviews of the cash flow analysis by Pricewaterhouse Coopers (“PwC”) and Access Economics Pty Ltd (“Access Economics”); and had failed to advise Mr Macdonald or the board in relation to the need for disclosure of the DOCI to the ASX; and

as to Mr Morley, he had failed to advise the board of the limited nature of reviews by PwC and Access Economics of a cash flow analysis which was part of the board’s consideration of the adequacy of the Foundation’s funding.

18 We set out the precise contraventions found later in these reasons. The contraventions were concerned with disclosure to the market, in particular by the approval of a misleading draft announcement. A contravention alleged against Mr Morley raised more directly that JHIL had not in fact provided full funding for asbestos liabilities, but the contravention was not found and there was no cross-appeal by ASIC. The issues in this Court did not include inadequacy of the Foundation’s funding as a contravention.

19 In the penalty judgment the judge first addressed whether, under ss 1317S and 1318 of the Act, the appellants should be relieved from liability because of the contraventions. He was not satisfied either that the appellants had acted honestly or that they ought fairly to be excused. Nor was he satisfied that the discretion to relieve from liability should be exercised.

20 The judge ordered each of the appellants to pay a pecuniary penalty. The appellants other than Messrs Shafron and Morley were ordered to pay $30,000. Mr Shafron was ordered to pay $75,000. Mr Morley was ordered to pay $35,000. The judge ordered that each of the appellants be disqualified from managing a corporation. The appellants other than Mr Shafron were disqualified for 5 years. Mr Shafron was disqualified for 7 years.

21 The appellants comprehensively appealed against the findings of contravention, the refusals to relieve from liability, the pecuniary penalties and the disqualification orders. Mr Morley also appealed against a costs order made by the judge.

22 Apart from resisting the appeals, ASIC supported the findings of contravention on notice on contention grounds including grounds challenging certain evidentiary rulings in the course of the trial.

23 ASIC cross-appealed that the judge should have found certain other contraventions by the appellants, all in relation to the February meeting. As against the appellants other than Messrs Shafron and Morley, the cross-appeals were defensive, as fall-back positions if those appellants’ appeals were successful and depending on the basis for the success. The cross-appeals as against Mr Shafron and Mr Morley sought to add to their contraventions.

24 In general terms, the cross-appeals –

relied on what appellants ought to have known rather than what they knew about the misleading nature of the draft announcement;

relied also on failure to inquire into or make known the limited nature of the PwC and Access Economics reviews or inquire into or make known the unsuitability of two actuarial estimates by Trowbridge Deloitte Ltd (“Trowbridge”), in the proceedings identified as the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate, as a basis for establishing the Foundation or making the statements in the draft announcement as to its funding; and

as against Messrs Gillfillan and Koffel, relied also on voting in favour of approval of the draft announcement.

25 As against Messrs O’Brien and Terry, ASIC also cross-appealed against a costs order made by the judge.

26 For the reasons which follow, in our opinion -

(a) the appeals against the findings of contravention by the appellants other than Messrs Shafron and Morley succeed, and the defensive cross-appeals as against them do not arise;

(b) the appeal by Mr Shafron against the finding of contraventions and the cross-appeal as against him each succeed in part, leaving Mr Shafron with contraventions in two respects concerning failure to advise the board;

(d) Relief of Mr Shafron and Mr Morley from liability, and pecuniary penalties and disqualification, should be determined after an opportunity for further submissions; and

(e) Mr Morley’s costs appeal should await final resolution of his position, and ASIC’s costs cross-appeal falls away.

2. SOME STATUTORY PROVISIONS

27 We set out some key statutory provisions. They will be supplemented as appropriate.

2.1 Exercise of care and diligence by officers

28 Section 180(1) of the Law provided -

“180(1) 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 of officer of a corporation in the corporation’s circumstances; and

29 Section 180(2) and (3) made particular provision for a director or other officer of a corporation who made a “business judgment”. It was not suggested that this was material to any contraventions by the appellants.

30 It was not disputed that the non-executive directors were directors of JHIL for the purposes of s 180(1). Whether Mr Shafron was an officer of JHIL in what he did or failed to do in relation to the February meeting, and whether Mr Morley was an officer of JHIL, were in dispute.

31 The judge considered the legal principles with respect to the duty of care and diligence under s 180(1) at LJ [236]-[257]. We do not understand any party significantly to contest the principles there set out. The application of the principles was in lively dispute.

32 Particular attention was given in submissions to the position of a non-executive director.

33 In Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451 at [109] Spigelman CJ took up the conclusion of Austin J at first instance (Australian Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282 at [38]), in relation to the preceding ss 229(2) and 232(4) of the Companies (New South Wales) Code, that they -

“ … encompass an objective standard measured by reference to what a reasonable man of ordinary prudence would do, enhanced where the directorial appointment is based on special skill by an objective standard of skill referable to the circumstances.”

34 In summary, the non-executive directors submitted that their circumstances included that, as non-executive directors, they were entitled to rely on competent management and advisers and other directors unless there was cause for suspicion or further enquiry. They cited Daniels v Anderson (1995) 37 NSWLR 438 at 502-3; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [372]; Vines v Australian Securities and Investments Commission at [109]-[110], [730]-[731], [743] and [863]-[866]; and Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1; (2009) 75 ACSR 1 at [7213].

35 Also in summary, ASIC responded that whatever the reliance on others, there was a “core, irreducible requirement of diligence” (Deputy Commissioner of Taxation v Clark (2005) 45 ACSR 332 at [109]), and that the circumstances of the non-executive directors included that they brought to the discharge of their duties the extensive individual skills and qualifications described by the judge at LJ [304]-[311]. It said that even as non-executive directors, in the circumstances due care and diligence was not exercised.

36 The non-executive directors and ASIC both proffered many other matters said to be material to the application of the statutory duty. We will return to the positions of the non-executive directors when we come to breach of s 180(1).

2.2 Civil penalty proceedings

37 Section 1317E of the Act relevantly provides -

(a) subsections 180(1) …

(a) the Court that made the declaration;

(b) the civil penalty provision that was contravened;

(c) the person who contravened the provision;

(d) the conduct that constituted the contravention;

38 The definitions in s 9 of the Act include that “civil penalty provision” has the meaning given in subsection 1317E(1)”. By the definitions of s 1317DA, “corporation/scheme civil penalty provision” includes s 180(1).

39 A declaration of contravention is the foundation for ordering payment of a pecuniary penalty. Section 1317G relevantly provides -

“1317G (1) A Court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if:

(a) a declaration of contravention by the person has been made under section 1317E; and

(aa) the contravention is of a corporation/scheme civil penalty provision; and

(i) materially prejudices the interests of the corporation or scheme, or its members; or

(iii) is serious.”

…

“(2) The penalty is a civil debt payable to ASIC on the Commonwealth’s behalf. ASIC or the Commonwealth may enforce the order as if it were an order made in civil proceedings against the person to recover a debt due by the person. The debt arising from the order is taken to be a judgment debt.”

40 Section 1317L provides -

“1317L The Court must apply the rules of evidence and procedures for civil matters when hearing proceedings for:

(a) a declaration of contravention; or

41 The nature of civil penalty proceedings, including whether they attract to ASIC a duty akin to that of a prosecutor in criminal proceedings or an obligation of fairness in relation to calling evidence, is considered later in these reasons: see [626]-[777] below.

42 A declaration of contravention is also the foundation for a disqualification order under s 206C of the Act, but it is not necessary for a disqualification order under s 206E. Section 206E is available if a person has at least twice contravened the Act: they need not be contraventions of a civil penalty provision.

43 Section 206C provides -

“206C(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 section 1317E (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision; and

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

44 Section 206E relevantly provides -

(a) the person:

…

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

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

2.3 Relief from liability

45 A power to relieve from liability is conferred by ss 1317S and 1318 of the Act. For s 1318, the contravention need not be of a civil penalty provision.

46 Section 1317S relevantly provides -

“1317S(2) If:

(a) eligible proceedings are brought against a person; and

(i) the person has acted honestly; and

(ii) having regard to all the circumstances of the case (including where applicable, those connected with the person’s appointment as an officer, or employment as an employee, of a corporation … ), the person ought fairly to be excused for 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.

…

(7) Nothing in this section limits or is limited by, section 1318.”

47 In s 1317S “eligible proceedings” means proceedings for a contravention of a civil penalty provision.

48 Section 1318 relevantly provides -

“1318(1) 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.

…

(4) This section applies to a person who is:

(a) an officer or employee of a corporation … ”.

3. LEADING UP TO THE FEBRUARY MEETING

49 The draft announcement on which ASIC relied took the form of a press release. We set out its sequential versions later in these reasons. The dispute over whether at the February meeting the draft announcement was approved for sending to the ASX extended to whether a particular draft announcement, or any draft announcement at all, was at the meeting.

50 The judge found that the particular announcement was at the meeting, and that it was approved for sending to the ASX. The appellants challenged these findings. Much of the parties’ submissions was directed to the challenge and its refutation.

51 A fairly detailed understanding of the events leading up to the February meeting is necessary, particularly the attention given to establishing the Foundation and its funding.

3.1 Separation of asbestos liability

52 After 1987 no company in the James Hardie group was involved in the manufacture or sale of asbestos products. Coy and Jsekarb, as the primary recipients of asbestos claims, were something of a millstone hanging around the group’s neck. There was also concern that, by court decision or government intervention, liability for or responsibility to meet asbestos claims might fall upon JHIL itself.

53 In mid 1998 the board of JHIL acted upon a proposal formulated by management, known as Project Chelsea, one of the objects of which was a partial separation within the James Hardie group of the companies primarily liable for asbestos claims. Other objects were relocation of the group’s base from Australia to the United States and listing on the New York Stock Exchange, with a view to fostering the growth of the group’s businesses in that country.

54 Pursuant to Project Chelsea, James Hardie NV (“JHNV”) was incorporated in the Netherlands and became a subsidiary of JHIL. JHNV acquired the operating companies from JHIL. It did not acquire Coy or Jsekarb; they remained subsidiaries of JHIL. Senior management was relocated to the United States. However, the listing of JHNV and an offering of 15 per cent of its shares to the public were abandoned, due to unfavourable market conditions. Project Chelsea was not fully implemented.

55 In December 1999 Mr Morley circulated a paper entitled “Potential Separation Structure Outline”, containing a proposal which became known as Project Green. It involved the creation of a new ultimate holding company of the operating companies. The company would be incorporated in the Netherlands. JHIL shareholders would become shareholders in the new company. JHIL would remain within the group as the holding company of Coy and Jsekarb. Although the objects were not solely separation, but also financial restructuring and business growth, the significance of separation is indicated by the observation in the paper that there was an increased takeover risk with “the asbestos litigation poison pill clearly separated from operating assets”.

56 A working party was established to consider the proposal. Project Green evolved, and variants within it were the subject of board papers and presentations at board meetings throughout 2000. Three main alternatives of “business as usual”, restructuring without separation, and restructuring with separation were canvassed.

57 The board papers and presentations spoke extensively of the adverse impact of the exposure to asbestos claims. For example, an April 2000 board paper included in the executive summary that, in an effort to capitalise on its global market potential and at the same time improve James Hardie’s investment profile, management was recommending a number of matters including “[c]omplete preparation for the corporate restructuring to create a new list vehicle and separate the asbestos liability”; and, as part of the section “Background and Need for Action” -

- It prevents James Hardie from using its scrip as currency for acquisitions, mergers etc as potential targets and partners are not prepared to assume exposure to asbestos liability.

- It prevents the company’s operating assets from being fully valued by the equity markets. Just as targets and partners will not hold James Hardie shares, neither will some equity investors.

58 The last of these matters should be further explained. Under Australian Generally Accepted Accounting Principles (“GAAP”), JHIL was not required to include in its balance sheet a provision for future asbestos claims. Under United States GAAP it would be obliged to do so. There were proposals to move in Australia to United States GAAP. It was considered that the increased disclosure would have a significant effect on JHIL’s balance sheet.

59 The board papers and presentations showed a keen awareness that the success of a separation proposal depended upon the reaction of “stakeholders”. Stakeholders went beyond shareholders. Compensation of asbestos claimants had become a matter of public interest. In the board papers the stakeholders included asbestos victims groups, unions, plaintiffs’ law firms, the Government, the courts, and the media. The media was seen as important in moulding reaction to what was done to remove asbestos liability from the group. And important to the reaction of what an April 2000 board paper described as “a raft of potentially hostile and emotional stakeholders” was the sufficiency of available funding, upon separation, to meet asbestos claims against Coy and Jsekarb.

60 The judge referred at LJ [396] to “a continuous flow of communications strategies papers in the board packs that highlighted the importance of market and stakeholder perception”. He said at LJ [397], speaking of what Mr Shafron knew or ought to have known -

“ … that there was significant public and market interest, especially from asbestos sufferers and those who represented them, in any communications concerning the adequacy of funding made available for Asbestos Claims. The material advised that a successful communications strategy was essential to the achievement of any separation and central to that was the need to convince stakeholders that there were sufficient assets available to meet Asbestos Claims.”

61 The April 2000 board papers, for example, included statements –

that it was necessary that there be a strong probability that the transactions to establish the new structure could be completed “without disruption by spoilers or legal/regulatory difficulties”;

that it was important to communicate to the public that the amount of assets available to the asbestos liability companies after separation was sufficient to meet all claims, and that “a lower figure would be difficult to defend in the wider community, and politically, and could leave directors exposed to future suits and prompt legislative intervention … ”;

that there was a “political/legislative perspective … relevant to risk in achieving the separation”, and that a comprehensive communications plan would be prepared “with appropriate assurances likely to prove satisfactory to stakeholders”;

that the “real issue” was whether “we convince a raft of potentially hostile and emotional stakeholders of the merits and integrity of our case, such that they will not act in a way which prevents us from separating the asbestos liability”;

that “being in a position to manage stakeholder reactions is critical to the success of the project”; and

that there should be a “comprehensive communication plan”.

62 Management’s recommendation at this time was that funding on the basis of an actuarial estimate of asbestos liability plus “a buffer” gave the best chance of separation success. The buffer could be cash, insurance or shares in the new company.

63 However, management expressed concerns. Their intensity appears from a Project Green presentation part of the August 2000 board papers. Under the heading “Stakeholders – What we have learned” it was said -

- separation amount will be insufficient

- basis of calculating amount is unreliable/incorrect

˙ There are numerous, hostile stakeholders

˙ Stakeholders are well informed, well organised, well funded and likely to act in concert

˙ Stakeholders can ‘spoil’ Green

˙ Risk of intervention aimed at spoiling is ‘high’

- The number and cost of claims has increased

…

- Law firms have renewed aggressive touting

- Media coverage is increasing

- Wharf cases have emerged as a large source of claims

˙ James Hardie is still regarded with suspicion and animosity

- heavily qualified findings

- numerous disclaimers would be attacked

- review conducted within limited scope

- actuaries have favoured ‘low side’ numbers

- spoilers could use report to argue higher numbers

64 The presentation included -

- we cannot argue strongly that the funds left behind will be sufficient under every conceivable scenario

- we have not established a credible rationale for separation

- we do not yet have sufficient evidence to support our position

we are left holding a large target for claimants

we ‘permanently’ disable our investment case

65 We explain the reference to “a strong legal position”. An issue in James Hardie & Co Pty Ltd v Putt (1998) 43 NSWLR 554 was whether JHIL as holding company owed a duty of care to employees of a New Zealand subsidiary. It was held that, absent evidence that the subsidiary’s separate legal identity was a “mere façade” (at 584), it did not. JHIL’s solicitors Allen Allen & Hemsley (“Allens”) advised that, on this position, JHIL was not subject to the asbestos liabilities of its subsidiaries.

66 Nonetheless, as the reference in the presentation indicates and as we have already noted, there remained concern that, by court decision or government intervention, liability for or responsibility to meet asbestos claims might fall upon JHIL itself. James Hardie & Co Pty Ltd v Putt was not necessarily the last word, and in CSR Ltd v Wren (1997) 44 NSWLR 463 it had been held that direction, control or involvement by CSR in its subsidiary’s operations and common management staff gave rise to a duty of care owed by it to an employee of the subsidiary. The public interest in compensation of asbestos claimants could bring government action.

67 In the August board papers management proposed to do further work in order to recommend “whether we could neutralise stakeholder opposition”. Management was asked by the board to “continue its work” and report again at the November meeting.

68 In the result, at the November meeting separation was not favoured by management. The Project Green presentation in the board papers recommended restructuring, but without separation. In brief, funding difficulties and adverse stakeholder reactions were foreseen. Of the alternative “Restructure and separate”, it was said -

“ ˙ likely cost of total insurance solution expensive

˙ cannot be funded today

69 But separation remained in consideration. The presentation noted, amongst the disadvantages of the favoured restructure without separation -

“Does not address asbestos issues

- management directions continue

- maintains asbestos related discount in the market

- interest of US investors expected to be limited

70 According to the minutes of the November meeting, management was asked “to continue developing the concept for further discussion at the next meeting”.

3.2 The net assets model

71 In the development of the concept, separation returned to favour and became prominent.

72 On 13 December 2000 Mr Macdonald sent a Project Green update memorandum to members of JHIL’s board. He foreshadowed that management would seek board approval in January 2001 to establish a trust over the shares in Coy, thereby deconsolidating it from the James Hardie group. The memorandum referred to an Australian accounting exposure draft, ED88, by which the accounting standards might be amended so that JHIL had to account, under United States GAAP, for an undiscounted estimate of the total long term asbestos cash flows to which it might be subject. It was explained that, because of the trust, Coy would no longer be controlled by JHIL and neither it nor any new Netherlands holding company would have to report the asbestos liabilities. The memorandum included that “press releases would explain the creation of the trust as providing certainty for creditors and potential claimants that the assets of Coy were irrevocably secured for their benefit”.

73 This was more a new concept than a development of the concept presented at the November board meeting. It was essentially concerned with separation alone, not as an element in the restructuring to which Project Green was addressed. From the “Proposed Trust Structure Update” paper next mentioned, it seems that the impetus for the attention to separation through a trust structure was the expectation that United States GAAP would be adopted, and would bring an undesirable impact of the subsidiaries’ asbestos liabilities on JHIL’s balance sheet and other consequential difficulties. Separation was accelerated, although the wider restructuring remained under consideration, and in fact was undertaken in late 2001 (see our reasons in the resolved JHINV appeal, (James Hardie Industries NV v Australian Securities and Investment Commission [2010] NSWCA 332).

74 The board papers for the meeting held on 17 January 2001 included a paper entitled “Proposed Trust Structure Update”. It recommended that a company be incorporated to act as trustee of a trust, to which JHIL would give its shares in Coy and Jsekarb and $2 million for research. The assets of Coy and Jsekarb would be dedicated to meeting existing and future asbestos claims. At the trial this was called the net assets model.

75 The paper described the objectives and rationale for establishing the trust. The announcement of the trust would “clarify the liability of James Hardie relating to asbestos liabilities to the market”, and significantly mitigate if not remove “the ‘uncertainty discount’ relating to the unknown quantum of future liabilities that JHIL may incur”. The outsourcing of management of asbestos claims would eliminate management distraction; costs associated with asbestos would no longer affect James Hardie’s earnings; and the deconsolidation would remove the potentially significant “distortion”, after ED88, of an accounting provision affected by changes in estimates of future claims or changes in interest rates. The “negative implications associated with James Hardie’s exposure to asbestos liabilities” would be removed, and the prospects of future corporate activity would be enhanced. It was said -

“The Trust concept would ensure that approximately $214m in cash, receivables and assets, plus earnings from those assets, are earmarked solely for creditors of JH & Coy and Jsekarb, including the funding of future asbestos related claims. Ultimately any surplus funds would be available for the charitable purposes of the Trust, being asbestos and lung disease research. In addition to the shares in JH & Coy and Jsekarb, JHIL also could also provide a grant of approximately $2 million directly to the Trust to enable it to support current and ongoing research into asbestos related and other lung disease from the time of its establishment.”

76 The paper described the available alternatives as doing nothing; resolving and announcing that JHIL would not in the future support Coy and Jsekarb; or establishing the trust.

77 The prospect of change in the Australian accounting standards was prominent in rejecting the alternative of doing nothing. It was said in the paper that adoption of ED88 was likely to occur prior to March 2003, whereupon JHIL would be required “to book a potentially significant provision against asbestos contingencies, discounted to net present values” and would have to make significant disclosure concerning the nature and extent of potential asbestos liabilities. It was said -

“We have confirmed that CSR intends to materially increase its asbestos provisioning – to circa $180 million. JHIL is likely to come under pressure to state its position on asbestos liabilities when CSR clarifies its position with publication of its year ended 31 March 2001 accounts in May 2001.

If ED88 is released as a standard, and should CSR early adopt ED88 prior to its year ending 31 March 2003, then there may also be significant pressure on JHIL to early adopt ED 88 as well.

The disclosure of this expected future liability, with no apparent final resolution of the exposure would be expected to be negatively received by the market due to:

the range of the estimate may be materially higher than the current implied estimates of the research analysts (circa $150 m);

…

changes in the quantum of the future expected claims requiring provisioning; and

the continuing uncertainty surrounding the ultimate cost to the JHIL Group.”

78 The alternative of declaring no future support was rejected in part because it might not negate ED88 requirements, and also because it would expose James Hardie to the “negative market implications” associated with the trust proposal but without the advantages of separation: in more detail -

“ Board resolution of no future support for JH & Coy and Jsekarb

An alternative to doing nothing is the Board making a public declaration that it will not provide any future support for either JH & Coy or Jsekarb. This would allow James Hardie to logically argue that, from the James Hardie Group perspective, the amount of future economic loss is limited to the net assets of JH & Coy and Jsekarb, and to therefore limit the provision established under ED88 in the consolidation accounts to the net assets of those companies, ie an increase of $142 million in the provision. Hence on consolidation the assets of JH & Coy and Jsekarb would be included in the total assets of the James Hardie Group, with total liabilities of the Group including a provision of an amount equal to the net assets of JH & Coy and Jsekarb. This treatment would be the same under US GAAP and IAS.

The entity accounts of JH & Coy and Jsekarb would however have to establish a full provision using ED88 logic. The accounts of JH & Coy would therefore be expected to show a significant deficiency of net assets. Given the requirements of AASB1024 “Consolidated Accounts” which requires aggregation of subsidiary company accounts to arrive at the consolidated position, it is possible that limiting the provisioning in the consolidated accounts to the net assets of JH & Coy and Jsekarb may invite inquiry from ASIC as to whether the James Hardie accounts comply with the Corporations Law.

79 Thus establishing the trust was the favoured alternative. Of the restriction to the net assets of Coy and Jsekarb, plus the $2 million, the paper said -

QUANTUM OF FUNDS AVAILABLE TO ASBESTOS CLAIMANTS

there is no legal requirement to do so;

contributing more funds may suggest that JHIL has some obligation or intends to fund claims in excess of the net assets of JH & Coy and Jsekarb;

in view of the first two points above, there is no current basis under which directors could resolve to contribute further funds without appearing to fail to act in the interests of JHIL shareholders; and

there is no reliable basis for determining what amount any such 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.”

80 A section of the paper considered risks, principally “stakeholder issues and possible stakeholder legal responses”. One risk was that because of the restriction to net assets, creation of the trust would “carry with it the message that JHIL would not support JH & Coy and Jsekarb in the event that funds prove to be insufficient (see ‘Communications Strategy’ below)”. There was little risk of legal challenge, but the possibility of “legislative attack”. This possibility was seen as unlikely.

81 As anticipated in this section of the paper, another section headed “Communications Strategy” dealt with that subject. It was accompanied by a draft news release and draft questions and answers. The draft news release can be seen as the beginnings of the draft news release in issue in these proceedings and the eventual announcement to the ASX on 16 February 2001.

82 Mr Gregory Baxter held the title of Senior Vice President, Corporate Affairs within JHIL. He was responsible for investor, media and government relations. Mr Stephen Ashe was a member of his corporate affairs team. Both were involved in Project Green.

83 Mr Baxter had often been asked to report on or make presentations to the board on aspects of market or stakeholder issues. He had made a presentation at the April 2000 board meeting. He was responsible for the presentation concerning stakeholder issues at the August 2000 board meeting, and although he did not recall it he accepted that he had prepared and made a presentation on “key selling messages” and “communications strategy” at the November 2000 board meeting. He had been made aware of Mr Macdonald’s memorandum of 13 December 2000. He prepared the communications strategy section of the “Proposed Trust Structure Update” paper, and the draft news release and the draft questions and answers.

84 In the communications strategy it was recommended that an announcement in the form of the draft news release should be made at the same time as the announcement of the group’s third quarter results on 16 February 2001 and related management presentations to analysts and business media. The timing was to help position the creation of the trust as a business story, and to obtain recognition in the financial markets “that the establishment of the Trust means that JHIL no longer has any significant liability for asbestos” and recognition of the announcement of the trust “as providing special funds for compensation and medical research for the sole benefit of victims of asbestos diseases”. Detailed proposals were outlined for “management” of key stakeholders, for example, by direct contact with government officers, parliamentarians, union officers and others.

85 For present purposes, the particular relevance of the draft news release and the draft questions and answers is for what they conveyed, or did not convey, about full funding.

86 We set out the draft news release in full. It was in the terms -

“ LEGALLY PRIVILEGED AND CONFIDENTIAL – FOR LEGAL ADVICE ONLY

DRAFT NEWS RELEASE

James Hardie Industries Limited (JHIL) announced today that it has established an independent trust to compensate victims of asbestos related diseases and fund medical research aimed at finding cures for these diseases.

The new trust, the Medical Research and Compensation Trust (MRCT) has earmarked $2 million for scientific and medical research programs, which, it is hoped, will attract additional support from government and industry, unions and plaintiff law firms.

MRCT will also manage all future litigation arising from the past manufacturing of asbestos-containing products by former subsidiaries of JHIL.

It is estimated that JHIL’s subsidiaries have accounted for approximately [25] per cent of all compensation settlements related to asbestos illnesses in Australia. Various other organisations, such as companies involved in asbestos mining and manufacturing and organisations including government departments which used asbestos have been responsible for the remaining 75 per cent.

James Hardie Industries Limited Chairman, Mr Alan McGregor, said MRCT would be a completely independent organisation with significant assets which would be available solely for the purposes of compensating victims of asbestos related diseases.

‘MRCT has been established as a company limited by guarantee under the terms of a trust deed. An independent board of trustee directors will govern the trust.’ Mr McGregor said.

‘The creation of MRCT sets aside guaranteed, unencumbered funding for compensation and future medical research into asbestos related diseases with a Board of trustees and management team 100 per cent committed to this role.’

‘The inclusion of a special $2 million grant for medical research will enable the trust to continue work on existing programs established by James Hardie as well as launch new programs to further recent ground-breaking achievements that offer the best opportunity for many years of finding an effective treatment for diseases such as mesothelioma.’

Mr McGregor said MRCT would be chaired by Sir Llewellyn Edwards, who has resigned as director of James Hardie Industries Limited to take up his new appointment. Sir Llewellyn has enjoyed a long and distinguished career in medicine, politics and business. He is a director of a number of organisations including Westpac Banking Corporation and is also Chancellor of the University of Queensland.

The other trustee directors include [name and brief bio details] and [name and brief bio details].

‘The new trust will control assets of about A$216 million which include portfolios of commonly traded shares, a substantial cash reserve, properties which earn rent and insurance policies which cover certain types of claims.’

‘Recognised fund managers have been appointed by the trust to manage its share portfolios and invest its cash reserves in order to generate capital growth and investment income.’

Mr McGregor said it was expected that the annual investment income of MRCT would be used to meet compensation claims and the trust’s expenses. In the event that these costs in any one year exceeded the investment income, MRCT would draw on its significant capital.

87 Other than by assumption in the last paragraph, nothing was said in the draft news release to the effect that the net assets would be sufficient to meet all present and future asbestos claims.

88 It was said in the communications strategy that the draft questions and answers were intended to deal with “the specific financial implications for JHIL arising from the creation of the trust”. A number of the questions and answers touched on or were directed to the adequacy of the trust’s funding to meet future asbestos claims.

89 It is not necessary to detail the questions and answers. The answers included that James Hardie did not know what the ultimate cost of asbestos claims would be; that it was not possible reliably to measure how many claims there would be or what the total cost would be and there was no sound basis for estimates “sometimes thrown around by plaintiff lawyers to attract attention”; that the directors believed that the assets would be sufficient to fund claims “for many, many years into the future, and possibly all claims”; that while the availability of the trust’s assets was guaranteed, the extent to which the assets and income would be sufficient would depend on many factors “including the number of claims, the cost of those claims, the rate of return received from the trust’s investments etc”; and that whether additional assets would be vested in the trust if it ran out of funds would be addressed if and when the question arose.

90 Neither the draft news release nor the draft questions and answers conveyed full funding. Quite the opposite, at least in the draft questions and answers. That is not unexpected, when the funds were restricted to the net assets of Coy and Jsekarb. The drafts did convey certainty of funding, in the sense that availability of the net assets to meet asbestos claims was assured.

3.3 Rejection of the net assets model

91 The proposed trust was discussed at the board meeting on 17 January 2001. Mr Baxter gave a presentation on the communications strategy. The judge said succinctly, at LJ [89], “The board rejected the net assets model … and management was sent away to do more work on the separation proposal to ensure sufficient funds were available to meet all present and future asbestos claims.”

92 The judge made few detailed findings. At LJ [144] he referred to evidence of Mr Brown that, from the meeting, he expected that if management was going to put up a proposal again it would be fully funded, and that that was the message they would be conveying to the market. (We refer later to what Mr Brown said he meant by full funding, see [392] below.) The judge said at LJ [179], apparently accepting the evidence -

“179 Mr Willcox had been concerned that the Net Assets Model considered at the board meeting on 17 January 2001 was unacceptable. He agreed that likely negative reaction to the announcement of that decision would be triggered by what he anticipated would need to be said about the sufficiency of funding. He agreed that part of his duty in making a decision as to whether or not to approve the setting up of the Foundation was to assess the likely reaction of the community to the announcement. He said he spoke at length about why the Net Assets Model was completely unacceptable. It would violate community expectations and would damage James Hardie’s reputation. He agreed that he had said words to the effect that if they made a decision in which they did not provide sufficient funds to cover all of the expected future debts then there would be a negative reaction to it when it was announced.”

93 Some further reference to the evidence, albeit in summary, is appropriate.

94 According to Mr Baxter, Mr Willcox spoke “passionately, articulately and eloquently” to the effect that the net assets model “doesn’t work”; Mr Brown and Ms Hellicar also said that it did not work; but Mr Terry said that it was not for the company to consider moral issues and the shareholders had rights.

95 Mr Morley made notes at the meeting. They included someone saying that it was a good thing to separate and remove asbestos, and that ED88 was a big issue; that Mr Brown said that there were moral issues; that Mr Willcox said “PR questions are important” and that there was potential for government legislation and “JHIL cannot say all debts are covered”; and that Ms Hellicar asked how much is enough and said “JHIL will look guilty”.

96 Mr Morley elaborated on the meeting and his notes in an affidavit, the principal matters being -

James Hardie & Co Pty Ltd v Putt

Mr Cameron (who should not be confused with Mr Donald Cameron, the other joint secretary of JHIL) or Mr Shafron said that, in accordance with their duties to the company and shareholders, the directors had to have a basis for giving the subsidiaries’ assets away, and they were constrained in putting more funds into the trust because there was no legal basis for doing so and no reliable basis for determining the amount;

Mr Brown identified as his moral issue, “Are we prepared to use the corporate veil argument?”;

Ms Hellicar said, apropos of how much is enough, “Enough to pay all claims would be OK but if the amount is less than the Trowbridge estimates then what can we do about that? JHIL would look guilty”, and later said, “We have to stop funding beyond net assets somewhere with an actuarial report”;

Mr Terry regarded the moral issue as one of plaintiffs’ solicitors “making no fault claims against James Hardie”, and Mr Gillfillan or Mr Koffel said that the moral issue “has been resolved by the plaintiffs’ bar”.

97 There were various positions at the meeting. Mr Brown’s moral issue was concern over reliance on the corporate veil; implicitly, he thought that JHIL had a moral responsibility towards asbestos claimants and should not leave them to the net assets of Coy and Jsekarb if the net assets were insufficient. Mr Terry appears not to have shared that concern, and to have supported the net assets model. Messrs Gillfillan and Koffel do not appear to have shared the concern. Ms Hellicar appears to have contemplated funding beyond net assets, up to an actuarial estimate. As we later describe, Trowbridge had periodically provided estimates of the asbestos liability. The estimate in a draft report of 16 June 2000 was $294 million, significantly qualified as to uncertainty and sensitivity. This was considerably more than the $214 million in net assets.

98 According to Mr Morley, at the conclusion of the discussion the chairman, Mr McGregor observed that there were “huge conflicts in people’s minds”. Updated estimates by Trowbridge were expected. Mr McGregor said, “The concept has some merit. The question of funding requires some more work. Management should continue to develop the concept and report progress in relation to funding at the February meeting”.

99 Although the judge made limited findings, we consider that we can accept the thrust of this evidence. Plainly, the adequacy of the funding of the proposed trust was a significant, and rather contentious, matter amongst the directors. In part this was as a moral issue, but it was also because the net assets model would not be well received by stakeholders. Mr Willcox said in his evidence that he did not recall referring to PR questions, and that his view had been that if the decision was right it would communicate itself and he was not concerned with communications strategy. But it is clear enough that the reaction of stakeholders was in the directors’ minds. A subsequent draft communications strategy, prepared in early February 2001, included that “[a]t the January Board meeting, Directors raised concerns about whether the communications strategy presented at that time would be able to neutralise potential stakeholder opposition effectively”.

3.4 The proposal for the February meeting

100 Management’s development of the trust proposal involved additional funding of the trust by JHIL, in return for indemnities and other matters, under what became the DOCI. The DOCI was seen as consideration for putting more funds into the trust, bringing consistency with the directors’ duties to JHIL and shareholders. The development was speedy, in line with the earlier recommendation to announce the establishment of a trust on 16 February 2001.

101 In a draft paper “conveying legal and structural issues for the February Board paper” attached to an e-mail on 4 or 5 February 2001, Mr Shafron wrote -

non disclosable

102 In the draft paper the $57 million was $50 million from Coy and $7 million from Jsekarb. The amounts were later increased.

103 Board papers for the February meeting were sent to the directors shortly before 15 February 2001. They included a “Project Green Board Paper” dated 5 February 2001, over the name of Mr Macdonald.

104 The paper recommended the immediate establishment of what became the Foundation, and said that delay significantly increased “the risk of ED88 complications”. It recommended that the board “agree to the creation of the Foundation at its Thursday 15 February meeting for announcement, together with JHIL’s Q3 results, on Friday 16 February”. This was the same timing as had been recommended in the January board paper.

105 There were two attachments to the Project Green Board Paper. One, headed “Separation Issues”, went into detail on the establishment of the Foundation. The other, headed “Communication Strategy”, dealt with that subject.

106 In the first attachment, the proposal for establishing the Foundation now included payments by JHIL to Coy and Jsekarb of $100 million over time, net present value $70 million. In return, JHIL would receive indemnities and other matters as eventuated in the DOCI. It was said that this “effects a separation of JH & Coy and Jsekarb from the remainder of the JHIL Group”.

107 There was considerable further detail. Adequacy of funding once the $100m was to be added to the Foundation’s funds was not specifically addressed. At one point there was reference to injection of additional capital funds committed to medical research, no change to JHIL capital structure and “the entrenchment of Coy assets for the benefit of future claimants”, with the comment that as a result there was “no valid basis for attack on directors from claimants”. At another point it was said, “The main risks to the creation of the Foundation are political and legislative”, with reference to the communication strategy.

1104 Unlike Mr Shafron, Mr Morley did not challenge the finding in the first section of LJ [446] that he knew the limited nature of the reviews by PwC and Access Economics. We take the judge’s finding to extend to knowledge that PwC and Access Economics had been instructed not to consider the key assumptions – Mr Morley did not contend otherwise.

1105 Mr Morley’s principal submission was that the effect of his presentation at the February meeting, concluding with the reference to the cash flow model having been found logically sound and technically correct, was to make it clear that the review by PwC and Access Economics had not extended to a review of the assumptions underlying the model. It was said in his written submissions -

“It was not necessary for Mr Morley to state the tasks which PwC and Access Economics had not undertaken because his statement that they had reviewed the Model and found it to be logically sound and technically correct, did not convey a more comprehensive review, encompassing a review of all of the assumptions. The disclosure made by Mr Morley, when viewed in the totality of the Cashflow Model and accompanying tables, sensitivity analysis, and Mr Morley’s oral presentation, objectively conveyed to intelligent and commercially experienced directors, that PwC and Access Economics had reviewed the reasoning and arithmetical operation of the Cashflow Model so as to test, and form a conclusion, as to the Model’s ‘logical soundness’ and ‘technical correctness’.”

1106 What appears to have been a similar submission was rejected by the judge at LJ [449]; giving it some context, he said -

“447 The bland statement that the cash flow model had been reviewed by PwC and Access Economics and they had found it to be logically sound and technically correct did not describe the reviews as being limited and gave the impression, or were capable of giving the impression, that an unlimited review had been concluded with a finding of logical soundness and technical correctness.

...

1107 We have referred at [950] above to the judge’s description of Mr Morley’s evidence of taking the board through the cash flow model. We do not set out the lengthy description. In summary, Mr Morley submitted that -

By his references to the key assumptions, a sensitivity table and a sensitivity analysis part of the model, which included that Trowbridge was the source of the asbestos claims data, and by other identification of contents of the model, he made clear that adequacy of funding was dependent on the major assumptions of the Trowbridge cash flows and the assets and earnings of the funds, and that there was high sensitivity to changes in the assumptions; and

Intelligent directors made aware of those matters would not have taken the references to the PwC and Access Economics reviews having found the model to be logically sound and technically correct as going beyond confirmation of its reasoning and arithmetical structure, and it was not necessary for him to say so.

1108 We do not accept the submission.

1109 It may readily be recognised that it was understood that the cash flow model took assumptions to which certainty could not be given, and that the modelled sufficiency of funding was sensitive to changes in the assumptions. The conclusion that a surplus was the most likely outcome (as was said in the slides) necessarily involved such an understanding. But it would be expected that the assumptions, with their uncertainty would be reasonably selected from a range of available assumptions. Many, such as the investment earnings rate, would be found in commercial life, and would be well open to reasonable selection. Selection of the assumptions was part of the modelling, and would also be expected to be part of a review of the modelling. It could not be excluded from the comfort sought from external verification as suggested by Mr Loosley.

1110 It is pertinent to follow through the earnings rate.

1111 We have referred to the origin of the 11.7 per cent. It was the earnings rate which would leave a surplus after 50 years. Mr Morley gave evidence that he was satisfied with it because it was in the lower part of a range of historical earnings rates he had obtained from towers Perrin, Mercer and InTech; it was in line with historical equities indices he had obtained from those firms; and “the sensitivity table attached to the Model clearly sets out the results produced by the Model for various other earnings rates”. We do not see how the last matter provides support for the reasonableness of the rate.

1112 According to Mr Morley, when going through the cash flow model at the February meeting he said of the interest on average investment column -

“We have used 3 external asset consultants and the long-term historical figures provided by them. We have used performance figures from superannuation funds because they are analogous to the fund which is to be set up as dealt with in the model. The figures we have used have been provided by Towers Perrin, Mercers and InTech. We have used a blended rate of 11.7% and applied it through the period of the model on the surplus investment funds. This rate is at the lower end of the historical earnings rates we’ve looked at. Surplus funds are referred to in column ‘a1’ of the model.”

1113 Still according to Mr Morley, Mr McGregor turned to Mr Wilson and asked if he (Mr Wilson) had checked or confirmed the earnings rate of 11.7 per cent, and Mr Wilson said, “No. The bank does not provide those figures. But we have given Phil [Mr Morley] the historical indices for stock exchange results”. Mr Terry then intervened asking that they “get on with this”, Mr McGregor asked that Mr Morley speed it up, and he moved on to a sensitivity table.

1114 The judge appears to have accepted that Mr Morley said as stated in the first part of this evidence, at LJ [298], noting that there was some conflict in the evidence about the second part. His Honour did not resolve the conflict. The non-executive directors variously submitted –

Mr Brown said to the effect that neither Mr Wilson nor anyone else from management or the advisers suggest that the rate of return was unreasonable or unlikely to be achieved;

Mr Gillfillan said to the effect that someone from management said that the 11.7 per cent was achievable having regard to comparables provided by UBS, and neither Mr Wilson nor Mr Sweetman voiced disagreement;

Ms Hellicar said to the effect that there was lengthy discussion of the 11.7 per cent, in the course of which Mr Morley and Mr Wilson said that a number of sources had been relied on and each had indicated that the rate was a reasonable one; also Mr McGregor, Mr Brown and Mr Gillfillan said it was reasonable, and no one said it was unreasonable;

Mr Willcox said to the effect that he thought the 11.7 per cent was a reasonable assumed earnings rate and no board member or adviser spoke against that proposition.

1115 We are not in a position to resolve a not inconsiderable conflict in the evidence, but the point which emerges is that attention was given to whether the 11.7 per cent earnings rate was a reasonable assumption; and it was therefore all the more important that the board be told that PwC and Access Economics had not been asked to, indeed had been instructed not to, verify that or any other assumption. Whatever comfort was gained by the directors from otherwise being told that it was an achievable earnings rate, as to which there was conflict, failure to make known the limitation to the PwC and Access Economics reviews was all the more likely to mislead.

1116 Nothing in Mr Morley’s presentation detracted from the expectation that the reviews would extend to the assumptions. Intelligent appreciation of sensitivity to uncertain assumptions would have increased, not removed, the significance of a statement that the model had been reviewed and had been found logically sound and technically correct, if there were no reference to the limited nature of the review.

1117 Mr Morley submitted that the expression “logically sound and technically correct” itself conveyed that the review was limited to the reasoning in the model or its arithmetical rules, and did not extend to the underlying assumptions. He said that the judge’s conclusion that the words were capable of giving an impression that an unlimited review had taken place was contrary to the usual meaning of the words: first, because the directors were intelligent and commercially experienced people; and secondly, because management had used the words to describe the scope of the reviews prior to the February meeting.

1118 Mr Morley’s statement was not that the cash flow model had been reviewed for logical soundness and technical correctness, and had been found to be logically sound and technically correct. It was that it had been reviewed, and had been found to be logically sound and technically correct. It may be, as a matter of strict grammar, that someone who listened to these words would not necessarily have confined the nature of the review by the latter words. However, in the context of a detailed presentation of a complex series of interrelated aspects of the proposal under consideration, it is not appropriate to parse and analyse the terminology too closely. If it were appropriate to do so then emphasis could be placed on the fact that Mr Morley did not say that the Model had been found only to be logically sound and technically correct. In their context the words were not clearly restrictive of the nature of the review.

1119 That is not altered by management’s use of the words, by which the submission meant Mr Ashe’s e-mail and what Mr Harman said to Mr Morley. Mr Ashe used the words specifically as words of limitation, in a different context.

1120 What is not said is often as important as what is said, and the issue is not what might be conveyed by “logically sound and technically correct” in isolation, or in another context. The issue is whether Mr Morley acted unreasonably, using that as shorthand for the s 180(1) test, in not advising the board of the limited nature of the PwC and Access Economics reviews, including that PwC and Access Economics had been instructed not to consider key assumptions. In our opinion the presentation by Mr Morley, as he himself described it in his evidence, gave the impression, or was capable of giving the impression, that an unlimited review had been conducted. In this context ahe ought to have advised the board of the limited nature of the review.

1121 Mr Morley also submitted that, even if what he said gave the impression or was capable of giving the impression that an unlimited review had been conducted, he was not in breach for failing to appreciate at the time that such an impression may have been given. There is no substance in the submission. The reviews of the cash flow model were in fact expressly limited. The model was an important part of the important matter of sufficiency of funding. Knowing the limitation, Mr Morley should reasonably (again as shorthand) have appreciated, at the least, that the directors might gain the wrong impression, and should have spoken out to ensure that they did not.

1122 We add that Mr Brown said that, while he did not expect a verification process on every assumption, he understood that PwC and Access Economics considered the “inputs” appropriate and “would have expected Mr Morley … to inform the board of any material concerns or caveats which they had expressed on any assumption or other aspect of the model”; that Ms Hellicar said she understood that “they had confirmed the way the assumptions had been utilised”, and would have brought to attention “any concerns with the assumptions used as inputs”; that Mr Koffel said he understood that “both the expense and revenue side … have been verified”; and that Mr Willcox said that “the word reviewed … best encapsulates [his] … understanding [from what was said at the meeting] of what PWC and Access had done”. Mr Gillfillan said that he did not take what Mr Morley said to mean “that they had audited the assumptions and the inputs in the model”, but that they had verified “the soundness of the methodology of the model”. These directors had differing recollections of what Mr Morley had said about the PwC and Access Economics review. The judge did not refer to this evidence, and it is neither possible nor necessary to express acceptance or rely on it, but it is predominantly consistent with the directors in fact gaining the wrong impression.

8.5 The cross-appeal

1123 The grounds of cross-appeal were -

“5. The trial judge erred in failing separately to address that part of the cross-appellant’s case that alleged that even if the cross-respondent, Phillip Graham Morley (Mr Morley), was not aware that the best estimate contained in a report dated 13 February 2001 prepared by Trowbridge Deloitte Limited (‘Trowbridge Report’) and an undated schedule containing an update of Trowbridge’s discounted and undiscounted estimate of the existing and contingent liabilities of James Hardie Industries Ltd (‘JHIL’) to compensate persons who suffered injury, including latent injury, from exposure to asbestos liabilities as at March 2000 for a period of up to 50 years (Trowbridge 50 year estimate) was a ‘central estimate’ being one that had a 50% chance of equalling or exceeding the actual liability, identified in sub paragraph 109(b)(iii)(D) of the FFASOC, he ought to have been aware of those limitations and advised the Board of Directors of JHIL of them.

6. The trial judge erred in failing separately to address that part of the cross-appellant’s case that alleged that even if the cross-respondent, Mr Morley, was not aware of the limitations upon the Trowbridge Report and the Trowbridge 50 year estimate identified in sub paragraph 109(b)(iii)(C) of the FFASOC he ought to have been aware of those limitations and advised the Board of Directors of JHIL of them.

Corporations Act

1124 Similarly to Mr Shafron, the grounds invited finding the contraventions alleged in paras 109(b)(iii)(C) and 109(b)(iii)(D) of the FFASC, on the basis that Mr Morley ought to have known that the best estimate in the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate had not taken into account superimposed inflation and a prudent estimate would have (the para 109(b)(iii)(C) contravention) and that the best estimate had only a 50 per cent probability of being achieved (the para 109(b)(iii)(D) contravention).

1125 The judge declined to find the contravention alleged in para 109(b)(iii)(C) because he was “not persuaded that Mr Morley understood on 15 February 2001 that the best estimate in the February 2001 Trowbridge report and the Trowbridge 50 Year Estimate had not taken into account superimposed inflation as a prudent estimate would”: LJ [476]. He did not consider whether Mr Morley ought to have known of that matter.

1126 ASIC did not challenge the finding as to lack of knowledge, but cross-appealed on the basis that Mr Morley ought to have had the knowledge. The judge’s reasons in the liability judgment for the finding as to lack of knowledge are nonetheless material. They were -

“471 In relation to the charge that Mr Morley failed to advise the board at the 15 February 2001 Meeting that the Trowbridge reports had not taken into account superimposed inflation, ASIC pointed to material available to Mr Morley that would have informed him of the concept of superimposed inflation and the need to warn the board that in establishing a fund based upon the Trowbridge best estimate, the board needed clearly to understand that it did not take into account superimposed inflation.

472 But in order to found the charge, ASIC had to establish that Mr Morley read this material or in some other way had become aware of the need for superimposed inflation.

sic

474 ASIC submits that Mr Morley was wrong about this because the Watson & Hurst data involved different assumptions as to the number and distribution of claims and not the adoption of any differing assumption as to inflation. The Watson & Hurst material of November 2000 that made this clear was sent to Mr Morley in December 2000.

475 Mr Morley may have forgotten this when he said that the adoption of the Watson & Hurst material involved the adoption of a higher inflation rate. But that was the answer he gave and it was not further explored in cross-examination.

1127 The judge declined to find the contravention alleged in para 109(b)(iii)(D) because “ASIC … failed to persuade me that Mr Morley was aware of the nature of the Trowbridge best estimate as having only a 50% probability of being achieved”: LJ [470]. He did not consider whether Mr Morley ought to have known of that matter.

1128 Again, ASIC did not challenge the finding as to lack of knowledge, but cross-appealed on the basis that Mr Morley ought to have had the knowledge. The judge’s reasons for the finding as to lack of knowledge in the liability judgment were -

“460 As to the allegation that Mr Morley failed to advise the board at the 15 February 2001 Meeting that Trowbridge’s best estimate only had a 50% probability of being achieved, is concerned, ASIC submitted that Mr Morley should have realised that an obvious issue was the degree of uncertainty surrounding the Trowbridge best estimate.

461 ASIC relied upon the references in the annual reports to the valuation being so uncertain that a provision for future liabilities could not be raised; the discussion in the August 2000 presentation concerning the 2000 Draft Trowbridge Report noting that it had ‘heavily qualified findings’, ‘numerous disclaimers’ and ‘actuaries have favoured “low side” numbers’. ASIC relied upon Mr Shafron’s continuous disclosure memorandum of October 2000 where it said the Trowbridge work did not produce any definite outcomes. Reliance was placed upon Mr Macdonald’s memorandum of 13 December 2000 referring to proposed changes in accounting standards. Reliance was also placed upon the references in the January 2001 board papers to the fact that James Hardie group’s asbestos liability could not be reliably measured and reliance was placed on the letter from Mr Minty to Allens referring to two further projections of claim numbers on a best estimate basis and a high basis.

462 None of this material, however, establishes that Mr Morley was aware of the nature of a central estimate.

464 I do not accept that by that answer Mr Morley conceded that Trowbridge’s best estimate had only a 50% chance of being accurate.

465 It had been put to Mr Morley that he understood that a conservative estimate had a greater chance of covering the actual liabilities than an optimistic estimate. He answered by saying that was why Mr Minty gave them the Berry high so they had two curves to look at.

466 Geoffrey Berry had made projections called ‘Berry high’ and ‘Berry low’. They were plotted on a graph. A third set of projections, ‘Berry medium’, were also plotted on the graph.

‘Q. You understood that an estimate in between the two would have an equal chance of covering the actual liabilities; that’s right, isn’t it?
A. No. My understanding at the time was Berry medium was their best estimate which was the most likely. They also supplied a Berry high –

468 It was in that context that the hypothetical question was put to him assuming a position precisely between an optimistic and a conservative approach. He agreed to that. But that did not mean he departed from his view that Berry medium, as the most likely, had a better than 50% chance of covering actual liabilities.

469 Mr Morley did not put to the 15 February 2001 Meeting that the best estimate in the Trowbridge reports had only a 50% probability of being achieved. Mr Morley had thrown up the contrast between Berry high and Berry medium by including the Berry high figures in the sensitivity analysis as the high scenario. That in itself suggests that Mr Morley was ignorant of the nature of the Trowbridge best estimate. If he had been aware that it had a 50% probability of being accurate, one would have expected him to have said so.

1129 We go first to best estimate. ASIC submitted that Mr Morley ought to have been aware of the nature of a best estimate for three reasons.

1130 The first was that he should have familiarised himself with the 1996, 1998, 2000 and 2001 Trowbridge reports, which were said to contain a number of references said to warrant inquiry into the certainty associated with the “best estimate” in the last of the reports. The references were not specific to a “best estimate”, which did not appear until 2001, but to Trowbridge’s warnings that their estimates were subject to considerable uncertainty and significant deviations could be expected. It was said that Mr Morley should have inquired because he was the chief financial officer of the group, and as well a director of Coy and Jsekarb, the two entities bearing asbestos liabilities, and was responsible for the preparation of group accounts which contained contingent liability notes addressing asbestos exposure, and because he was responsible for supervising the cash flow modelling. It was pointed out that he attended a meeting with Trowbridge in relation to the preparation of the February 2001 Trowbridge Report.

1131 The second was that in other ways he had been “alerted to an obvious issue concerning the level of certainty associated with” Trowbridge’s estimates, so as to warrant him ascertaining what that level was. ASIC relied on the matters recorded at LJ [461], part of the extract from the judge’s reasons set out above, other than the letter from Mr Minty, and also on the references in the cash flow model itself to the three different best estimate, most likely and high bases.

1132 The third was that Mr Morley was at the meeting of proposed directors of the Foundation on 13 February 2001, when Mr Minty stated that the “best estimate” was the amount Trowbridge thought to be the most likely on the basis that it was intended to be “neither optimistic nor conservative” (see LJ [463] and at [1058] above), as to which Mr Morley gave the evidence set out by the judge at LJ [463]. ASIC submitted that, even if Mr Morley did not in his answer concede that he was aware of the nature of a best estimate, his appreciation of an estimate “precisely in the middle” (counsel’s words, not Mr Minty’s) or “neither optimistic nor conservative” should have led to an appreciation, or at least to inquiry which would have brought knowledge, that the estimate only had a 50 per cent probability of being achieved.

1133 It may be accepted that Mr Morley was aware or should have been aware that Trowbridge’s estimates of asbestos liabilities were not certain, and were subject to many variables and to deviation from the estimated figures. As chief financial officer, he could be expected to be particularly conscious of the consequential uncertainties for financial reporting – as no doubt was part of his concern over the introduction of ED88. However, it is difficult to see that he should have enquired into “best estimate” when that phrase was not used until 2001, and Trowbridge had otherwise explained the nature of the estimates in the earlier reports.

1134 The substance of ASIC’s submissions, and they did not go much further, was that he should therefore have asked what was meant by “best estimate” in the February 2001 Trowbridge Report, when an estimate so described was put forward and the best estimate was used in the cash flow modelling. The unstated corollary was that Mr Morley would have been told that it was an estimate with only a 50 per cent chance probability of being achieved.

1135 As with Mr Shafron, in the light of what Mr Minty said on 13 February 2001 it may be doubted whether inquiry would have brought the response that the Trowbridge best estimate was one having only a 50 per cent probability of being achieved. However, we do not think that ASIC established that Mr Morley ought to have known that that was its nature.

1136 As chief financial officer, Mr Morley was concerned to work with the information provided to him by the actuaries. The irreducible fact was that Trowbridge’s estimates were but estimates. Only in February 2001 did “best estimate” emerge, meaning an estimate on the assumed claim numbers so described in the February 2001 Trowbridge Report. Mr Shafron rather than Mr Morley dealt with Trowbridge, and Mr Morley could reasonably take the figures as an estimate, come to on the best estimate basis described in the report, without further enquiry. He worked with what the actuaries, who were the experts, had provided.

1137 Mr Morley heard Mr Minty’s explanation on 13 February 2001. We do not think that, any more than Mr Shafron, a reasonable person with his responsibilities would have enquired further into the best estimate than Mr Minty had then explained: to repeat, that a best estimate was “the amount which we think is most likely to be the outcome on the basis that it is intended to be neither optimistic nor conservative”. This did not invite or call for inquiry into the numerical probability of the estimate being achieved.

1138 We go then to superimposed inflation. ASIC submitted that Mr Morley ought to have known that the Trowbridge best estimate did not take into account superimposed inflation, as a prudent estimate would have, because, in summary -

the June 2000 draft report had assumed claim payment inflation at 4 per cent;

Mr Shafron’s presentation at the August 2000 board meeting (see [130] above), which was attended by Mr Morley, had included that JHIL’s “settlement costs” had increased for “meso” by 45% over 5 years and “non-meso” by nearly double over 2 years;

Mr Morley agreed in his evidence that he understood that there was a discrepancy between the 4 per cent inflation assumption and JHIL’s experience of an increasing cost of claims;

from the slides for the February meeting, referring to the same assumptions and specifically to 4 per cent, the cash flow modelling used a best estimate which did not take account of superimposed inflation; and

Mr Morley ought to have appreciated this; and

because of his understanding from the August 2000 meeting, Mr Morley ought to have appreciated that superimposed inflation should be taken into account.

1139 ASIC relied also on Mr Morley’s evidence set out at LJ [473], which is part of the extract from the judge’s reasons earlier set out. It said that although Mr Morley may have had the understanding that the Watson and Hurst data assumed that claims would increase higher than the ordinary inflation rate, his answer showed an appreciation that they would so increase, and thus that prudence required that superimposed inflation be taken into account.

1140 Mr Morley submitted that it would be unreasonable to hold that a person in his position should have known of the need to take account of superimposed inflation unless he was directly told. He said that Mr Shafron had responsibility within JHIL for dealing with Trowbridge and asbestos liabilities, and spoke to the Trowbridge assumptions in the cashflow model at the February meeting. Mr Morley did not see a Trowbridge report until the February 2001 material (this appears to have been due to maintaining their status as legally privileged). He first had contact with Trowbridge on 19 January 2001, and the only other direct contact was at the meeting of proposed Foundation directors on 13 February 2001. Mr Morley submitted that he had no actuarial training or experience, and could not have been expected to understand the term “superimposed inflation”, which he heard for the first time at the meeting of proposed directors on 13 February 2001 where it was not explained. He assumed it meant nothing more than a rate of inflation greater than the CPI. His understanding was that the Watson and Hurst data dealt sufficiently with claims inflation.

1141 We are not persuaded that Mr Morley ought to have known, in short, that superimposed inflation had not been taken into account and should have been. The contravention alleged by ASIC was in specific terms, that Mr Morley ought to have known, and failed to advise the board that, the best estimate “had not taken into account superimposed inflation, and a prudent estimate would have”. We do not think Mr Morley ought to have known of the actuarial concept prior to its mention on 13 February 2001; again, he took the information provided by the actuaries. (Mr Shafron was in a different position; he did know of it, and had the involvement in Trowbridge’s reports.) No doubt there should not be undue insistence on knowledge of the precise concept, and it could be sufficient to understand that the cost of claims would or might increase at a rate greater than allowed for by Trowbridge. But in our opinion a reasonable person with Mr Morley’s responsibilities would not have entered into Mr Shafron’s involvement with Trowbridge’s estimates and enquired into the account taken in the February 2001 Trowbridge report, or the Trowbridge 50 Year Estimate, of the rate at which claims might increase in the future.

1142 In his evidence preceding the evidence set out at LJ [473] Mr Morley accepted that Trowbridge assumed claims increasing by about the inflation rate of 4 per cent but that JHIL’s experience had been that claims were increasing at more than the inflation rate. But he was not challenged on his understanding that the Watson and Hurst data dealt sufficiently with claims inflation. His understanding was incorrect, but it was not put to him that he had unreasonably gained that understanding or that he should have gone further notwithstanding that understanding. The detail of any additional allowance by the actuaries was reasonably left as a matter for Mr Shafron.

1143 In the case of Mr Morley, we do not uphold the cross-appeal.

9. WHERE TO FROM HERE?

1144 The contraventions upheld or found on cross-appeal are -

Contraventions by Mr Shafron in relation to the DOCI and in relation to superimposed inflation; and

Contravention by Mr Morley in relation to the cash flow analysis.

1145 The contravention by Mr Shafron in relation to superimposed inflation was not amongst the contraventions found by the judge. When his Honour addressed relief from liability and pecuniary penalty and disqualification, therefore, Mr Shafron did not have occasion to consider calling evidence, or to make submissions, directed to that contravention. He should have the opportunity to do so. He should also have the opportunity to make submissions in the light of his successful appeal against the finding of contravention in relation to the cash flow model.

1146 Further, although the contraventions now in play are not dependent on the passing of the Draft ASX Announcement Resolution, the context for the judge’s conclusions in the penalty judgment was that the draft news release had been before the February meeting for approval as an ASX announcement, and had been approved. Mr Shafron and Mr Morley, and ASIC, may wish to make submissions arising from the now different context.

1147 In our opinion, we should not at present proceed to relief from liability or to pecuniary penalty and disqualification. Whether those matters, or at least pecuniary penalty and disqualification, should be remitted to the judge may depend on whether Mr Shafron wishes to call evidence now that a further contravention has been found. If he does not, this Court may be able to dispose of the remainder of these appeals and cross-appeals on written submissions.

1148 There should be a directions hearing at which Mr Shafron makes that known and the parties (ASIC, Mr Shafron and Mr Morley) briefly state how each submits we should proceed.

1149 There is no reason why we should not make orders finally disposing of the appeals by and cross-appeals against Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel, Mr O’Brien and Mr Willcox, including as to costs; or in the appeals by and cross-claims against Mr Shafron and Mr Morley orders giving effect to our conclusions as to contraventions, although costs in those appeals and cross-appeals should be left for later disposal.

10. THE COSTS APPEAL AND CROSS-APPEAL

1150 The costs orders distinguished between issues in the proceedings: the Draft ASX Announcement issue, the DOCI Execution issue, the Roadshow Presentations issue, the Scheme of Arrangement issue and so on.

1151 The costs order against which Mr Morley appeals was that the judge “[made] no order to costs of the DOCI Execution issue such that Mr Morley and ASIC will bear their own costs of that issue”.

1152 The costs ordered against which ASIC appealed, but only as against Messrs O’Brien and Terry, was that the judge “[made] no order as to costs of the group of issues comprising the allegations with respect to the Draft ASX Announcement, the Final ASX Announcement, the Press Conference Statements, the 23 February ASX Announcement and the 21 March 2001 ASX Announcement”.

10.1 Mr Morley’s appeal

1153 Mr Morley contended that ASIC should have been ordered to pay his costs referable to the DOCI Execution issue, because he had been wholly successful in defending ASIC’s claims against him on that issue.

1154 It is not necessary now to describe the DOCI Execution issue. Costs as between ASIC and Mr Morley should be decided once the overall result in the proceedings is known. The same dispute may remain, but Mr Morley’s costs appeal should be stood over for consideration together with, or following, the further consideration of relief from liability, and pecuniary penalty and disqualification.

10.2 ASIC’s cross-appeal

1155 ASIC contended that the judge should have ordered that Mr O’Brien and Mr Terry pay its costs of the Draft ASX Announcement issue, because the only contravention alleged against them concerned that issue and with limited exceptions it was successful in its case. The cross-appeal falls away with the success of the appeals of Mr Terry and Mr O’Brien. ASIC must pay all their costs.

11. ORDERS

1156 We make the following orders -

(a) Appeal allowed.

(b) Set aside the declaration and orders made against the appellant on 27 August 2009;

(c) Order that the proceedings against the appellant be dismissed with costs.

(d) Cross-appeal dismissed.

(a) Appeal against the declaration made on 27 August 2009 dismissed.

(b) Cross-appeal dismissed.

(c) Stand over the appeal and cross-appeal to 9.30 am on 4 February 2011 before Giles JA for directions for their further conduct.

(a) Appeal allowed in part.

(b) Set aside declarations 1 and 2 made on 27 August 2009.

(c) Appeal against declaration 3 made on 27 August 2009 dismissed.

(d) Cross-appeal allowed in part.

(e) Declare that the appellant contravened s 180(1) in relation to JHIL by his conduct, as an officer of that corporation, on or about 15 February 2001 in failing to advise its board of directors that the best estimate contained in a schedule attached to an e-mail dated 9 February 2001 and in a report dated 13 February 2001 being estimates by Trowbridge Deloitte Ltd of JHIL’s liabilities for exposure to asbestos products for up to 50 years and for 20 years respectively had not taken into account superimposed inflation, and a prudent estimate would have.

(g) Cross-appeal otherwise dismissed.

**********

17/12/2010 - Order 4 deleted - incorrect - Paragraph(s) 1156

Details

AGLC: Morley v Australian Securities and Investments Commission [2010] NSWCA 331
Case: [2010] NSWCA 331
Decision Date: 17 December 2010

CaseChat Overview and Summary

The appeal concerned declarations made by the primary judge that certain individuals, including the appellant Morley, had contravened their statutory duties under the *Corporations Act 2001* (Cth) and that a company had contravened its obligation to comply with the ASX Listing Rules. The Australian Securities and Investments Commission (ASIC) alleged that a misleading announcement was sent to the ASX, and that a resolution to approve this announcement was passed at a board meeting. The dispute involved detailed consideration of the factual circumstances surrounding this board meeting and the subsequent announcement.

The court was required to determine whether the pleaded version of the draft announcement was taken to the board meeting, whether a resolution to approve it was passed, and whether ASIC had fulfilled its obligations of fairness in the proceedings. Further issues included whether non-executive directors contravened their duty of care and diligence in voting for the resolution, and whether the company secretary and chief financial officer were officers of the company and had contravened their statutory duties of care and diligence. The admissibility of certain evidence, including prior inconsistent statements and admissions, was also in question.

The Court of Appeal allowed the appeal in part, setting aside declarations made against the appellant Morley. It found that ASIC had breached its obligation of fairness by failing to call witnesses who were present at the board meeting, and that this failure meant the onus of proof had not been discharged. Consequently, it was not proved that the resolution to approve the announcement had been passed. The court also considered the duties of directors and officers, noting that non-executive directors may rely on management, but that this reliance has limits. The court found that the company secretary and chief financial officer were officers and that certain breaches of their duties were properly found, particularly concerning the failure to advise on the omission of superimposed inflation from estimates.

In relation to the appellant Morley, the appeal was allowed, and the declarations and orders made against him were set aside, with the proceedings dismissed. ASIC was ordered to pay Morley's costs of the appeal. However, in relation to other parties and declarations, the appeal was dismissed or allowed in part, with further directions to be given for the conduct of the remaining aspects of the proceedings.

Orders

Orders of the court

1. In each of 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524: (a) Appeal allowed; (b) Set aside the declaration and orders made against the appellant on 27 August 2009; (c) Order that the proceedings against the appellant be dismissed with costs. (d) Cross-appeal dismissed. (e) Order that ASIC pay the appellant’s costs of the appeal and cross-appeal.

...

2. In 2009/298408: (a) Appeal against the declaration made on 27 August 2009 dismissed; (b) Cross-appeal dismissed; (c) Stand over the appeal and cross-appeal to 9.30 am on 4 February 2011 before Giles JA for directions for their further conduct.

...

3. In 2009/298416: (a) Appeal allowed in part; (b) Set aside declarations 1 and 2 made on 27 August 2009; (c) Appeal against declaration 3 made on 27 August 2009 dismissed; (d) Cross-appeal allowed in part; (e) Declare that the appellant contravened s 180(1) in relation to JHIL by his conduct, as an officer of that corporation, on or about 15 February 2001 in failing to advise its board of directors that the best estimate contained in a schedule attached to an e-mail dated 9 February 2001 and in a report dated 13 February 2001 being estimates by Trowbridge Deloitte Ltd of JHIL’s liabilities for exposure to asbestos products for up to 50 years and for 20 years respectively had not taken into account superimposed inflation, and a prudent estimate would have; (f) Liberty to apply within 14 days in relation to the terms of the declaration in (e); (g) Cross-appeal otherwise dismissed; (h) Stand over the appeal and cross-appeal to 9.30 am on 4 February 2011 before Giles JA for directions for their further conduct.

***

[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.]

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Citations

Morley v Australian Securities and Investments Commission [2010] NSWCA 331

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Citation 11 (Para 1)

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Citation 13 (Para 3)

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Citation 18

…140 Moubarak by his tutor Coorey v Holt [2019] NSWCA 102; (2019) 100 NSWLR 218 Musa v Alzreaiawi [2021] NSWCA 12 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170; (1992) 110 ALR 449 Nguyen v Cosmopolitan Homes (NSW) Pty Ltd [2008] NSWCA 246 Nguyen v R [2022] NSWCCA 126 NOM v Direc…
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Citation 37 (Para 753)

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…ern Australia [2018] WASCA 24 Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 247 FLR 140 Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 Neilson v Overseas Projects Corp of Victoria Ltd [2005] HCA…
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Citation 39

…13 BPR 24,713 Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 Nadinic v Drinkwater (2017) 94 NSWLR 518; [2017] NSWCA 114 National Roads and Motorists’ Association Ltd v Parkin (2004) 60 NSWLR 224; [2004] NSWCA 153 New South Wales Cancer Council v Sarfaty (1992) 28 NSWL…
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Citation 42

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Citation 43

…o Pty Ltd [2011] NSWSC 1125 Maddock & Maddock & Anor (No.2) [2011] FMCAfam 1340 Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331 Nguyen v Cosmopolitan Homes [2008] NSWCA 246 NOM v DPP [2012] VSCA 198 R v E (1997) 96 A Crim R 489 Sarbandi v Sharif [2017] ACAT 57 Seltsam Pty Ltd v McGu…
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Citation 45

…d Investments Commission v Fuelbanc Australia Limited (2007) 162 FCR 174 Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128 Morley v Australian Securities and Investments Commission (2010) 81 ACSR 285 Morley v Australian Securities and Investments Commission (No 2) (2011) 83 ACSR 620 Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (20…
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Citation 46 (Para 254)

…cipation to the making of the decisions, but beyond that it is a question of fact": Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 at [893]. In Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 286 ALR 612; 88 ACSR 126, the High Court he…
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Citation 47 (Para 75)

…rd appropriate for allegations of misconduct of a significant character or criminal conduct: Morley v Australian Securities Investment Commission [2010] NSWCA 331; 81 ACSR 285 at [741]-[747] (Spigelman CJ, Beazley and Giles JJA). They also relied on Ashby v Slipper (2014) 219 FCR 322; [2014] FCAFC 15 at [69] (Mansf…
El-Wasfi v State of New South Wales; Kassas v State of New South Wales [2017] NSWCA 332
Citation 48

…ray v Motor Accident Commission (1998) 196 CLR 1; [1998] HCA 70 Morley v Australian Securities and Investments Commission [2010] NSWCA 331; 274 ALR 205 Petty v The Queen (1991) 173 CLR 95; [1991] HCA 34 Phipps v State Rail Authority of New South Wales (1986) 4 NSWLR 444 Polley v Johnson [2015] NSWCA 256; 253 A Crim…
General Manager of the Fair Work Commission v McGiveron [2017] FCA 405
Citation 49 (Para 6)

…er (2002) 41 ACSR 72 at [372(4)]; [2002] NSWSC 171, applied in Morley v Australian Securities and Investments Commission (2010) 81 ACSR 285 at [807]; [2010] NSWCA 331; Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd (2011) 84 ASCR 616 at [90] (Croft J); [2010] VSC 288; Parker v Tucker (2010) 77 ACSR 525 at […
Hill and Australian Securities and Investments Commission [2017] AATA 352
Citation 50 (Para 6)

…case law that a non-executive director may be reliant on management and other officers to a greater extent than an executive director: Morley v ASIC [2010] NSWCA 331; 81 ACSR 285 at [807]. Beyond this, no general statement can be made as to the standard expected of a non-executive director: Morley at [807].…

Cases Cited

Statutory Material Cited

Lee v The Queen [2014] HCA 20
Citation 1

…Shoalhaven Shire Council (1979) 1 NSWLR 537; Lustre Hosiery Limited v York (1935) 55 CLR 134; Mahenthirarasa v State Rail Authority (NSW) (No 2) [2008] NSWCA 2001; (2008) 72 NSWLR 273; Manly Council v Byrne [2004] NSWCA 123; Melbourne Streamship Co Limited v Moorehead (1912) 15 CLR 333; Milwell Pty Ltd v Olympic Amus…
ROSE & BAUDIN [2012] FamCAFC 171
Citation 2

…994) 181 CLR 387; Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504; Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572; House v The King (1936) 55 CLR 499; Hughes Aircraft Systems International v Air Services Australia (1…
Wickey v McVicar [2012] ACTCA 38
Citation 3

…rcraft Systems International v Air Services Australia (1997) 76 FCR 151; Jago v District Court (NSW) (1989) 168 CLR 23; James Hardie & Co Pty Ltd v Putt (1998) 43 NSWLR 554; James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; Jones v Dunkel (1959) 101 CLR 298; Kenny v Stat…
James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332
Citation 4

…nkel (1959) 101 CLR 298; Kenny v State of South Australia (1987) 46 SASR 268; Kuru v State of New South Wales [2008] HCA 26; (2008) 236 CLR 1; Lee v The Queen (1998) 195 CLR 594; Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537; Lustre Hosiery Limited v York (1935) 55 CLR 134; Mahenthirarasa v State Rail Authori…
R v Adam [2010] NSWSC 1162
Citation 5

…ns; Ex parte Morrison (1949) VLR 277; Rejfek v McElroy (1965) 112 CLR 521; Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129; Ridgeway v The Queen (1995) 184 CLR 19; SCI Operations v The Commonwealth (1996) 69 FCR 346; Scott v Handley [1999] FCA 404; (1999) 58 ALD 373; Seiwa Aus…
Shelley and Hunt and Ors [2010] FamCA 225
Citation 6

…v The Queen (1998) 193 CLR 173; O’Brien v Australian Securities and Investments Commission [2009] NSWCA 312; P & C Cantarella v The Egg Marketing Board of New South Wales (1973) 2 NSWLR 366; Payne v Parker (1976) 1 NSWLR 191; Qantas Airways Ltd v Gama [2008] 1 FCAFC 69; The Queen v Apostolides (1984) 154 CLR 563; (2…
ASIC v Lindberg (No 2) [2010] VSCA 19
Citation 7

…Securities and Investments Commission v Macdonald (No 3) [2008] NSWSC 1099; Australian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169; Australian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175; Australian Securities and Investments Commission v Rich [2003]…
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229
Citation 8

…236 FLR 1; (2009) 75 ACSR 1; Australian Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282; Barnett, Hoares & Co v South London Tramways Co (1887) 18 QBD 815; re Belhaven and Stenton Peerage (1875) 1 App Cas 278; Berkey v Third Avenue Railway Company 244 NY 84 (1926); Blatch v Archer…
O'Brien v Australian Securities and Investments Commission [2009] NSWCA 312
Citation 9

…ella v The Egg Marketing Board of New South Wales (1973) 2 NSWLR 366; Payne v Parker (1976) 1 NSWLR 191; Qantas Airways Ltd v Gama [2008] 1 FCAFC 69; The Queen v Apostolides (1984) 154 CLR 563; (2008) 167 FCR 537; R v Adam [1999] NSWCCA 197; (1999) 47 NSWLR 267; R v Jenkins; Ex parte Morrison (1949) VLR 277; Rejfek…
Letsos & Vakros [2009] FMCAfam 897
Citation 10

…Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 504; Adler v Director of Public Prosecutions (C'th) [2004] NSWCCA 352; (2004) 185 FLR 422; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253; Australian Securities and Investments Commission…
Australian Securities and Investments Commission v MacDonald (No 12) [2009] NSWSC 714
Citation 11

…alian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714…
Seiwa Australia Pty Ltd v Beard [2009] NSWCA 240
Citation 12

…Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262; Shalhoub v Buchanan [2004] NSWSC 99; Shepherd v The Queen (1990) 170 CLR 575; Tim Barr Pty Ltd v Nauri Gold Coast Pty Ltd [2008] NSWSC 657; Transport Industries Insurance Co Ltd v Longmuir (1997) 1 VR 125; Trevitt v NSW TAFE Commission [2001] NSWCA 363; Vines v…
Yarrabee Coal Co Pty Ltd v Lujans [2009] NSWCA 85
Citation 13

…187. PARTIES: MATTER NO. 2009/00298408: Phillip Graham Morley - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298416: Peter James Shafron - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-ap…
Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287
Citation 14

…2009 (Liability); 20 August 2009 (Penalty) LOWER COURT MEDIUM NEUTRAL CITATION: Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714…
Gett v Tabet [2009] NSWCA 76
Citation 15

…ALR 504; Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572; House v The King (1936) 55 CLR 499; Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151; Jago v District Court (NSW) (1989) 168…
Adler v Singer [2009] NSWSC 312
Citation 16

…an Securities and Investments Commission v Rich [2009] NSWSC 1229; [2009] 236 FLR 1; (2009) 75 ACSR 1; Australian Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282; Barnett, Hoares & Co v South London Tramways Co (1887) 18 QBD 815; re Belhaven and Stenton Peerage (1875) 1 App Cas 27…
Austrialian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175
Citation 17

…ian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) ACSR 341; Australian Securities and Investments Commission v Rich [2009] NSWSC 312; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; [2009] 236 FLR 1; (2009) 75 ACSR 1; Australian Securities and Investments Commission…
Australian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169
Citation 18

…ian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175; Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) ACSR 341; Australian Securities and Investments Commission v Rich [2009] NSWSC 312; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229…
Australian Securities and Investments Commission v Macdonald (No 3) [2008] NSWSC 1099
Citation 19

…ian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169; Australian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175; Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) ACSR 341; Australian Securities and Investments Commission v Rich [200…
Mahenthirarasa v State Rail Authority of New South Wales (No 2) [2008] NSWCA 201
Citation 20

…ouncil v Byrne [2004] NSWCA 123; Melbourne Streamship Co Limited v Moorehead (1912) 15 CLR 333; Milwell Pty Ltd v Olympic Amusements Pty Ltd [1999] FCA 63; (1999) 85 FLR 436; Minlabs Pty Ltd v Assaycorp Pty Ltd [2001] WASC 88; (2001) ACSR 509; Morrison v Jenkins (1949) 80 CLR 626; National Exchange Pty Ltd v Australia…
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 657
Citation 21

…dustries Insurance Co Ltd v Longmuir (1997) 1 VR 125; Trevitt v NSW TAFE Commission [2001] NSWCA 363; Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; Visy Industries Holdings Pty Ltd v Australian Competition and Consumer Commission [2007] FCAFC 147; (2007) 161 FLR 122;…
Kuru v State of New South Wales [2008] HCA 26
Citation 22

…R 1; Lee v The Queen (1998) 195 CLR 594; Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537; Lustre Hosiery Limited v York (1935) 55 CLR 134; Mahenthirarasa v State Rail Authority (NSW) (No 2) [2008] NSWCA 2001; (2008) 72 NSWLR 273; Manly Council v Byrne [2004] NSWCA 123; Melbourne Streamship Co Limited v Moore…
In re CD (Original Respondent and Cross-appellant) (Northern Ireland) [2008] UKHL 33
Citation 23

…1499; Dr Andrew Roberts-Szudzinski Pty Ltd v .au Domain Administration Ltd [2006] NSWSC 950; Dwyer v Lippiatt (2004) 50 ACSR 333; [2004] QSC 281; Fox v Percy [2003] HCA 22; (2003) 214 CLR 118; G v H (1994) 181 CLR 387; Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504; Re HIH Insurance Ltd; Australian Securities…
Visy Industries Holdings Pty Ltd v Australian Competition and Consumer Commission [2007] FCAFC 147
Citation 24

…LR 122; Walton v Gardiner (1993) 177 CLR 378; Warren v Coombes (1979) 142 CLR 531; (1979) 23 ALR 405; West v Government Insurance Office of NSW (1981) 148 CLR 62; Whitehorn v The Queen (1983) 152 CLR 657; Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559; Williams v Sp…
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132
Citation 25

…60 FCR 466; Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62; CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 224 ALR 1; CSR Ltd v Wren (1997) 44 NSWLR 463; Daniels v Anderson (1995) 37 NSWLR 438; Deputy Commissioner of Taxation v Clark (2005) 45 ACSR 332; Dietrich v The Queen (1992) 177 CLR 2…
Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963
Citation 26

…Securities and Investments Commission v Lindberg (No 2) [2010] VSCA 19; Australian Securities and Investments Commission v Macdonald (No 3) [2008] NSWSC 1099; Australian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169; Australian Securities and Investments Commission v Macdonald (No 6)…
Vines v Australian Securities and Investments Commission [2007] NSWCA 126
Citation 27

…stries Holdings Pty Ltd v Australian Competition and Consumer Commission [2007] FCAFC 147; (2007) 161 FLR 122; Walton v Gardiner (1993) 177 CLR 378; Warren v Coombes (1979) 142 CLR 531; (1979) 23 ALR 405; West v Government Insurance Office of NSW (1981) 148 CLR 62; Whitehorn v The Queen (1983) 152 CLR 657; Whitlam v A…
Vines v Australian Securities and Investments Commission [2007] NSWCA 75
Citation 28

…LR 451; Visy Industries Holdings Pty Ltd v Australian Competition and Consumer Commission [2007] FCAFC 147; (2007) 161 FLR 122; Walton v Gardiner (1993) 177 CLR 378; Warren v Coombes (1979) 142 CLR 531; (1979) 23 ALR 405; West v Government Insurance Office of NSW (1981) 148 CLR 62; Whitehorn v The Queen (1983) 152…
NBMH v Minister for Immigration and Citizenship [2007] FCA 175
Citation 29

…shaw v Briginshaw (1938) 60 CLR 336; Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45; Chamberlain v The Queen (No 2) (1984) 153 CLR 521; Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 216 CLR 161; Commissioner for Corporate Affairs v…
ASIC v Rich [2007] NSWSC 39
Citation 30

…The Queen (1995) 184 CLR 19; SCI Operations v The Commonwealth (1996) 69 FCR 346; Scott v Handley [1999] FCA 404; (1999) 58 ALD 373; Seiwa Australia Pty Ltd v Beard [2009] NSWCA 240; Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262; Shalhoub v Buchanan [2004] NSWSC 99; Shepherd v The Queen (1990) 170…
Dr Andrew Roberts-Szudzinski Pty Ltd v .au Domain Administration Ltd [2006] NSWSC 950
Citation 31

…ppiatt (2004) 50 ACSR 333; [2004] QSC 281; Fox v Percy [2003] HCA 22; (2003) 214 CLR 118; G v H (1994) 181 CLR 387; Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504; Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572; H…
Australian Securities and Investments Commission v Vines [2006] NSWSC 760
Citation 32

…t, Hoares & Co v South London Tramways Co (1887) 18 QBD 815; re Belhaven and Stenton Peerage (1875) 1 App Cas 278; Berkey v Third Avenue Railway Company 244 NY 84 (1926); Blatch v Archer (1774) 1 Cowp 63; 98 ER 969; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424; Briginshaw v Brig…
Johnson and Johnson Pacific Pty Limited v Unilever Australia Limited [2006] FCA 486
Citation 33

…lain v The Queen (No 2) (1984) 153 CLR 521; Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 216 CLR 161; Commissioner for Corporate Affairs v Bracht (1989) VR 821; Commissioner for Revenue (ACT) v Slaven (2009) FCA 744; Communications, Electrical, Electronic, Energy, Info…
CSR Ltd v Della Maddalena [2006] HCA 1
Citation 34

…1; CSR Ltd v Wren (1997) 44 NSWLR 463; Daniels v Anderson (1995) 37 NSWLR 438; Deputy Commissioner of Taxation v Clark (2005) 45 ACSR 332; Dietrich v The Queen (1992) 177 CLR 292; Re Doherty (Secretary of State for Northern Ireland Intervening) [2008] UKHL 33; (2008) 1 WLR 1499; Dr Andrew Roberts-Szudzinski Pt…
Gama v Qantas Airways Ltd [2006] FMCA 11
Citation 35

…1999] NSWCCA 197; (1999) 47 NSWLR 267; R v Jenkins; Ex parte Morrison (1949) VLR 277; Rejfek v McElroy (1965) 112 CLR 521; Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129; Ridgeway v The Queen (1995) 184 CLR 19; SCI Operations v The Commonwealth (1996) 69 FCR 346; Scott v Han…
Australian Securities and Investments Commission v Rich [2005] NSWCA 152
Citation 36

…an Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282; Barnett, Hoares & Co v South London Tramways Co (1887) 18 QBD 815; re Belhaven and Stenton Peerage (1875) 1 App Cas 278; Berkey v Third Avenue Railway Company 244 NY 84 (1926); Blatch v Archer (1774) 1 Cowp 63; 98 ER 969; Branir…
Adler v Director of Public Prosecutions [2004] NSWCCA 352
Citation 37

…185 FLR 422; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253; Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; Australian Securities and Investments Commission v Lindberg (No 2) [2010] VSCA 19; Australia…
Rich v Australian Securities and Investments Commission [2004] HCA 42
Citation 38

…129; Ridgeway v The Queen (1995) 184 CLR 19; SCI Operations v The Commonwealth (1996) 69 FCR 346; Scott v Handley [1999] FCA 404; (1999) 58 ALD 373; Seiwa Australia Pty Ltd v Beard [2009] NSWCA 240; Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262; Shalhoub v Buchanan [2004] NSWSC 99; Shepherd v…
Dwyer v Lippiatt &Ors; Re: Backpackers R Us.Com Pty Ltd [2004] QSC 281
Citation 39

…[2003] HCA 22; (2003) 214 CLR 118; G v H (1994) 181 CLR 387; Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504; Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572; House v The King (1936) 55 CLR 499; Hughes Aircraft Sy…
Manly Council v Byrne [2004] NSWCA 123
Citation 40

…Streamship Co Limited v Moorehead (1912) 15 CLR 333; Milwell Pty Ltd v Olympic Amusements Pty Ltd [1999] FCA 63; (1999) 85 FLR 436; Minlabs Pty Ltd v Assaycorp Pty Ltd [2001] WASC 88; (2001) ACSR 509; Morrison v Jenkins (1949) 80 CLR 626; National Exchange Pty Ltd v Australian Securities and Investments Commission…
National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90
Citation 41

…SCR 369; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; (1992) 67 ALJR 170; Nicholas v The Queen (1998) 193 CLR 173; O’Brien v Australian Securities and Investments Commission [2009] NSWCA 312; P & C Cantarella v The Egg Marketing Board of New South Wales (1973) 2 NSWLR 366; Payne v Parker (1…
Shalhoub v Buchanan [2004] NSWSC 99
Citation 42

…e Queen (1990) 170 CLR 575; Tim Barr Pty Ltd v Nauri Gold Coast Pty Ltd [2008] NSWSC 657; Transport Industries Insurance Co Ltd v Longmuir (1997) 1 VR 125; Trevitt v NSW TAFE Commission [2001] NSWCA 363; Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; Visy Industries…
Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd [2004] NSWCA 105
Citation 43

…ACSR 62; CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 224 ALR 1; CSR Ltd v Wren (1997) 44 NSWLR 463; Daniels v Anderson (1995) 37 NSWLR 438; Deputy Commissioner of Taxation v Clark (2005) 45 ACSR 332; Dietrich v The Queen (1992) 177 CLR 292; Re Doherty (Secretary of State for Northern Ireland Intervening) [2008]…
Australian Securities and Investments Commission v Vines [2003] NSWSC 995
Citation 44

…8 ACSR 282; Barnett, Hoares & Co v South London Tramways Co (1887) 18 QBD 815; re Belhaven and Stenton Peerage (1875) 1 App Cas 278; Berkey v Third Avenue Railway Company 244 NY 84 (1926); Blatch v Archer (1774) 1 Cowp 63; 98 ER 969; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 42…
Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49
Citation 45

…CLR 161; Commissioner for Corporate Affairs v Bracht (1989) VR 821; Commissioner for Revenue (ACT) v Slaven (2009) FCA 744; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007…
Button v Chapman [2003] FCA 861
Citation 46

…oombes (1979) 142 CLR 531; (1979) 23 ALR 405; West v Government Insurance Office of NSW (1981) 148 CLR 62; Whitehorn v The Queen (1983) 152 CLR 657; Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559; Williams v Spautz (1992) 174 CLR 509; Yarrabee Coal Company Ltd v Lujan…
Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183
Citation 47

…WLR 559; Williams v Spautz (1992) 174 CLR 509; Yarrabee Coal Company Ltd v Lujans [2009] NSWCA 85; (2009) 53 MVR 187. PARTIES: MATTER NO. 2009/00298408: Phillip Graham Morley - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298416: Peter Ja…
Adler v Australian Securities and Investments Commission [2003] NSWCA 131
Citation 48

…6 ACSR 504; Adler v Director of Public Prosecutions (C'th) [2004] NSWCCA 352; (2004) 185 FLR 422; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253; Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; Austra…
Deputy Commissioner of Taxation v Clark [2003] NSWCA 91
Citation 49

…ion v Clark (2005) 45 ACSR 332; Dietrich v The Queen (1992) 177 CLR 292; Re Doherty (Secretary of State for Northern Ireland Intervening) [2008] UKHL 33; (2008) 1 WLR 1499; Dr Andrew Roberts-Szudzinski Pty Ltd v .au Domain Administration Ltd [2006] NSWSC 950; Dwyer v Lippiatt (2004) 50 ACSR 333; [2004] QSC 281; Fox v Percy [2003] HCA 22; (2003)…
Fox v Percy [2003] HCA 22
Citation 50

…R 118; G v H (1994) 181 CLR 387; Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504; Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572; House v The King (1936) 55 CLR 499; Hughes Aircraft Systems International v Air S…

AI Chat coming soon

CITATION:	Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	19, 20, 21, 22, 23, 27, 28, 29, 30 April 2010
JUDGMENT DATE:	17 December 2010
JUDGMENT OF:	Spigelman CJ; Beazley JA; Giles JA
DECISION:	1. In each of 2009/298425, 2009/298427, 2009/298428, 2009/298440, 2009/298441, 2009/298442 and 2009/298524: (a) Appeal allowed; (b) Set aside the declaration and orders made against the appellant on 27 August 2009; (c) Order that the proceedings against the appellant be dismissed with costs. (d) Cross-appeal dismissed. (e) Order that ASIC pay the appellant’s costs of the appeal and cross-appeal. ... 2. In 2009/298408: (a) Appeal against the declaration made on 27 August 2009 dismissed; (b) Cross-appeal dismissed; (c) Stand over the appeal and cross-appeal to 9.30 am on 4 February 2011 before Giles JA for directions for their further conduct. ... 3. In 2009/298416: (a) Appeal allowed in part; (b) Set aside declarations 1 and 2 made on 27 August 2009; (c) Appeal against declaration 3 made on 27 August 2009 dismissed; (d) Cross-appeal allowed in part; (e) Declare that the appellant contravened s 180(1) in relation to JHIL by his conduct, as an officer of that corporation, on or about 15 February 2001 in failing to advise its board of directors that the best estimate contained in a schedule attached to an e-mail dated 9 February 2001 and in a report dated 13 February 2001 being estimates by Trowbridge Deloitte Ltd of JHIL’s liabilities for exposure to asbestos products for up to 50 years and for 20 years respectively had not taken into account superimposed inflation, and a prudent estimate would have; (f) Liberty to apply within 14 days in relation to the terms of the declaration in (e); (g) Cross-appeal otherwise dismissed; (h) Stand over the appeal and cross-appeal to 9.30 am on 4 February 2011 before Giles JA for directions for their further conduct. *** [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 – misleading announcement sent to ASX – whether pleaded version of draft announcement taken to board meeting – whether resolution to approve draft announcement and authorise for sending to ASX passed at board meeting – detailed consideration of factual circumstances before, during and after board meeting – consideration of constraints in appellate review – discussion of advantages of trial judges – discussion of advantages in appellate courts – consideration of s 140 of Evidence Act and Briginshaw v Briginshaw – failure to call witnesses who were at board meeting – whether ASIC under obligation akin to prosecutorial duty – whether appropriate to reason by analogy from criminal procedure to civil penalty proceedings – discussion of civil penalty regime – not appropriate to reason by analogy – no prosecutorial duty – whether ASIC’s obligation to act fairly required witnesses to be called – discussion of obligation of fairness owed by government agencies – consideration of principles of fair trial – consideration of government agencies as model litigants – consideration of ASIC’s role as regulator – consideration of ASIC's powers under ASIC Act and Corporations Act – failure to call witnesses may constitute breach of obligation of fairness – consideration of evidentiary principles enunciated in Blatch v Archer, Jones v Dunkel and Whitlam v ASIC – failure to call witnesses taken into account in deciding whether onus of proof satisfied – breach of obligation of fairness taken into account in deciding whether onus of proof satisfied – obligation of fairness breached – burden of proof not discharged – not proved that resolution passed. CORPORATIONS – directors’ statutory duty of care and diligence under s 180 of Corporations Law – assuming resolution passed, whether non-executive directors contravened duty in voting for resolution – discussion of duty of care and diligence of non-executive directors – non-executive directors may rely on management and officers to a greater extent than executive directors – duty dependent on facts of each case – consideration of factual circumstances surrounding resolution – if resolution passed, contravention properly found. CORPORATIONS – definition of officer in s 9 of Corporations Law – consideration of company secretary as officer when also general counsel – whether participation in matters that affected the whole or a substantial part of the business – participation need not be as one of those in ultimate control – test is one of participation in making of decision – participation more than administrative arrangement – must be real contribution to making of decision – participation made out – whether statutory duty extends to any matter which falls within the scope of responsibilities as company secretary – duty extends to responsibilities actually carried out by company secretary – relevant acts and omissions were within responsibilities as company secretary. CORPORATIONS – statutory duty of care and diligence of company secretary – assuming resolution passed, whether duty of care breached in failing to advise draft announcement was misleading – would be breach – whether duty breached in failing to warn of limitations in cash flow models – no breach because knowledge of limitations not proved – whether duty breached in failing to advise or obtain advice for board or CEO concerning disclosure of Deed of Covenant and Indemnity – whether company secretary could rely on absence of warning by external advisers – reliance not available – breach properly found – whether breach of duty in failing to advise nature of “best estimate” – on facts, no breach – whether breach in failing to advise of failure to take into account superimposed inflation – breach properly found. CORPORATIONS – definition of officer in s 9 of Corporations Law – whether chief financial officer participated in decisions that affected the whole or substantial part of company's business – not confined to acts and omissions alleged to have been in breach of statutory duty as officer – first consider whether person is an officer – then consider whether breach of duty – participation made out – whether chief financial officer had capacity to affect company’s financial standing – test focuses on the particular officer, not an abstract officer – capacity made out. CORPORATIONS – statutory duty of due care and diligence of chief financial officer – whether duty breached in failing to warn of limitations in cash flow analysis –breach properly found – whether duty breached in failing to advise nature of “best estimate” and failing to take into account superimposed inflation – on facts, no breach. EVIDENCE – admissibility – admissibility of prior inconsistent statement for non-hearsay purpose – consideration of R v Adam and Adam v The Queen – no inconsistency identified – admissibility as admissions of documents stating resolution had been passed – consideration of Lustre Hosiery Limited v York – whether circumstances were such as to make it unlikely that erroneous statements would be allowed to pass unchallenged – no error shown in ruling not admissible.
CATEGORY:	Principal judgment
CASES CITED:	Adam v The Queen [2001] HCA 57; (2001) 207 CLR 96; Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 504; Adler v Director of Public Prosecutions (C'th) [2004] NSWCCA 352; (2004) 185 FLR 422; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253; Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; Australian Securities and Investments Commission v Lindberg (No 2) [2010] VSCA 19; Australian Securities and Investments Commission v Macdonald (No 3) [2008] NSWSC 1099; Australian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169; Australian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175; Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) ACSR 341; Australian Securities and Investments Commission v Rich [2009] NSWSC 312; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; [2009] 236 FLR 1; (2009) 75 ACSR 1; Australian Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282; Barnett, Hoares & Co v South London Tramways Co (1887) 18 QBD 815; re Belhaven and Stenton Peerage (1875) 1 App Cas 278; Berkey v Third Avenue Railway Company 244 NY 84 (1926); Blatch v Archer (1774) 1 Cowp 63; 98 ER 969; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424; Briginshaw v Briginshaw (1938) 60 CLR 336; Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45; Chamberlain v The Queen (No 2) (1984) 153 CLR 521; Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 216 CLR 161; Commissioner for Corporate Affairs v Bracht (1989) VR 821; Commissioner for Revenue (ACT) v Slaven (2009) FCA 744; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 160 FCR 466; Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62; CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 224 ALR 1; CSR Ltd v Wren (1997) 44 NSWLR 463; Daniels v Anderson (1995) 37 NSWLR 438; Deputy Commissioner of Taxation v Clark (2005) 45 ACSR 332; Dietrich v The Queen (1992) 177 CLR 292; Re Doherty (Secretary of State for Northern Ireland Intervening) [2008] UKHL 33; (2008) 1 WLR 1499; Dr Andrew Roberts-Szudzinski Pty Ltd v .au Domain Administration Ltd [2006] NSWSC 950; Dwyer v Lippiatt (2004) 50 ACSR 333; [2004] QSC 281; Fox v Percy [2003] HCA 22; (2003) 214 CLR 118; G v H (1994) 181 CLR 387; Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504; Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572; House v The King (1936) 55 CLR 499; Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151; Jago v District Court (NSW) (1989) 168 CLR 23; James Hardie & Co Pty Ltd v Putt (1998) 43 NSWLR 554; James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; Jones v Dunkel (1959) 101 CLR 298; Kenny v State of South Australia (1987) 46 SASR 268; Kuru v State of New South Wales [2008] HCA 26; (2008) 236 CLR 1; Lee v The Queen (1998) 195 CLR 594; Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537; Lustre Hosiery Limited v York (1935) 55 CLR 134; Mahenthirarasa v State Rail Authority (NSW) (No 2) [2008] NSWCA 2001; (2008) 72 NSWLR 273; Manly Council v Byrne [2004] NSWCA 123; Melbourne Streamship Co Limited v Moorehead (1912) 15 CLR 333; Milwell Pty Ltd v Olympic Amusements Pty Ltd [1999] FCA 63; (1999) 85 FLR 436; Minlabs Pty Ltd v Assaycorp Pty Ltd [2001] WASC 88; (2001) ACSR 509; Morrison v Jenkins (1949) 80 CLR 626; National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ASCR 369; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; (1992) 67 ALJR 170; Nicholas v The Queen (1998) 193 CLR 173; O’Brien v Australian Securities and Investments Commission [2009] NSWCA 312; P & C Cantarella v The Egg Marketing Board of New South Wales (1973) 2 NSWLR 366; Payne v Parker (1976) 1 NSWLR 191; Qantas Airways Ltd v Gama [2008] 1 FCAFC 69; The Queen v Apostolides (1984) 154 CLR 563; (2008) 167 FCR 537; R v Adam [1999] NSWCCA 197; (1999) 47 NSWLR 267; R v Jenkins; Ex parte Morrison (1949) VLR 277; Rejfek v McElroy (1965) 112 CLR 521; Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129; Ridgeway v The Queen (1995) 184 CLR 19; SCI Operations v The Commonwealth (1996) 69 FCR 346; Scott v Handley [1999] FCA 404; (1999) 58 ALD 373; Seiwa Australia Pty Ltd v Beard [2009] NSWCA 240; Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262; Shalhoub v Buchanan [2004] NSWSC 99; Shepherd v The Queen (1990) 170 CLR 575; Tim Barr Pty Ltd v Nauri Gold Coast Pty Ltd [2008] NSWSC 657; Transport Industries Insurance Co Ltd v Longmuir (1997) 1 VR 125; Trevitt v NSW TAFE Commission [2001] NSWCA 363; Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; Visy Industries Holdings Pty Ltd v Australian Competition and Consumer Commission [2007] FCAFC 147; (2007) 161 FLR 122; Walton v Gardiner (1993) 177 CLR 378; Warren v Coombes (1979) 142 CLR 531; (1979) 23 ALR 405; West v Government Insurance Office of NSW (1981) 148 CLR 62; Whitehorn v The Queen (1983) 152 CLR 657; Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559; Williams v Spautz (1992) 174 CLR 509; Yarrabee Coal Company Ltd v Lujans [2009] NSWCA 85; (2009) 53 MVR 187.
PARTIES:	MATTER NO. 2009/00298408: Phillip Graham Morley - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298416: Peter James Shafron - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298425: Gregory James Terry - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298427: Meredith Hellicar - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298428: Michael Robert Brown - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298440: Michael John Gillfillan - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298441: Martin Koffel - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298442: Geoffrey Frederick O’Brien - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant MATTER NO. 2009/00298524: Peter John Willcox - Appellant/Cross-respondent Australian Securities and Investments Commission - Respondent/Cross-appellant
FILE NUMBER(S):	CA 2009/00298408; 2009/00298416; 2009/00298425; 2009/00298427; 2009/00298428; 2009/00298440; 2009/00298441; 2009/00298442; 2009/00298524
COUNSEL:	B C Oslington QC, R A Dick SC & N M Bender - Morley B W Walker SC, R Lancaster SC, N J Owen - Shafron R G McHugh SC & S M Nixon - Terry T F Bathurst QC, R S Hollo, R Hardcastle - Hellicar, Brown, Gillfillan, Koffel P M Wood & M S Henry - O'Brien T Jucovic QC & R Scruby - Willcox A J L Bannon SC, R T Beech-Jones SC, S E Pritchard, J Single - Australian Securities and Investments Commission
SOLICITORS:	Henry Davis York - Morley Middletons - Shafron Blake Dawson - Terry Atanaskovic Hartnell - Hellicar, Brown, Gillfillan, Koffel Arnold Bloch Leibler - O'Brien Kemp Strang - Willcox Clayton Utz - Australian Securities and Investments Commission

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED 1490/07
LOWER COURT JUDICIAL OFFICER:	Gzell J
LOWER COURT DATE OF DECISION:	23 April 2009 (Liability); 20 August 2009 (Penalty)
LOWER COURT MEDIUM NEUTRAL CITATION:	Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714