Woodcroft-Brown v Timbercorp Securities Limited and Ors
[2014] HCATrans 85
[2014] HCATrans 085
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M138 of 2013
B e t w e e n -
ALLEN RODNEY WOODCROFT‑BROWN
Applicant
and
TIMBERCORP SECURITIES LIMITED (ACN 092 311 469)(IN LIQUIDATION)
First Respondent
GARY WILLIAM LIDDELL
Second Respondent
ROBERT JAMES HANCE
Third Respondent
SOL CHARLES RABINOWICZ
Fourth Respondent
TIMBERCORP FINANCE PTY LIMITED (ACN 054 581 190) (IN LIQUIDATION)
Fifth Respondent
Application for special leave to appeal
FRENCH CJ
CRENNAN J
TRANSCRIPT OF PROCEEDINGS
AT MELBOURNE ON FRIDAY, 11 APRIL 2014, AT 10.25 AM
Copyright in the High Court of Australia
____________________
MR B.W. WALKER, SC: May it please the Court, I appear with my learned friend, MR C.H. TRUONG, for the applicant. (instructed by Macpherson + Kelley)
MR A.C. ARCHIBALD, QC: May it please the Court, I appear for the fifth respondent with my learned friends, MR H.N.G. AUSTIN and MR C.O.H. PARKINSON. (instructed by Herbert Smith Freehills)
MR C.J. DELANY, SC: If your Honours please, I appear with MS A.J. McCLELLAND, for the second to fourth respondents. (instructed by Brian Ward & Partners)
MR O. BIGOS: If your Honours please, I appear for the first respondent. (instructed by Arnold Bloch Leibler Lawyers)
FRENCH CJ: Yes, Mr Walker.
MR WALKER: If it please the Court. Your Honours, in the reasons of the Court of Appeal, which themselves draw on the articulation of the relevant matters of the first instance judge, there are several passages where we would seek to locate errors of general importance which must have affected the outcome in this case by way of answers to preliminary questions – I should not say preliminary questions, separated questions.
As your Honours know, the cases of two of the investors involved were tried, to all including what I will call the individual issues. They are not before this Court. But before going to those passages where we suggest that error that ought to be the subject of consideration by this Court is shown, may I remind your Honours of the principal statutory obligations, the interpretation of which would be in question in any appeal. Conveniently they are found at pages 312 and 313 of the application book.
FRENCH CJ: The primary question is one of the construction of “significant risk”, is it not?
MR WALKER: Yes.
FRENCH CJ: For the purposes of the criteria of the obligation to disclose.
MR WALKER: Yes.
FRENCH CJ: Just looking at some of the submissions and so forth, it seemed to me - there seemed to be different understandings of the notion of risk and probability.
MR WALKER: Yes.
FRENCH CJ: Is there any dispute from your perspective with the proposition that by “risk” one means a probability of some adverse outcome where “probability” does not mean more likely than not, it means anything between zero, greater than zero and up to one?
MR WALKER: Quite so. I was about to say where you could interchangeably use the word “possibility” instead of “probability”.
FRENCH CJ: Indeed, “possibility” means the same thing; “chance” means the same thing.
MR WALKER: I was about to say chance is the other one.
FRENCH CJ: Yes, okay.
MR WALKER: That is what we are talking about, yes.
CRENNAN J: Well, having said that, if one looks at paragraph 160 of the Court of Appeal’s reasons to be found at page 353 of the application book and straddling the next page ‑ ‑ ‑
MR WALKER: That was going to be the first I was going to offer your Honours with a view to it being error but ‑ ‑ ‑
CRENNAN J: Well, why do you not then demonstrate error?
MR WALKER: I am so sorry, your Honour?
CRENNAN J: Why do you not please go ahead?
MR WALKER: Well, at the foot of 353, the beginning of paragraph 160, one sees that it is, as your Honours know, about the interpretation of those provisions which have at their heart the notion of information about any significant risks and that will feed into – inform no doubt – the prerequisite for disclosure that the information – that is information about any significant risks – be actually known. That is the statutory expression, “actually known” to persons in question.
CRENNAN J: Yes.
MR WALKER: Well, then, this case, as one sees both from the first instance reasons and in the Court of Appeal, coined a term that may be useful, “management”, and its meaning appears to be deliberate, conscious, advertent attempts to deal with the probability, possibility, risk or chance, that is, those things in the future sufficiently in prospect to require as stewards of the scheme something to be done. That is what management appears to be. In 160, there is what must be an unexceptionable proposition at the top of page 354 and one which does not bespeak any error at all, is in our favour:
When there is a low probability of occurrence, but nonetheless its consequences are sufficiently serious –
Of course a lot of work has been done by that word “sufficiently” –
then a risk may require disclosure.
Error perhaps creeps in at the point of “may”. If it achieves the status of being significant – that is, of course, the question to which all of these Shirt calculus style utterances must be aimed – then it does require disclosure, subject to actual knowledge.
FRENCH CJ: Well, I mean, you can have a very low probability of something horrible happening, an asteroid strike on the plantations ‑ ‑ ‑
MR WALKER: Yes.
FRENCH CJ: ‑ ‑ ‑ but you do not put it in, and I know there is another defence about what you would not expect to see in a product disclosure statement, but the application of the concept of “significant risk” must be purposive, must it not, and therefore commercially relevant?
MR WALKER: Yes. Now, that is going to feed into the second of my points about actual knowledge. Can I, as it were, put that on the shelf for the moment? In relation to paragraph 160, having contained that hint of error at the end of the otherwise unexceptionable sentence, their Honours then go on to say:
The fact that such a risk –
and we cannot help but emphasise, they are calling it a “risk” and for good reason –
is capable of management or being managed –
We are not able entirely to articulate for your Honours today what that really means. It presumably means something is done consciously as a response to that risk.
FRENCH CJ: If you say a risk is “capable of management”, are you not saying something about the probability of the adverse event?
CRENNAN J: Materialising.
MR WALKER: Not necessarily because you may manage it by insurance; in fact, that is the way in commerce a huge number of risks are managed.
FRENCH CJ: Well, this is in terms of what we have to disclose.
MR WALKER: Quite. A lot of the risks in question may well be insurable risks. Then the sentence goes on, that fact that it is capable of management:
does not obviate the need to disclose the risk –
and at that point we, too – this is a bit like a curate’s egg – would say that is the good bit of this sentence. So the fact, as you would expect, and this is to be read purposively and it is about management schemes, the fact that management will be directed to perceive risks is (a) a good thing and (b) surely not enough to provide a universal answer to the obligation to disclose significant risks.
You may manage something precisely because it is significant. It does not cease to be significant because it is being managed. It is being managed because it continues to be significant. Now, “significant” is an unfortunate word. It lacks an object in the way it is statutorily employed here. It means, presumably, more than simply meaningful, to switch from Latin to Anglo‑Saxon.
FRENCH CJ: Well, it is in the same territory as “substantial”, in substantial lessening of competition and so forth.
MR WALKER: It does. So it is kind of a category of indeterminate reference but that is where the purposive approach comes in and purposively, one looks at the other provisions that may relieve from the obligation to disclose, and one sees that there is what I am going to call a commercial materiality in the context of retail investors, retail investors, that will be informing an understanding of this notion of significance. But in this paragraph 160 there is this curious phrase at the end of that sentence I have paused in that continues:
unless the likelihood is –
the likelihood is – there seems to be some kind of balance of probabilities there –
that management will not prevent the risk materialising.
That is a very difficult passage. It is not made any easier by paragraph 162 on the same page where their Honours dismiss the appeal on this central ground on the basis that at trial it had been found that:
the Directors in fact planned management strategies to address those very risks.
Why that would mean it should not be disclosed is never revealed. There is a parallelism between the reason for disclosure, reading the statute purposively, and the reason for management efforts. It is surely not one or the other. You are not dispensed from management diligence in addressing a perceived risk because you have disclosed it as significant. That would be absurd, but in reverse it is equally absurd, namely, because you are addressing it, given it is sufficiently serious to require steps to be taken, you are therefore dispensed from pointing out the very thing which led you to management, namely its significance.
Then there is a replication or paraphrase by their Honours in the last sentence of paragraph 162 of a trial finding which, in our submission, continues that same erroneous dispensing of notification of information being disclosed because of the need to manage which, of course, stemmed from the same perception of significance.
FRENCH CJ: All right, so you say the capacity to manage a risk is not something which goes to its significance?
MR WALKER: It may well be an outcome of an evaluation of significance but it does not destroy significance or detract from it. At page 25 in the first instance reasons, paragraph 69 is the passage to which their Honours were there referring and it is the first sentence of that paragraph to which I draw attention at the moment, where his Honour ventures the notion that:
it was not until management realised that an event may not be capable of successful management –
that they were “under an obligation to inform”. Now that, in our submission, cuts right across the purposive nature. All these investments have risk involved in them. Parliament has decided that rather than leave people to work this out for themselves with whatever access to information or sophistication of analysis they may have, that they would stipulate in so‑called PDSs for disclosures of what are called “significant risks”.
With whatever difficulties of assessment that requires, it is clearly an obligation intended, beneficially, to assist in the decision‑making of investment for a future. No one could say, hand on heart surely – and there are no findings in this case that would permit it – that because management has addressed a risk and put in place what it regards as adequate management, success is assured. That of course is one of the risks that truly does go without saying, namely that there will be mistakes or misjudgements by management.
There is nothing wrong with that not being disclosed, but because that is so obvious, the notion that you do not have to disclose a risk that management has addressed until management feels it is slipping away from them is entirely contrary to the notion of disclosing to retail investors at the point they are making a decision about whether to invest.
CRENNAN J: What about the concurrent findings of that, Mr Walker? I have in mind, for example, paragraph 168. You were just looking at a few earlier paragraphs before, page 356, particularly the latter part of the paragraph.
MR WALKER: Could I go to 168 in particular, your Honours? The very beginning of that, in our submission, while it is, as it were, technically an apparent finding of fact – that is, there was no difference between the trial judge and the appellate bench on this point – it is not a finding which is adverse when properly understood. It starts with the notion that upon the evidence, which is now the source of these concurrent findings, that the gentlemen – I think they were all gentlemen – involved did not appreciate the seriousness that my clients now attribute to these risks, that therefore they were dispensed by the actual knowledge requirement in the statute from disclosure.
That, in our submission, is a second and equally important matter of general importance in the understanding and application of these beneficial provisions. It cannot surely be the case that stupidity or cavalier approaches to the understanding of commercial risk will result in one class of persons being dispensed from disclosing where careful people with the modicum of imagination necessary to invest other people’s money into the future would see significance.
In short, and in a familiar sense, and as the words of the provisions themselves make clear, it is for the court, or as it is sometimes put, it is an objective matter as to whether the risk is significant. Now, true it is Parliament has made it clear that the duty of disclosure is only in relation to information about a significant risk being information which is actually known. In a sense, one is grateful for small mercies that Parliament does not require the impossibility of disclosing something you do not know.
But what it does not say is that you must actually appreciate to the same degree as strikes the court the significance of the risk. As I say, that would defeat utterly the purposive nature of the scheme. It would provide protection in a patchy sense depending upon the subjective risk tolerance of managers.
FRENCH CJ: Well, now we are into ground 4 and 1013C.
MR WALKER: We are, your Honour.
FRENCH CJ: Can I just take you back for a moment to grounds 2 and 3, and I am looking at 394?
MR WALKER: Yes, your Honour.
FRENCH CJ: You have talked about the impermissible intrusion of the manageability of risk into characterisation of significance, but 2 and 3 seem to address a more fundamental question about the construction of the term “significant risk”.
MR WALKER: Yes.
FRENCH CJ: What do you say is the error ‑ ‑ ‑
MR WALKER: The error is what I have been putting, what I have put about this notion that a managed risk is not or cannot be a significant risk.
FRENCH CJ: You say the Court of Appeal erred – I am just looking at the grounds for a moment:
in construing the expression “significant risk”. . . as requiring a “probability” of the risk occurring.
It must involve that, must it not?
MR WALKER: Yes. Your Honour, on one literal reading of that, that cannot be right but the “probability” refers to this notion that a risk if managed ceases to be something of which there should be disclosure, that is, ceases to be significant. The only way the Court of Appeal can reach the conclusion that is not until management feels the situation slipping away – that is, management of the risk is not working – that there needs to be disclosure.
FRENCH CJ: Sorry, are we talking about two different kinds of probability? There is a probability inherent in the term “risk” and then there is a probability, or the reduced probability effected by management and you say they cannot bring the second into the first?
MR WALKER: Exactly. That is the language and the concept introduced by all four judges below. That, in our submission, threatens, in effect, to render of no social utility whatever the intended regulation of explicit – explicit flagging of risk which this scheme, for better or worse, plainly mandates as an obligation.
CRENNAN J: Are you saying that the Court of Appeal treats the managed risk as one that is not probable?
MR WALKER: Yes, as part ‑ ‑ ‑
CRENNAN J: You seem to be suggesting that in your written submission.
MR WALKER: ‑ ‑ ‑ something like that. As part of a step towards what is the only real question which is whether it is significant and requires disclosure.
FRENCH CJ: So an entity which has an obligation to put out a product disclosure statement is not entitled to say consistently with its statutory
obligations that there is a probability – to itself I should say in deciding whether ‑ ‑ ‑
MR WALKER: Yes.
FRENCH CJ: ‑ ‑ ‑ there is a probability of adverse event (a) occurring but this is a routine risk which we can manage and, therefore, the probability of its actually occurring is low and not significant.
MR WALKER: There is no question that when it comes to significance – I have referred to the analogy with the Shirt calculus – there is obviously the balance. Leaving aside what, with respect, might be law school moot examples of a meteorite, we are here talking about commercial matters where the one at the heart of our complaint which is credit and credit into the future – in particular when you lend long and borrow short with well‑known possible collisions – that, in our submission, is simply not capable of ever being regarded as, as it were, managed so as to remove significance. It is managed because it is significant. It is not insignificant because managed.
Now, at 359, paragraph 175, you see the kind of disclosure which was relied upon successfully to answer the kind of arguments that I am now suggesting this Court should consider. That, in our submission, which was appropriately dubbed by counsel for us below the “anodyne” warning, is of absolutely no use and does not answer the description required by the statute which is information about a significant risk.
It is for those reasons that the provisions which are relied upon against us on special leave as, as it were, providing an answer even if we were correct on our first step, really, for the reasons we have set out in our written submissions, do not present any reason to suppose that the point we want to raise is in danger of being hypothetical.
The findings of management upon which reliance is placed against us amount to findings of actual knowledge. They were managed because they were known. That is all that was necessary, and they were not ever managed in a way that produced, ever, a reversal of that significance, in the meaning of the statute, which was the precondition for them being disclosed. May it please the Court.
FRENCH CJ: Thank you, Mr Walker. Yes, Mr Archibald.
MR ARCHIBALD: If I might go first, your Honours. The central analysis of “significant risk” and the manner of the correct construction of that phrase is to be found in the reasons of the Court of Appeal starting at paragraph 130 or thereabouts at page 344. In our submission, the approach of the court there is palpably correct. What the court says at line 30 is that there are the two primary elements, probability and consequence.
Significance has to do with chance, hazard or loss and, by way of criticism of the argument before the Court of Appeal which is no longer pursued by the applicant, it would be incorrect to look to consequence without balancing probability. Then at 131 and following the court said that is what the trial judge did. At 132 the definition – this is line 13:
the definition was intended to be a flexible requirement tailored to the type of product involved and its particular circumstances.
There is always a constellation of issues and the outcome will vary according to the circumstances. All of that, in our submission, is correct. One might conclude from the formulation of some of our learned friends’ grounds that they were contending that that is how the construction of the phrase should proceed but that the Court of Appeal had failed to do it. We say they did it and did it exactly.
So the focus of my learned friends’ argument now is upon the proposition at paragraph 160, page 354. One needs to understand from paragraph 159 what it was that the court was there addressing. At paragraph 159 the court was dealing with ground 5 before the Court of Appeal. The court refers to the argument and then says:
Two observations are immediately prompted. First, his Honour made no such findings. Secondly, it is tantamount to the appellant relying on an unpleaded case.
So this whole proposition has no grounding in any factual element that intruded upon the reasoning of the primary judge. But then the court addressed the notion and said, in our submission, again impeccably, at line 58 on page 353, that:
s 1013D requires the disclosure of a risk with important consequences to the investor as considered from the perspective of the investor. When there is a low probability of occurrence, but nonetheless its consequences are sufficiently serious, then a risk may require disclosure.
That is the flexible notion, taking account of the two integers, one probability and two consequences. Then the court addressed the management point which is really hypothetical and unpleaded and all, in our submission, the court is saying is consonantly with this flexible notion of how you apply the phrase in accordance with the construction identified at paragraphs 130 to 133, you have to take into account what is being done in respect of the subject matter the court says the mere fact of it being managed does not mean that you do not need to disclose.
You will need to look at all the circumstances to see if in fact you have to disclose and that will be a mix again of probability of occurrence and consequence. You may have a serious consequence but if management of the event, not of the risk, management of the event may make the circumstance akin to – take our asteroid example – something that if unmanaged ‑ ‑ ‑
FRENCH CJ: You only hear that in law schools.
MR ARCHIBALD: Yes, but you have to look to the probability and working at the event may reduce the level of probability that would otherwise attend it if unmanaged. So it is a factual inquiry. It is not really a matter of construction. You would have to look to the facts and to see how it works through and it is plain, in our submission, that the court was addressing the underlying event, not the character of the risk in this area, particularly because the court is dealing with ground 5 and at 162 shows that it is addressing what the trial judge did in relation to the “adverse matters” and the adverse matters were the events, not the risks. In other words, here is a tax announcement – that is an event. Look at that, see what the consequences are.
So when circumstances of management it is the company or the group has a need for external financing. That was ground 5. If management does not address what is required in order satisfactorily to obtain cash resources to meet the requirements of the company, you may get into a problem. But so long as you address the need for external financing, then there may be no problem or so low a problem that even though the consequences might be serious you do not disclose them. So you are calibrating the facts. These paragraphs do not, in our submission, show any error in construction. They are discussing the hypothetical circumstances to what facts may have shown ‑ ‑ ‑
FRENCH CJ: So does the notion of management of a risk involve a notion of a company’s capacity to respond to risk or its existing plans to deal with risk feed in – there is a kind of subjectivity about it, I suppose, and one can understand a concern about feeding that into criteria of significance.
MR ARCHIBALD: Well, yes, but it is simply going to what are the probabilities in a particular fact circumstance. Here is a constellation of issues addressing the prospect for the purposes of analysis of a need for external financing. May the absence of the requisite financing produce a risk? The answer would be yes. As the court is saying in paragraph 160, you may in those circumstances need to disclose.
FRENCH CJ: I mean, does it reduce to this? The entity says, this is a significant risk but we can deal with it so it is not a significant risk?
MR ARCHIBALD: No, no, it is not that at all. It is not ‑ ‑ ‑
FRENCH CJ: I am just making sure you do not reduce to that proposition.
MR ARCHIBALD: No, far from it. It is not a case in which significance is accepted and then eliminated by some course of conduct.
FRENCH CJ: Anticipated course of conduct.
MR ARCHIBALD: You will not get to significant risk unless the constellation of both elements gets you to significance and all the court is saying, depending upon what the situation is, it may or may not attain the level of significance. If it does, it will need to be disclosed. If it does not, it will not. So no misconception of the concept of significance is embedded in this analysis at all, in our submission. One can see that from the following paragraphs, including 166, where the court observed, at 356, that the primary judge:
did not find that because risks are subject to management they do not require disclosure. It always comes back to whether it is a significant risk –
and that must be right, in our submission. So our friends’ arguments are (a) directed to the hypothetical, (b) directed to the facts, and (c) not directed to any issue of construction. They raise no matter that should be entertained by this Court. In any event, and I will not go into the detail, but in any event, we say the factual findings about significant risk, consonantly with what the applicant now contends is the correct construction, are such that where there was a significant risk it was disclosed.
So this is really a controversy that does not exist but on the facts, even if it were found to be the case that the construction contended for by the applicant should be adopted, on the evidence, facts constituting significant risks were disclosed. The second main matter concerns the question of actual knowledge.
FRENCH CJ: Now, this only arises, of course, if there is success on the first point.
MR ARCHIBALD: Yes, so that is our first point, goes to 1013C. You never get to it unless there is success on the first but, in any event, C is taking out the obligation of disclosure under D and we say we are satisfied on the facts here anyway there was disclosure, no need to take it out. But if one is looking at taking it out, what one has to address is whether there is knowledge of information about the risk.
What our friends’ argument seeks to do is to bifurcate what is involved in that information component, seeks to say, well, knowledge of the events is sufficient. You do not need knowledge as to whether the consequences would be such as to generate the risk and, therefore, if you know of a need for cash, that is enough. You do not look further. You do not need to get you within 1013C to have any other knowledge. We say that is unsound ‑ ‑ ‑
FRENCH CJ: You say you have got to know the facts and have a consciousness of the risk.
MR ARCHIBALD: Yes, because the whole reason for disclosure is not the fact. It is the circumstance of the fact flowing from the fact there is a risk and if you are ignorant of the risk presumably you disclose every fact about the business. The reason for disclosure is to apprise the putative investor of risk and fact without risk has no reason for disclosure.
FRENCH CJ: Even if it flows from your own incompetence or lack of consideration?
MR ARCHIBALD: Well, no, you need to know it and, of course, if you turn – I think actual knowledge probably does set the bar pretty high but you could not turn your face away from the obvious and claim you did not have knowledge of it. The background to what these sections are doing is found in the explanatory memorandum, the relevant parts of which are set out at pages 42 and following in the application book. Paragraph 14.73 at line 42 - or no, it is nearer line 48, 49 - shows that the requirements of these provisions, 1013D in particular:
should be read as limiting, not expanding, the disclosure obligation -
So these provisions, especially the knowledge provision, are containing the level of exposure, not imposing circumstances which are expansive in the area of exposure and so understood both the construction that the Court of Appeal adopted on significant risk and the construction that the Court of Appeal adopted on actual knowledge conform with that objective of the provisions. We say no error is shown on either.
As to the second as with the first, the findings on fact show that there was disclosure of the essential elements contended for by the applicants, so the point is never reached. Even if one got to 1013C on the facts, it ceases to be germane. The third area of special leave is really just doing no more than saying particular facts that we pleaded should have been disclosed. Well, that is the fact intensive inquiry. The facts are peculiar to and specific to this matter. They raise no element of principle and afford no reason for the grant of special leave. If the Court pleases.
FRENCH CJ: Yes, Mr Delany.
MR DELANY: Your Honours, can I address a separate topic and a separate independent reason why we submit this case is not appropriate for the grant of leave, and that is section 1022B(7) which provides that:
A person is not liable –
assuming that there is a defective PDS –
if the person took reasonable steps to ensure that the disclosure document or statement would not be defective.
Your Honours will be aware that at paragraph 210 of the reasons the Court of Appeal responding to the directors for whom we put in a notice of contention found in the alternative that the directors were not liable because they took reasonable steps. Your Honours, our learned friends’ reply submissions, at paragraphs 18(a) to (e) at application book 441, seek to advance some reasons why they would say there is a problem with that finding. But those very submissions reflect in terms paragraphs 23 to 28 of their written outline that they put before the Court of Appeal.
The Court of Appeal considered those. They considered written submissions that we advanced and also oral submissions and found, not surprisingly, for the reasons I will come to in a moment, that this was a case where even if the directors were otherwise liable they had taken reasonable steps. The findings that, in our submission, really bear that out or support that conclusion from the Court of Appeal are the express findings by the trial judge that the directors had performed their duties in good faith and with a genuine desire to comply with their statutory obligations.
Can I just direct the Court’s attention to paragraph 427 in the reasons of the trial judge, and that is at application book 162. At paragraph 427 in the last four lines commencing at about line 48 on the page the trial judge found:
The evidence supports the conclusion that the directors and senior management performed their duties in good faith, with a genuine desire to comply with their statutory obligations and preserve and enhance the value of the Group to all stakeholders.
Above that at the top of the page, part of paragraph 426, is referenced the evidence of Mr Rabinowicz who was the CEO who gave detailed accounts of the business plans, presentations to banks and boards and management generally, and it is significant as put to the Court of Appeal that neither he nor the other directors were cross‑examined. It was not put to them that the processes and procedures in place for preparing the product disclosure statements were defective and that was not contradicted before the Court of Appeal by our learned friends.
Now, in relation to this point, the submissions by our learned friends also refer to section 1318 and suggest that this issue would need to be remitted and one needs to look at the consequences of the conduct and so on. It is true that 1318 in its language talks about looking at all the circumstances, but that is a separate provision and one not relevant here. Section 1022B(7) is only concerned with whether or not the liable person took reasonable steps. It does not look at the consequences. It is a single inquiry directed to and focused on the behaviour here of the directors.
So we would submit that the finding constitutes a complete answer, even if there are otherwise some merits in the leave questions which we submit there is not. We further submit that because of that there is no utility in granting special leave, particularly against the directors. But, even if one leaves aside the directors, separately as against both TSL and Timbercorp Finances saying consequence is inevitable, that is that that defence would be made out because it was through the directors that the product disclosure statements were prepared and there were guidelines in place and steps to prepare them to take care that they were properly done, so for those separate reasons, we submit that leave should be refused.
FRENCH CJ: Thank you, Mr Delany. Yes, Mr Bigos.
MR BIGOS: Your Honours, the first respondent adopts the submissions of the other respondents and otherwise relies on its summary of argument.
FRENCH CJ: Thank you. Yes, Mr Walker.
MR WALKER: Your Honours, at page 316 of the application book there is in paragraphs 40 to 42 a paraphrase of the first instance reasoning which was, in effect, ultimately upheld by the Court of Appeal. That is a paraphrase which includes the notion, as you will see from the first three
lines of paragraph 41 in particular, of a risk not being a disclosable “significant risk” so long as, in that case:
the Group maintained its relationship with its bankers –
in our submission, a rather odd circularity. The risk that you will not keep your credit lines that you need is, of course, the significant risk on our case, and the answer assayed by his Honour and upheld by the Court of Appeal was that risk is not significant until it materialises. Upon it materialising, it ceases to be a risk. It is then an event. The possibility of it materialising was always part and parcel of having a relationship with bankers that was not back to back with the relationship you had with the investors.
It is for those reasons, in our submission, that the management matter that we used in paragraphs 162 and 168 to demonstrate was fallacious reasoning is one that certainly applies to the matter which was at the heart of the significant risk undisclosed on our case. Next and finally, at pages 368 and 369 in paragraph 210 appears what my learned friend, Mr Delany, calls a finding. It is not a very easy sentence or two; that which starts at the foot of page 368, “Furthermore”, and the last sentence commencing, “However”, but this seems clear that it is not intended to be a finding, that it is a deliberate absence of making any such conclusion, hence the way in which we have addressed that question in our written submissions. May it please the Court.
FRENCH CJ: Thank you, Mr Walker.
This application for special leave to appeal against a decision of the Court of Appeal of the Supreme Court of Victoria raises questions concerning the construction and application of product disclosure provisions contained in Part 7.9 of the Corporations Act 2001 (Cth). On the primary point, which concerns the construction of the term “significant risk”, denoting the class of risk which must be disclosed in a product disclosure statement pursuant to section 1013D of the Corporations Act, the construction adopted by the Court of Appeal is not attended with sufficient doubt to warrant the grant of special leave. Absent success on the first ground, the challenge to the court’s construction of section 1013C(2) cannot affect the outcome. Nor does the application of sections 1013D and 1013E to the facts in this case give rise to a question warranting a grant of special leave. Special leave to appeal is refused with costs.
The Court will now adjourn to reconstitute.
AT 11.08 AM THE MATTER WAS CONCLUDED
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