FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Vocation Limited (In Liquidation) [2019] FCA 807 File number: NSD 1679 of 2016 Judge: NICHOLAS J Date of judgment: 31 May 2019 Catchwords: Corporations – continuous disclosure obligations – ASX Listing Rule 3.1 – s 674(2) of the Corporations Act 2001 (Cth) (Act) – listed public company with wholly owned subsidiaries each of which was a registered training organisation (RTO) providing vocational education and training in Victoria in accordance with funding contracts entered into with the Victorian Department of Education and Early Childhood Development (DEECD) – where DEECD reasonably suspected RTOs had breached their funding contract – where DEECD imposed contractual measures pursuant to provisions of funding contracts withholding payment of moneys claimed and suspending new enrolments by RTOs – whether existence of such measures was information that company was required to disclose pursuant to ASX Listing Rule 3.1 – whether a reasonable person would expect such information to have a material effect if it were generally available on the price or value of the company's shares – whether company contravened s 674(2) of the Act by failing to disclose such information CORPORATIONS – whether ASX announcement made by company relating to funding contracts and withholding of payments was misleading or deceptive or likely to mislead or deceive – whether company contravened s 1041H by making such announcement CORPORATIONS – whether completed due diligence questionnaire (DDQ) provided by company to proposed underwriter of proposed equity capital raising was misleading or deceptive or likely to mislead or deceive – whether company contravened s 1041H of the Act by providing DDQ to proposed underwriter CORPORATIONS – whether directors of company contravened s 674(2A) by causing or permitting company to contravene s 674(2) of the Act by abetting or being knowingly concerned in such contravention CORPORATIONS – whether directors and officer of company contravened s 180(1) by failing to exercise care and diligence in causing or permitting company to contravene s 674(2) or s 1041H of the Act Legislation: Acts Interpretation Act 1901 (Cth) s 2(2), 36 Australian Consumer Law 2010 (Cth) s 18 Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth) Corporations Act 2001 (Cth) ss 180, 674, 676, 677, 708, 708A, 1041H, 1317S, 1318 Trade Practices Act 1974 (Cth) ss 52, 75 Cases cited: Australian Competition & Consumer Commission v TF Woollam & Son Pty Ltd (2011) 196 FCR 212 Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 Australian Securities and Investments Commission v Avestra Asset Management Limited (In Liquidation) (2017) 348 ALR 525 Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 226 ALR 209 Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502 Australian Securities and Investments Commission v Maxwell (No 2) (2006) 59 ACSR 373 Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (in liq) (2016) 115 ACSR 437 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 Daniels v Anderson (1995) 37 NSWLR 438 Domain Names Australia Pty Ltd v .au Domain Administration Ltd (2004) 139 FCR 215 Forge v Australian Securities Investments Commissions (2004) 52 ACSR 1 Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 Giorgianni v The Queen (1985) 156 CLR 473 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 Grant-Taylor v Babcock & Brown Limited (in liq) (2016) 245 FCR 402 Hamilton v Whitehead (1988) 166 CLR 121 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No. 1) (1988) 39 FCR 546 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 James Hardie Industries NV v ASIC (2010) 81 ACSR 1 Jubilee Mines NL v Riley (2009) 253 ALR 673 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 McGrath v HNSW Pty Limited (2014) 219 FCR 489 Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Port Stephens Shire Council v Tellamist Pty Ltd (2004) 135 LGERA 98 Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Ltd (2012) 202 FCR 158 Quinlivan v Australian Competition & Consumer Commission (2004) 160 FCR 1 Re Austpac Resources NL [2010] NSWSC 1438 Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Taylor v Owners – Strata Plan No 11564 (2014) 253 CLR 531 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 Vrisakis v Australian Securities Commission (1993) 9 WAR 395 Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1 Yorke v Lucas (1985) 158 CLR 661 Date of hearing: 9-13, 16-19, 23, 25-27 October, 4-8 December 2017, 5-9 February 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 873 Counsel for the Plaintiff: Mr J Halley SC with Ms A Mitchelmore, Ms J Davidson and Ms C Winnett Counsel for the Second Defendant: Mr DB Studdy SC with Mr SA Lawrance Solicitor for the Second Defendant: Allens Counsel for the Third Defendant: Mr M Pesman SC with Mr JM Wheeldon Solicitor for the Third Defendant: Baker & McKenzie Counsel for the Fourth Defendant: Mr A Leopold SC with Ms E Holmes Solicitor for the Fourth Defendant: Clyde & Co Table of Corrections 18 June 2019 Para [372] seventh sentence "3 January 2014" be amended to read "3 September 2014" Para [556] first sentence delete the words "apart from themselves" Para [596] first sentence "those RTOs" be amended to read "BAWM and Aspin" ORDERS NSD 1679 of 2016 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: VOCATION LIMITED (IN LIQUIDATION) ACN 166 631 330 First Defendant MARK EDWARD HUTCHINSON Second Defendant JOHN SYDNEY DAWKINS Third Defendant MANVINDER GRÉWAL Fourth Defendant JUDGE: NICHOLAS J DATE OF ORDER: 31 May 2019 THE COURT ORDERS THAT: The proceeding be fixed for a case management hearing at 9.30am on 6 June 2019 for the purpose of: (a) appointing a date for the hearing of all remaining questions including those arising under s 1317S and s 1318 of the Corporations Act 2001 (Cth), the form of any declaratory relief, all questions of penalty, and all questions of costs; and (b) to make any ancillary directions in relation to that hearing. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Introduction [1] Principal Conclusions [12] The Defendants [13] The First Defendant – Vocation Limited [13] The Second Defendant - Mark Edward Hutchinson (Chief Executive Officer and Executive Director) [14] The Third Defendant - The Hon John Sydney Dawkins AO (Non-Executive Chairman) [18] The Fourth Defendant - Manvinder Gréwal (Chief Financial Officer and Company Secretary) [24] Independent Directors Who Are Not Defendants [29] Douglas Halley (Non-Executive Director) [30] Michelle Tredenick (Non-Executive Director) [31] Stephen Tucker (Non-Executive Director) [32] Factual Background [33] Business Structure and Board Policies [33] Funding Contracts between DEECD, BAWM and ASPIN [54] The MMU Investigation [67] DEECD's 3 July 2014 Letter to BAWM [75] The Meeting of 10 July 2014 [76] The 21 July 2014 Response [80] The Investment Committee and Board Meetings of 22 July 2014 [82] DEECD 24 July 2014 Letter to BAWM [91] Mr Hutchinson's Email of 25 July 2014 [99] The 29 July 2014 Board Meeting [101] BAWM 4 August 2014 Letter to DEECD [107] DEECD 5 August 2014 Letter to Aspin [116] The 11 August 2014 Board Meeting [119] DEECD/ASPIN Meeting of 12 August 2014 [123] The Board Pack [128] DEECD Letters to BAWM and Aspin of 15 August 2014 [154] Request for Increase in Banking Facility [160] The 19 August 2014 Board Meeting [163] Ms Bonnici's and Ms Watts' Correspondence of 20 August 2014 [172] Release of Appendix 4E [182] Email Correspondence of 21 August 2014 [188] The 22 August 2014 Board Meeting [203] The 25 August AFR 2014 Article [217] The 25 August 2014 Board Meeting [219] The 25 August 2014 ASX Announcement [227] Reaction to the 25 August ASX Announcement [235] Lander & Rogers' Advice [239] Mr Gréwal's Cash Flow Forecast [251] DEECD's Letter to Vocation dated 26 August 2014 [262] Ms Bonnici's Email of 26 August 2014 [267] The 26 August 2014 Board Meeting [270] Ms Tredenick's Email of 27 August 2014 [277] Mr Langtree's Worst Case Scenario [282] Mr Dawkins' Evidence Concerning Entry Requirements [300] Ms Bonnici's "Talking Points" [305] The 28 August 2014 Board Meeting [306] Meeting between DEECD and Vocation of 28 August 2014 [308] Meetings with Banks [323] Wendy Bonnici's Email of 1 September 2014 [337] Finalisation of Financial Statements [339] Mr Gréwal's Revised Cash Flow [341] Terms of Reference [344] Ms Tredenick's Email [350] The Equity Capital Raising [361] Meeting with Banks on 3 September 2014 [375] Request for Release of Funds [382] The Sunday 7 September 2014 Board Meeting [384] Mr Hutchinson's Email of 7 September 2014 [387] The 8 September 2014 Meeting with Mr Bolt [402] The 8 September 2014 Board Meeting [425] Macquarie Bows Out [434] Meeting on 9 September 2014 with Banking Syndicate [439] The 10 September 2014 ASX Announcement [451] Completion of the Placement and Lodgement of the Cleansing Notice [457] The Revised Terms of Reference [458] The 18 September AFR Article [464] The 18 September 2014 ASX Announcement [472] The Board Charter [484] The Continuous Disclosure Policy [490] The Role of JWS [492] Section 674(2) – Contravention of Continuous Disclosure Obligations [508] The Relevant Statutory Provisions [508] The Relevant Principles [511] The Relevant Information [521] Was the relevant information generally available? [523] Mr Sisson's Evidence [531] The Defendant's Criticisms of Mr Sisson's Evidence [550] Jubilee Mines NL v Riley [560] The Additional Information [567] Section 674(2A) – Involvement in Contravention of Section 674 [605] Section 1041H: Misleading and Deceptive Conduct [621] Section 1041H: The 25 August 2014 ASX Announcement [636] Section 1041H: The DDQ [659] The DDQ [662] Representation R1 [671] Was R1 conveyed? [671] Was R1 likely to mislead or deceive? [680] Representation R2 [685] Was R2 conveyed? [685] Was R2 likely to mislead or deceive? [688] Representation R3 [694] Was R3 conveyed? [694] Was R3 likely to mislead or deceive? [701] Section 708A of the Act: The Cleansing Notice [710] Section 180 – liability of individual defendants for breach of duty [725] The Relevant Principles [725] Mr Hutchinson [743] Section 180(1) – Continuous Disclosure [743] Section 180(1) – the 25 August Announcement [792] Section 180(1) – The DDQ [806] Mr Dawkins [813] Section 180(1) – Continuous Disclosure [813] Section 180(1) – 25 August Announcement [849] Mr Gréwal [856] Section 180(1) – The DDQ [856] Remaining Issues [872] REASONS FOR JUDGMENT NICHOLAS J: Introduction 1 In this proceeding the plaintiff ("ASIC") seeks declaratory relief against all four defendants and orders imposing pecuniary penalties on each of the second, third and fourth defendants for alleged contraventions of various provisions of the Corporations Act 2001 (Cth) ("the Act"). ASIC also seeks orders prohibiting each of the second, third and fourth defendants ("the individual defendants") from managing a corporation for such period as the Court considers fit. 2 The first defendant ("Vocation") is a public company, now in liquidation, that was incorporated on 6 November 2013. On that date the second defendant (Mr Mark Hutchinson) was appointed Vocation's Chief Executive Officer and Executive Director and the third defendant (the Honourable Mr John Dawkins AO) was appointed Non-Executive Chairman. The fourth defendant (Mr Manvinder Gréwal) was appointed as Chief Financial Officer on 6 November 2013 and Company Secretary on 6 December 2014. Mr Douglas Halley, Mr Stephen Tucker and Ms Michelle Tredenick were also appointed Non-Executive Directors of Vocation on 6 November 2013. None of them is a party to this proceeding. 3 Shortly after its incorporation, Vocation made an initial public offering ("the IPO") of fully paid shares at a price of $1.89 in accordance with a prospectus issued on 27 November 2013 ("the Prospectus"). The total number of shares issued on completion of the IPO was 200 million, giving Vocation a market capitalisation of $378 million at first listing. 4 As part of the IPO, Vocation acquired ownership of various other companies ("the merged entities") that became its wholly owned subsidiaries. The most significant of these were: AVANA Group Pty Ltd ("AVANA"), which was founded by Mr Hutchinson; BAWM Pty Ltd ("BAWM"), which was founded by Mr Ben Gillingham, Ms Amanda King, Ms Wendy Bonnici and Mr Michael Langtree in 2010; Aspin Pty Limited ("Aspin"), which was founded by Mr Brendan Morrissey; and Customer Services Institute of Australia Pty Ltd and CSIA Education Services Pty Limited (together "CSIA"), which were founded by Mr Brett Whitford. 5 The consideration received by the vendors of the shares in these entities (including Mr Hutchinson, Ms Bonnici, Mr Langtree and Mr Whitford or their associates) was partly in cash and partly in Vocation shares. A total of 66 million shares was issued to the vendors and Vocation's directors, managers and employees. A significant proportion of these shares was subject to voluntary escrow arrangements described in the Prospectus. 6 Through its acquisition of these subsidiaries, Vocation became a private provider of vocational education and training ("VET") engaged in student recruitment, education and training delivery. It also provided related services to other VET providers and learning and development businesses. Vocation was listed on the Australian Securities Exchange ("ASX") and the Chi-X Australian Exchange with trading in its shares commencing on 9 December 2013. 7 On 10 September 2014 Vocation announced that it would undertake a fully underwritten institutional placement ("the Placement") of its shares to raise approximately $74 million which occurred that day ("the 10 September Announcement"). Vocation's shares entered a trading halt which remained in place throughout that day. On 11 September 2014, before the market opened, Vocation announced that the Placement had been completed with approximately $74 million raised. The Placement was fully underwritten by the Australian Branch of UBS AG ("UBS"). 8 The steps that were taken by Vocation in connection with the Placement included the provision by Vocation to UBS of a due diligence questionnaire dated 10 September 2014 ("the DDQ") completed and signed by Mr Hutchinson and Mr Gréwal on that date and the provision by Vocation to the ASX on 16 September 2016 of a notice under s 708A(5)(e) of the Act ("the Cleansing Notice") signed by Mr Gréwal on that date. 9 Briefly stated, ASIC's case against the defendants is as follows: (1) The 25 August Announcement: An announcement was made by Vocation to the ASX on 25 August 2014 ("the 25 August Announcement") that was approved by Mr Dawkins and Mr Hutchinson (and the other directors) prior to its release. ASIC alleges that the 25 August Announcement was misleading or deceptive or likely to mislead or deceive and that, by making it, Vocation contravened s 1041H of the Act. ASIC also alleges that Mr Hutchinson and Mr Dawkins contravened s 180 of the Act by causing or permitting Vocation to make the 25 August Announcement. (2) The DDQ: ASIC contends that the DDQ conveyed representations that were misleading or deceptive or likely to mislead or deceive and that, by providing the DDQ to UBS, Vocation contravened s 1041H of the Act. ASIC further alleges that Mr Hutchinson and Mr Gréwal contravened s 180 of the Act by causing or permitting Vocation to contravene s 1041H of the Act. (3) ASX Listing Rule 3.1: ASIC alleges that Vocation contravened s 674(2) of the Act during the period from 28 August 2014 to 18 September 2014 ("the relevant period") by failing to disclose certain information relating to various funding contracts to which certain of Vocation's wholly owned subsidiaries were party in accordance with ASX Listing Rule 3.1. ASIC alleges that Mr Hutchinson and Mr Dawkins were directly or indirectly knowingly concerned in Vocation's contravention of s 674(2) and that they are therefore liable under s 674(2A) of the Act. ASIC also alleges that Mr Hutchinson and Mr Dawkins contravened s 180 of the Act by causing or permitting Vocation to contravene s 674(2) of the Act. (4) The Cleansing Notice: ASIC alleges that the Cleansing Notice was defective within the meaning of s 708A(10) of the Act and that Vocation contravened s 708A(9) of the Act by failing to correct the defective Cleansing Notice. ASIC alleges that each of Mr Hutchinson, Mr Dawkins and Mr Gréwal contravened s 180 of the Act by causing or permitting Vocation to contravene s 708A(9) of the Act. 10 The individual defendants deny that Vocation contravened s 1041H, s 674(2) or s 708A(9) of the Act, that they are liable under s 674(2A), or that they breached their duties under s 180 of the Act. Alternatively, in the event they are found liable under s 674(2A) or s 180 of the Act, they seek relief under s 1317S and s 1318 of the Act. 11 After the close of the evidence and the exchange of written closing submissions, ASIC made clear that it did not contend that Mr Hutchinson, Mr Dawkins or Mr Gréwal had actual knowledge that the information which ASIC alleges Vocation wrongly failed to disclose was material in the relevant sense. ASIC also made clear that it did not contend that they were "wilfully blind" to the materiality of the information: cf. Giorgianni v The Queen (1985) 156 CLR 473 at 482. For its part, ASIC contends that Mr Hutchinson and Mr Dawkins may be found liable under s 674(2A) even though they did not know at relevant times that the information in question was material, provided that they had knowledge of circumstances that would lead a reasonable person in their position to conclude that it was material. For reasons I will come to Mr Hutchinson and Mr Dawkins contend that it necessarily follows that the knowledge requirements under s 674(2A), when read with s 79 of the Act, cannot be satisfied. Principal Conclusions 12 For the reasons set out below my principal conclusions are as follows: Vocation engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 1041H of the Act by providing the DDQ to UBS. Vocation contravened s 674(2) of the Act by failing to disclose the "Withholding and Suspension Information" in accordance with the requirements of ASX Listing Rule 3.1. Vocation engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 1041H of the Act by making the 25 August Announcement. Mr Hutchinson and Mr Dawkins contravened s 180 of the Act by causing or permitting Vocation's contravention of s 674(2) of the Act. Mr Hutchinson contravened s 180 of the Act by causing or permitting Vocation's contravention of s 1041H in relation to the 25 August Announcement and the DDQ. Mr Gréwal contravened s 180 of the Act by causing or permitting Vocation's contravention of s 1041H in relation to the DDQ. None of the other contraventions of the Act alleged by ASIC have been established. The Defendants The First Defendant – Vocation Limited 13 I have already given a brief overview of the corporate history of Vocation from the time of its incorporation up to and including 18 September 2014. The evidence tells me little, if anything, of what became of Vocation after that date except that it was placed into voluntary administration less than two years after it was listed on the ASX. Vocation was not represented at the hearing of this proceeding. Leave to proceed against the company for declaratory relief only was granted on 13 October 2016. Vocation submitted to any order made in the proceeding save as to costs. The Second Defendant - Mark Edward Hutchinson (Chief Executive Officer and Executive Director) 14 Mr Hutchinson holds a Bachelor of Economics from the University of Sydney and a Master of Business Administration from the INSEAD Business School in France. In 2001, whilst completing his final year of undergraduate study, Mr Hutchinson started a business taking people on trips to the Northern Territory as a host and guide. The following year, Mr Hutchinson founded Untamed Tracks Pty Ltd ("Untamed Tracks") which became a high-end travel and training business. Through Untamed Tracks, Mr Hutchinson developed the Green Skills Institute, a Registered Training Organisation that trained guides in the Northern Territory. 15 By 2011, Mr Hutchinson had sold the travel component of the business to focus on the training aspect of the business. Mr Hutchinson changed the name of Untamed Tracks to AVANA in 2011. AVANA became a Registered Training Organisation offering a number of certificate qualifications in tourism. At that time, the AVANA group consisted of three Registered Training Organisations: AVANA Learning, Green Skills Institute and Training and Development Australia Pty Ltd, all of which became subsidiaries of Vocation. 16 As a Registered Training Organisation, AVANA had funding contracts with the various State and Territory government VET funding bodies. Through AVANA, Mr Hutchinson gained experience as a director of a Registered Training Organisation interacting with government VET funding bodies. However, Mr Hutchinson had never run a Registered Training Organisation that was regulated by the Victorian Regulation and Qualifications Authority ("VRQA"). 17 Mr Hutchinson's appointment as Vocation's CEO and Executive Director in 2013 was his first as a director of a listed public company. Mr Hutchinson gave evidence that he was initially reluctant to accept the role of CEO of Vocation due largely to his limited experience in the highly regulated industry in a market of which Mr Hutchinson said he had very little knowledge. The Third Defendant - The Hon John Sydney Dawkins AO (Non-Executive Chairman) 18 Mr Dawkins holds a Diploma in Agriculture from Roseworthy Agricultural College and a Bachelor of Economics from the University of Western Australia. 19 Mr Dawkins was a Labor Party Member of the Australian Federal Parliament for the majority of the period between 1974 and 1994, representing the West Australian seats of Tangney and Fremantle. From 1983 to 1993, Mr Dawkins held Ministries in the Commonwealth Government for Finance, Trade, Employment, Education and Training and Treasury. 20 In 2000, Mr Dawkins was made an Officer of the Order of Australia for service to the reform of international trade in 2000. 21 Mr Dawkins has extensive knowledge of and experience in the VET system. Much of his later career was spent in roles that shaped the sector. Relevantly, Mr Dawkins: Led reform in his capacity as Minister for Employment that established a nationally consistent system of regulation and introduced competency based training to apprenticeships; Chaired the National Quality Council which advised Commonwealth and State Ministers on regulatory issues involving the VET sector, including the management of the Australian Quality Training Framework ("AQTF"), and endorsed "Training Packages" developed by the Industry Skills Council; Chaired the Australian Qualifications Framework Council ("AQFC") which reviewed and managed the Australian Qualifications Framework that applied to secondary schools and universities; Chaired VET Australia, a company nominally owned by the Commonwealth, State and Territory Ministers, with responsibility for vocational training and education across state borders; and Chaired the National Skills Standards Council ("NSSC"), which was commissioned by the Tertiary Education, Skills and Employment Ministers from all Australian jurisdictions to undertake a review of the standards for the regulation of vocational education and training, focusing on issues of quality. 22 Following his retirement from politics, Mr Dawkins joined numerous boards of listed and unlisted companies as a director, several of which he chaired. This included publicly listed companies in the energy and resources sectors, property development, school management and medical diagnostics sectors. 23 Between 1998 and 2002, Mr Dawkins attended several training sessions for directors offered by the Australian Institute of Company Directors as well as a short course offered by Harvard University that focused on Board decision making and responsibilities. The Fourth Defendant - Manvinder Gréwal (Chief Financial Officer and Company Secretary) 24 Mr Gréwal was awarded a Bachelor of Accounting and Financial Management in 1991 from the University of Sheffield in the United Kingdom and qualified as a Chartered Accountant in 1994. 25 In 1991, Mr Gréwal commenced working with KPMG in the Audit Department. Mr Gréwal was in this role across various offices until 2000 when he transferred to the Transaction Services Department in Leeds. In this role, Mr Gréwal was primarily working on financial due diligence projects for clients undertaking acquisitions, divestments and initial public offering projects. Between 2000 and 2004, Mr Gréwal held the position of Manager of the Transaction Services Department, first at KPMG and later at PricewaterhouseCoopers ("PwC"). 26 In late 2004, Mr Gréwal was promoted to Associate Director at PwC. Two years later, he moved with the company to Sydney to undertake a similar role. In 2012, Mr Gréwal left PwC. 27 Between 2012 and 2013, Mr Gréwal worked first as a consultant advising on a private capital raising before joining a boutique advisory group where he advised on several corporate projects, including the Vocation IPO. On 6 November 2013, following the completion of Vocation's IPO, Mr Gréwal joined Vocation as CFO and Company Secretary. 28 Before his involvement with Vocation, Mr Gréwal had no prior experience with Australian education sector regulators, government departments or the VET sector, though he did advise an American private equity firm on its acquisition of an international education business in 2010. Mr Gréwal gave evidence that as CFO, he did not receive any formal training or briefing on that aspect of Vocation's business though he "did pick some things up as [he] went along as to how the education and VET sector operated". Independent Directors Who Are Not Defendants 29 At all relevant times, there were three other independent directors on the Vocation board, none of whom gave evidence. The fact that these three independent directors participated in, and agreed with, various board decisions relating to the 25 August Announcement and the Withholding and Suspension Information (as defined below) during the relevant period is a matter upon which Mr Hutchinson and Mr Dawkins placed considerable reliance when resisting ASIC's case against them under s 180. That is a matter I will return to later in these reasons. Douglas Halley (Non-Executive Director) 30 Mr Halley holds a Bachelor of Commerce, a Master of Business Administration and is a fellow of the Australia Institute of Company Directors. Mr Halley has 30 years' experience in CFO and CEO positions with major entities across a range of industries. Mr Halley has experience as a director of listed companies including as a director of Fairfax, Corum Group, Kollakorn Corporation and Television & Media Services. In the seven years prior to his involvement with Vocation, Mr Halley also held non-executive positions in a variety of listed, private and not-for-profit organisations. He has also served as chair on several Audit and Risk Committees and was chairman of DUET Group and Foyson Resources Limited while also on the board of Vocation. Michelle Tredenick (Non-Executive Director) 31 Ms Tredenick holds a Bachelor of Science from the University of Queensland and is a Fellow of the Australian Institute of Company Directors. Ms Tredenick has over 30 years' experience as a company director and corporate advisor. At the time of her appointment to the Vocation Board, Ms Tredenick was a director of Bank of Queensland Limited, Chair of IAG NRMA Corporate Superannuation and Chair of Comparehealth Pty Ltd. Ms Tredenick has formerly held various executive roles including as a member of the Executive Committee of National Australia Bank, MLC and Suncorp. Ms Tredenick also operates her own consulting business advising boards and CEOs on strategy and technology and on the successful management of large investment and transformation programs. Stephen Tucker (Non-Executive Director) 32 Mr Tucker holds a Bachelor of Economics from the University of Western Australia. Mr Tucker was the CEO of MLC between 2004 and 2013, a Group Executive of the National Australia Bank Wealth Division and a member of the NAB Group Executive Committee from 2010 to 2013. Mr Tucker has been a director on a number of NAB Group Boards, including MLC Ltd, MLC Investments Ltd, JBWere Limited and National Wealth Management Holdings and has also been a non-executive director of two smaller ASX listed companies since June 2014. Mr Tucker was also a board member and minority shareholder of AVANA. Factual Background Business Structure and Board Policies 33 The board of directors of Vocation first met in November 2013 and, at about this time, established its procedures and policies. Mr Gréwal was appointed Company Secretary and Company Matters Pty Ltd, for whom Ms Emma Lawler worked, provided administrative support. The board decided that CSIA, BAWM (including its subsidiary Aspin) and AVANA would not be fully integrated until after the end of the 30 June 2014 financial year. As a result, BAWM (and Aspin), CSIA and AVANA continued to be run as separately managed businesses. 34 The management of BAWM (and Aspin) was based in Melbourne, and AVANA and CSIA in Sydney. It was decided that Ms Bonnici would report to Mr Hutchinson while she continued to manage the BAWM and Aspin businesses as she had prior to the IPO. The BAWM team continued to manage the Victorian business and maintained BAWM's and Aspin's relationship with the Victorian Department of Education and Early Childhood Development ("DEECD"), including the management and administration of their funding contracts with DEECD. 35 Ms Bonnici led the Executive Team as Vocation's Chief Operating Officer. Mr Langtree was in charge of acquisitions of students by Vocation entities and notifying DEECD of enrolments, which notification was then treated as a claim for, and triggered, funding payments. Ms King's responsibilities included compliance and quality control. Mr Langtree and Ms King also reported to Mr Hutchinson. 36 According to Mr Dawkins' evidence, it was his view, and his practice, that the board collectively should set strategy and not get into the detail of management. It was also his practice at board meetings where a decision was required, to ask the other members of the board if there was any dissent from the decision proposed. If there was no dissent he regarded the decision as unanimous. To the extent there were questions in relation to a decision, no decision was taken until those questions were resolved. He said that to the best of his recollection, there was never a majority decision taken at a Vocation board meeting. None of that evidence was challenged and I accept it. 37 At an early meeting of the board, the directors adopted a number of policy documents including a Board Charter, a Risk Committee Charter and a Continuous Disclosure Policy. I refer to these documents in more detail later in these reasons. 38 A Registered Training Organisation ("RTO") is an entity registered with the federal regulator, or a state regulator, to provide VET services. In 2014 an organisation that wished to offer VET courses and qualifications in Victoria was required to be registered with either the federal body known as the Australian Skills Quality Authority ("ASQA") or the VRQA. VRQA registration was limited to RTOs domiciled and conducting vocational education and training wholly in Victoria. An organisation that wished to provide such services in other States or Territories of Australia was required to be registered with ASQA. 39 RTOs typically provide VET courses at a Certificate or Diploma level that are nationally recognised within the AQTF which was managed by the AQFC. The AQTF is a national regulatory scheme that regulated the activities of private training providers, the public TAFE system and certain dual sector universities that combine traditional higher education and VET. Only RTOs can apply for government funding to provide VET courses. 40 In 2014, Victoria adopted a direct funding model for VET known as the Victorian Training Guarantee ("VTG") which paid subsidies for training of students directly to RTOs. Victoria was the only State that employed such a model. In other States and Territories, RTOs' clients tended to be corporate clients paying for the training of their employees, with some individual fee-paying students. 41 The VTG provided for the State of Victoria, acting through its relevant government department, to enter into contracts with RTOs to fund the provision of vocational training by the RTOs to persons seeking an initial or higher level of qualification. The relevant department was DEECD which administered the VTG through its Higher Education and Skills Group ("HESG"). RTOs were paid based on notification to HESG of their enrolments. Payments were made by DEECD to the RTOs with which students were enrolled. 42 At the time of the IPO Vocation owned a total of eight RTOs including AVANA, Aspin, CSIA, and BAWM. BAWM was the only Vocation RTO registered with the VRQA and the only one that operated solely in Victoria. The other seven RTOs were all registered with the ASQA. Each of the eight RTOs had a different list of courses and qualifications (sometimes referred to as a "scope") that it was allowed to offer in accordance with its conditions of registration. However, there was a considerable overlap in the courses that RTOs were qualified to provide. 43 BAWM carried on business in Victoria under the names "Buildit Learning", "RTO Edge" and "Diverse Learning" and derived most of its revenue by direct funding model under the VTG. By 2013, BAWM was the largest RTO operating in the Victorian market. Aspin also carried on business in Victoria but on a considerably smaller scale than BAWM. 44 Ms Bonnici was the Managing Director of BAWM and the Chief Operating Officer of Aspin. She was also the Chief Operating Officer of Vocation until around July 2014 when her title changed to Chief Executive Officer of Vocational Education. She had considerable experience in dealing with VRQA and DEECD as a founder and managing director of BAWM. 45 During 2014 BAWM conducted trading courses that were funded by DEECD pursuant to a funding contract entered into between DEECD and BAWM for the 2014-2016 calendar years which commenced on 1 January 2014. Aspin also conducted training courses during 2014 that were funded by DEECD pursuant to a funding contract made between Aspin and DEECD for the 2014-2016 calendar years which also commenced on 1 January 2014. The terms and conditions of the two funding contracts ("the Funding Contracts") were relevantly identical. 46 At the time of the IPO, BAWM had annual revenue of around $30.0 million to $35.0 million and AVANA and CSIA each had annual revenues of around $10.0 million to $12.0 million. The significance of BAWM to Vocation's operations was reflected in the proportion of Vocation shares which were issued to acquire BAWM. At the offer price, those shares were worth $165 million of a total market capitalisation of $378 million. When Vocation listed on the ASX, more than two-thirds of Vocation's annual revenue was generated by the BAWM and Aspin businesses. For the financial year ending 30 June 2014, approximately 80% of Vocation's revenue was received from DEECD. 47 Soon after the IPO the directors of Vocation decided that they would not fully integrate the merged entities until after the end of the 2014 financial year. Consequently, in 2014 BAWM (including Aspin), CSIA and AVANA continued to operate their separate businesses. The senior management of BAWM (including Ms Bonnici, Mr Langtree and Ms King) was based in Melbourne, while senior management of AVANA and CSIA was based in Sydney. Mr Hutchinson, to whom Ms Bonnici reported, was based in Sydney. 48 In May 2014 Vocation acquired another education and training provider known as "Real Institute" ("Real Institute") for $40.0 million in cash and $7.0 million in Vocation shares with an additional $7.0 million in Vocation shares payable if Real Institute met its 2014 financial year forecast results. Real Institute was a national vocational education provider operating in the logistics and labour hire industries. The acquisition of Real Institute was completed on 31 May 2014. 49 In June 2014 Vocation entered into an agreement to acquire Endeavour Learning Group ("Endeavour") which was a provider of vocational and teaching education of national health, wellness, fitness and beauty disciplines. The acquisition of Endeavour was completed on 1 July 2014 for approximately $84.0 million in cash. 50 The $124 million cash component of Vocation's acquisition of Real Institute and Endeavour was funded from cash reserves and a debt facility for $123 million that Vocation established with a syndicate of three banks in May 2014. The three banks in the syndicate were Westpac Banking Company ("Westpac"), National Australia Bank ("NAB") and Commonwealth Bank of Australia ("CBA"). 51 Vocation made a number of further acquisitions in 2014. In April 2014 it acquired a 50% shareholding in Australian School of Management ("ASM") and a 100% shareholding of the Australian College of Applied Education for a total consideration of $2.125 million. In September 2014 Vocation acquired the remaining 50% of ASM's shares. 52 The Vocation board of directors performed a number of functions through various committees including the Audit and Risk Committee of which Mr Halley was Chairman and Mr Dawkins, Ms Tredenick and Mr Tucker were members, and the Investment Committee, of which Mr Tucker was Chairman and Mr Halley a member. 53 During the first half of 2014 the directors of Vocation were also investigating a possible acquisition of the Acquire Learning Group ("Acquire"). The proposed acquisition was referred to in Vocation's board minutes as "Project Aspen". Acquire was not an RTO but was in the business of training and recruitment. At a board meeting held on 22 July 2014 (discussed below) the board resolved to make a non-binding indicative bid for Acquire in the amount of $800 million. Funding Contracts between DEECD, BAWM and ASPIN 54 In 2013-2014, the VET sector was comprised of both government-run and privately-operated RTOs, funded primarily by the Commonwealth, State and Territory governments. RTO access to State government funding was generally made available through funding contracts. In Victoria, pursuant to the Education and Training Reform Act 2006 (Vic), the Secretary of DEECD was authorised to enter into "VET funding contracts" with RTOs for the delivery of such courses. 55 The breakdown of enrolments by State in Vocation's Prospectus demonstrated the central significance of Victoria to Vocation's business. As disclosed in Vocation's 2014 financial year results presentation, Victorian government funding represented 80% of revenue in the 2014 financial year, albeit that this was estimated to reduce to 40% in the 2015 financial year. In the period between November 2013 and June 2014, BAWM was the largest government-funded provider of VET services in Victoria. 56 In December 2013, BAWM and Aspin each accepted the terms of the Funding Contracts. The Funding Contracts stipulated general (cl 3) and specific (cl 4) obligations of an RTO with respect to its delivery of Training Services (as defined) to Eligible Individuals (as defined). "Eligible Individual" was defined to mean "an individual who is eligible for governmental subsidised training in accordance with eligibility requirements set out in this VET Funding Contract and related guidelines." The definition of "Training Services" included relevantly: … (b) all related requirements under this VET Funding Contract including but not limited to: i) determination of eligibility, ii) completion of student enrolment forms, … [and] v) matters that reasonably relate to providing the Training Services. I do not think there could be any doubt that the requirements with respect to the Pre-Training Reviews were "related requirements" for the purpose of the definition of "Training Services". 57 The general obligations in cl 3 of the Funding Contract relevantly included an obligation to comply with the AQTF "and/or the VET Quality Framework including the Standards for NVR Registered Training Organisations as applicable": cl 3.1(e). Standard 2.1 of the AQTF required an RTO to "establish the needs of clients, and deliver services that meet these needs" while Standard 2.5 stipulated that learners were to "receive training, assessment and support services that meet their individual needs". Standards 16.1 and 16.5 of the Standards for NVR Training Organisations 2012 (Cth) ("SNVR") were formulated in the same terms. 58 In addition to incorporating the obligations of the AQTF and SNVR into the Funding Contract, cl 3.4(b) required an RTO to comply with all requirements in Sch 1 which described "important processes and requirements with which RTOs must comply in delivering government subsidised training under the VET Funding Contract". These included: a requirement that for each Eligible Individual, the RTO conduct a Pre-Training Review which must "ascertain the most appropriate qualification for that student to enrol in, including consideration of the likely job outcomes from the development of new competencies and skills" (cl 4.6(b)); a requirement that the RTO have a clear and documented business process for conducing the Pre-Training Review "that demonstrates how the RTO determined which qualification/s the student enrolled in and why this was the most appropriate training option for the student" (cl 4.7); and a prohibition on the RTO enrolling an Eligible Individual "in a course or qualification that is at an inappropriate level for that student, including but not limited to enrolling students in the Foundation Skills List that would not provide additional relevant competencies" (cl 4.9). I refer to some of these requirements in more detail later in these reasons. 59 Clause 3.3(c)(iii) of the Funding Contract required that the RTO know and comply with all policies, procedures and guidelines related to the performance by the RTO of its obligations under the Funding Contract, including the "Statement of Expectations". The latter document is a document published by DEECD in April 2013 entitled "Statement of Expectations: Principles and Obligations for Government Contracted Training Providers in Victoria". It included a clause (cl 3.3) headed "Co-operating with the Department to Demonstrate and Verify Compliance" which (inter alia) required the RTO to ensure that appropriate compliance, reporting and auditing controls and systems were in place to meet DEECD's compliance requirements. 60 By cl 7.2 of the Funding Contract, the RTO agreed that DEECD's payment of funds to the RTO was conditional on DEECD being satisfied (and continuing to be satisfied) that the Training Services are being provided by the RTO in accordance with the Funding Contracts. 61 The Funding Contract also conferred on DEECD a right to "direct the RTO to suspend part or all of the provision of Training Services under this VET Funding Contract" (cl 16.2(a)); and to "withhold, suspend, cancel or terminate payment of any part of the Funds as [DEECD] determines is appropriate until [DEECD] is satisfied the issue has been satisfactorily resolved" (cl 16.2(b)). DEECD could take such action on a number of bases, including, relevantly, if "the RTO has breached, or DEECD reasonably suspects that the RTO has breached, or may breach, a clause of this VET Funding Contract" (cl 16.1(a)). 62 The Funding Contract included a provision (cl 17.3) entitling DEECD to terminate the contract in various circumstances including, relevantly, if "the RTO commits a Material Breach of this VET Funding Contract". "Material Breach" was defined to include: a) failing to meet its obligations regarding: i) the application of all eligibility criteria to determine Eligible Individuals prior to enrolment; ii) the application of fees, including as required under any ministerial directions, orders, regulations or guidelines about fees; iii) the application of fee concessions, fee waivers/exemptions; iv) specific requirements for all Training Services including Pre-Training Review; Training Plan, and Evidence of Eligibility, Evidence of Concession/Waiver/Exemption, Evidence of Participation, in relation to each Eligible Individual; v) specific requirements for apprenticeship/traineeship Training Services; and vi) acting ethically, and not doing or omitting to do anything which may damage, ridicule, bring into disrepute or be detrimental, to the Department, the VET sector, the Victorian government subsidised training market, the Department or the State's name or reputation. A determination in this regard will be made at the absolute discretion of the Department, giving due regard to the obligations of the Department under Statute or otherwise; and made in good faith, as specified in vii) this VET Funding Contract; viii) any ministerial directions, ministerial orders, or regulations in relation to fees issued pursuant to the Act; or ix) any directions, policies, procedures or guidelines as issued by the Department from time to time; and 63 The Funding Contract refers to the Market Monitoring Unit ("MMU") within the Regional Support Group of DEECD. The RTO agreed that the MMU's purpose was to monitor, analyse and report on matters relating to the efficiency of the government subsidised VET market in Victoria, including competition, price, the quality of training outcomes, and to conduct reviews or investigations into the practices of a particular government subsidised body, including the RTO, through a rapid response team (cl 11.1). The MMU was described in the evidence as an independent division of DEECD. 64 Apart from BAWM and Aspin, various other Vocation RTOs also had funding contracts with the Victorian government during the 2014 calendar year. These were Learning Verve, Green Skills Institute ("Green Skills"), Training and Development Australia Pty Limited ("TDA"), Real Institute and CSIA Education ("CSIA"). Ms Watts' oral evidence suggested that CSIA may not have held a Victorian government funding contract during the 2014 calendar year. I am satisfied that CSIA did hold such a contract. There are payment records in evidence that show CSIA was in receipt of VTG funding during that period. 65 DEECD made payments to BAWM and Aspin monthly and in arrears, with the amount depending on the volume of training delivered and the claims made in respect of eligible individuals. In the six-month period between January 2014 and June 2014, BAWM and Aspin claimed from DEECD in excess of $32.0 million in respect of training delivery under the Funding Contracts. 66 The evidence shows that approximately 50% of the amount paid by DEECD to BAWM from January to June 2014 (the total paid was approximately $12.0 million) was for the delivery of two courses known as Certificate III in Competitive Systems and Practices ("CSP") and Certificate III in Warehousing Operations ("Warehousing") and that approximately 90% of the amount paid by DEECD to Aspin from January to June 2014 (the total paid was approximately $8.3 million) was for the delivery of the Certificate II in General Education for Adults ("CGEA") qualification. The MMU Investigation 67 In June 2014 the MMU carried out an investigation into the course length and structure of various dual programs. As part of that investigation, the MMU reviewed BAWM's delivery of CSP and Warehousing. This investigation followed a referral by Ms Watts who had identified a significant increase in training delivery by BAWM (and associated funding) for those two qualifications. The researcher who prepared the report consulted with various individuals involved in the marketing and delivery of the CSP and Warehousing program together with Ms Bonnici and Ms King who were respectively described in the report as the Chief Operations Officer, and the Group Executive Education for BAWM. 68 The MMU report was not relied upon by ASIC as evidence that would justify a finding that BAWM had in fact breached any provision of the Funding Contract. In its submissions ASIC made clear that its case against the defendants did not depend upon it establishing that there had been any breach of the Funding Contract. Rather, as explained by Mr Halley SC, Senior Counsel for ASIC, it did not put this aspect of its case any higher than contending that the evidence established that DEECD had a genuine and reasonable belief that such breaches had occurred and may occur in the future. This was said by the individual defendants to have significant implications for ASIC's case, a matter about which I will say more later in these reasons. 69 CSP and Warehousing were delivered by BAWM as a dual program, meaning that units in both courses were taught as part of a single program that resulted in the award of both qualifications upon completion of the program. The dual program as delivered by BAWM was conducted over eight weeks, the first two of which consisted of an intensive two week (10 days) phase of classroom learning, followed by a further six weeks of workplace based learning that was intended to be delivered upon the student entering the workforce upon completion of the intensive phase. 70 The MMU report raised various issues concerning the length and structure of the CSP and Warehousing dual program. The MMU report stated: The dual Certificate III in Warehousing and Certificate III in Competitive Systems and Practices is conducted over eight weeks. According to the trainers and the executive staff interviewed students are provided with an intensive two week program (10 days), where students complete a range of units, including the occupational health and safety units required to work in industry. Number of units delivered The number of units included in the dual program varies, according to the group, according to the Group Executive Education but the five student files sampled all shared the same program, comprising 38 units. Students in this program were undertaking 27 units in the Certificate III in Warehousing (820 nominal hours), which was nine units more than required to gain a qualification. They were undertaking 11 units in the Certificate III [sic] in the Certificate III in Competitive Systems and Practices, where 10 were required (420 nominal hours). In total the nominal hours being delivered is 1240. While the RTO Management asserted that industry guided the selection of units and the use of extra units in a qualification, it would appear that quality has been overlooked. Evidence was provided that students attended classes for two weeks (up to 80 hours delivery). There was not a strategy for training and assessment in place that described how the two qualifications are delivered together to ensure that the requirements of the qualifications are met. There was no evidence on the files reviewed that students had completed self-paced learning […] or structured workplace based learning, to explain how the hours claimed by the RTO were justified. Two full qualifications are awarded at the end of the program. Time allocated to training and opportunity for practice and consolidation The training plans provided for the students stated that the scheduled hours allocated to the units were the same as the nominal hours. The lesson plans for the two units of competency reviewed did not substantiate the claim of scheduled hours for each unit. One unit of competency, Apply fatigue management strategies (30 scheduled hours) allocated 30 minutes in the lesson plan. There was no guidance to the trainer or to the student in the resources reviewed regarding activities for the development of skills and knowledge subsequent to the 30-minute training session. A similar picture emerged for the unit Undertake root cause analysis, which is quite a complex unit in the Certificate III in Competitive Systems and Practices. Fifty hours is allocated to this unit in the training plan but delivery in the lesson plan equates to less than four hours. Assessment is carried [sic] in the classroom for the two units. Workplace based training The majority of students enter employment after the two weeks, where they continue with their programs. The trainer stated that students might be visited from one to five times during the six weeks they are in the workplace. There was no evidence in the student files that students were visited at their workplaces or completed training and/or assessment at the workplace. There was no evidence in student files that employers were briefed about their responsibilities for providing learning opportunities at the workplace or that they provided these opportunities. The program, as described, commences as an Institute based program and then appears to change to a workplace based program. However the RTO did not provide evidence that it is meeting its responsibilities for providing a supportive workplace based program under the AQTF/SNR. 71 With respect to program design and execution, the MMU report said: In summary program design and execution does not address the requirements of the qualifications being delivered, from the suitability of students for one program, to insufficient opportunity to develop, practice and consolidate learning, to poor assessment. The MMU report also contains a section relating to assessment. Assessment for the two units was said to be poor. 72 The MMU report also included a discussion concerning factors influencing the length of the dual qualification which (according to the report) the RTO acknowledged was delivered in a shorter timeframe in 2014 than in 2013. As to the rationale for delivering the two courses in the form of a dual program, the report said: Rationale for dual delivery The dual program arose from a contention that the combination of the two certificates provided greater employment opportunities for students. The RTO management asserted that there was no particular financial advantage in offering the certificates in an integrated program. Instead, it was suggested that because the Certificate III in Competitive Systems and Practices was a complex program that this made the program harder to deliver. However, the evidence reviewed at audit did not suggest that the delivery of this program as delivered by this RTO was particularly complex. There would appear to be some educational value in combining the two programs as many if [sic] the units chosen complement each other. Some units, however, seemed too similar to offer value to the students. The RTO personnel interviewed stated that this had been identified at a validation session in April 2014 and it was planned to alter the training strategy to remove duplication. 73 It is important to note that the MMU report also includes some discussion, mostly in the introductory section, concerning the background of students who entered the dual program. The report states: The students entering this dual program are typically unemployed, either recent school leavers or redundant workers seeking re-training and employment. Their level of experience in logistics or warehousing is not considered when they enter the program. This is problematical for one of the programs - the Certificate III in Competitive Systems and Practices. This qualification has no formal entry requirements but as the qualification description states, 'This qualification assumes that a learner has current or past work experience where operational or technical skills have already been gained and a supervisory, facilitation or similar level of responsibility exists. The qualification is not suitable for direct entry from school' (source training.gov.au). The CEO staff confirmed that students were unlikely to be placed in supervisory positions when they first started work. Given this, the qualification is unsuitable for the cohort. 74 While this passage indicates that the recruitment of students into courses not suitable to their needs was a matter raised in the report, most of the report is concerned with the design, structure and delivery of the dual program. It is apparent that one of the principal concerns MMU had with the dual program was the fact that it involved 10 days of intensive work followed by self-paced learning or workplace based learning, with the latter being relied upon by the RTO to justify funding claims made in respect of a large proportion of the total training hours said to have been delivered. In my view the MMU report was principally focused on the design and the quality of the training delivered in the dual program. DEECD's 3 July 2014 Letter to BAWM 75 On 3 July 2014 Ms Lee Watts wrote to Ms Bonnici. Ms Watts' letter was headed "Suspected Breach of 2014-16 VET Funding Contract – Withholding Payment of Funds". The letter, which was addressed to Ms Bonnici in her capacity as Managing Director of BAWM, relevantly stated: I am writing to advise that, effective immediately, the Department is withholding the payment of Funds to BAWM … under Clause 16.2(b) of your 2014-16 VET Funding Contract. The right to withhold payment is being exercised in accordance with Clause 16.1(a), as the Department reasonably suspects that the RTO has breached or may breach a clause of the 2014-16 VET Funding Contract. The Department is taking this action based [sic] a range of information, including information identified by the Market Monitoring Unit, and complaints regarding the marketing, student recruitment, enrolment, pre-training review and training delivery practices of BAWM. The withholding of payment will continue until such time as the Department is satisfied that the issues identified have been satisfactorily resolved. To this end, I seek to meet with representatives of BAWM to discuss this matter further and confirm your organisation's obligations under its contracts to deliver government subsidised training. The letter stated that DEECD reserved all its rights under the 2014-16 Contract. The Meeting of 10 July 2014 76 On 10 July 2014 Ms Watts and her colleagues, Mr Peter Graham and Ms Georgina Sneddon, attended a meeting with Ms King and Mr Langtree. Ms Bonnici attended the meeting by telephone. Mr Graham prepared minutes of the meeting at which the findings of the MMU's Rapid Response Investigation into CSP and Warehousing were discussed. 77 The minutes indicate that DEECD sought information from BAWM in relation to a number of matters relevant to CSP and Warehousing including course recruitment, marketing, eligibility, pre-training reviews, students' suitability, mode of training delivery and assessment. The minutes provide an indication of various areas of concern to DEECD with respect to CSP and Warehousing. It is apparent that DEECD expressed its concerns as to whether those courses were appropriate for all of the students who were enrolled in them. In particular, some of the students enrolled in CSP were school leavers for whom it was not considered suitable. It is apparent that it was DEECD's view that CSP was designed for people who have worked in manufacturing for an extensive period and who are seeking supervisory roles. 78 DEECD also raised concerns as to the mode of training delivery which included some intense training followed by a lengthy period of "self-directed learning". DEECD was particularly concerned with the level of support provided to students during that period. Other concerns raised by DEECD related to the suitability of the training provided and assessment and whether this had occurred to an appropriate standard and within relevant timelines. 79 The minutes conclude with a record of information that DEECD sought from BAWM on the issues raised in the meeting, specifically, what practices were in place to ensure that delivery was relevant to the individual student; what practices were in place to ensure that delivery could be achieved in the time frames outlined; and whether BAWM had sufficient controls in place to ensure the training assessment was thorough and met all requirements. The 21 July 2014 Response 80 Ms King wrote to Ms Watts on 21 July 2014. Her letter enclosed a lengthy report that purported to address issues raised by DEECD at the 10 July 2014 meeting. 81 In his written evidence Mr Hutchinson said he was not involved in preparing the report sent to Ms Watts on 21 July 2014. He said he read it sometime after it was sent and thought that it provided a sufficient answer to DEECD's concerns. In cross-examination he was asked how it was he came to that view. His response was that he had relied on Ms King's expertise and assumed that she would have provided a sufficient answer to DEECD's concerns. It is apparent from this evidence that he had by this stage not made any independent assessment as to the scope or significance of DEECD's concerns or the adequacy of BAWM's response. The Investment Committee and Board Meetings of 22 July 2014 82 A meeting of the Investment Committee was held on 22 July 2014. In addition to Mr Tucker and Mr Halley, Mr Dawkins, Mr Hutchinson, Ms Tredenick and Mr Gréwal were also present. The minutes record that there was a lengthy discussion concerning Project Aspen which covered various topics including the potential impact of what was referred to as "Victorian Government audits". 83 There was also discussion concerning alternatives to Project Aspen. Mr Hutchinson advised the meeting, according to the minutes, that there was no similar acquisition opportunity available and that organic growth through "My Vocation", a new business line then being developed by Vocation, would take three to four years to develop. 84 The minutes record that the Committee noted Mr Hutchinson's advice on (inter alia) the withholding of payments by DEECD. The minutes also record that Mr Hutchinson updated the Committee on the audit and that the Committee discussed the "key risks" identified by Mr Hutchinson. However, the minutes do not state what the risks identified by Mr Hutchinson were. 85 The minutes also record that Mr Hutchinson advised that payments were being withheld pending the provision of further information which was provided on 22 July 2014. They also record that he advised the meeting that "payment is expected to be unblocked by end of July" and that a further update would be provided at the 29 July 2014 board meeting. 86 Mr Hutchinson gave evidence that his expectation that funds would be released to Vocation by the end of July was based on what he referred to as "conversations with the Victorian senior management team" including a telephone conversation with Ms Bonnici on 10 July 2014. He also gave evidence that although he considered the outcome and potential impact of the Victorian audits to be uncertain, he expected that their impact on Vocation's business was likely to be minimal. In cross-examination Mr Hutchinson said that he was only expecting a partial release of funds, and that he believed DEECD would permanently withhold about $2.0 million and pay the balance of the withheld amount to BAWM by the end of July. 87 There was a full board meeting held shortly after the meeting of the Investment Committee concluded. The minutes of that meeting noted that a further update on the Victorian Government Audits would be provided at the 29 July 2014 board meeting and that the Chairman would meet with the CEO and relevant senior departmental staff of DEECD if required. 88 The minutes stated that "the potential challenges regarding the Victorian Government audits" should be shared with Acquire (ie, the target company) "at a high level for transparency and to accord with any representations and warranties that may be required to potential vendors, noting that the outcome and potential impact is uncertain at this time". The indicative offer was subsequently rejected by Acquire. 89 It is necessary to say a couple of things about Mr Hutchinson's evidence concerning the 22 July 2014 meetings. According to Mr Hutchinson, he had been told by Mr Langtree in early July 2014 that the largest amount of the money that had ever been forfeited to the Victorian government by an RTO was $2.0 million, and that the $2.0 million had been repaid to the RTO after a court settlement. He said that this gave him additional comfort that DEECD's suspensions of funds would be temporary. His account of his conversation with Mr Langtree provides no information as to which RTO was involved, the nature of the problems that led to the forfeiture, the total amount that had been at stake, or the nature of the legal action. 90 Mr Hutchinson said in his written evidence that Ms Bonnici told him after the 10 July 2014 meeting with Ms Watts that she expected DEECD to release the suspended funds shortly after Vocation had provided its response. There is no indication in Mr Hutchinson's evidence as to how Ms Bonnici could have come to the view that all of the suspended funds would be released. DEECD 24 July 2014 Letter to BAWM 91 Ms Watts wrote to Ms Bonnici again on 24 July 2014 in response to Ms King's letter of 21 July 2014 and the enclosed report. Ms Watts' letter was forwarded to Ms Bonnici by email at 5.44pm on 24 July 2014. 92 Ms Watts' letter relevantly stated: 2014-2016 VET FUNDING CONTRACT - CONTINUED WITHHOLDING OF FUNDS AND SUSPENSION OF COMMENCEMENTS Thank you for your correspondence of 21 July 2014 in response to the meeting between the Department of Education and Early Childhood Development (the Department) and BAWM Pty Ltd (BAWM) of 10 July 2014. As you are aware, the meeting was held to discuss issues relating to the findings of the Market Monitoring Unit's (MMU's) Rapid Response Investigation into course length and dual enrolments. The Department has now reviewed BAWM's response and continues to have ongoing concerns in respect to BAWM's compliance with the terms of its 2014-2016 VET Funding Contract (the Contract). Continued withholding of Funds Accordingly, the Department will continue to withhold the payment of Funds to BAWM under Clause 16.2(b) of the Contract. As previously advised, the right to withhold payment is being exercised in accordance with Clause 16.1(a), as the Department reasonably suspects that the RTO has breached or may breach a clause of the 2014-16 VET Funding Contract. You are reminded that, the Department is taking this action based a [sic] range of information, including information identified by the Market Monitoring Unit (MMU), and complaints regarding the marketing, student recruitment, enrolment, pre-training review and training delivery practices of BAWM. Suspension of commencements and new enrolments In light of the Department's ongoing concerns, and noting that the Certificate III in Competitive Systems and Practices (CSP) and the Certificate III in Warehousing Operations (Warehousing) (being the subject of the MMU report) make up approximately 50 per cent of BAWM's claims (and payments) for training delivery in 2014, effective immediately, the Department directs BAWM: • to suspend the acceptance of all future enrolments of Eligible Individuals, and • to suspend the commencement of training delivery to Eligible Individuals that have enrolled but not yet commenced at the date of this notification. This direction is made in accordance with clauses 16.1 (a) and 16.2 (a) of Contract. The above suspensions and withholding of payment will remain in place until such time as the Department has conducted its investigations and is satisfied that the issues identified have been satisfactorily resolved. To this end, I seek your response to the matters outlined below. Response to meeting of 10 July 2014 On review of the material provided under cover of letter dated 21 July 2014, the Department considers that a number of pertinent matters raised by the Department in the 10 July 2014 meeting have either not been adequately addressed or have otherwise been altogether omitted. 93 The general focus of the balance of the letter was on information said to have been sought by DEECD from BAWM that was not contained in Ms King's letter of 27 July 2014. There were a number of specific matters referred to by Ms Watts. 94 First, Ms Watts raised concerns about the lack of information about the guidance provided to BAWM's authorised representatives to assist them to determine whether the relevant course was appropriate for the student. Ms Watts noted that this information was specifically sought but not provided. 95 Ms Watts' letter referred to the delivery of CSP to students under 21 years of age noting that a review of the training delivery data provided by BAWM showed that approximately 30% of training delivery (by funding volume) for 2014 commencements in CSP had been to students aged 21 and under. She noted that the training package for this qualification stated that it is designed for those with experience in the industry and not suitable for direct entry from school. Ms Watts noted that DEECD sought assurances from BAWM that the enrolment of school leavers in this qualification was not the usual practice and that an assessment was made by BAWM as to the appropriateness of this qualification for each student. Ms Watts sought more information concerning BAWM's enrolment practices. 96 Second, Ms Watts referred to concerns raised at the 10 July 2014 meeting in relation to the mode of delivery for CSP and Warehousing "including clustered delivery over an intensive training period at the beginning of the student's qualification, and the self-paced learning component" which she said represented "a particularly compressed arrangement for delivery of these qualifications". Ms Watts said DEECD sought assurances from BAWM about the steps that had been taken to determine whether the courses could be delivered to the standards outlined in the training package within the relevant timeframes. Further issues were raised concerning the level of support provided to students during the self-directed learning component of the courses. 97 Third, with regard to CSP, Ms Watts indicated that the training package for this course required that an assessment occur in a variety of contexts over a period of time. She said that the MMU report raised concerns with respect to assessment, that BAWM had been requested to address this matter in writing, and that it had not done so. 98 The last matter I should mention in relation to this letter concerns the difference between "new enrolments" and "commencements". The evidence shows that DEECD was concerned that if it only suspended new enrolments, BAWM might consider itself free to proceed with the training of students who had already been enrolled but not yet commenced their training, which was something DEECD wished to avoid particularly in circumstances where it had concerns about the quality of BAWM's pre-training reviews. Mr Hutchinson's Email of 25 July 2014 99 On 25 July 2014 Mr Hutchinson sent an email to members of the board which was copied to Mr Gréwal and Ms King. In his email he indicated that the Aspin audit was "… actually fairly routine and not as painful as we thought" and that the auditors were reviewing 40 files per day "with no issue so far with the audit to conclude by mid next week". He also referred to Ms King's letter and enclosed report of 21 July 2014 and stated: A 17-page detailed response went to the Department regarding the student cohorts in question (the reason for our payment delay) and we expect to hear back today or Monday – Amanda [King] will be following up with a call this afternoon and will also be joining the Board at its meeting the following week to provide a further update. 100 It was clear from Ms Watts' letter of 21 July 2014 that DEECD's concerns were not confined to any particular student cohort. DEECD's concerns, as explained in Ms Watts' letter of 24 July 2014, extended not only to course suitability but also to course structure, delivery, assessment and support. The 29 July 2014 Board Meeting 101 Another board meeting occurred on 29 July 2014. All directors were present. Also in attendance was Mr Gréwal and Ms King. The minutes state that Ms King provided the board with an update on progress and issues to date in relation to the Victorian Government audits and "lessons learnt so far". The minutes record that the board discussed the next steps, including likely resolution of withheld payments. The next steps were said to be: Wendy Bonnici discuss status and any outstanding matters with Victorian Government today; CEO and Wendy Bonnici meet and discuss issues, if required; Seek legal advice on position regarding withheld payments and any remedies; and Engage at other levels of Government if required. 102 The minutes also record that "[i]t was agreed that there were no matters the board was aware of that required disclosure". 103 Mr Dawkins and Mr Hutchinson gave an account of the oral report Ms King gave to the board during the course of the 29 July 2014 meeting. According to Mr Dawkins, whose evidence regarding this meeting I accept, Ms King told the board that she thought the MMU report exaggerated the issues of concern and that once BAWM responded to the issues raised, and where necessary took corrective action, payment would be restored. She also advised the meeting that there had been problems with some brokers who had been or would be terminated because they had been "enrolling the wrong students". 104 Mr Hutchinson also gave an account of what was said by Ms King at the same meeting. He said that Ms King told the board that DEECD's actions were unwarranted, not proportionate to any issue identified in relation to the quality of courses, and that DEECD was withholding all funds by BAWM even though only about 20% of the funds withheld was actually in dispute. I prefer Mr Dawkins' account of what was said at this meeting which in my view is likely to be the more reliable. 105 It was put to Mr Hutchinson in cross-examination that he knew DEECD's concerns extended beyond the recruitment of school leavers into CSP. He did not accept that and gave the following evidence as to his state of mind as at 29 July 2014: But you were aware that the department's concerns extended beyond school leavers as at 29 July, from what you had read? ––– No, I don't believe I did know it extended beyond school leavers, or that was certainly the majority of the concerns. You know it wasn't limited to school leavers as at that time, don't you? ––– No. […] No, meaning you don't know that? ––– No, I don't know that. No, my – my belief at this time was that the school leavers were the majority of the concern based on what BAWM management had been telling me, your Honour. What were the other concerns, as best you can recall? ––– The concerns as best I can recall were based around a pre-training review inadequacy where school leavers – and the definition is fairly loose on that, but 18 to 21, for example – were being brokered into courses where they didn't have the – in had the department's view – the adequate prerequisites to get in. That would seem to be a consistent theme and major flaw in the broker pre-training review. And then, secondly, carrying on that theme, the – you know, the education standard of those school leavers in order to complete a certificate III program. That was my – that was my understanding of what the major issues were. 106 One of the matters that neither Mr Dawkins nor Mr Hutchinson referred to in their evidence in any detail was what appears to have been a direction given by the board to "[s]eek legal advice … regarding withheld payments and any remedies". Legal advice on this topic does not appear to have been sought from JWS and legal advice later provided by Landers & Rogers was not obtained until about two or three weeks later. BAWM 4 August 2014 Letter to DEECD 107 On 1 August 2014 Ms Bonnici sent an email to Mr James Rozsa of JWS seeking "urgent assistance" in relation to her proposed response to Ms Watts' letter of 24 July 2014. In her email to Mr Rozsa, Ms Bonnici explained: Background - they have suspended payment to [sic] under the contract as they would like to investigate a suspected breach. They have also applied a sanction in that we cannot enrol students into the dual qualification that they have concerns with. (we have complied) - we have provided them with information – they continue to have queries and require us to respond to further questions by end today. - we have identified a systemic weakness in our pre training review (the main cause of concern for govt) which has resulted in participants enrolling into a program which is not suited to them (in accordance with the training packaging rules) - in my discussion with Lee Watts I sense that they are keen too [sic] understand how we might rectify this issue for the students and 'make good' Advice required We have drafted the response and we would like to inform her that as an ASX listed business we will have to disclose should their investigation result in either material repayment or cancellation/suspension of contract. I would like for us to put this in writing as part of our response and would like your direction on wording. I get the impression that the sanctions that they will expect will be some level of repayment (I presume the amount will determine whether it is material) and make good for the students. 108 Ms Bonnici responded to Ms Watts' letter of 24 July 2014 by letter dated 4 August 2014. Ms Bonnici's letter stated: Re: 2014-2016 VET Funding Contract - continued withholding of funds and suspension of commencements Thank you for your correspondence dated 24 July 2014 which details the ongoing concerns of the department in respect to BAWM's compliance with the terms of our 2014-2016 VET Funding Contract (the Contract). We note and confirm our compliance with your direction in relation to the Certificate III in Competitive Systems and Practices (CSP) and the Certificate Ill in Warehousing Operations (Warehousing) that BAWM: • Suspend the acceptance of all future enrolments of Eligible Individuals; and • Suspend the commencement of training delivery to Eligible Individuals that have enrolled but not yet commenced training as at 24 July 2014. The information below is provided in response to your specific queries. 109 This was followed by some five pages in which Ms Bonnici sought to respond to the specific matters raised by Ms Watts' letter of 24 July 2014. In her letter Ms Bonnici made some significant concessions as to the lack of quality control with respect to the enrolment process. 110 In her letter Ms Bonnici described information sessions at which prospective students were provided with information about a particular course and its potential benefits. Those applicants wishing to proceed were then required to undertake a "pre-training review" discussion with an authorised representative. Ms Bonnici states in her letter: 4. Assessment of Pre-Training Review discussion and determination of suitability The Authorised Representative will assess the Pre-Training Review discussion in order to determine the suitability of the applicant to proceed into the program. This assessment is conducted using a suitability matrix drawing on pre-determined –parameters established by BAWM's quality team. A specific suitability matrix is used for each qualification and makes reference to the unique characteristics of the program. […] 5. Internal/Quality Assurance BAWM employs a team of Quality Assurance officers who are responsible for validating and checking the pre-training review and enrolment documentation to ensure the accuracy of the determination of eligibility as well as validating that the participants' suitability for enrolment has been assessed within their pre-training review. Following the review by our Quality Assurance officers, a further review is undertaken by our Data Specialist team to confirm the outcome of the determination of eligibility and validate that the participants suitability for enrolment has been assessed within their pre-training review. We have identified a weakness within this system whereby currently we do not specifically test the substance of the pre-training review and how this resulted in the determination of the applicant as being suitable for entry into the chosen qualification. That is, our internal checks did not independently validate the detail of the conversation held with the participant, rather they simply confirmed that the pre-training review occurred. To this point we have included a recommendation at the end of this response which we believe addresses this weakness. Delivery of CSP to students under 21 Provide the Department with a detailed response regarding your enrolment practices in relation to this cohort of students. While we believe that some participants within this cohort can receive benefit from this qualification, the level of representation amongst this cohort is disappointing to us and highlights a weakness within our control systems. BAWM actively targets this cohort within its broader direct and brokered marketing activities. Within the aims of this marketing activity, BAWM has a wide range of qualification offerings which have varying degrees of suitability for each of the demographics to which we actively market. It is not our intention that this course be the primary focus of options provided to this target group. As highlighted above, the pre-training review and subsequent quality assurance processes did not identify students who may have been inappropriately enrolled into the CSP program. We have ascertained that our current practice with respect to pre-training review does not enable an independent review of the conversation conducted between the participant and the authorized representative that was used in the determination of suitability. Further analysis of this data has identified that the entirety of referrals of participants who belonged to this cohort have had their suitability determined by Authorised Representatives employed through our Broker channels. We had relied on the Authorised Representative induction training, our documented policies and procedures and broker contract to ensure that determination of suitability would be completed in accordance with our policies and procedures and clause 4.9 of the Contract. We have identified that this control is not sufficient. To this point we have included a set of actions at the end of this response that we believe will rectify this control. … 111 The proposed changes referred to by Ms Bonnici were: Pre-training Review – Process and Procedure Changes As a consequence of our review and accepting that we have a systemic weaknesses in our pre training review processes and procedures, we have developed an action plan as set out below. The main driver for this change is that we did not have the visibility of the details of the pre-training review conversation and therefore could not independently validate whether it had been completed in accordance with our policies and procedures. The following has been implemented with effect from August 2014: 1. The pre-training review form has been amended to include a requirement for the authorised-representative to document the detail of the pre-training review conversation. This conversation is tailored to the specific qualification and eligibility/training package requirements. […] This has been implemented across all RTO's under Vocation Limited. 2. We have implemented an additional quality assurance mechanism whereby all pre-training reviews will also undergo a quality assurance check to ensure that the documented conversation aligns to an appropriate qualification enrolment. Additional items identified in Section B of our correspondence dated 21st July 2014 are continuous improvement activities set to be implemented over the next 3 months. The main drivers for these enhancements is to increase employment outcomes for the participants and to be able to provide evidence by way of reporting on these. In conclusion, it is disappointing to us that we have uncovered that a number of participants have accessed their entitlement to a government funded qualification whereby the training package states that they would not be suitable. 112 With regard to the delivery of CSP to students under 21 years of age, Ms Bonnici acknowledged that some students had been inappropriately enrolled in this course, that there were deficiencies in quality assurance, and that various "brokers" were responsible for determining whether the course was suitable for students who were to be enrolled in it. She also acknowledged that some students were inappropriately enrolled in CSP by various brokers which had failed to determine the suitability of students in accordance with Vocation's policies and procedures. Ms Bonnici advised that the contracts of the four brokers in question had been terminated. Ms Bonnici's letter also included information in relation to the matters of mode of delivery (ie. course structure) and assessment. 113 It is important at this point to examine what Ms Bonnici said in this letter in light of the relevant contractual provisions. Clauses 4.6 – 4.10 of the Schedule to the Funding Contract required that: Pre-Training Review 4.6 For each Eligible Individual, the RTO must conduct a Pre-Training Review of current competencies including literacy and numeracy skills prior to commencement in training. The Pre-Training Review must: (a) identify any competencies previously acquired (Recognition of Prior Learning (RPL), Recognition of Current Competency (RCC) or Credit Transfer); (b) ascertain the most appropriate qualification for that student to enrol in, including consideration of the likely job outcomes from the development of new competencies and skills; and (c) ascertain that the proposed learning strategies and materials are appropriate for that individual. 4.7 The RTO must have a clear and documented business process for conducting the Pre-Training Review that demonstrates how the RTO determined which qualification/s the student enrolled in and why this was the most appropriate training option for that student. 4.8 The business process and related documentation used by the RTO to conduct the Pre-Training Review must be made available to the Department (or persons authorised by the Department) for audit or review purposes. 4.9 The RTO must not enrol an Eligible Individual in a course or qualification that is at an inappropriate level for that student, including but not limited to enrolling students in courses on the Foundation Skills List that would not provide additional relevant competencies. For example, it would be inappropriate to enrol a student assessed at Australian Core Skills Framework Level 3 in all core skills areas in either Certificate I in General Education for Adults or Certificate II in Skills for Work and Vocational Pathways. 4.10 The Pre-Training Review must be completed, and the outcomes known and documented, prior to the student's commencing training. 114 Ms Bonnici's letter indicates that the pre-training reviews that had been conducted did not enable an independent review of the conversation between the participant and BAWM's authorised representative who determined the participants' suitability for enrolment in a particular course. That suggests that there had been a failure to comply with cl 4.6(b), 4.7, 4.8, 4.9 and 4.10 by BAWM generally and that any breach of those provisions would apply to all of BAWM's VET funded enrolments, not merely those for CSP and Warehousing. 115 Ms Bonnici's letter also appears to assume that the sole purpose of the pre-training review was to ensure that students were not enrolled in a course which the training package indicated would be unsuitable for that student. But this reflects a misunderstanding of the purpose of pre-training reviews which was not nearly as limited as Ms Bonnici's letter implied. In my view her letter reflects a misunderstanding of the obligations imposed on the RTO under the Funding Contracts including those arising under cl 4.6(b), 4.7, 4.9 and 4.10. DEECD 5 August 2014 Letter to Aspin 116 In June 2014, DEECD and Aspin engaged in correspondence in relation to the delivery of CGEA by National Employment Institute ("NEI") a broker that had a business relationship with Aspin. The delivery of the CGEA (which was on the Foundation Skills List) was reliant on VET funding provided to Aspin under its Funding Contract. In a letter to Ms Bonnici dated 5 June 2014, Ms Watts stated: The Department is advised that an organisation known as the National Employment Institute (NEI) is advertising job vacancies in hospitality on seek.com.au. Job seekers responding to the advertisement are called for an interview to Eve Bar. Once there, large numbers of applicants are required to provide identification and complete a Certificate II In General Education for Adults as a necessary part of the interview process. The Information provided to the Department further indicates that applicants may have been instructed to write their name on but not date their materials; some training delivery has consisted of bar tending work only; some applicants were required to undertake assessment only; Certificates have not been issued; training has not resulted in job placement. In addition to the above, the Department has reviewed training delivery data reported by Aspin for students trained in Southbank and with a reported delivery location containing 'NEI'. The review has identified that almost all Certificate II in General Education for Adults students claimed by Aspin hold at least a year 12 qualification. This strongly suggests that students already have literacy and numeracy skills beyond those attained in a Certificate II In General Education for Adults. Of primary concern to the Department is the appropriateness of marketing/brokering practices, that students are enrolled in the most appropriate qualification, and whether training delivery has occurred for funds claimed. 117 Ms Bonnici responded to Ms Watts' letter on 11 June 2014. Essentially, while acknowledging that NEI was a broker for Aspin in relation to the CGEA, Ms Bonnici rejected the substance of Ms Watts' complaint, noting that applicants were required to complete a pre-training review. However, she did not provide any details of how such reviews were conducted or documented. 118 On 5 August 2014 Ms Watts wrote to Ms Bonnici in her capacity as Chief Executive Officer of Aspin. Ms Watts' letter included the following: Withholding payment of Funds I am writing to advise that, effective immediately, the Department is withholding the payment of Funds to Aspin under Clause 16.2(b) of your 2014-16 VET Funding Contract (the Contract). The right to withhold payment is being exercised in accordance with Clause 16.1(a), as the Department reasonably suspects that Aspin has breached or may breach a clause of the Contract. The Department is taking this action based a range of information and ongoing reviews following complaints/feedback regarding marketing, student recruitment, enrolment, pre-training review and training delivery practices of Aspin. Suspension of commencements and new enrolments In light of the Department's ongoing concerns and noting that Aspin's claims (and payments) for training under the Contract are almost exclusively constituted by delivery of the CGEA, effective immediately, the Department directs Aspin to suspend: • the acceptance of all future enrolments of Eligible Individuals, and • the commencement of training delivery to Eligible Individuals that have enrolled but not yet commenced at the date of this notification. This direction is made in accordance with clauses 16.1(a) and 16.2(a) of the Contract. Next Steps The above suspensions and the withholding of payment will remain in place until such time as the Department is satisfied that the issues identified have been satisfactorily resolved. To this end, I seek to meet with representatives of Aspin next Tuesday, 12 August 2014 to discuss this matter further and confirm your organisation's obligations under its contracts to deliver government subsidised training. … The 11 August 2014 Board Meeting 119 Another meeting of directors was held at 11.00am on 11 August 2014 by way of teleconference. All directors were present and Mr Gréwal was also in attendance. 120 The minutes of the meeting, which were signed by Mr Dawkins on 19 August 2014, record that Mr Hutchinson updated the board on the progress with the "Victorian audits" and that he agreed to update the board once more information was available. The minutes also note that Mr Hutchinson "has received advice from JWS that disclosure to the market is not required regarding the withholding of payments at this stage as it is a debtor timing issue." 121 In his evidence Mr Dawkins said he recalled the board discussing the withheld payments at this meeting as being similar to "an unpaid invoice". He also said that he accepted the views relayed to him at this meeting by Mr Hutchinson as those of Mr Hutchinson and Ms Bonnici (who did not attend this meeting) to the effect that the amounts at risk were small and that the bulk of the withheld payments were likely to be paid. I accept that was Mr Dawkins' view based on what he had been told by Mr Hutchinson. 122 While I also accept that Mr Hutchison believed that the bulk of the withheld funds would in time be paid, I have significant reservations as to the extent that either he or Ms Bonnici provided the board with a realistic, balanced or considered view as to the scope or substance of DEECD's concerns, the relative strengths and weaknesses of the parties' rights and obligations under the Funding Contracts, or the magnitude of the risk of a substantial portion of the withheld funds being permanently lost. DEECD/ASPIN Meeting of 12 August 2014 123 A meeting was held on 12 August 2014 between Ms Watts and other departmental officers with Ms Bonnici, Ms King and Mr Langtree of Aspin. A detailed set of notes was prepared by Ms McInnis which was later submitted to Aspin for review. I do not see any basis for doubting the accuracy of Ms McInnis' notes of this meeting. 124 The notes confirm that the purpose of the meeting was to discuss issues as between DEECD and Aspin, but not BAWM. They also contain a list of further information that was sought by DEECD from Aspin relating to the marketing practices of Aspin's brokers and authorised representatives, the quality of pre-training reviews used to assess the appropriateness of the CGEA for students with a Year 12 qualification or higher, the appropriateness of the mode of training delivery and assessment, and the appropriateness of a bar (the Eve Bar) as a location for both enrolment and training delivery. 125 The notes record discussion concerning pre-training reviews and appropriateness of the CGEA qualification for students who were enrolled in that course. Amongst other matters the notes record: Aspin stated that it recognises it has systemic weaknesses across the business in relation to Pre-Training Review (PTR). It indicated it was disappointed and concerned and taking the matter very seriously. Aspin clarified that words 'across the business' were used to describe contracted Vocation Ltd RTOs. Aspin advised that it has taken significant action right across the business, 'not isolated to Aspin or BAWM', including improvements to the PTR process, termination of broker relationships and sanctions to other brokers. … The Department sought Aspin's response to why the CGEA was appropriate for students with a year 12 qualification or higher. Aspin stated that while the CGEA was not the most suitable qualification for some of these students, others received a good outcome. Aspin stated that it found the issue around PTR and appropriateness was more pronounced with some brokers - NEI, Rise Employment and Training Solutions (Rise), Cutting Edge - this is 3 of 15. The Department pointed to the purpose of the CGEA contained in Aspin's own course material and largely taken from the curriculum: this program is designed to address the Education and Training needs of adults who have left school early or whose life experiences have inhibited access to education, training and employment and who need to improve their literacy, basic maths and general education skills. Aspin stated that there would be a minority of year 12 graduates that need the CGEA. The Department noted that on data reported by Aspin to the Department it appeared that approximately 61 per cent of CGEA students claimed by Aspin under the contract held a year 12 qualification or higher - and that this was not limited to the 4 February 2014 cohort referred by NEI. 126 The notes also record discussion concerning marketing and student recruitment practices including the following: Aspin confirmed that it has more sales channels in 2014 than 2013 and that it didn't consider that the conversion from training of the Authorised Representatives to practice by them wouldn't be as good. Aspin confirmed that there has been a focus on growth and integration – Ms Bonnici said that 'this is not a good explanation but it is the explanation'. Aspin advised that it was still going through the process of assessing the brokers and that factors of growth together with other challenges have prevented Aspin from not delving into some of these issues as much as it should have. Aspin confirmed that some of the trainers are NEI personnel with whom Aspin has a combination of subcontractor and employee relationships. 127 The notes also record the following discussion concerning rectification: Aspin sought the Department's guidance on what Aspin needs to do going forward in terms of rectification. Aspin stated that claims have been clearly inappropriate. The Department stated that it was happy for Aspin to consider what this rectification might be and that the Department did not want to pressure Aspin to have that conversation today. Aspin stated that the systemic weaknesses related only to PTR. The Department disagreed with this and noted that there appears to be a significant disconnect between the Aspin training materials and the student experience. … The Department noted that the Contract, Statement of Expectations, Compliance Framework and CGEA Curriculum set a level of expectation and that it had looked at this matter with regard to these documents. It noted that Aspin has stated that there has been a Material Breach and that the Department is concerned to ensure that there is appropriate and suitable training with respect to Government Funds. Aspin stated that its primary concern was for the students - to remedy any VTG entitlement potentially lost by a student due to inappropriate claims. Aspin queried whether it was appropriate to suggest rectification in respect to funds paid. The Department stated that it routinely recovered funds in circumstances where training has been inappropriate and not of a quality expected. Aspin stated that it thought it could come back with a proposal which included this. It also stated that it routinely manages this type of issue through data uploads. … The Department concluded that it was looking for an effective and efficient way forward. Aspin stated that it recognises and appreciates the risk posed to the Victorian Government by the Vocation Ltd RTOs on account of size and market share. … It was agreed that Aspin would come back to the Department, in writing, within 5 business days, being Tuesday 19 August 2014 with suggested forward actions, including proposed rectification opportunities. This response is required to include, but not be limited to the number of students to whom the systemic breaches apply. The Board Pack 128 On 13 August 2014 a "board pack" containing material for consideration by the directors at or prior to the 19 August 2014 board meeting was distributed. The board pack included a report prepared by Mr Hutchinson dated 19 August 2014 which included information relevant to the Victorian audits. 129 Mr Hutchinson stated in his report that "through our audit findings we now have limited use of certain qualifications (eg. competitive systems and warehousing) that has taken out another $8-10 million". The reference to "another" relates to other matters (including VET pricing changes) unrelated to the Victorian audits which took another $15.0 million out of the $68.0 million of revenue previously forecast for Victoria. In Mr Hutchinson's words, "[i]n total we estimate that our VIC FY15 budget has taken a revenue hit of $25m – essentially we are ex-growth in VIC". Mr Hutchinson also referred to the termination of four brokers and said that he expected to know the final outcome of the Victorian audits by the end of the week. 130 In his oral evidence, Mr Hutchinson accepted that the $8.0 million to $10.0 million referred to in his report reflected his understanding of the impact that the enrolment suspensions imposed by DEECD would have on Vocation in the budget for the financial year ending 30 June 2015. That is to say, his estimate as at 19 August 2014 was that these suspensions would cost Vocation about $8.0 million to $10.0 million of the revenue forecast for the current financial year. It is not apparent from the evidence how Mr Hutchinson arrived at that estimate. But his evidence clearly indicates that he understood (presumably based on what he had been told by Ms King, Ms Bonnici or Mr Langtree) that this estimated loss of revenue was on top of any amount that may have been permanently withheld by DEECD from the funds that it retained as at 19 August 2014. 131 In his report Mr Hutchinson referred to some action that would be taken by Vocation to help off-set the $25.0 million in lost revenue from Victoria (eg. cost cutting and increased sales in other States). However, the only figure specified in respect of these revenues was a potential $1.25 million increase in net revenue from the accelerated investment in "VET Fee Help Diplomas". 132 In his report Mr Hutchinson also said that Vocation would know the final outcome of the Victorian audits (excluding any audit into Learning Verve) "by the end of this week". In cross-examination he said this statement was based on information obtained from the Victorian management team but could not say whether it came from any one or more of Ms King, Ms Bonnici and Mr Langtree. He said in his evidence that he had full confidence in their ability to provide him with an accurate estimate as to when the Victorian audits would be complete. 133 Mr Hutchinson also stated in his report: • Although payments for BAWM are still on hold (as of 11th August) there is no reason to suspect payment will not be granted, as the student cohort concentration under review is less than 300 school leavers • Due to the payment system the government can only suspend the entire payment to an RTO and not partial • The delay is therefore purely a debtor issue in our opinion and a matter of timing • We have actioned all of the requests from the government and remain in good favour • Learning Verve remains an unknown with the audit only occurring week of the 18th August. All new enrolments post December 9th 2013 have been cancelled and will be making several repayments over the course of the next few months for incorrect claiming issued by this RTO (a provision of $1m has been put aside) • Please see Education report for further detail 134 Mr Hutchinson was cross-examined in relation to the first of those statements. He said that it was also based on what he had been told by Victorian management. He denied that he knew that DEECD's concerns extended beyond "300 school leavers", even though he accepted that he had by this time read Ms Watts' letter to Ms Bonnici dated 24 July 2014. 135 As to the reference in the minutes to "the payment system" not preventing partial payment, the language used suggests that there was some operational reason that prevented DEECD from making a partial payment of VET Funding. However, in his oral evidence, it became clear that Mr Hutchinson believed that the Funding Contracts did not permit DEECD to withhold only part of the withheld funds, an understanding he said he obtained from one or more of Ms Bonnici, Mr Langtree and Ms King. He also agreed that by 20 August 2014, this was no longer his understanding. 136 As to the statement that the delay "is therefore purely a debtor issue", Mr Hutchinson adhered in cross-examination to the view that the withheld payments were, in effect, in the nature of outstanding debts that would in due course be paid. This view of the matter suggests that there was in fact no question that the outstanding amount (or almost all of it) would be paid to Vocation, but that the delay was attributable to a quirk of the Funding Contracts that prevented DEECD from making any part payment. Even if Mr Hutchinson's analogy was otherwise apt, it seems to have been based on a false premise. The Funding Contracts make clear that DEECD had a right to withhold payment of either the whole or a part of the funds in the event that it suspected there had been, or may be, a breach until such time as the issue had been resolved to its satisfaction. 137 Of course I accept that the power to withhold payment under the Funding Contracts was a power that DEECD was required to exercise honestly and reasonably. That said, none of the defendants submitted that the withholding of funds by DEECD was, in a legal sense, unreasonable or otherwise in breach of contract. 138 Vocation's explanation for the delay in receiving payment of the withheld funds from DEECD on the basis that it was a "debtor timing issue" ignored the fact that the funds were being withheld by DEECD pursuant to contractual provisions which entitled it to suspend payment (potentially for a lengthy period of time) pending resolution of relevant issues rather than a situation in which a debtor was taking longer than expected to make a payment of a debt that the debtor acknowledged was owing. 139 The board pack also contained a report by Mr Gréwal and a draft presentation to be used in connection with the release of Vocation's financial results for the 2014 financial year. Mr Gréwal's report noted that the draft 2014 financial year results and 2015 budget had been impacted by Victoria. 140 The board pack also included a report from Ms King entitled "Education report" that included a section on the Victorian audits. Under the heading "Marketing/Monitoring Units (MMU)" Ms King stated: Key takeaways: • Focus from VIC Government on dual qualifications and duration of training programs • Need to ensure support mechanisms are in place for students to support them to completion particularly in blended and online delivery models • Focus on information sessions and onboarding of students into suitable qualifications to reach outcomes/career goals • Focus on tracking how many applications received versus enrolments, completions and then outcomes (total student lifecycle tracking) Current status: • Aspin audit of 308 student files has almost concluded as it due to be completed by the 15th August • Both BAWM and Aspin have their payments suspended and are unable to enrol students into Cert III in Warehousing/CSP and Cert II in CGEA Ms King's "Key takeaways" suggest that DEECD was focused on the structure of the CSP and Warehousing dual qualification support mechanisms for students, and the quality of information sessions and pre-training reviews conducted by or on behalf of the RTO. It is not suggested by Ms King in her report that DEECD was focused on any particular cohort of students and certainly not a cohort of "less than 300 school leavers". Other "Key takeaways" referred to by Ms King in the section of her report headed "Higher Education and Skills Group (HESG)" included: Key takeaways: • Focus on pre-training review and suitability of students enrolling and utilising a funded training place • Need to ensure that pre-training review (career planning) conversation is documented to support reason for enrolment into a suitable training program 141 These last two points are important because they highlight that Ms King (who was familiar with the relevant correspondence and present at the 12 August 2014 meeting) understood that DEECD was also focused on pre-training reviews and the need for BAWM and Aspin to ensure that these were properly conducted and documented. She believed, it may be inferred from her report, that DEECD's focus was on dual qualifications and the duration of training programs, the need for student support mechanisms (particularly in blended and online delivery models) and properly conducted and documented pre-training reviews. Ms King's report is inconsistent with any understanding on her part that the only issue as between DEECD and BAWM related to the enrolment of school leavers or unemployed into CSP. 142 Also forming part of Ms King's report was a page headed "Risk Register" that contained the following entry: Risk: Continued suspension of HESG payments to BAWM and Aspin plus the suspension of enrolments into the following qualifications: Certificate III In Warehousing/CSP and Certificate II In General Education for Adults Owner: Amanda/Wendy Status: Current Consequence: Major Likelihood: Likely Risk Level: Extreme Proposed action to Mitigate Risk: Meeting scheduled with Lee Watts (Executive Director, Training Market Operations, HESG) on 12th August in relation to Aspin Discussion held with Lee Watts on 8th August. Lee confirmed that HESG were considering all correspondence in relation to this matter and would respond promptly (The layout of information has been re-arranged for inclusion in the judgment.) 143 I note that Mr Hutchinson's report included a cross-reference to Ms King's education report. 144 In his written evidence Mr Hutchinson drew attention to the key to the Risk Register attached to an email of Ms King dated 11 August 2014. This key indicates that the reference to "Likelihood" covers a range of four possibilities (ie. unlikely, possible, likely, almost certain). This indicates that Ms King assessed the likelihood of the continued suspension of payments to BAWM and Aspin and enrolments as something that was likely to continue. The key also refers to a range of consequences that would follow in the event the risk materialised (ie. minor, serious, severe, major or catastrophic). It can be seen that the consequences that would follow in the event that either the payment or enrolment suspensions were to continue were classified by Ms King using this scale as "major". The key also indicates that the reference to "extreme" refers to "extreme risk – detailed research and management planning required at senior levels." 145 In his written evidence Mr Hutchinson said that nothing in the Risk Register caused him to question what he had been told by Ms King, Ms Bonnici and Mr Langtree about the likely outcome of the audits. I have difficulty accepting this evidence. The entries included in the Risk Register that form part of the board pack seem to indicate that the measures imposed by DEECD against BAWM and Aspin had the potential to inflict serious damage on the business, and that the risk of such damage occurring was significant. 146 As to Mr Dawkins, he gave evidence that he did not recall reading the Risk Register nor any discussion concerning it at the 19 August 2014 board meeting. In closing submissions it was suggested on behalf of Mr Dawkins that the Risk Register was cryptic and far from self-explanatory. I accept that submission up to a point. However, it seems to me that the Risk Register did reflect the view, on the part of Ms King at least, that the measures that had been imposed by DEECD on BAWM and Aspin up to that time (at least in so far as they were understood by Ms King) had the potential to cause Vocation significant harm if they were to continue unabated. It was on this basis, I infer, that Ms King understood that the dispute with DEECD required "detailed research and management planning at senior levels". 147 It is apparent from Vocation's 2014 Annual Report (which included a chairman's letter signed by Mr Dawkins on 2 September 2014) that Vocation had a "Risk Management Policy" which was said to set out the requirements, roles and responsibilities for managing risks across the organisation. According to the Annual Report the Risk Management Policy required the owner of the relevant risk to identify the risk and review it at the monthly meeting which reviews the Risk Register. According to the Annual Report: The Vocation Corporate Risk Register is used for tracking and management of all strategic and operational level risks and is used to generate reporting to senior management and the Audit and Risk Committee. … Each risk has an owner, who is a senior manager in the relevant functional or business unit. In addition each risk is assigned to an employee, a person with the right skills, knowledge and a member of the functional area responsible to track probability and impact as well as define and implement risk response plans. Management are responsible for identifying and evaluating risks within their area of responsibility, implementing agreed actions to manage risk and for reporting as well as monitoring any activity or circumstance that may give rise to new or changed risks. 148 The Annual Report goes on to identify various key risks for Vocation which included (at the top of the list) State and Federal funding. In another section of the Annual Report headed "Risks" the following appears: Regulatory and government funding – Vocation operates in a highly regulated sector and a significant proportion of Vocation's revenue is derived from Commonwealth, State and Territory government funding. Funding from various Governments accounted for approximately 80% of Vocation's pro forma consolidated revenue in FY13 with a similar percentage in FY14. Vocation continues to actively engage with the various regulatory and funding bodies that are relevant to its operations to manage any changes to policy. Vocation has also made significant progress towards diversifying its revenue channels away from government funding since IPO. 149 I am satisfied that the part of Ms King's report headed "Risk Register" was a document prepared by her in accordance with the risk management policy described in the Annual Report. 150 Mr Dawkins said that he recalled Mr Hutchinson making statements during the course of the 19 August 2014 board meeting to the same general effect as those included in Mr Hutchinson's report in the board pack. These included a statement to the effect that the student cohort under review concerned less than 300 school leavers, that the payment system only allowed DEECD to suspend the entire payment to an RTO, that the delay in obtaining payment was a debtor timing issue, and that BAWM had actioned all requests from DEECD. I accept that Mr Hutchinson made statements to this effect to the board at the meeting on 19 August 2014. But I am also satisfied that Mr Hutchinson informed the meeting that the suspensions would cost Vocation between $8.0 million and $10.0 million in lost revenue on top of whatever amount might be permanently withheld by DEECD. Importantly, those figures assumed that the suspensions on enrolments and payments would be lifted within the very near future (possibly within a couple of days). 151 Assuming that Mr Hutchinson believed at the time that the amount of revenue that might be permanently withheld was about $2.0 million, this would equate to a total loss of revenue of between $10.0 million and $12.0 million in respect of both the enrolment and payment suspensions. Such a loss of revenue could be expected to result in a decrease in earnings before interest and tax (EBIT) of approximately $2.5 million to $2.7 million, at a time when (according to evidence that I will come to) Vocation's consensus estimated EBIT for the financial year ending 30 June 2015 was approximately $64.0 million. On the basis of these figures, the enrolment and payment suspensions had the potential to reduce Vocation's forecast earnings by about 5%. Of course, this assumes that the figures quoted by Mr Hutchinson were reliable. For reasons which I will explain I think these figures were highly unreliable. 152 It is convenient at this point to refer to some of the evidence given by Mr Hutchinson concerning assurances he said he was given by Ms Bonnici, Ms King and Mr Langtree. He said that during the updates given to him in relation to the Victorian audits, he was repeatedly told by them that all or nearly all of the funds withheld by DEECD would be released, that there was no serious breach by either BAWM or Aspin of their funding contracts, and that there was no serious problem with delivery of training by either of them. Mr Hutchinson also said in his written evidence: From around 11 or 12 August 2014 onwards, Ms King and Mr Langtree repeatedly said words to the effect that the rectifications BAWM and Aspin had implemented addressed all of the concerns that had been raised by the Department. 153 My sense is that Mr Hutchinson has exaggerated the statements he said were made to him by Ms Bonnici, Ms King and Mr Langtree around this time. In particular, I find it difficult to accept given the concessions made by them on behalf of Aspin at the 12 August 2014 meeting that they would have told Mr Hutchinson that there was no serious breach by Aspin of its Funding Contract, or that there was no serious problem with delivery of training by Aspin. I am satisfied based on the notes of that meeting that Ms Bonnici, Ms King and Mr Langtree acknowledged that Aspin had committed serious breaches of the Funding Contract. DEECD Letters to BAWM and Aspin of 15 August 2014 154 Ms Watts wrote two letters to Ms Bonnici on 15 August 2014, the first to BAWM and the second to Aspin. 155 The first of the letters refers to the withholding of funds and the suspension of commencements and new enrolments of eligible individuals. In her letter Ms Watts referred to an enquiry apparently made by Ms Bonnici as to whether or not those measures related to only a one month period. Ms Watts confirmed that this was not correct and that the measures would continue to apply until such time as DEECD was satisfied that they should be varied or that they can be replaced by appropriate final measures under the contract. She also indicated that DEECD was considering varying the measures so that the withholding of funds was confined to CSP and Warehousing. She indicated DEECD was considering its position. She also sought information in relation to a fifth broker whose services have apparently not been terminated but were only the subject of a warning by BAWM. 156 In her letter Ms Watts also requested copies of documents pursuant to cl 9 of the Funding Contract including signed copies of contracts with all brokers who had delivered training services on behalf of BAWM in 2014. 157 Ms Watts' letter also refers to a conversation that occurred between Ms Watts and Ms Bonnici on 8 August 2014. In her letter Ms Watts states: I refer to our telephone conversation of last Friday during which you raised the question of Vocation Limited's continuous disclosure obligations with respect to the ASX in respect of recent measures imposed by the Department. The Contract is with BAWM and not with Vocation Limited. We assume that the obligations you mentioned, are obligations of Vocation Limited not obligations of BAWM per se. The Department has not formed a view as to whether any failure by Vocation Limited to comply with obligations of this kind would raise an issue concerning compliance by BAWM with the Contract, but this seems unlikely to be the case. Of course, if Vocation Limited is aware that it has a particular obligation then it is to be expected that Vocation Limited will meet that obligation. To the best of the Department's knowledge; at the time of writing this letter it does not appear that Vocation Limited has made any disclosure about the measures imposed on 5 August 2014 to the ASX. In the interests of expediting consideration of this issue by Vocation Limited, we have copied this letter to the CEO and Company Secretary of Vocation Ltd so that they become aware as promptly as possible of its contents and their bearing on the ongoing measures that were imposed on BAWM on 3 and 24 July 2014. 158 Ms Watts' letter was copied to Mr Hutchinson and Mr Gréwal. 159 Ms Watts' second letter of 15 August 2014, addressed to Aspin, also made clear that the measures taken against Aspin applied indefinitely and not for a one month period only. Statements concerning the conversation on 8 August 2014 and Vocation's continuous disclosure obligations, were repeated in this letter. Request for Increase in Banking Facility 160 On 18 August 2014 Mr Gréwal forwarded an email to Mr Christopher Foote, of Westpac, and other officers of the banks who had provided the $102 million debt facility to Vocation requesting an increase in that facility by $10 million for, it was said, funding working capital and capital expenditure associated with the VET Fee Help product that Vocation was said to be "in the early phase of ramp up." 161 In his evidence Mr Hutchinson said he was aware of Mr Gréwal's email of 18 August 2014 and that Mr Gréwal was seeking the $10.0 million extension of Vocation's existing facility, which would, according to Mr Hutchinson's written evidence, provide Vocation with the extra cash needed while the Victorian audit continued. 162 In his written evidence, Mr Hutchinson acknowledged receiving a copy of this email on 18 August 2014 and gave evidence of a conversation he said he had with Mr Gréwal in relation to it. As I will later explain, the debt facility that Vocation had was not a general purpose facility that could be used to manage general cash flow problems. The 19 August 2014 Board Meeting 163 All the directors were present at a meeting of directors held on 19 August 2014. Mr Gréwal was also in attendance. 164 The board minutes included the following entry in relation to "Update on Victorian Government audits": The Board noted the CEO and Wendy Bonnici had provided a detailed briefing prior to the Board Meeting on the Victorian Government Audits, including: • Status of audits; • Withholding of funding by DEECD; • Implications for the current business model in Victoria; and • Possible impacts on the FY15 budget and cash flow. The Board discussed the potential impact of the audits and agreed that, given the expected outcome of the investigation is that only a relatively small amount of funding is expected to be affected which is not material in Vocation's context, the matter is not material for disclosure at this stage under Listing Rule 3.1. The Board agreed that it needed to be kept informed of developments. 165 Ms Bonnici wrote to Ms Watts on 19 August 2014 referring to Ms Watts' letters of 15 August 2014 and the meeting of 12 August 2014. She did not suggest in her letter that the meeting notes previously sent to her were in any respect inaccurate. She enclosed with her letter a document headed "Responses sought" which include a range of responses to issues raised at the meeting of 12 August 2014. 166 The measures outlined in Ms Bonnici's document included termination by Aspin of its agreements with two brokers and the issue of formal warnings to two others. 167 Under the heading "Proposed rectification" Ms Bonnici states: We acknowledge that due to the systemic nature of the issues outlined over our past correspondence with you, Aspin has processed claims for payment in relation to the CGEA that should not have been processed. In spite of some invalid claims being made, we believe that all participants have gained a level of benefit from participating in the CGEA through Aspin as evidenced by job outcomes and further training. In relation to our proposed approach regarding rectification and given the high volume of funded enrolments processed by Aspin during 2014 we have taken an approach which we believe overstates the claim reversal and minimizes impact on participants with regard to their eligibility for government subsidised training places in the future. As mentioned above, we understand that participants received some benefit through training delivery, however in the best interests of the participant and in support of the intent of the VET Funding Contract we are not proposing a detailed examination of the claim details for each individual. Rather, we propose to take a cohort-based approach for calculation of the amount of the claims reversal. This approach has the following benefits: • Aspin would avoid the need to directly investigate each of the 4,867 funded enrolments with regards to suitability and appropriate funding levels (if reduced claims should have applied) • Over 2,700 participants will re-gain eligibility under the Victorian Training Guarantee to a government subsidized training place • Claims of approximately $4.5M will be reversed • Participants will not be adversely impacted by an investigation at the individual level • Swift resolution of the issue and processing of reversed claims • Assurance that all participants are captured as a result of the broad nature of the approach. In recognition of our mutual desire to find an effective and efficient way forward, and to highlight to the Department that Aspin appreciates that claims for funding have been processed incorrectly, Aspin will undertake the following rectifications within the next 3 weeks: • Conversion of 915 participants brokered by NEI from funded to fee for service (FFS). We estimate this would result in a claim adjustment of just over $1.8M. • This will capture all participants trained at Eve nightclub as well as those participants who received the shortened course duration • Conversion of 1,142 participants who are under the age of 20 and have completed year 12 from funded to FFS. This equates to just over $2.6M • Conversion of 76 participants who have completed a prior Certificate III or higher qualification from funded to FFS. This equates to just over $66,000. The above steps result in over 2,700 enrolments being converted from government subsidised to FFS and a reversal of current claims (paid and pending) to the value of over $4.5M. Taking into account the monies already withheld by the Department, it is our estimation that it would take 3 claim periods before positive claims for Aspin would be made. 168 Ms Bonnici forwarded copies of the correspondence between DEECD and Aspin of 15 August 2014 and 19 August 2014 to Mr Gréwal. 169 Aspin's proposed rectification was initially said to have led to the creation of a provision of about $4.0 million in Vocation's accounts for the financial year ending 30 June 2014. A correcting affidavit filed by Mr Gréwal indicated that there was in fact no provision created and that revenue in the relevant period was written down by $4.0 million. That evidence is consistent with the financial statements in that they do not make reference to any provision or other entry (eg. a liability in respect of deferred revenue) that reconciles with the $4.0 million figure. 170 As I previously mentioned, ASIC did not invite me to make any finding that either BAWM or Aspin breached their Funding Contracts. While I do not make any such findings in this judgment, the meeting notes and correspondence relating to Aspin clearly show that DEECD had reasonable grounds to believe that Aspin committed serious breaches of its Funding Contract. 171 There seemed to be an assumption in the defendants' submissions that based on the so-called provision made in respect of Aspin in Vocation's accounts for the financial year ending 30 June 2014, Vocation was somehow justified in ignoring any further revenue impact of the contractual measures imposed on Aspin in the financial year ending 30 June 2015. The difficulty with this is that the total amount paid and claimed to Aspin in respect of the CGEA course (a course on the Foundation Skills List) by 19 August 2014 was almost $10.0 million (excluding GST). That means that the proposed reversal applied to less than half of all enrolments in CGEA under Aspin's Funding Contract. The idea that there would be a permanent withholding and repayment to a total of $4.0 million or $4.5 million in respect of Aspin could hardly have been said to constitute a "worst case scenario" for Aspin. Ms Bonnici's and Ms Watts' Correspondence of 20 August 2014 172 Ms Bonnici wrote to Ms Watts on 20 August 2014 referring to Ms Watts' letter of 15 August 2014. In the letter Ms Bonnici provides some of the information sought by Ms Watts indicating that further information and copies of contracts with brokers would be supplied by 25 August 2015. 173 Ms Bonnici also states: Variation to withholding payment of funds Further to your request for additional detail regarding the five brokers, we can confirm that the unnamed broker is National Employment Institute (NEI) and that NEI also referred students to TL141810 - Certificate IV in Warehousing (250 enrolments) and BSB30412 - Certificate III in Business Administration (60 enrolments). We appreciate the opportunity to provide the Department with information with respect to the ongoing effect of the imposition of these measures. We provide the following information for your consideration: • We note that of the current amount withheld (approx. $18.7M), just over $2M (10.7%) relates to participants referred by the five brokers in question. • While the suspension is due to a small number of programs overall, it applies to all programs conducted by BAWM and we continue to fully service these programs. • However, given the size of the monies currently withheld and the potential for ongoing claims to be withheld, we anticipate a cash flow impact as BAWM continues to incur significant operational overheads in the employment of more than 1,000 staff and trainers to fully service all its programs. • We believe that the proposed variation would provide relief against the cash flow impact given the number of programs we are currently operating. 174 Ms Bonnici's letter concludes: Again, we appreciate the consideration that the Department is giving to varying the current measure as it applies to the withholding of funds and we look forward to your response in this regard. 175 Ms Watts replied to Ms Bonnici's letter on the same day. Her email attaching her letter in response was sent to Ms Bonnici, Mr Hutchinson and Mr Gréwal at 7.04pm on 20 August 2014. In her letter Ms Watts referred to information requested in her letter dated 15 August 2014 concerning the five brokers. In particular, she repeated her request for an indication as to whether any training services for qualifications other than CSP and Warehousing conducted in 2014 were provided by any of the five brokers. She stated that, according to Ms Bonnici's letter of that day, NEI (which was referred to in previous correspondence between DEECD and Aspin) had also enrolled students in Certificate IV in two other courses, Warehousing and Certificate III in Business Administration ("Business Administration III"). Ms Watts sought information as to whether any of the other four brokers had enrolled students in any courses besides CSP and Warehousing and whether NEI had done so in relation to any courses other than CSP, Warehousing, Certificate IV in Warehousing and Business Administration III. 176 Ms Watts' letter continued: In the circumstances, and in light of the information as to practices in relation to BAWM and Aspin which has been the subject of correspondence between us, the Department does not presently have the appropriate level of confidence in order for it to consider varying the measures that are currently in place under clause 15.2(a) and (b) of BAWM's Contract. In particular, the Department is seeking to know whether student cohorts other than the students awarded the CSP and Warehousing qualifications were referred to BAWM by any of the five relevant Brokers or otherwise received Training Services from any of them. Until the Department receives clear and verifiable information on this issue, the Department does not propose to consider varying the current measures. Further, please note that my request for signed copies of contracts, included in my letter of 15 August, was not restricted to signed contracts with Brokers but extends to all persons (other than employees of BAWM) who have delivered Training Services on behalf of BAWM in 2014. Your letter this afternoon refers to individuals from Brokers who deliver Training Services as "authorised representatives" of the RTO. Any contract with such a person must be provided. You also make a definitional point, by which you treat "independent contractors" as "employees". We do not accept this definitional point. Contracts with independent contractors must be provided. You go on to write that Training Services are delivered by independent contractors who are contracted directly with Vocation or via a training labour hire business. You are required to produce include all signed contracts whether they be signed by the independent contractors and/or by labour hire businesses on their behalves. As you will appreciate, we continue to have concerns relating to the delivery of training in Warehousing and CSP generally, and irrespective of which Broker might have referred the particular student cohort, and I refer to my correspondence of 15 August which outlined our concerns in this regard. I am copying this letter to the CEO and Company Secretary of Vocation Limited (as I copied my letters of 15 August 2014 also) so that they are apprised as soon as possible about its contents, and can appropriately and promptly assess them in light of Vocation Limited's continuous disclosure obligations to the ASX. 177 It is apparent from this letter that DEECD was at this time unwilling to vary any of the measures that had been imposed on either BAWM or Aspin. After referring to the five brokers, and the need for BAWM to provide clear and verifiable information in relation to their involvement in other courses apart from CSP and Warehousing, Ms Watts went on to confirm that the Department had concerns relating to the delivery of training in Warehousing and CSP generally, irrespective of which broker was involved in the enrolment or training of particular students. Ms Watts is referring here, I infer, to perceived problems in the structure and delivery of the CSP and Warehousing dual qualification which had been raised in prior correspondence. There can be no doubt that DEECD's concerns extended beyond the recruitment of school leavers or unemployed into CSP and Warehousing. 178 Ms Bonnici responded to Ms Watts' letter later that evening by an email sent at about 9.30pm. In that email she confirmed that NEI had not provided training services in relation to any other qualification for BAWM or any other Vocation related RTO. She also confirmed her previous advice in relation to the four other brokers and advised that they had not provided training services in relation to any other qualifications for BAWM or any other Vocation related RTO. 179 At around this time there was also extensive correspondence between DEECD and Vocation concerning Vocation's continuous disclosure obligations and whether, as asserted by DEECD, Vocation was required to make an ASX announcement detailing the measures that had been taken by DEECD against Vocation under the Funding Contracts. The correspondence on this topic appears to have been initiated as a result of a telephone conversation between Ms Bonnici and Ms Watts on 8 August 2014 in which Ms Bonnici sought an indication as to DEECD's attitude to the matter of disclosure, something which Mr Hutchinson's evidence suggested she did without reference to him. The correspondence on this topic intensified after Ms Watts was contacted by a journalist in the afternoon of 20 August 2014 asking questions about (among other things) the payments that had been withheld. For its part, Vocation reiterated in its correspondence with DEECD that it was not required to make any disclosure in relation to either the withholding of funding or the suspension of enrolments on the grounds that these matters were not material. 180 In the early evening of 21 August 2014 DEECD wrote to the ASX complaining about what was alleged to be a failure on the part of Vocation to comply with its continuous disclosure obligations. It is not necessary to refer to DEECD's letter to the ASX in detail except insofar as it indicates what contractual measures had been imposed by DEECD on BAWM which were said to be: The Department has recently taken the following interim action, pending further investigation and consideration, in relation to the two subsidiaries of Vocation Ltd under the irrespective VET Funding Contracts 2014-16: • measures were imposed on BAWM Pty Ltd on 3 and 24 July 2014 under clauses 16.l(a) and l6.2(a) and (b) of BAWM Pty Ltd's Contract; and • measures were imposed on Aspin Pty Ltd on 5 August 2014 under clauses 16.l(a) and 16.2(a) and (b) of Aspin Pty Ltd's Contract. The measures currently in place in relation to BAWM Pty Ltd are, since 3 July 2014, a withholding of payments of Funds (calculated as at 8 August 2014: $18,819,387.56 inclusive of GST) and, since 24 July 2014 a direction to suspend new enrolments of Eligible Individuals and commencements of delivery of Training Services to Eligible Individuals. The measures currently in place in relation to Aspin Pty Ltd are, since 5 August 2014, a withholding of payments of Funds (calculated as at 8 August 2014: $1,858,789.03 inclusive of GST) and a direction to suspend new enrolments of Eligible Individuals and commencements of delivery of Training Services to Eligible Individuals. 181 The letter was signed by the Deputy Secretary of DEECD, Ms Kym Peake, and copied to Mr Dawkins, Mr Hutchinson, Mr Gréwal and Ms Bonnici. As indicated in the letter, the total amount withheld as at 8 August 2014 was approximately $19.0 million for BAWM and approximately $2.0 million for Aspin or about $21.0 million in total. Release of Appendix 4E 182 At around 6.00pm on 20 August 2014 a board committee, acting in accordance with a delegation of authority from the full board, approved Vocation's preliminary final report for the financial year ending 30 June 2014 ("Appendix 4E") and authorised its lodgement together with a media release and investor presentation with the ASX prior to the market opening on 21 August 2014. 183 On the same morning that the Appendix 4E statement and related material was released to the market, an article appeared in the Sydney Morning Herald ("SMH") entitled "Sharemarket darling Vocation hits some speed bumps" ("the SMH article"). 184 The SMH article of 21 August 2014 included the following commentary: There's good money in government grants. Of the $7 billion which Australian governments shell out for vocational education and training, Vocation Limited expects to pick up around $100 million this year. Vocation is a sharemarket darling. Having floated last December at an issue price of $1.89 its share price has shot up to $3 as the company embarked on a fast-growth "roll-up" strategy; that is, snapping up rival businesses in the vocational education and training (VET) sector across the nation. … Vocation is a rollup of Registered Training Organisations (RTOs) and its earnings come by wringing every drop out of government policies to invest in a job-ready population. In Victoria, student fee contributions are low – sometimes approaching zero – and the state chips in the lion's share of course costs when students sign up. Government payments are received monthly pro rata with completion of modules. It makes for an enticing working capital profile. Key to the IPO pitch was that stellar growth from Vocation's star Victorian business, BAWM – itself a roll-up of three VET businesses – could be replicated across the country as other states followed the Victorian contestable 'driven' funding model. That there were some 560 vocational training businesses receiving government funding in Victoria alone presented endless acquisition opportunities. Under the Victorian model, government-supported places in vocational training courses such as warehouse operations and process manufacturing are uncapped, students can take up to two vocational education courses to improve their employment prospects, largely funded by the taxpayer. Thanks to government funding contracts, the BAWM business has grown exponentially in recent years. It seemed the only constraint on growth was the business's ability to persuade students to fill out their enrolment forms – not a herculean ask when students didn't have to reach into their own pockets. In 2012 alone BAWM increased Higher Education and Skills Group (HESG) and Victorian Training Guarantee revenues from $2 million to $27 million. Since then this number may have more than doubled. The business delivers substantial operating leverage with very fat margins as revenues ramp up, particularly without the need for heavy investment in headcount and infrastructure. Despite the stellar growth the chatter in the Victorian training sector is that BAWM's founders led the industry with their extensive knowledge of how to get the best out of government regulations and subsidies – there is speculation the group may be encountering some speed bumps. The HESG put in place new rules during 2013 and early 2014 to try to improve the quality of outcomes for students undertaking courses which were largely funded by the taxpayer. A massive blow out in the Victorian government's budget for funded vocational training was also a concern along with 'tick and flick' and 'channelling' by savvy providers knowing how to game the system. In 2012 Victorian funding contracts allowed "auspicing" (subcontracting) arrangements which meant BAWM could essentially rent its funding contracts to non-Registered Training Organisations (RTO) which would conduct the training courses. The RTO holding the funding contract and the service provider – many of these being non-RTO's would share the spoils of the government subsidy. In doing so, BAWM would not incur large fixed costs as its revenues ramped up. Auspicing allowed BAWM to expand its business and grow revenue far more quickly than would otherwise have been possible if it had to provide the training courses itself internally. According to the Vocation prospectus, Auspicing was expected to deliver 36 per cent of the group's earnings in financial year 2014. Interestingly, auspicing (in the funded VET sector) is banned in South Australia while NSW and QLD have adopted a cautious stances towards the practice. The rules on auspicing in Victoria however have since been tightened. From 2014, the HESG closed a loophole that allowed unlimited subcontracting to non-RTO's. Now, prior written approval of the HESG is required for any non-RTO providing a course that was supported by taxpayers funded subsidy. But with Vocation delivering its first full-year result as a listed company today, investors would do well to ask how the rule-changes around auspicing are affecting BAWM and whether BAWM's auspicing has been compliant. Shareholders are likely to ask for certainty as to whether there has been any investigation into the practice and whether any of BAWM's funding contracts have been suspended. The informed speculation in the sector is that there may be issues with BAWM's auspicing. 185 Another article appeared in the Australian Financial Review ("AFR") on the same day which made a brief reference to changes to the funding model and licensing process and their effects upon BAWM's four key brands. The article states that "Vocation has said little publicly about the changes. And some of the shareholders are getting restless." 186 An investor conference call was held on 21 August 2014 in which Mr Hutchinson, Mr Gréwal and Mr Langtree responded to questions from analysts in relation to Vocation's results for the financial year ending 30 June 2014. Toward the end of the conference there were a number of questions asked by Mr Pendlebury that were fielded by Mr Gréwal. The relevant exchange as recorded in the transcript of the call as agreed by the parties was as follows: Ed Pendlebury: Oh, thank you and look, I was, you've made the prospectus forecast and I congratulate you on that, but I suppose my question relates to the outlook for FY15 and look, particularly considering, I don't know, you probably are not aware that there was an article in the Sydney Morning Herald this morning relating to the current funding status of Baum in the Victorian market and I suppose in your presentation, you expect Victorian revenue to decline by about approximately 40, well represent 40% of the overall revenue and I appreciate that you have recently acquired some substantial non-Victorian revenues in Real and Endeavour but could you provide some colour on the outlook for Baum since the June 30 balance date and appreciating that, you know, at the time of the IPO Baum was your most significant business and what's the status with the funding situation there? Manvinder Gréwal: Yeay, thanks, I guess, the preface here is that we don't, we no longer analyse and report on the forming companies. We look at the activities the business units and the channels that, so obviously, the play in Victoria is something that we regard and we have spoken about this at length through the presentation, something that is a more stable platform across the next year and the growth will certainly come from other areas, so it will come from outside of Victoria. I guess, we don't provide, there's no specific information we provide about what is happening in Victoria itself, there's nothing to sort of update specifically other than, you know, it's been a fantastic year in terms of that growth, but that growth in that State is not what we regard as sustainable and it certainly. Ed Pendlebury: But I suppose to cut to the chase, has there been any change in the Baum funding arrangements with the government since the June 30 balance date? Manvinder Gréwal: No. There was ... there was a pricing change on the 1st of July that was put out by the government so that, that has been a change that's come through. Yes, the price list revised. Ed Pendlebury: Right, but there has been no material change in the funding arrangements with the Baum group since the June 30 balance date. Correct? Manvinder Gréwal: Correct. Ed Pendlebury: Thank you. 187 The agreed transcript of the conference call held on 21 August 2014 shows that it was Mr Gréwal (not Mr Hutchinson) who answered Mr Pendlebury's questions. Of course, Mr Hutchinson was an active participant in the conference call. He did not contradict or qualify what Mr Gréwal said in response to Mr Pendlebury's questions. One of those questions was whether there had been any change in the BAWM funding arrangements with the government since 30 June 2014. Mr Gréwal's answer to that question was that there had been no change other than a price list revision. Both Mr Gréwal and Mr Hutchinson knew that since early July 2014 DEECD was exercising powers under BAWM's Funding Contract to withhold funding payments. To say that there had been no change in BAWM's funding arrangements after 30 June 2014 was incorrect. Mr Pendlebury went on to introduce the issue of "materiality" in his next question but the earlier question to which I have referred was not limited in its terms to changes in funding arrangements of a material kind. Email Correspondence of 21 August 2014 188 At around 10.00am on 21 August 2014 Ms Watts sent an email to Ms Bonnici asking a number of questions and also referring to the possibility of limiting the withholding of funds and the suspensions to particular courses and particular referrals. After referring to the email sent to Ms Watts by Ms Bonnici at about 9.30pm the previous evening, Ms Watts responded: The email states that RISE, Community Training Initiatives, Australian Careers Advisory and BSL Learning did not provide Training Services in 2014 in relation to any student to whom BAWM awarded a qualification other than Certificate III in Competitive Systems and Processes (CSP) and Certificate III in Warehousing Operations (Warehousing). Is it also true to say that no student to whom BAWM awarded a qualification other than CSP and Warehousing was referred to BAWM by any of these four entities? The email states that NEI did not provide Training Services in 2014 to any student to whom BAWM awarded a qualification other than CSP, Warehousing, Certificate IV in Warehousing and Certificate III in Business Administration. Is it also true to say that no student to whom BAWM awarded a qualification other than these four qualifications was referred to BAWM by NEI? Assuming the answers to these two questions are yes, and assuming you can provide clear and verifiable evidence supporting the information in the email, the Department will prepare a brief for consideration as to whether to vary the measures currently imposed on BAWM to limit the current withholding of Funds and suspensions to: (a) all Funds and enrolments and commencement of Training Services in relation to CSP and Warehousing; and (b) all Funds and enrolments and commencement of Training Services in respect of identified students who were referred by, or otherwise were the subject of Training Services provided by, any of RISE, Community Training Initiatives, Australian Careers Advisor, BSL Learning and NEI. In order for this next step to occur, we will require you to identify by student ID number all such students referred to in (b) above. 189 Ms Watts' email is significant for at least three reasons. 190 First, Ms Watts' reference to the possibility of limiting suspensions to enrolments and commencements to CSP and Warehousing is inconsistent with any understanding on her part that these were the only courses to which the existing suspensions applied. 191 Secondly, Ms Watts makes clear that any payment of withheld funds or removal of suspensions would not extend to CSP, Warehousing, Business Administration III or any course in respect of which students were referred by, or had training services provided by, any of the five brokers identified in the prior correspondence. 192 Thirdly, Ms Watts identified further evidence and information that would need to be provided before a brief was prepared for consideration (presumably by the Secretary of DEECD or the Minister) as to whether to vary any existing measures previously imposed on BAWM. Importantly, Ms Watts' email makes clear that any such variation would not involve the making of any payment, or the lifting of any suspension, in relation to CSP, Warehousing and Business Administration III. This is significant because the evidence shows that about half of the money that had been withheld from BAWM related to the CSP and Warehousing dual qualification. 193 Mr Hutchinson's written evidence addressed his understanding of Ms Watts' email to Ms Bonnici of 21 August 2014 directly. Mr Hutchinson said: On 21 August 2104 [sic] at 9.57am, Ms Watts sent an email to Ms Bonnici, copied to Mr Gréwal and me. I recall receiving the email but I do not recall precisely when I read it. (It was sent while I was attending the investor conference call on that day.) I also recall having a conversation about the email with Ms Bonnici or Mr Langtree (who was with me in Sydney for investor presentations), although I do not recall the detail of the conversation. When I read the email, I noted that the email stated that, assuming the answers to questions in the email was 'yes' and there was clear and verifiable evidence of matters in Ms Bonnici's earlier email, the Department would consider releasing withheld funds that did not relate to CSP, Warehousing or enrolments from the five brokers referred to in the email. Based on my conversation with Ms Bonnici or Mr Langtree, I understood that those requirements would be met. In light of that, the email generally reaffirmed my expectation that there was likely to be a resolution of the BAWM audit and the release of the bulk of its funds within the next few weeks. 194 Mr Hutchinson's oral evidence in relation to his understanding of Ms Watts' email was at times slightly confused, but ultimately did not depart from his written evidence on the topic. I am satisfied that he understood from Ms Watts' email that any variation of the measures in place would not involve the payment to Vocation of any amounts in respect of CSP and Warehousing. 195 Mr Hutchinson's attention was drawn to the last sentence of the relevant portion of his written evidence in which he stated that Ms Watts' email generally reaffirmed his expectation that there was likely to be a resolution of the BAWM audit and the release of the bulk of its funds in the next few weeks (ie. some days prior to 12 September 2014) when BAWM's next VET monthly payment would usually be received. He was asked about whether he had any understanding of the proportions of the withheld funds that related to CSP and Warehousing relative to the total amount that had been withheld from BAWM. His evidence was as follows: No, my reference was always the anticipated outcome from the Victorian management team that they thought was likely to be permanently withheld. So to answer your question, I didn't cross-reference a specific bulk of CSP and warehousing in the greater context. He went on to repeat that his expectation was based on the analysis from the Victorian management team and what they thought was at risk. It is apparent that Mr Hutchinson did not understand, as at 21 August 2014, that even if DEECD were to release some of the funds withheld from BAWM, it would continue to retain most of the $19.0 million withheld on the basis that those funds related to the CSP and Warehousing dual qualification. 196 At 8.17pm on 21 August 2014 Mr Langtree forwarded an email to Mr Hutchinson (copied to Ms Bonnici and Mr Gréwal) providing what he referred to as background information regarding disclosure. According to Mr Hutchinson's evidence, he had asked Mr Langtree to compile information for him regarding the Victorian audits to further inform his "consideration of the potential materiality to Vocation of their outcome". He was no doubt aware that he would be questioned by the board about that matter at a board meeting that was held the next day. 197 In his email Mr Langtree said: … - On 15 August, 2014 HESG indicated that they were considering varying the measure taken on 3 July, 2014 to withhold funds such that only Funds attributable to CSP and Warehousing would continue to be withheld. This correspondence also sought to understand whether any other qualifications were connected with the brokers named by BAWM in relation to CSP and Warehousing (namely Rise, Community Training Initiatives, Australian Careers Advisory, BSI Learning and National Employment Institute who had not yet been named by BAWM but was clarified in future correspondence). Within this correspondence, HESG invited BAWM to provide any further information which may be relevant to this consideration. - On 20 August, 2014 BAWM provided a written response to HESG which included further information regarding the consideration to vary the measure taken on 3 July, 2014 to withhold funds such that only Funds attributable to CSP and Warehousing would continue to be withheld. In that correspondence we noted that of the current Funds withheld, just over $2M (or 10.7%) related to participants referred by the five brokers under discussion. - On 21 August, 2014 HESG sought further clarification from BAWM regarding the variation being considered by HESG. This email stated that if BAWM confirmed the statements in the email (which we predominantly do) the Department would prepare a brief for consideration. … 198 It is apparent from this email that Mr Langtree was familiar with the correspondence from DEECD of 15 August 2014 and 21 August 2014, both of which indicated that any variation of the measures imposed on BAWM would not involve the release of funds referable to CSP and Warehousing which DEECD would continue to withhold. 199 Mr Langtree's email concluded with his summary which was as follows: At all times during our engagement with HESG we have cooperated fully to further their understanding of the programs in question. Each step has provided a progressive indication that this matter continued to be under review, however no action has been taken in relation to qualifications other than CSP and Warehousing. In addition, the later correspondence has continued to confirm that HESG would consider a variation to their measure taken to withhold funds. The extent of this variation would see approximately $10M in active payments processed to BAWM, which (in my opinion) would easily cover our required level of ongoing working capital. I am confident that our response in relation to Aspin Pty Ltd should more than adequately address the issues identified in relation to CGEA and that this matter would be resolved in a speedy fashion. For the above reasons, I concur that it does not currently appear prudent to release information to the ASX, as anything we might currently release would be incomplete in nature and in substance, and that this may actually cause our shareholders to be misinformed of our current status given the complexity and continuing status of these issues. 200 Mr Langtree's calculations at this date made no allowance for the possibility that DEECD would seek to justify the withholding by reference to prior claims made by BAWM in respect of CSP and Warehousing which BAWM had already paid in the period January to June 2014. I will return to this topic later in these reasons when referring to correspondence exchanged between Vocation and DEECD on 25 and 26 August 2014. 201 Any hope that there would be a quick release of approximately $10.0 million to BAWM or a quick acceptance of the Aspin offer was dashed by Ms Watts' letter to Ms Bonnici of 26 August 2014. I will come to that letter shortly. 202 There is another important point to make concerning Mr Langtree's email. It repeats the same "just over $2.0M (or 10.7%)" figure quoted in Ms Bonnici's letter to Ms Watts of 20 August 2014. As that letter and Mr Langtree's email makes clear, that was said to constitute the proportion of the withheld funds that related to enrolments by five nominated brokers who enrolled students into courses run by or on behalf of BAWM in respect of which payments had been withheld (ie. about 10.7% of approximately $18.7 million). The 22 August 2014 Board Meeting 203 The Vocation directors met the next morning at 11.00am on 22 August 2014. All directors were present and Mr Gréwal and Mr Bryan Koster of JWS were also in attendance. The principal matter discussed at the board meeting was the Victorian audits. During the course of the meeting there was a discussion concerning the letter of complaint written by DEECD to the ASX on 21 August 2014 concerning Vocation's continuous disclosure obligations. The minutes of the meeting of 22 August 2014 (which were not signed by Mr Dawkins until 25 September 2014) record the following: JD advised communications have been initiated with the ASX following the Department of Education and Early Childhood Development's (DEECD) letter of 21 August 2014 to the ASX, also copied to MH (21 August Letter). The Board noted a copy of the 21 August Letter had been circulated to all Directors. The Board noted the 21 August Letter was a complaint to the ASX regarding Vocation's continuous disclosure obligations and notified the ASX of: • The withholding of payments to BAWM and Aspin; • The suspension of certain new enrolments. BK updated the Board on discussions he has held with Vocation's Listing Advisor at the ASX, including: • ASX is aware of the media on the Victorian audits but has not yet received the 21 August Letter; • That it is the view of Vocation that there is no material information for disclosure to the market as the investigation is in progress, payments are being withheld but the amount of funds expected to be affected are not material; • ASX has requested an email be sent explaining the background and Vocation's position regarding disclosure. BK noted that a letter for this purpose has been drafted and circulated to Directors. The Board discussed disclosure and the reasons for concluding that disclosure is not required under Listing Rule 3.1. BK advised, that after discussions with MH, MG and Wendy Bonnici, and a review of relevant correspondence, it is envisaged that the expected outcome of the investigation is that only a relatively small amount of funding is expected to be affected which is not material in Vocation's context. BK also advised that management has advised that: • these investigations are not uncommon; • although it appears the dispute is escalating with the 21 August Letter to the ASX, at this stage it continues to look like the underlying matters are being resolved; and • management has reviewed the estimates of revenue impact of students likely to be affected and reconfirmed the $2 million estimate MH explained the issues the DEECD has raised, the effect on Aspin and BAWM and the matters to be responded to within 7 days. MH advised that no contracts have been suspended although funds continued to be withheld. The Board asked what proportion of continuing enrolments were affected and MH responded that less than 20% of BAWM enrolments and most of Aspin, albeit Aspin was quite small relative to BAWM. MH confirmed that, as far as he is aware, the majority of the withheld payments will be released and that there has been no discussion of further enrolments being suspended. MH advised he has asked for confirmation from DEECD that only part of the withheld payments are at risk but has not received a response. The Board requested copies of the parts of the correspondence that indicate that only part of the withheld payments are at risk. … After extensive discussion and advice from JWS regarding disclosure requirements, the Board concluded that disclosure is not required at this stage under Listing Rule 3.1, as the expected outcome of the investigation is that only a relatively small amount of funding ($2 million) is expected to be affected which is not material in Vocation's context and the outcome would not be expected to have a material effect on the price or value of Vocation's securities. JWS confirmed their view that this approach was appropriate. The Board noted, that despite the matter not being required to be disclosed under Listing Rule 3.1, a response to media speculation may be helpful. The Board discussed the current draft form of market release that has been prepared should an announcement be required to respond to media speculation. The Board agreed: 1. Discussions with the ASX should continue regarding potential disclosure; 2. If a market release is required today, the form of the announcement is as discussed during this meeting, with MH delegated to finalise the form of the announcement, in consultation with legal advisors; and 3. Further discussion should be held with the Board if a more detailed market release is required. 204 Later that day, Mr Hutchinson forwarded to Mr Simon Daniels of the ASX a letter dated 22 August 2014 responding to DEECD's letter of complaint. It is apparent that Mr Koster approved that response. 205 Mr Hutchinson's letter to the ASX of Friday, 22 August 2014 refers to correspondence between BAWM and DEECD in which BAWM sought a partial release of funds. The letter includes the following: • On 20 August 2014 BAWM provided a written response to HESG, which included further information regarding the potential variation of the measure taken on 3 July 2014 to withhold all payments of funds to BAWM. The response provided reasons why only the funds attributable to the CSP and Warehousing courses should continue to be withheld. In that correspondence BAWM noted that of the $18.8m (inclusive of GST) of current funds withheld, just over $2m (or 10.7%) (inclusive of GST) related to participants trained by the five brokers noted above that are of interest to HESG. • On 21 August 2014 in an email to BAWM, HESG sought further clarification from BAWM regarding the variation being considered by HESG. The email stated that if BAWM confirmed certain matters stated in the email the HESG would seek internal approval for the variation of the measure taken to withhold all funds from BAWM. If this variation is approved then approximately $10m in payments will be paid to BAWM with a further approximately $6m to follow. • On 22nd August 2014 in an email to HESG, BAWM confirmed these matters, and provided additional information including a report of Student data that HESG had requested. Conclusion re BAWM We consider that: • Given the HESG investigation relates to only 2 specific qualifications (CSP and Warehousing) and the current focus of HESG relates to referrals from 5 specific brokers into other qualifications (where these referrals equate to approximately 15% of the current outstanding claims); and • Given that the suspension of enrolments only relates to CSP and Warehousing, none of: • the investigation being conducted by HESG into BAWM; • the withholding of funds and suspension of enrolments implemented in connection with the investigation; nor • the expected outcomes of the Investigation, constitute material information that should be disclosed on ASX. In addition, given the complexity and continuing status of the matters being investigated, any disclosure of the investigation or measures implemented in connection with it is likely to mislead our shareholders as to the significance of the investigation. 206 As to Aspin, Mr Hutchinson's letter indicated that the payments withheld from Aspin were for an amount of $1.86 million inclusive of GST and that Aspin had proposed an "approach to be taken by Aspin regarding the issues raised" which Vocation believed could see the issue fully resolved within a few days. It was also asserted that the investigation into Aspin, the withholding of funds and suspension of enrolments, and the expected outcomes of the investigation did not constitute material information that should be disclosed to the ASX. 207 There are a number of points to make at this stage in relation to the board meeting of 22 August 2014. 208 First, the minutes record that the board noted both the withholding of payments to BAWM and Aspin and "[t]he suspensions of certain enrolments". The directors (as with Ms Bonnici and Mr Langtree) did not appreciate that the suspensions extended to all new enrolments. The letter to the ASX made the same mistake, asserting that "the suspension of enrolments only relate to CSP and Warehousing". A careful review of the correspondence imposing the suspension would have indicated to the directors that they extended to all VET courses offered by BAWM and Aspin. 209 Secondly, the minutes indicate that management confirmed that the estimated effect on revenue was $2.0 million. This is a figure mentioned in Mr Langtree's email sent late the previous evening. However, Mr Langtree's reference to $2.0 million was not an estimate of what amount might be permanently withheld, but his estimate of what portion of CSP and Warehousing revenue related to enrolments by the five brokers. As I will explain, Mr Langtree's later calculations indicate that the Vocation's exposure was greater than this. 210 Thirdly, Mr Hutchinson was asked what proportion of enrolments was affected by the suspensions: he responded less than 20% for BAWM, and most for Aspin. This significantly understated the effect of the suspensions that were then in place against BAWM and Aspin in two respects. In the first place, the evidence shows that approximately 50% of BAWM's revenue came from enrolments in CSP and Warehousing. In the second place, Mr Hutchinson misunderstood the scope of the suspensions which in fact applied to all enrolments by BAWM and Aspin. 211 Fourthly, only a few days before this meeting, Mr Hutchinson had informed the board at the board meeting of 19 August 2014, that the suspensions were likely to negatively affect Vocation's earnings in the range of $8.0 million to $10.0 million. This information is not referred to in the minutes of the meeting held on 22 August 2014. There is no evidence to suggest that any director asked Mr Hutchinson whether his previous estimate had changed and, if so, why. In fact, the evidence given by Mr Dawkins suggested that nothing had changed. When questioned about Mr Hutchinson's estimate, Mr Dawkins' said: Do you see that's, in context, a reference to a further eight to 10 million dollars out of the financial year 2015 budget; would you agree? ––– That's what he's saying. Yes. Now, I take it you regarded that as a significant amount of money that was going to be removed from the FY15 budget? ––– Well, these were issues which had to be taken into account. I'm not sure that they were settled issues. But his best estimate, would you accept, as at 13 August, when this report was circulated, that the effect of the audit findings to date was that Vocation would have limited use of certain qualifications, for example competitive systems and warehousing? ––– There was no – there was no concrete information. That was his best guess. And when you say best guess, he was employed as the chief executive officer to provide considered advice to the board on future events and prospects for the company, wasn't he? ––– Yes. Were you aware of any alternative information from Mr Hutchinson to the effect that that estimate that he provided was inappropriate? ––– No. 212 Fifthly, the ASX requested that Vocation send it an email explaining Vocation's position. The response ultimately provided to this request was Mr Hutchinson's letter sent the same day which had been approved by Mr Koster and by the directors. That letter was incorrect insofar as it asserted that the suspension of enrolments only related to CSP, Warehousing and CGEA. 213 Mr Hutchinson's letter also indicated that the "just over $2.0m (or 10.7%)" figure quoted by him in the letter related to referrals from five specific brokers into courses other than CSP and Warehousing. That implies that Ms Bonnici's and Mr Langtree's $2.0 million figure did not take into account the potential for any permanent withholding of funding claimed in respect of CSP and Warehousing. Further, according to Mr Hutchinson's letter, the referrals by brokers into other courses equated to approximately 15% of currently outstanding claims and although he does not specify the relevant figure, 15% of $18.8 million is $2.9 million. In short, the letter is confusing, suggesting that the risk of permanent loss might be $2.0 million or $2.9 million plus an additional amount in respect of CSP and Warehousing. 214 There was a noticeable shift in the advice given to the board by Mr Hutchinson between 19 August and 22 August 2014. At the earlier meeting on 19 August he gave what was, in my opinion, a relatively frank assessment of the revenue impact of the suspensions. However, at the 22 August meeting he referred to the impact on numbers of enrolments rather than any revenue impact. One possible explanation for this change in position may be the conference call held on 21 August 2014 discussing Vocation's financial results for the first year ending 30 June 2014, at which Mr Hutchinson and Mr Gréwal had effectively committed Vocation to the position that changes to the VTG funding arrangements since 30 June 2014 were not material. I think it likely that from that point forward Mr Hutchinson felt quite constrained by what had been said during the conference call in relation to the funding arrangements with DEECD. 215 There were some email communications between Mr Koster, Ms Keenan, Mr Hutchinson, Mr Gréwal and Mr Dawkins in the afternoon of Sunday, 24 August 2014 in relation to a possible ASX announcement by Vocation. In one email, Mr Gréwal suggested that Vocation might issue an ASX announcement providing information on some "post balance sheet events" which would include (I infer) information concerning the withholding of funds by DEECD. In response, Ms Keenan expressed her concern that disclosing more information on the status of funding contracts in an ASX announcement would not look good given the answers given to Mr Pendlebury's questions during the investor conference call. She suggested that Vocation issue an ASX announcement stating: Vocation has become aware of misinformation in the market regarding the funding contracts that Vocation has with the Department of Education and Early Childhood Development in Victoria. Vocation takes its disclosure obligations seriously. It is the view of Vocation's Board, having consulted with the company's external legal counsel [and ASX], that all material information has been disclosed and that the Company has discharged its disclosure obligations. 216 In another email sent that afternoon, Mr Koster asked Mr Hutchinson how high the level of confidence was that DEECD would release most of the withheld money and whether there were any expected negative consequences from the review. According to his email Mr Koster was "just trying to confirm the statement that the review and its expected outcomes are not material to Vocation." Later in the day he advised the recipients (Mr Hutchinson, Mr Dawkins and Mr Gréwal) that such a statement was "… from a legal perspective … fine provided Vocation is confident of getting most of the withheld money and also confident there will not be other material adverse consequences to revenue from DEECD that have not otherwise been anticipated." The 25 August AFR 2014 Article 217 The next business day, Monday, 25 August 2014, there was another article column concerning Vocation in the AFR, this time in the "Rear Window" column. The article included the following: Still, around 80 per cent of Vocation's revenues in the 2014 financial year came from Victorian subsidiary BAWM, which has achieved stratospheric revenue growth - from $2.4 million in FY11 to $110 million in FY14. Around 90 per cent of that revenue is in training contracts with the Victorian government. On Thursday, Vocation posted its full-year results, which maintained the company's "current government support" in Victoria is "$1.2 billion of funding over the next three years". But just the day before, Victoria's Education Department advised BAWM its funding was being suspended pending the outcome of a full audit. We hear government auditors had been crawling over BAWM's books for the previous six weeks. One analyst asked Hutchinson on Thursday about BAWM's Victorian government funding, and the Vocation chief said there was no change to any funding arrangements as of July 1. But what about after that date? "Vocation takes its continuous disclosure obligations extremely seriously and is comfortable that it has at all times fulfilled these obligations," said a company spokesperson. 218 None of the newspaper articles was relied on by ASIC to prove the truth of any of the statements made in it. There is good reason for that. The articles contained errors (some minor, others not). For example, it was not Mr Hutchinson who was asked about changes to funding arrangements during the conference call on 21 August 2014 but Mr Grewal. Nor was Mr Hutchinson asked whether there had been a change to any funding arrangements as of 1 July 2014. On the contrary, they were in fact asked the very question that the journalist raised in the article (ie. Had there been any changes to BAWM's funding arrangements since the 30 June 2014 balance date?). However, the publication of the AFR article on 25 August 2014 provides context for the Vocation board meeting that was held on that morning, and the ASX announcement that Vocation issued prior to the market opening. The 25 August 2014 Board Meeting 219 At about 8.00am on Monday, 25 August 2014, a meeting of the Vocation directors was held by way of teleconference. The meeting concluded at about 10.00am. The directors who participated were Mr Dawkins (JD), Mr Hutchinson (MH), Mr Tucker (ST), Ms Tredenick (MT) and Mr Halley. Others in attendance included Mr Gréwal (MG), Mr Bryan Koster (BK) and Mr James Rozsa (JR) of Johnson, Winter & Slattery (JWS). The relevant minutes of the meeting (extracted below) refer to participants by reference to their initials. 220 There were four topics discussed at the directors' meeting. However, the principal topics that were discussed were the funding contracts with DEECD, whether Vocation needed to make an ASX announcement concerning that matter and, if so, in what terms. Mr Koster and Mr Rozsa of JWS were there to provide advice. The minutes of the directors' meeting (which were also not signed by Mr Dawkins until 25 September 2014) relevantly state: VICTORIAN AUDITS The Board was updated on events since 22 August 2014, including: … • following discussions on 24 August and advice received by the Company's Melbourne lawyers, a letter has been prepared by the Company's legal advisors in Melbourne to send to the Department of Education and Early Childhood Development (DEECD) requesting that withheld payments that are not subject to dispute be released under the contract, with an email sent by Wendy Bonnici in advance last night (email was circulated) to prepare the department for the letter. It was agreed to circulate the letter to DEECD to the Board; and • ASX has not responded to the letter sent on 22 August 2014 by MH in response to the disclosure issue but is expected to respond today. BK reconfirmed that ASX had not required disclosure on 22 August 2014 and were satisfied with Vocation's response to date. The Board noted JWS continues to maintain contact with the ASX and confirmed JWS saw no additional issues in what was raised in the press. The Board noted however the ASX may require a market release as a response to the increased media coverage. MH advised the next payment from the Victorian Government is due on 12 September and that there is no reason to believe that payment will be withheld. MG updated the Board on the Company's cash position: • cash to meet commitments is available beyond 12 September; • a further facility from the banks is being negotiated as an amendment to the current facility agreements and as a contingency. MG advised he would expect this to be in place within 10 days. MH also advised that payments to RTO Edge contractors can be held if payments to Vocation continue to be withheld as our liability to pay only commences once we receive the funds ourselves. To date (July and August) we have however made these payments. The Board asked that the cash flow projections be updated and account for a number of possible scenarios After lengthy discussion of the updates provided and issues raised, the Board: • noted the update on the cash position; and • confirmed the previous view that the matter is not material for disclosure at this stage under Listing Rule 3.1, as the expected outcome of the investigation is that only a relatively small amount of funding is expected to be affected which is not material in Vocation's context and the outcome would not be expected to have a material effect on the price or value of Vocation's securities. The Board agreed to discuss the issue again once a response is received from DEECD regarding the letter requesting partial payment. … Cash flow MH/MG advised the Board that they had initiated running various cash flow scenarios and would circulate later in the week. ASX Discussions BK updated the Board on his discussions with ASX and advised that, while ASX agrees that disclosure is not required under Listing Rule 3.1 based on information provided by Vocation, in the light of media speculation ASX thinks it is in Vocation's interests to put out a response, noting that the article in Rear Window was different to information referenced in the letter received on Friday. The Board agreed that a market release be issued noting that: - Contracts have not been suspended - Recent payments are withheld pending review - Anticipating [sic] outcomes will not be material A final draft copy was circulated and agreed for MG to release to the ASX. JR advised he received an email from the ASX asking Vocation to lodge an announcement providing a clarification of the Victorian Education Department investigation and the effect on VET revenues and contracts quantum. The Board agreed that the draft approved by the Board covered those aspects adequately. The Board agreed that: - ST (or maybe MT) would be available to join WB for a call with the department (as referenced in WB email yesterday); - DH to review cash flows with MG/MH; and - JD to be kept in reserve for possible escalation (noting JD is in Melbourne tomorrow) 221 The minutes record that Mr Koster reconfirmed that the ASX had not required disclosure on 22 August 2014 and was satisfied with Vocation's response to date. To the extent it is suggested by this minute that Mr Daniels had previously advised Mr Koster that no disclosure was required, I very much doubt that it is accurate. The minutes of 22 August 2014 do not suggest Mr Daniels provided any such advice. On the contrary, they note that an announcement may be required. Moreover, Vocation's written response to DEECD's letter of complaint was not sent to the ASX until 4.21pm on Friday 21 August 2014 by which time the market had closed. There is nothing in the evidence to suggest that Mr Koster was communicating with Mr Daniels at any time between then and 9.47am on 22 August 2014. Mr Daniels' file note of 25 August 2014 suggests that he was not contacted again until about 9.20am on that date when Mr Koster telephoned him. It also suggests that there was one relevant telephone communication between them in which Mr Daniels suggested that an announcement be made and that: VET [ie. Vocation] should clarify its position wigiven [sic] the article appeared to overstate the impact on VET [and] a clarification [on] … the Victorian Education Department and its affect [sic] on revenues. 222 Mr Hutchinson advised the board, as recorded in the minutes, that there was no reason to believe that payment would not be received from DEECD by 12 September 2014 when he said the next DEECD payment was due. The clear implication was that there was no reason to expect that DEECD would not pay to BAWM on that date an amount in the vicinity between $10.0 million and $16.0 million. I say this because Mr Hutchinson had told the ASX in his letter of 22 August 2014 that DEECD was considering a possible variation of the measures taken against BAWM which, if approved, would result in approximately $10.0 million being paid to BAWM, with a further $6.0 million to follow. The inference I draw is that the board was informed by Mr Hutchison on 25 August 2014 that BAWM could expect to receive an amount in the vicinity of between $10.0 million and $16.0 million on or about 12 September 2014. That advice appears to have reflected his understanding at around this time that a substantial portion (but not necessarily the bulk) of the funds withheld from BAWM would be released within a few weeks. 223 The minutes record that the board confirmed its previous view that the matter (presumably the matter of the contractual measures and their impact) was not material as the expected outcome would result in the withholding of a "relatively small amount". 224 The board agreed to discuss the matter again once BAWM received a response from DEECD to its request for partial payment. 225 The board minutes indicate that Mr Gréwal provided an update to the board on Vocation's cash position. He advised that a further facility from the banks was being negotiated as a contingency which he expected to be in place within 10 days (ie. by 4 September 2014). 226 The board's minutes of 25 August 2014 also indicate that the board requested updated cash flow projections. They also record that later in the meeting (which appears to have lasted about 2 hours including a 30 minute break) Mr Gréwal advised the board that cash flow projections were being prepared and would be circulated later in the week. The 25 August 2014 ASX Announcement 227 As agreed during the course of the board meeting, an ASX announcement headed "Response to press speculation" was issued on 25 August 2014 by Vocation before trading commenced. This announcement was made notwithstanding the board's view (as recorded in the minutes) that no disclosure was required. The announcement relevantly stated: Vocation is aware of press speculation regarding the Company's Victorian funding contracts. Vocation would like to reiterate that it takes its disclosure obligations extremely seriously and is comfortable it has complied with these obligations at all times. However in light of the speculation referred to above, Vocation considers it prudent to make the following points: • Vocation's funding contracts with the Victorian Department of Education and Early Childhood Development (DEECD) have not been suspended and are continuing. • The DEECD is undertaking a review of three of the courses conducted by Vocation for which Vocation receives funding under those contracts. As part of the review process, the DEECD has withheld recent payments under the funding contracts. • Vocation considers that neither the review nor its anticipated outcomes are material to Vocation. Vocation has had a longstanding and constructive relationship with the DEECD. Vocation is working with DEECD to bring the review to an early conclusion. The operation of funding contracts and the audit and review processes that accompany those are part of Vocation's normal business activities. 228 Mr Daniels sent an email to Mr Koster at around 10.02am confirming the advice he had given Mr Koster in their conversation earlier that day. This included his advice that Vocation issue a clarification as to DEECD's investigation and the effect on Vocation's "revenues and contract quantums". The ASX announcement of 25 August 2014 was released at around 10.05am just minutes after Mr Daniels sent his email to Mr Koster. 229 Mr Dawkins gave evidence that there was discussion at the 25 August 2014 board meeting: … saying or agreeing, that if any mention was made of $20 million being withheld, that could cause a misunderstanding in the public that $20 million was really at risk, even if the statement went on to say that in Vocation's view $20 million was withheld but only $2 million was at risk. 230 Mr Dawkins also gave evidence, which I accept, that Mr Koster had suggested that instead of referring to a dollar amount, "we could mention that funding had been withheld, and the fact that it was not material would communicate that the amount at risk will be a small figure." 231 Mr Dawkins was cross-examined in relation to why he considered that it would be misleading for Vocation to include in its ASX announcement a reference to the amount of money withheld by DEECD coupled with a statement to the effect that only $2.0 million was at risk. In the course of Mr Halley SC's cross-examination of Mr Dawkins on this issue, I asked Mr Dawkins several questions the answers to which were as follows: HIS HONOUR: Why do you say it would have been misleading, or potentially misleading … ? ––– Well, if you start from the proposition that the amount that we concluded was at risk was 2 million, of the 20, not including Aspin – I'm putting Aspin to one side – it wasn't 20 at this stage. To have gone into an explanation as to why 20 was withheld, and only two was at risk, we believed was more likely to lead to misleading conclusions if we said that without explaining why we thought it was only 2 million, and at this stage in the process we were only able to make a judgment on the basis of advice we had from management as to what the unspecified breaches might be. But what would be misleading in a statement to the effect that although $20 million had been withheld, it was not anticipated that would have any material impact on the company's earnings? Which was, as I understand, your thinking at the time? ––– Well, we said we didn't think it was material. We didn't think it was necessary to mention the 20 million. 232 The suggestion made by Mr Daniels, as conveyed to the board by Mr Koster, was that Vocation include in its ASX announcement a clarification of the investigation and "the effect on VET revenues and contracts quantum". Plainly, Mr Daniels was suggesting that Vocation include in its announcement information of the type that Mr Dawkins said would be misleading. The minutes indicate the board agreed that the draft approved by it covered the matter adequately. 233 In submissions made on behalf of Mr Dawkins, it was suggested that JWS had given advice to the effect that the inclusion of the additional information (in accordance with Mr Daniels' suggestion) would be misleading, or potentially misleading. The minutes do not indicate that Mr Koster gave such advice nor does Mr Dawkins' evidence establish that he did. I am therefore not prepared to hold, as Mr Dawkins' suggested I should, that the decision not to include additional information in the ASX announcement as suggested by Mr Daniels, was based on advice given by Mr Koster. 234 I think it is more probable than not that Mr Hutchinson, Mr Dawkins and the rest of the board decided not to include any details of the amount withheld in the ASX announcement because they believed, based on management's view that only $2.0 million was at risk, that neither that amount, nor the amount withheld, was material, and that therefore Vocation was not required to make any announcement in relation to the withholding of funds. I think it most likely that the board preferred to stand behind a bare statement that the withholding of payments was not material rather than attempt to explain why the withholding by DEECD of about $20.0 million in payments was not material. Reaction to the 25 August ASX Announcement 235 At 10.35am on 25 August 2014, Mr Foote of Westpac, who had been sent a copy of the ASX announcement by Mr Gréwal some 10 minutes earlier, sent a brief email to Mr Gréwal asking: Could you provide some detail on the amount and timing of the withheld payments (i.e. does this affect all payments, or just those under dispute)? 236 Later that morning, Mr Hyman of CBA, sent an email to Mr Hutchinson and Mr Gréwal requesting more information as to the effect of the withholding. Mr Hyman stated: There have been questions raised by senior people internally re today's article on the back page of the AFR. Can you provide more detail than was included in subsequent press release re nature of concerns department has, courses affected, dollar impact and your views on likely outcome. 237 In his evidence Mr Gréwal said that he was not concerned by these requests for further information and that he considered them to be of a kind that would normally be received from a financier. He also said that he spoke to Mr Foote on the day he received Mr Foote's email "and stepped him through the contents of the ASX announcement". That seems to me to be a very odd thing to do in circumstances where it is clear that Mr Foote had already read the announcement and was seeking more detailed information in relation to the withheld payments. 238 I do not accept Mr Gréwal's account of his conversation with Mr Foote or his own reaction to either of the emails. The emails came from two of three members of Vocation's banking syndicate seeking further information concerning the withholding of funds. Mr Hyman's email, in particular, appears to reflect a high level of concern and was seeking from Mr Gréwal quite specific information in relation to DEECD's concerns and any potential financial impact. Lander & Rogers' Advice 239 Sometime between 22 August 2014 and 25 August 2014 Ms Bonnici sought advice from Vocation's Victorian lawyers, Lander & Rogers, in relation to the Funding Contracts. That advice was provided by Mr Joyce of Lander & Rogers to Ms Bonnici on 25 August 2014 in an email sent at about 4.24pm on that date. This is the first indication in the evidence (aside from what appears in the board minutes for 25 August 2014) of lawyers having been engaged by Vocation to provide advice as to the parties' rights and obligations under the Funding Contracts with respect to both the withholding of payments and the suspension of enrolments. Mr Joyce's advice included a discussion of the effect of DEECD's letters of 23 July 2014 and 15 August 2014 in which DEECD directed that BAWM suspend new enrolments of Eligible Individuals and the commencement of delivery of Training Services to Eligible Individuals who were enrolled with BAWM but had not yet commenced training. "Eligible Individuals" and "Training Services" are terms defined in the Funding Contracts and it is tolerably clear that these terms were used by DEECD in that correspondence in their defined sense. Mr Joyce noted: That correspondence appears to require BAWM to suspend enrolments and commencement of training for all students and not just those BAWM has enrolled in CSP and Warehousing courses. This differs from your understanding of statements made to you by Department officers who have said that BAWM can continue to enrol students and deliver courses in non CSP and Warehousing areas. 240 It will be necessary to say more about the "understanding of statements" referred to by Mr Joyce later in these reasons. However, as he correctly pointed out, the correspondence to which he referred required BAWM to suspend enrolments and commencement of training of all of BAWM's VTG funded students. 241 In paragraphs 4-8 of the email, Mr Joyce advised: 4. Today's letter to the Department asserts it should make payment of Funds to BAWM for all training provided other than CSP and Warehousing. We have asserted that the "issue" in question for the Department relates solely to BAWM's delivery of CSP and Warehousing Courses. The Contract defines Funds to mean "the money provided by the Department to the RTO under this VET Funding Contract in respect of an Eligible Individual". Arguably this limits the Department's ability to withhold Funds because of a suspected breach to just those Funds for which the delivery of training to Eligible Individuals has not been in accordance with the Contract. On that basis and viewing the current issues raised by the Department in isolation, the Department may be required to release funds which would otherwise be payable to BAWM for the past two months for all other training it has delivered. 5. In the event the Department's claims are limited to just the CSP and Warehousing courses during the past 2 months, the above argument would appear to have merit. However, if not, the Department may respond to today's letter by one or both of the following: (a) The Department might advise that it believes BAWM failed to deliver training in accordance with the Contract for CSP and Warehousing courses during prior periods, for which it is entitled to seek recovery of amounts previously paid. In that regard clause 7.3 provides " ... the Department may deduct from any payment of Funds due to the RTO under this VET Funding Contract, or require payment from the RTO, in respect of Funds: (b) money paid for the provision of any Training Services that the Department is satisfied (in its absolute discretion) have not been provided by the RTO in accordance with this VET Funding Contract; In that event the Department would probably be entitled to withhold all of the amounts presently held in relation to training other than CSP and Warehousing courses, on account of claims that BAWM repay amounts paid to it prior to July 2014 for the CSP and Warehousing courses and/or offset those past payments for CSP and Warehousing courses against current payments which might be otherwise owed to you for other unrelated courses. (b) The Department could also say it is currently undertaking investigations regarding other issues concerning delivery of training by BAWM and suspects further breaches of the Funding Agreement have occurred entitling it to withhold all Funds currently outstanding. Whilst the Department has not yet advised that it believes further breaches of the Contract have occurred, it may do so after it has reviewed all agreements BAWM has entered into with third parties for the provision of training services. 6. Given the way this matter is rapidly evolving and the approach adopted by the Department so far, it is very difficult to comment about BAWM's prospects for persuading the Government to release any part of the Funds currently owing to it. On balance it appears quite possible that the Department may not release any further Funds for some time, if at all. Given the very one sided nature of the Contract and the possibility that Department may terminate the Contract at any time, we do not recommend that BAWM commence legal proceedings to pursue its claims at any time soon. We would suggest that instead, a more conciliatory approach be adopted where every effort is made to urgently appease the Department's concerns. 7. BAWM may issue a Dispute Notice pursuant to clause 15 of the Contract in order to compel the Department to meet with you. The way this clause is structured means it might be up to 14 days before representatives of the Department meet with BAWM. The Department then has a discretion to refer the matter to a mediation. Clause 15.4 which provides "this clause does not affect the rights of the Department, which includes all of its rights and its right to terminate this VET Funding Contract". Given that time is critical for BAWM at present, we do not propose to prepare such a notice on your behalf at this time, but if the Department refuses to meet, it may be an option to be considered. 8. I confirm my comments that BAWM should urgently pursue "without prejudice" discussions with representatives of the Department about its ongoing actions. If the Department continues on the course it is on, it may, politically, have little option but to continue to withhold funds from BAWM and, perhaps terminate the Funding Contract. 242 The advice given was essentially to the effect that BAWM was party to a contract weighted heavily against it, that there was a possibility that DEECD may terminate the contract at any time, that BAWM should adopt a conciliatory approach rather than commence legal proceedings, and that it was quite possible that DEECD would not release funds for some time, if at all. 243 Mr Joyce had earlier that day sent a draft letter by email to Ms Bonnici which she indicated at the board meeting she was expecting. The letter drafted by Mr Joyce was sent by Ms Bonnici to Ms Watts at around 12.20pm on 25 August 2014. In essence, it attempted to raise a legal argument based on the proper construction of cl 16.2(2) which, if accepted, would have prevented DEECD from refusing to pay BAWM any part of the withheld payments that were not solely referable to BAWM's delivery of CSP and Warehousing. Making this argument (as Mr Joyce's advice noted) carried with it the risk that DEECD would seek to expand the scope of its review to include all of BAWM's other courses. 244 In an email sent to the directors at around 5.45pm on 25 August 2014, Ms Bonnici forwarded a copy of Mr Joyce's advice for the purpose of providing "a legal perspective for the Boards [sic] consideration". She sent another email to the directors at about 7.00pm that day in which she discussed the letter from Lander & Rogers. In her email (which was copied to Mr Rozsa, Mr Koster, Ms King and Mr Langtree), Ms Bonnici said: I wanted to give you some more context to the letter from Landers and Rogers. • I had asked them to provide to us with a view on the Funding Contract, our rights, and understand (aside from paying us) what responses the Department might provide given their rights under the contract. This was not intended as advice on 'how' they would respond. • In relation to the issues of all enrolments vs those enrolments in CSP and Warehousing. [sic] I had noticed that the document to the ASX did not make this clear. I had the verbal conversation with Lee that this was limited to both CSP and Warehousing. This conversation took place on Tuesday 29th August (day of Board meeting) Please find attached my letter to her confirming that we had suspended enrolments into these 2 qualifications. I have also attached a copy of the Funding Contract for your reference also. 245 There is no evidence to show that any of the directors had before this time been provided with a copy of the Funding Contracts or any legal advice with regard to them. Similarly, there is no evidence to show that either Mr Rozsa or Mr Koster had been provided with a copy of the Funding Contracts or, in particular, that they had been asked to provide legal advice in relation to the scope of DEECD's powers to either withhold funds or suspend enrolments. The inference I draw is that Mr Joyce's advice was the first legal advice the directors received concerning the scope of DEECD's contractual powers. Remarkably, it was not provided to them until some hours after the 25 August Announcement had been released. 246 As Mr Joyce's advice makes clear, cl 7.3 of the Funding Contracts gave DEECD the right to recover any payment of funds (either by way of deduction from monies withheld or recovery of monies previously paid) for the provision of any training services that DEECD was satisfied had not been provided by the RTO in accordance with the Funding Contract. Mr Joyce's advice also raised quite directly, the possibility that DEECD may seek to terminate BAWM's Funding Contract at any time. 247 The reference to "Tuesday, 29 August (day of board meeting)" in Ms Bonnici's email to the directors should be to 29 July 2014 and that is how I expect it would have been understood by them. The letter referred to by Ms Bonnici in her email to the directors (which she attached along with the Funding Contract) is her letter to Ms Watts of 4 August 2014. It does not make reference to any conversation in which Ms Watts stated that the suspension was limited to CSP and Warehousing enrolments. 248 On 5 August 2014, Ms Watts wrote to Aspin directing that it suspend the acceptance of all future enrolments of Eligible Individuals and the commencement of training for Eligible Individuals who had enrolled but not yet commenced training as at the date of the letter. The direction given in that letter is inconsistent with one that limits the suspension to the particular course referred to in the correspondence (in Aspin's case, CGEA), and does not sit comfortably with the suggestion that, only a few days before, Ms Watts told Ms Bonnici that the suspension imposed on BAWM was limited to CSP and Warehousing. 249 Ms Bonnici did not give evidence. Nor did Ms Watts give any evidence in relation to any conversation between Ms Bonnici and herself on 29 July 2014. Nevertheless, I am not satisfied that there was any conversation between Ms Watts and Ms Bonnici on or about 29 July 2014 in which Ms Watts limited the scope of the suspension imposed on BAWM in her previous correspondence. That is not to say that there was no conversation between Ms Bonnici and Ms Watts in which Ms Bonnici may have mistakenly gained the impression that the BAWM suspension related to CSP and Warehousing only. That is one possibility that is consistent with Ms Bonnici's later statements in discussions with Ms Peake and others to the effect that her view of the scope of the suspension imposed upon BAWM was the result of a misunderstanding. 250 The individual defendants gave evidence that they understood, based on discussions with Ms Bonnici and Ms King, that the BAWM suspension was limited to CSP and Warehousing. This evidence is supported by the board minutes. According to Mr Hutchinson, it was not until 28 August 2014 that he understood "that Vocation had made an error in thinking that the suspension of enrolments by BAWM and Aspin related only to CSP and Warehousing …". His evidence to that effect was not challenged by any party and I accept it. I also accept evidence given by Mr Dawkins and Mr Gréwal that they operated under the same misunderstanding. However, I am satisfied that all of the defendants appreciated by the time of the board meeting held on 28 August 2014 that BAWM had at all relevant times been the subject of a continuing suspension under the terms of its Funding Contract preventing it from enrolling any VTG funded students in any course conducted by or on behalf of BAWM. Mr Gréwal's Cash Flow Forecast 251 A "first cut" of a group cash flow forecast for the period 25 August 2014 to 31 October 2014 prepared by Mr Timothy Thompson was sent to Mr Langtree and Mr Gréwal in the evening of 25 August 2014. The email attaching the cash flow made clear that it was based on various assumptions including receipt of partial payments of VTG funds from DEECD ($12.0 million plus GST), the payment of transaction costs to advisors ($6.0 million) and the payment of the previously declared dividend ($6.5 million) and bonuses ($2.24 million) in the forecast period. Mr Langtree provided comments to Mr Gréwal and Mr Thompson on the cash flow by email late that evening. Mr Langtree said: … VTG payment on Sep 9: - The BAWM claim (assuming partial payment) should be approximately $12M ex GST - The Aspin claim will be $0 as we will need to start processing the communicated reversals prior to the claim date. Even if they release our suspension, the negatives will outweigh the positives - Avana/LV VTG should be approx. $600k better off (redirection of BAWM enrolments) - I note that Endeavour is down for $376k on that line – not sure where this is coming from, but I presume it is their standard debtors VTG payment on Oct 7: - BAWM (assuming continuation of partial payment) should be approximately $4M ex GST - Aspin will likely still be $0 at this point due to continuing reversals - Avana/LV VTG should be approx. $1.5M better off (redirection of BAWM enrolments) Other: - I anticipate TDA should receive its first VET Fee HELP payment on 15 October. I will update this dynamically as we learn more, but currently it should be approximately $1.3M in October - I think we have to manage a timed delay to the payment of commissions and bonuses. While I won't suggest a detailed strategy here, let's reduce the $2.2 to $1.2 and defer the remaining payment until November This is all I have for now. I will let you know if I have any other comments. I definitely think we are going to need additional debt facility. … 252 At about 11.00am on 26 August 2014 Mr Gréwal sent to Mr Halley an email attaching copies of a group cash flow forecast for the period 25 August 2014 to 31 October 2014. The email was copied to Mr Hutchinson and Mr Langtree. In his email Mr Gréwal described the assumptions used to prepare the forecast. In particular, he assumed: • No monies received in relation to BAWM or Aspin in terms of what they already owe jus [sic] from Jul/Aug c$20m • No monies in relation to BAWM or Aspin to be received for the Sep and Oct claims • No monies paid out to RTO Edge clients in Sep and Oct • Assume we can flow $600k of the BAWM claim to TDA/LV in Sept and $1.5m in Oct. • Bonuses due of $2.4m not paid out till beyond 31 Oct. • Transaction costs owing to Macquarie and JWS and others (Plymouth/Edge) of c$5m pushed out past 31 Oct. • The forecast includes the dividend payment of $6.5m on 10 Oct 253 Mr Gréwal concluded: The long and the short of it is that we run out of cash in early October and will need to either get the $10m back up facility in place or get some funds released from the Department. 254 The cash flow forecast assumed that no VTG payments would be made to BAWM or Aspin during the forecast period. Other assumptions made were that bonuses due to staff and fees payable to advisors (including Macquarie and JWS) would not be paid until after October 2014. 255 It is important to note that the cash flow forecast indicated that Vocation would have a negative cash balance of in excess of $7.0 million at the end of October 2014. As Mr Gréwal acknowledged in his email, the cash flow forecast indicated that Vocation would run out of cash by 4 October 2014 unless Vocation obtained at $10.0 million increase in its facility or the release of some of the withheld funds. 256 Nowhere in his email does Mr Gréwal mention the possibility of an equity raising. This is consistent with the view that the timing of the equity raising that occurred on 10 September 2014 (discussed below) was driven by an urgent need to raise funds to replenish working capital which had been depleted by DEECD's withholding of BAWM and Aspin's VTG funding and the difficulties that Vocation encountered in increasing the existing debt facilities before any such raising occurred. 257 In his evidence, Mr Gréwal said that in preparing his forecast he was creating a worst case scenario because he considered that it was "very unlikely" that no revenue would be received by BAWM or Aspin for the period July to October 2014. This was because, as I understood his evidence, he had been led to understand by Mr Hutchinson and others in attendance at Vocation board meetings that DEECD was considering releasing part of the funds withheld to BAWM. There are several observations I make in relation to this evidence. 258 First, the suggestion that it was unlikely that there would be no money received by Aspin is contrary to express advice given to Mr Gréwal by Mr Langtree in his email of 25 August 2014. Mr Gréwal had no basis to expect that any payments would be made to Aspin before 4 October 2014. 259 Secondly, by the time Mr Grewal circulated his cash flow to Mr Halley, Mr Langtree and Mr Hutchinson, Vocation had not yet received Ms Watts' letter of 26 August 2014. Even so, given that DEECD had not yet agreed to a partial payment of funds, I do not accept that there was any reasonable basis to conclude, as at the morning of 26 August 2014, that it was very unlikely that there would not be a partial payment received from DEECD before 4 October 2014. 260 In his evidence, Mr Gréwal was inclined to minimise his understanding of the extent of the risk that there would be no partial payment received before Vocation was forecast to run out of funds. I do not accept that he regarded the possibility that there would be no payments received by BAWM and Aspin before 4 October 2014 as being very unlikely. In Mr Gréwal's case I think he probably regarded the situation as both fluid and uncertain making it extremely difficult for him to make any reliable assessment as to when funds might be received from DEECD. 261 In any event, by the time DEECD's letter of 26 August 2014 was received, it would have been clear to all of the defendants that the magnitude of risk that there would be no partial payment received before 4 October 2014 had increased dramatically and that it was no longer something that could be regarded as an unlikely possibility. DEECD's Letter to Vocation dated 26 August 2014 262 At about 5.20pm on 26 August 2014, Ms Bonnici received a letter of that date from Ms Watts. The letter was copied to Mr Hutchinson, Mr Gréwal and Mr Dawkins. The letter is of considerable significance because it reflects a widening of the scope of DEECD's investigations and includes a concise statement of its views as at that date concerning any possible payment to Vocation of any part of the withheld funds. It also reiterates, contrary to Ms Bonnici's asserted understanding, that BAWM had been the subject of a direction since 24 July 2014 to suspend all commencements and new enrolments. 263 Given the significance of the letter I will set it out in full: REVIEW CONCERNING VOCATION LIMITED'S SUBSIDIARIES HOLDING 2014-16 VET FUNDING CONTRACTS BAWM PTY LTD AND ASPIN PTY LTD - SUSPECTED BREACHES OF 2014-16 VET FUNDING CONTRACTS - WITHHOLDING OF FUNDS, SUSPENSION OF COMMENCEMENTS AND NEW ENROLMENTS I refer to our recent correspondence, and in particular my letter to you dated 15 August 2014, your letters to me in relation to Aspin Pty Ltd (Aspin) dated 19 August 2014 and in relation to BAWM Pty Ltd (BAWM) dated 20 August 2014, and your email on 24 August 2014 and your letter dated 25 August 2014. Background As you know, the Department has been conducting inquiries about the delivery of the Certificate II in General Education for Adults (CGEA) for which Training Services have been claimed by Aspin in 2014, and the delivery of the Certificate III in both Warehousing Operations (Warehousing) and Competitive Systems and Processes (CSP) for which Training Services have been claimed by BAWM in 2014, together with the practices of the brokers who acted on behalf of BAWM in 2014. We understand that BAWM has now terminated the services of the following brokers who until recently acted for BAWM: RISE, Community Training Initiatives, Australian Careers Advisory, BSL Learning and National Employment Institute. BAWM has claimed the following amount for Warehousing and CSP under the 2014-16 VET Funding Contract in the year to date: $22,093,794 (GST excl). Of this sum, $12,715,865 (GST excl) was paid by the Department to BAWM prior to 3 July 2014. These figures do not include provision for other BAWM courses to which Vocation group's brokers (including the five terminated brokers) may have referred students. Since 3 July 2014, the Department has withheld all payments of Funds claimed by BAWM, pursuant to clauses 16.l(a) and 16.2(b) of the Contract. The amount of Funds claimed by BAWM and currently withheld is $17,047,054 (GST excl). Of this amount, $9,377,929 (GST excl) relates to claims for Warehousing and CSP. Since 24 July 2014, BAWM has been under direction to suspend all commencements and new enrolments of Eligible Individuals and to suspend the commencement of delivery of Training Services to Eligible Individuals who had enrolled but had not yet commenced training, pursuant to clauses 16.l (a) and 16.2(a) of the Contract. Aspin has claimed the following amount for CGEA under the 2014-16 VET Funding Contract in the year to date: $9,976,504 (GST excl). Of this sum, $8,292,407 was paid by the Department to Aspin prior to 5 August 2014. Since 5 August 2014, the Department has withheld all payments of Funds, pursuant to clauses 16.l(a) and 16.2(b) of the Contract. The amount of Funds claimed by Aspin and currently withheld is $1,693,547 (GST excl). Of this amount, $1,684,098 relates to claims for CGEA. Since 5 August 2014, Aspin has been under direction to suspend all commencements and new enrolments of Eligible Individuals and to suspend the commencement of delivery of Training Services to Eligible Individuals who had enrolled but had not yet commenced training, pursuant to clauses 16.l(a) and 16.2(a) of the Contract. The Department's inquiries into BAWM's delivery of Warehousing and CSP and into Aspin's delivery of CGEA are ongoing. Commencement of Review of all Vocation Ltd RTOs under clause 10.1 of the Contract The Secretary has now directed the Department to conduct a review addressing the processes Vocation Ltd and its group entities have in place to ensure that all Vocation Ltd's subsidiaries holding 2014-16 VET Funding Contracts are and have been compliant from l January 2014 with their Contracts including by satisfying the Department's published Statement of Expectations (April 2013) and other published Contract Notifications and Variations. The RTOs within the scope of the review are, in addition to BAWM and Aspin, Learning Verve Pty Ltd … Customer Services Institute of Australia Pty Ltd … Green Skills Institute (Aust) Pty Ltd … and Training and Development Australia Pty Ltd … The Secretary considers that the review is warranted in light of remarks on behalf of Vocation Ltd in written correspondence and in meetings to the effect that: • at least some of Vocation group's contracted providers had "systemic" issues resulting in non-compliance with Pre-Training Review requirements under the Contract; • there were acknowledged "weaknesses within [Vocation group's] control systems" or that existing controls were "insufficient"; • there had been a focus on integration activity which had seen Vocation group take its "eye off the ball" on certain Contractual compliance issues. Notwithstanding Vocation group has proposed and undertaken some remedial action (including the termination of five specified brokers in relation to BAWM, and one of those brokers in relation to Aspin, and various other proposed actions to be taken within 90 days) the Secretary is very concerned that the rapid growth of Vocation group may have come at the expense of quality training outcomes. Further, the Secretary is concerned that the deficiencies in Vocation group's controls and processes also extend to a fundamental failure to comply with the RTO standards (for example, AQTF 2.1 and SNR 16.l and SNR 16.5 and AQTF 2.5), and thus raise issues as to non-compliance with the Contract, see clauses 3.l(e), 4.l(a) and 4.2(a). To that end the Department notes that the VRQA has recently commenced inquiries in relation to BAWM. For the avoidance of doubt, the Department's review may also have regard to information that comes to light during the VRQA's inquiries pursuant to information sharing arrangements. The same would apply to any information shared by the Australian Skills Quality Authority with respect to RTOs within the Vocation group which are regulated by the Commonwealth. The review will focus on particular areas of compliance, to be specified in separate correspondence. It is my expectation that this correspondence will be finalized and sent to you in the next few business days. The ongoing inquiries in relation to BAWM and Aspin will continue as part of the wider review. Consideration of variation of interim actions taken in relation to BAWM As previously advised, the Department has under consideration the possibility of varying the interim actions taken under BAWM's Contract. In my letter dated 15 August 2014 I foreshadowed the possibility of variation of the interim action taken on 3 July 2014 withholding the payment of all Funds to BAWM. In your responding letter on 19 August 2014, you stated in general terms that there was a cash flow impact from the withholding of Funds. In your further letter on 25 August 2014 on this topic, as we understand the letter: • you contend that the Department's power to withhold Funds can be exercised pending resolution of an identified "issue"; • you contend that the issue that the Department has identified is BAWM's delivery of Warehousing and CSP, not BAWM's courses more generally; • you agree to the Department continuing to withhold the Funds which relate to Warehousing and CSP (you say approximately $9.6M) subject to finalizing a review of the issues in question; • you contend that the balance of the Funds currently withheld (you say approximately $7.4M) should be released. The Department's present view is that it is premature to vary the current withholding of Funds claimed by BAWM. In light of Vocation group's acknowledgements of systemic flaws in its controls, the Department now has a reasonable suspicion that Funds claimed and/or paid for courses other than Warehousing and CSP are likely to be affected. Further, the Department has a reasonable suspicion that Vocation group's brokering arrangements have had systemic flaws, and the Department does not yet know the extent to which Vocation group's brokers have been involved in the delivery of Training Services for courses other than Warehousing and CSP. The Department will now, as part of the broader review notified by this letter, be scrutinising BAWM's brokering arrangements and training delivery across its other courses, and in the event that it ultimately concludes that moneys should not have been claimed and paid in relation to other courses, it reserves the right to recover such moneys from the withheld Funds. Further, the Department suspects that breaches of the Contract (of the kinds identified in the MMU report previously forwarded to BAWM by email dated 10 July 2014) occurred in relation to Warehousing and CSP from the commencement of 2014. It follows that a portion of the amount of Funds that were paid by the Department to BAWM between 1 January 2014 and 3 July 2014 may be recoverable by the Department from BAWM in this regard. As mentioned above, the year to date amount paid by the Department to BAWM for claims for Warehousing and CSP is $12,715,865 (GST excl). This amount exceeds the amount (you say approximately $7.4M) which you contend should be released. The Department is open to receiving any submissions or material you may wish to advance on any potential variation of the current interim measures in place for BAWM, including in relation to the financial position of BAWM. However, the Departments places great weight on the principles set out in the Statement of Expectations (April 2013, see clause 3.3c) (iii), which are protective of the interests of students within the market), the objects and values underpinning the Victorian Training Guarantee (see clause 3.3c) (ii)), the need for RTOs to be accountable for their performance under the Contract (see clause 3.4), and the appropriate recovery of monies paid out under the Contract where circumstances justify recovery - clauses 7.3, 16 and 17). Further, the Department is open to considering a variation of the current suspension of BAWM's ability to enrol new students or commence delivery of Training Services in qualifications other than Certificates III and IV in Warehousing Operations, and CSP. The Department would be willing to consider such a variation provided that adequate, transparent, verifiable and agreed safeguards can be implemented in advance, and that the implementation of the safeguards can be verified in detail and their success is demonstrated to the satisfaction of the Department over a trial period of six weeks. The Department proposes the following arrangements over the six week trial period: • BAWM must implement at a minimum, before recommencement of enrolments and commencements, the safeguards and reporting regime outlined in Annexure A to this letter. • Information reported pursuant this letter and Annexure A is and remains satisfactory to the Department during and up to the conclusion of a trial period (of six weeks). • Claims in relation to training activity reported by BAWM will remain subject to withholding under the Contract during the trial period. • If at the conclusion of the trial period the Department is not satisfied that BAWM has complied with the safeguards or reporting regime in this letter, the claims in relation to training activity reported by BAWM will be disallowed. The Department seeks your response to the above proposal and Annexure A, either in writing or in person (as to which, see my response to your proposed meeting, below). Please note that, should the Department conclude after its review of Vocation Ltd's RTOs that the amount owing to it by BAWM is greater than the Funds that are currently withheld and available to be applied against that amount, the Department reserves its rights to take further action under clause 7.3 and/or 16.2 of the Contract in relation to any Funds accruing from the claims that will be made by BAWM arising from these future enrolments and commencements. Your letter in relation to Aspin dated 19 August 2014 We refer to your letter in relation to Aspin dated 19 August 2014. You have proposed that the Department should apply the amount currently withheld in relation to Aspin, and set off amounts from Aspin's future Funds, to achieve recovery of an amount of $4.5m of revenue. The Department does not propose to agree a separate outcome limited to Aspin, and rather proposes to defer consideration of your proposal in relation to Aspin until the Department is in a position to come to conclusion in relation to all of the Vocation Ltd RTOs that are part of the review. Fortnightly reporting of module commencements for all Vocation Ltd RTOs Pursuant to clauses 1.3(h) and 6.1(c) of the Contracts between the Department and each of the Vocation Ltd RTOs specified above, the RTOs are hereby notified of a variation of the requirement in Contract Notification 2014-14 (16 June 2014) to the following effect: Effective from 1 September 2014 Reject Code 22 as set out in the Guide to SVTS will apply to claims that have not been successfully generated within 14 days the enrolment activity (module) start date. Next steps Thank you for your email on Sunday offering to arrange a meeting between, amongst others, Vocation Ltd's Chair the Hon John Dawkins AO and the Deputy Secretary, HESG, Kym Peake. We agree that a meeting in which both Ms Peake and Mr Dawkins participate would be worthwhile this week. We suggest 11:30am on Thursday 28 August 2014 for the meeting, with those in Victoria to meet at the Department at 2 Treasury Place. We will be in contact to make suitable arrangements. Please let us know who will be attending and contact details for anyone wishing to phone in. I refer to my letter of 22 August 2014 and the Department's information requisition on BAWM of 150 student files and associated documentation. As requested, please provide that documentation as soon as practicable. In any event, that information should be provided before the end of Thursday this week (i.e. 4pm on 28 August 2014). I will write separately in the near future in relation to the Department's outstanding information requests and any further information requests the Department wishes to make. Reservation of Rights The Department entirely reserves its rights under the Contracts in these matters pending its consideration of the information which will flow from its review, and in particular under clauses 7.3, 16 and 17 thereof. 264 Annexure A to the letter described various safeguards and a reporting regime that DEECD required BAWM to implement pursuant to cl 3.4(a) of the Funding Contract. 265 By this letter DEECD reiterated that the suspensions extended to all BAWM and Aspin courses. Whatever Ms Bonnici's understanding was prior to this time, it would have been quite unreasonable for her to suppose once the 26 August 2014 letter was received that the suspension was confined to CSP, Warehousing and CGEA or that these suspensions had not been in force since the dates Vocation was first notified of them. The letter also made clear that there would be no payments made to BAWM or Aspin until after the completion of a review to be undertaken by DEECD pursuant to cl 10.1 of the Funding Contracts that was to cover BAWM, Aspin and the four other RTOs within the Vocation group that received VTG funding. 266 DEECD also indicated in the letter that it was open to varying the suspensions so as to allow enrolments to occur in courses apart from CSP, Warehousing and CGEA, but that this could only occur after a six week trial had been conducted with no payment being made to either BAWM or Aspin (including in respect of enrolments or training occurring during the trial) in that period. In effect, DEECD was requiring Vocation to fund the trial without any assurance that it would be paid any part of the withheld funds or any other amount in respect of the training to be delivered in the course of the trial. Ms Bonnici's Email of 26 August 2014 267 At about 4.30pm on 26 August 2014, Ms Bonnici, responding to a request from Ms Tredenick, advised that the monies due to BAWM and Aspin in September were $24,127.229 and $3,238,455 respectively. As Ms Bonnici explained in her email to Ms Tredenick, "the aggregate impact for BAWM and Aspin is just on $27m". I infer that Ms Tredenick sought this information as part of her preparation for the board meeting that had been arranged for later that day. 268 What is also significant about Ms Bonnici's email of 26 August 2014 is the amount which she said would be payable by DEECD to other Vocation RTOs in September. These RTOs (TDA, Learning Verve and Green Skills) were due to receive a total of $693,387 according to Ms Bonnici's email. This indicates that revenue lost by BAWM and Aspin due to the suspensions on enrolments was not being made up by Vocation's other Victorian RTOs. 269 In the months leading up to the imposition of the suspensions on enrolments, BAWM and Aspin had been generating combined revenue of about $9.0 million or $10.0 million per month. About half of the revenue generated by BAWM was attributable to CSP and Warehousing and virtually all of the revenue generated by Aspin was attributable to CGEA. Even when BAWM was acting under the misapprehension that the suspensions on BAWM applied only to CSP and Warehousing, that meant that the suspension on BAWM was depriving Vocation of substantial revenue. Of course, it is important to recognise that BAWM was unlikely to be able to recover revenue in respect of the other courses in which it continued to enrol students given that this occurred in breach of directions given by DEECD under the Funding Contracts. The 26 August 2014 Board Meeting 270 At about 7.00pm on 26 August 2014 a meeting of Vocation directors was held by way of teleconference. All directors were present. Other attendees included Mr Gréwal, Ms Bonnici, Mr Langtree, Ms King, Mr Koster and Mr Rozsa. The only topic discussed at this board meeting, which had been hastily convened following receipt of Ms Watts' letter of 26 August 2014, was the Victorian audits. The minutes state: The Board noted the letter received from the Department of Education and Early Childhood Development (DEECD) on 26 August 2014 in response to Vocation's letter requesting partial payment had been circulated to all Directors (26 August Letter). WB explained the issues raised in the 26 August Letter and the effect on Bawm and Aspin. WB advised that the documents set out in Annexure A to the 26 August Letter have been provided already and the DEECD are reviewing and that they can be complied with, albeit some are very onerous. WB advised that Bawm and Aspin are already complying with the less onerous stipulations in Annexure A. She also noted that TDA is able to enrol ie no suspensions and that TDA is also compliant. WB commented that there are no obvious grounds for refusing enrolments in TDA going forward The Board noted WB's advice that the requirement for reporting within 14 days would require BAWM and Aspin to breach compliance with DEECD's revised guidelines. WB also advised that the conditions DEECD is seeking to impose are unusual. The Board discussed with management: • restrictions involved in the 26 August Letter; • potential issues with compliance with requirements; • the impact of the 6 week trial period; • enrolling students in other RTOs. The Board agreed that this should not occur without the DEECD being advised of this proposed approach. It was noted that this had occurred and would be covered off at the meeting with DEECD. • that there was confusion between the 26 August Letter and previous discussions with DEECD regarding whether the enrolment suspension related to only the three courses or to all courses for BAWM. This needed to be clarified with DEECD and any issues addressed at the meeting on Thursday that some enrolments have been made prior to receiving the 26 August Letter; • other RTOs and that these will be subject to review; • that the reviews now relate to claims from l January 2014; • that funds currently being withheld will not be released until the reviews are completed; • that the letter also noted DEECD was prepared to receive submissions on Vocation's financial position due to funds being withheld; and • the proposed meeting with DEECD on Thursday and that there were a number of issues in the letter that were not clear and would need to be clarified at the meeting. The Board questioned management at length on their view of the financial impacts and revenue at risk from the audits into the courses and the extension of the audits to 1 January 2014 Management confirmed: • having reviewed the documentation, programs, the 26 August Letter and potential risks, that the expected funds that would be permanently withheld was still in their view around $2 million, with $4 million being used as a safety margin (ie double the 2 million estimate). Management advised the original estimates had been undertaken from 1 January ie not just from date of suspension. • That this view was reasonable given the issues related to only a proportion of the students in the three courses, the issue was particular to these courses and that management had understood how the issue had occurred and it was not broad based. • That they did not expect any other significant issues to come to light as a result of the broadened audits. The Board discussed possibly using the revenue range of a $4m – $10m impact from the audits as a go forward assumption based on management's views. Management confirmed that they did not see the upper end of this range as likely in any way. The Board also discussed: • the financial situation and cash position; and • the potential revenue impact for FY15 of complying with the amended business model, lost enrolments and withheld payments of up to $4 million not being received. MH advised the impact on revenue could be significant but that the business would seek to recover the loss of revenue so that the impact at EBITDA level would not be as significant. Part of this work was already underway and had formed part of the strategy discussion at the Board re Victorian model changes and the FY15 budget impacts. The issue of materiality and potential disclosure under Listing Rule 3.1 was discussed, including any changes that have occurred through receiving the 26 August Letter that may affect disclosure. The Board agreed that, although the DEECD had gone to great lengths to articulate possible compliance issues with BAWM and Aspin, it had also indicated clearly in number of areas where BAWM could resolve their concerns and that it was unlikely that the outcome being sought was demise of BAWM. The Board agreed that DEECD had misunderstood Vocation's position on materiality, as opposed to understanding any possible cashflow implications. Accordingly the Board believed that DEECD's position could be clarified and modified by discussion at Thursday's meeting. After lengthy discussion of the updates provided and the issues raised in the 26 August Letter, and taking advice from JWS, the Board confirmed the previous view that the matter is not material for disclosure at this stage under Listing Rule 3.1, as: • there has been no loss of contracts; • the expected outcome of the investigation continues to be that only a relatively small amount of funding is expected to be affected which is not material in Vocation's context; and • the outcome would not be expected to have a material effect on the price or value of Vocation's securities. The Board agreed the next steps as follows: 1. At the meeting with DEECD on Thursday: a. Vocation's cashflow position and consequences of the funds continuing to be withheld be made clear; b. Explain Vocation's analysis of the potential level of funding affected, as contrasted with funds being withheld ie small proportion; c. Explain issue of materiality and why Vocation has determined that the issue is not material at this stage for the purposes of market disclosure; d. Agree and clarify conditions under which trial period would operate; and e. Seek a timetable and process for bringing the reviews to conclusion. 2. Board to meet again at 9.30am on Thursday [ie. 28 August 2014] to discuss any updates. 271 The minutes of the meeting of 26 August 2014 (signed by Mr Dawkins on 25 September 2014) are the first to refer to any confusion as to the scope of the suspension affecting BAWM. The point is of some importance because in its communications with the ASX, Vocation had maintained that it did not need to disclose the existence of the BAWM suspension because it related only to CSP and Warehousing. However, as I have found, any misunderstanding as to the scope of the suspensions should have been corrected by Ms Watts' letter of 26 August 2014 which made DEECD's position clear. 272 Another matter relied upon by Vocation in its correspondence with the ASX was that DEECD's investigation related to only two qualifications (ie. CSP and Warehousing) delivered by BAWM and that DEECD's current focus related to referrals from five specific brokers into other qualifications which were said to be limited to approximately 15% of the outstanding claims. However, Ms Watts' letter of 26 August 2014 also made clear that there was to be a review of all of Vocation's RTOs (ie. not confined to BAWM and Aspin) that would focus on the quality of the training outcomes provided and the controls and processes in place within Vocation aimed at ensuring that relevant standards were complied with. 273 The minutes show that the board discussed with management the fact that the funds currently withheld by DEECD would not be paid until after the review had been completed. 274 The minutes also show that the board confirmed its previous view that the dispute between Vocation and DEECD was not material because there had been no loss of contracts, and the expected outcome of the investigation would have a revenue impact of up to $4.0 million, an amount that the board did not expect to have a material effect on the price or value of Vocation's shares. 275 However, the minutes also refer to an amount of $10.0 million being the upper end of a range that was discussed as a possible "go forward assumption". At the same time the minutes record that management did not "see the upper end of this range as likely in any way." I infer that Mr Langtree informed the board at this meeting that he did not see how the total amount permanently withheld by DEECD could exceed $10.0 million. I base this on an email sent by Mr Langtree to Mr Hutchinson and Mr Dawkins at about 6.15pm the next day. 276 The final point to make in relation to the minutes of the 26 August 2014 meeting concerns Ms Bonnici. The minutes note that she "explained the issues raised in the 26 August letter and the effect on BAWM and Aspin". There is no indication in the minutes or any other evidence to suggest that Ms Bonnici had received any legal advice from Mr Joyce beyond what he provided the previous day or that she was in any position to provide the board with any other legal advice in relation to the contractual issues raised in the 26 August 2014 letter. Ms Tredenick's Email of 27 August 2014 277 The morning after the board meeting Ms Tredenick started to pressure Mr Hutchinson to provide some analysis supporting management's views as to Vocation's exposure. Earlier in the day Mr Hutchinson forwarded a note to Ms Tredenick (which I infer was also forwarded to the other directors) informing her that he had decided to travel to Japan presumably for the purpose of making further presentations to investors as part of the "roadshow" he and Mr Gréwal were then on. In this note he outlined a number of initiatives that had been taken focused on Victoria which involved reassigning various employees within the business to allow Ms Bonnici to focus on BAWM and Aspin. He also suggested in this note that it would be "prudent to get the M&A hat back on for vertical plays" and merger opportunities. 278 Ms Tredenick responded to Mr Hutchinson's note not long after it was received. In an email she sent to Mr Hutchinson at 10.26am on 27 August 2014 she said: Thanks for the note and good to see you are taking strong actions on other growth initiatives, very important. Keep the fire up! We will though need (and thurs mtg will help inform this) a detailed report from management ASAP to help the board work through with you the next set of decisions - a report which goes into the details of what the revenue impacts are in Victoria re the govt decisions and a detailed view from mgt around what is at risk ie the 4 -10m reiterated in the board mtg last nite and most importantly how/why you have formed this view. Presume Wendy [Bonnici] is underway with this already. I think steve [Tucker] has chatted to her re this. This is urgent. - a view of what the ongoing revenue impacts in Victoria are likely to be post the reviews (to put with the alternative revenue actions and group strategies we will pursue to offset this as per your note below), but will want to know Vic impact seperately. Also ASAP. - a plan for addressing the Victorian issues including timeframe to ensure operations can continue ok, I know this will evolve quickly. I know you understand this and we have had the verbal discussions in a fast moving set of days, but we will need to get this more formed and strengthened to both help mgt recommend the strategy re Victoria as well as the board to agree. Happy to discuss (emphasis added) 279 Ms Tredenick's email indicates that at the board meeting held the previous day the directors had been informed by management that the amount of revenue at risk was between $4.0 million and $10.0 million, but that there was little if any detail provided to the board as to why management held that view. 280 Mr Hutchinson replied soon afterwards stating that Mr Gréwal and Mr Langtree were working on revenue calculations for Victoria and that "[w]e will obviously get a better view of timeframe tomorrow, but gross impact is pretty much known with a few ranges depending on what we are allowed to do in Vic going forward". 281 Ms Tredenick's correspondence with Mr Hutchinson suggests that she did not feel that the board was being provided with sufficient information in relation to the Victorian audits. Later that morning she said in another email to Mr Hutchinson: You need to closely manage how and what info board is getting and making decisions on. Critical for all of our sakes. So you need to be right on top of Vic issues and crystallising your view as CEO and how you manage with board. Sorry to be blunt but important and happy to chat. You have all of our support. Mr Langtree's Worst Case Scenario 282 Mr Langtree's email of 27 August 2014 (sent to Mr Hutchinson and Mr Dawkins at about 6.15pm) explained how he arrived at the range of $4.0 million to $10.0 million revenue impact discussed at the board meeting the previous evening. Further to the Board call last night, I have provided a below a high level breakdown of my reasoning behind my comments regarding the level of revenue at risk for BAWM. The communication from HESG has centred on the CSP and Warehousing dual qual but with particular focus on the suitability of some participants (school leavers) being enrolled into the CSP. There were also queries regarding the appropriateness of the environment for unemployed participants (however this relates more appropriately to a small number of specific Units rather than the package broadly). My analysis of claims data for CSP shows the following: Actual payments received to date under the 2014 contract: $3.78M Withheld payments to date under the 2014 contract: $3.82M Total: $7.60M Of the above amounts (inclusive of received and withheld): a) The total which relates to (1,288) students who were under the age of 21 at the time of enrolment is: $2.30M b) The total which relates to (2,355) students who were unemployed at the time of enrolment is: $4.14M c) The total which relates to (673) students who were employed and 21 or over at the time of enrolment is: $1.16M In my calculations: • I make the assumption that all of a) would be repaid on the grounds of packaging rules • I make the assumption that up to 50% of b) may be repaid as the packaging rules do not specifically rule out people who are not currently employed, but there may be an argument that some of the training may have not been valid for a simulated work environment [note that I regard repayment in this category as unlikely, given the lack of strong clarity] • I make the assumption that none of c) would be repaid as these fit within all rules This yields a prospective repayment of: $2.30M + ($4.14M *50%) = $4.37M My worst case scenario modelling presumes that HESG may regard CSP in a completely negative light and require full reversal of that qualification. While we would naturally argue the case, this would reinforce our view that the training through Warehousing was not only appropriate and suitable, but also well covered from a cost of funding perspective. This worst case scenario would yield a prospective repayment of $7.60M (being the total value of CSP to date). This is the basis for my confident assertion that I do not see how the total position could exceed $10M. Please note that as we continue to upload CSP and Warehousing data, this will increase the above numbers but it will also increase the base revenue upon which these claims are being returned. 283 There was no issue between the parties as to the correctness of the underlying data (ie. student numbers/cohorts) relied upon by Mr Langtree. However, there is an issue as to whether his analysis provides a reasonable basis for determining what proportion of the withheld funds DEECD might permanently withhold from BAWM. 284 Mr Langtree refers in his email to "packaging rules". It is clear that he is referring to what were known as "Training Packages" which set out the competencies to be achieved in order to obtain a qualification. Training Packages were developed by Industry Skills Councils, endorsed by the NSSC, and published by the Commonwealth. They sometimes specify formal entry requirements and may also include guidelines as to the suitability of the qualification for particular cohorts of students (eg. school leavers). In 2014, the Training Packages relevant to the Warehouse and CSP courses were MSS11 Sustainability Training Package which covered the CSP qualification, and TL110, Transport and Logistics Training Package which covered the Warehousing qualification. There was no Training Package for CGEA. In 2014, the requirements for CGEA were included in a curriculum for Certificates of General Education for Adults. The relevant course information indicates that CGEA was developed to address the education and training needs of adults who had left secondary school early and needed to improve their literary, basic maths and general education skills. It is difficult to see how an RTO would not be in breach of its Funding Contract by enrolling a person who had completed secondary school into the CGEA. 285 The Training Package for CSP included the following information concerning entry requirements: This qualification has no formal entry requirement. However, it should be noted that this qualification is not intended to supply operational or technical skills that are used in conjunction with competitive systems and practices skills. This qualification assumes that a learner has current or past work experience where operational or technical skills have already been gained and a supervisory, facilitation or similar level of responsibility exists. The qualification is not suitable for direct entry from school. 286 The Training Package for CSP also included a description of the skills that the qualification was intended to provide. It stated: This qualification provides skills for an individual using competitive systems and practices for either their own work or for application with others in a team or work area. When applied to an individual's own work it offers the opportunity for deeper skill and knowledge than the MSS20312 Certificate II in Competitive Systems and Practices and will typically apply to an experienced or senior operator. A person applying the qualification to a team or work area may be in an informal facilitative role or be formally designated as team leader or similar. 287 The Training Package for Warehousing stated that there were no entry requirements for that qualification. Nor did it provide guidance as to its suitability for particular cohorts of students. 288 The correspondence from DEECD made it clear that it had other concerns with respect to the CSP and Warehousing dual qualification including in relation to marketing, pre-training reviews, course structure and duration. Mr Langtree's calculations focus exclusively on claims made by BAWM in respect of CSP and assume full recovery of revenue for the Warehousing qualification. I do not think there was any reasonable basis for Mr Langtree to assume that no part of that revenue was at risk of permanent loss. 289 There were strong grounds to believe at the time of Mr Langtree's analysis that DEECD would contend that no funding payments should have been made in respect of students who were enrolled in the dual qualification in circumstances where their pre-training reviews were deficient. This is because the provisions of the Funding Contracts concerned with pre-training reviews were not only about ensuring that students were not enrolled in courses for which they did not meet formal entry requirements. They included a provision (cl 4.6(b)) that required the RTO to conduct a pre-training review that must ascertain the most appropriate qualification for that student to enrol in, including consideration of the likely job outcomes from the development of new competencies and skills. 290 One purpose of this provision was to prevent RTOs from steering students into courses that may have been in the RTOs' financial interests to enrol students in but which was not a course that was in the student's best interests to undertake. In situations where the RTO had failed to carry out or properly document a pre-training review in respect of students then it is difficult to see how the RTO could later justify a claim for funding made in respect of that student. 291 An additional assumption implicit in Mr Langtree's calculations was that there could be no permanent loss arising out of the claims made by BAWM in respect of students enrolled in the other VTG funded courses including those that had been offered by the five terminated brokers. The correspondence received from DEECD on 26 August 2014 made clear that the review that was to be undertaken would extend beyond the CSP and Warehousing dual qualification to all other courses in respect of which BAWM had made funding claims since 1 January 2014. 292 In his affidavit Mr Hutchinson said this in relation to Mr Langtree's email: On 27 August 2014 at 6.13pm, I received an email from Mr Langtree … I read it on or about the date I received it. The email sets out Mr Langtree's analysis of the level of revenue that was at risk as a result of the Department's review of BAWM. In the email, Mr Langtree: (a) noted that the Department's communications with Vocation had centred on the dual CSP/Warehousing qualification, with particular focus on the suitability of certain participants, school-leavers, being enrolled in CSP; (b) calculated that the payments received by BAWM to date under the 2014 funding contract in relation to the CSP/Warehousing course were $3.78 million and payments withheld from BAWM to date under that contract were $3.82 million, making a total of payments paid and withheld of $7.60 million; (c) in points (a), (b) and (c) of the email, broke that $7.60 million down into payments relating to different categories of students (namely, students under 21 years of age, students who were unemployed, and students who were both over 21 years of age and employed); (d) for the reasons outlined in the bullet points, said he assumed that all the amounts in (a), half the amounts in (b) and none of the amounts in (c) would have to be repaid to the Department (either from funds received or funds withheld), yielding a prospective repayment to the Department of $4.70 million; and (e) said that the worst-case scenario would yield a $7.60 million repayment to the Department (being the total value of CSP revenues to date). As indicated above, I regarded Mr Langtree as the expert on Victorian government funding so I considered his analysis to be the best information available to me about the likely outcome of the Department's audits. I was aware that his analysis was based on data available to him from the Department and I had no reason to doubt the analysis. Although I knew at this stage that the Department was going to conduct a broader review, I did not expect that the Department would find any problems with courses other than CSP and Warehousing. In my view, all the numbers (even the worst-case $7.60 million) contemplated in Mr Langtree's email were immaterial in the context of Vocation's projected annual revenue at the time, which was over $200 million. 293 Mr Hutchinson had no issue with Mr Langtree's analysis or the assumptions upon which it was based. This is consistent with Mr Hutchinson's evidence that he considered Mr Langtree to be the expert on Victorian government funding, and the person within Vocation most familiar with the relevant figures. Mr Hutchinson did not question any of Mr Langtree's assumptions including that the only course that posed any risk for Vocation was CSP. 294 Ms Watts' letter to Ms Bonnici of 26 August 2014 stated that of the total amount of funds withheld from BAWM ($17,047,054 exclusive of GST), $9,377,929 (exclusive of GST) related to claims for Warehousing and CSP. However, it also stated that the total amount claimed under BAWM's Funding Contract for 2014 up to this time (ie. including amounts previously paid earlier in the year) referrable to Warehousing and CSP totalled $22,093,794 (exclusive of GST). Accordingly, BAWM's exposure with respect to the CSP and Warehousing dual qualification was $22,093,794 for the period January to June 2014 which was more than the total amount that DEECD was at the time withholding from BAWM. Of this amount, Mr Langtree's calculations indicate that $7.6 million related to CSP. From this I infer that approximately $14.5 million of the total amount withheld related to Warehousing funding for the period January to June 2014. 295 Mr Langtree's analysis raised some important questions including, in particular, why it was that Mr Langtree felt justified in assuming that BAWM would recover the total amount ($14.5 million) referable to Warehousing. Even if one were to assume (wrongly) that DEECD's only concern in relation to the CSP/Warehousing qualification was with the recruitment of school leavers or unemployed students, there is nothing in Mr Langtree's email to suggest that DEECD would agree to release all funds referable to Warehousing. In Mr Hutchinson's own words during cross-examination, Mr Langtree was "putting all his eggs in the CSP basket". 296 There are at least two difficulties with Mr Langtree's approach. In the first place, it assumes that DEECD would not treat the CSP/Warehousing dual qualification as a single program, which is how it was marketed and delivered by BAWM. Secondly, it assumes that the only basis upon which it would be open to DEECD to permanently withhold funds from BAWM was on account of its failure to exclude school leavers, the unemployed or under 21 years olds from CSP. But as the prior correspondence (including DEECD's letter of 26 August 2014) made clear, DEECD's concerns focused not only on course eligibility but also on general suitability, course duration, structure and mode of delivery. These are all matters which Mr Langtree's analysis ignores. 297 Mr Langtree also explains in his email that his worst case scenario presupposes that DEECD would regard CSP in a completely negative light and require full reversal of that qualification. He then argues that "this would reinforce our view that the training through Warehousing was not only appropriate and suitable, but also well covered from a cost of funding prospective". The logic behind this observation is opaque. If DEECD did regard CSP in a completely negative light why would it lead DEECD to take a more favourable view of Warehousing? 298 Mr Hutchinson was asked about Mr Langtree's observation in cross-examination but said that he could not recall any thought about it at the time. I think the true position is that Mr Hutchinson did not scrutinize Mr Langtree's analysis at all and merely accepted Mr Langtree's view that the figure of $7.6 million represented the worst case scenario for BAWM, without giving Mr Langtree's analysis any more thought than that. 299 Mr Langtree's "worst case scenario" of $7.6 million (which he said was the total value of CSP to date) assumed that the risk of permanent loss was confined to CSP revenue and that there could be no repayment required in respect of other courses offered by BAWM, including Warehousing, for which funding of approximately $14.5 million had been claimed. In my opinion, there was no reasonable basis for concluding as at 27 August 2014 that $7.6 million represented the "worst case scenario" for BAWM in revenue terms. BAWM's potential exposure was considerably more uncertain than Mr Langtree's analysis implied. Mr Dawkins' Evidence Concerning Entry Requirements 300 Mr Dawkins gave evidence that between 31 August and 3 September 2014, in preparation for his meeting with Mr Bolt, Mr Langtree gave him sections of the Training Packages dealing with the entry requirements for CSP and Warehousing which he was later to refer to at his meeting with Mr Bolt. Mr Dawkins said that he also recalled that around the same time, Mr Langtree provided him with details of the entry requirements for CGEA. He said that he noted that each of CSP, Warehousing and CGEA had no entry requirements. 301 During this period he also exchanged emails with Mr Langtree regarding entry requirements. On 3 September 2014 Mr Dawkins sent an email to Mr Langtree stating: I can't see anything in the TP re exclusions or age limits - where does the 'no school leavers' come from and who says a school leaver is anyone under 21 - Vic legislation defines school leaving age so would that help define a school leaver. 302 Mr Langtree replied later that day: You are right, the Warehousing program makes no mention of restrictions, it is only the CSP (MSS303l2 - Certificate III in Competitive Systems and Programs) which makes specific reference to school leavers. 303 Mr Dawkins responded to Mr Langtree stating: I have checked with my very knowledgeable source who advises that for the CSP qual there is no formal entry requirement. There are advisory references to not suitable for direct entry from school and the desirability of work experience. Neither of these references override the no formal entry requirement. In any event no direct entry from school is hardly consistent with the age 21 issue. The preference for work experience could include work experience which could have been obtained while at school. Now it may be that Vic has additional rules but we can hardly be accused of breaching the TP. 304 It is clear that by this point in time Mr Dawkins was very focused on the entry requirements, but not the more general provisions of the Funding Contracts relating to pre-training reviews and course suitability. Ms Bonnici's "Talking Points" 305 Ms Bonnici prepared some "talking points" for use in connection with the meeting with Ms Peake and Ms Watts that was expected to take place the following day. The talking points were forwarded to Mr Dawkins and the other non-executive directors and also copied to Mr Hutchinson, Mr Langtree and Ms King. Ms Bonnici's talking points suggested that the problems identified in the MMU investigations were not wide-spread and were limited to four brokers. This reflected the view that DEECD's concerns were limited to the enrolment of school leavers or unemployed into the CSP and Warehousing dual qualification as a result of inadequate pre-training reviews carried out by those brokers. However, as a review of the correspondence up until this date (including Ms Watts' most recent letter of 26 August 2014) makes clear, DEECD's concerns were broader than this and related not only to the quality of pre-training reviews but also to the quality of the training delivered. The 28 August 2014 Board Meeting 306 The board met again at 3.00pm on 28 August 2014 shortly before Mr Dawkins and Ms Bonnici were due to meet with Ms Peake and Ms Watts at DEECD's offices. All directors were present at the board meeting except for Mr Hutchinson who, with Mr Gréwal, had not yet returned from overseas. Ms Bonnici, Ms King and Mr Koster also attended the meeting. Once again the only matter discussed was the Victorian audits. The minutes (signed by Mr Dawkins on 25 September 2014) record: The Board noted the meeting with the Department of Education and Early Childhood Development (DEECD) is scheduled for 4pm and the aim of this Meeting was to establish the best approach. The Chairman outlined his intention is to find a way for Vocation to work with DEECD and secure the release of at least some of the funds in the near term, in return for entering into the proposed pilot programme and the recommencement of enrolments (except into the stated exceptions). The Chairman outlined his view that the response from DEECD has been disproportionate to the problems raised, which have mainly been data problems (ie on enrolments) rather than failures to deliver. It was agreed that the approach be: • That if DEECD want Vocation to continue to deliver services under contract, then a way must be found to work together; • To better understand DEECD's concerns and how these can be addressed, including discussing that some of the conditions imposed as part of !he potential pilot seem unrealistic and there is a need to understand how there could be a variation to these, as well as a solution regarding the financial situation; • To note that this in an industry in consolidation, likely to result in a smaller number of larger providers, listed on the ASX and Government must adjust to contracting with ASX companies; • To have a number of facts available to reinforce the positives and give them confidence in Vocation's ability to deliver; and • Regarding release of funds, to note that if we start enrolling under the 6 week probation criteria, there would be circa $8 million earnings from this that DEECD would owe us and we would ask that they release the July payment for the training delivered in the qualifications not under scrutiny. The Board discussed the option of having the conversations with DEECD under "without prejudice" status, which BK confirmed was appropriate if Vocation wanted to preserve its position in any future litigation. WB advised that Vocation had not been briefed on who would be attending the meeting from DEECD and that there could be legal representation. The Board discussed the issue of legal representation from DEECD being at the meeting and agreed that if this was the case the meeting should still proceed. 307 The reference to $8.0 million is significant because it suggests that the loss of revenue attributable to the suspensions on enrolments was in the order of more than $1.0 million a week excluding "the stated exceptions" (ie. CSP, Warehousing and CGEA) or over $4.0 million per month. When allowance is made for the stated exceptions the figure would be about double this (ie. $8.0 million per month). Meeting between DEECD and Vocation of 28 August 2014 308 Following the board meeting Mr Dawkins, Ms Bonnici, Mr Langtree and Ms King attended the meeting with Ms Peake, Ms Watts, Mr Graham and Ms McInnis representing DEECD. Ms McInnis made notes of what was discussed. A transcript of her handwritten notes is in evidence together with more detailed minutes of the meeting which she finalised on or about 3 September 2014. 309 The handwritten notes make clear that Ms Peake (KP) informed Mr Dawkins (JD) and his colleagues that DEECD's concerns related to pre-training reviews, training and assessment, student experience and the short duration of training. It is apparent that Ms Peake expressed concerns on behalf of DEECD in relation to the CSP and Warehousing qualifications and the short duration of the combined course. In particular, she expressed a concern that with the dual qualification delivered in only nine days, students may not have skills that the dual qualification suggested they have. 310 There was also discussion concerning the correspondence with the ASX and the matter of continuous disclosure. Mr Dawkins informed Ms Peake that Vocation's advice was that the "potential/actual liability" would be much less than the total funds withheld" and that Vocation did not think it was material to the business. 311 Ms McInnis' more detailed minutes indicate that Ms Peake spoke to the consequences of poor quality training for students and the fact that very large amounts of taxpayer funds were involved. She also indicated that Vocation's significant growth had led DEECD to seek reassurance that the quality of the training that its RTOs were providing had not been compromised. Ms Peake is recorded by Ms McInnis as having also stated that DEECD wanted its review to proceed as quickly as possible, that the terms of reference would be available within the next few days, and that she sought reassurance from Vocation that it would engage in the review. 312 Ms Bonnici (WB) then raised the difficulty for Vocation in engaging in the review without receiving any payment from DEECD. She also referred to the fact that of some 700 students undertaking "a warehousing qualification" with Vocation, 63% obtained employment. According to Ms McInnis' minutes, Ms Peake: … noted this, but indicated that there would be a concern if this was achieved on the back of a dual qualification program of only 9 days, and if it was proved that individuals did not ultimately have the skills that their qualification suggested. 313 There was discussion at the meeting concerning the proposed trial and concerns raised by Mr Dawkins in relation to funding for the trial. Ms McInnis' notes record: WB indicated that Vocation was concerned that it would be spending money during the Trial period without being paid. JD suggested that the Department might consider holding funds relating to any enrolments occurring during the Trial period, but at the same time release an equal amount from the funds already being held. A figure of $5 million was posited. KP indicated she was open to considering a proposal from Vocation on this matter, bit [sic] noted that there remained a possibility that it may be determined that funds are owing to the Department from prior delivery already claimed and paid. She noted that the Department has reserved its rights to set off funds if the Review identifies that funds claimed and paid should be returned. 314 It is clear that Ms Peake was telling Mr Dawkins and his colleagues that while she was willing to consider releasing some money to fund the proposed trial, there was a possibility that it may be determined that all amounts withheld by DEECD would be permanently withheld given the amounts previously claimed and paid. This was a clear signal to Vocation that DEECD did not accept Vocation's assertions that the amount of withheld money at risk was relatively small or that the bulk of the withheld funds would ultimately be released. 315 There was also discussion at the meeting concerning the scope of the suspension with Ms Bonnici raising the issue of what she referred to as a misunderstanding. Ms McInnes' notes indicate that Ms Watts said that the directions applied to all BAWM qualifications and that correspondence from DEECD had made this clear. After some further discussion on the topic, Mr Langtree indicated that if DEECD's direction had been misinterpreted then this had not been intentional and that Vocation apologised. There is nothing in the minutes to suggest that Ms Watts accepted that she had at any time informed Ms Bonnici that the suspensions were confined to CSP, Warehousing and CGEA. 316 That evening, Mr Dawkins sent an email to the directors, Ms Bonnici, Mr Langtree, Mr Gréwal, Mr Koster and Mr Rozsa in which he briefly recorded some of his thoughts in respect of the meeting with Ms Peake. His view as recorded in the email was that there was a desire on the part of DEECD to work with Vocation to resolve problems rather than exclude it from the Victorian market. Mr Dawkins also said: We will engage on both the trial and the review and they were receptive to issues re some of the detail. We proposed a release of funds equal to the likely claims arising from the new enrolments involved in the trial. 317 Mr Dawkins was referring here to the suggestion that DEECD release $5.0 million from the withheld funds at the commencement of the trial. It is clear that Ms Peake did not give any commitment to the release of any part of the withheld funds in that or any other amount but indicated that it was something that DEECD would consider. 318 Later that evening, Ms Bonnici sent an email to Mr Dawkins which was copied to the same people to whom Mr Dawkins' email was sent. One matter that Ms Bonnici described in her email as a key point of discussion at the meeting was this: Concern that the issues identified in CSP and Warehousing exist across other qualifications and students. These issues relate to both the pre-training review process and programs that have the design of an upfront intensive followed by self paced learning. Their goal is to ensure that students get value from their entitlement. 319 By this stage I do not think it would have been reasonable for Mr Dawkins, Ms Bonnici, Mr Langtree or Ms King to think that DEECD's concerns were solely focused on the quality of pre-training reviews or the enrolment of school leavers in the CSP and Warehousing dual qualification. DEECD's concerns, as Ms Bonnici's email recognised, were also focused on the structure and delivery of the dual qualification, which involved an intensive phase of training followed by self-paced learning, a structure which was perceived by DEECD to produce poor quality training outcomes. The possibility that other qualifications offered by BAWM, Aspin and Vocation's other Victorian RTOs may have produced poor quality training outcomes was another key concern for DEECD. 320 I am satisfied that it would have been apparent to those from Vocation who attended the 28 August 2014 meeting with DEECD that there was a significant risk that DEECD may seek to permanently withhold payment in respect of the CSP, Warehousing and, quite possibly, other qualifications as a result of DEECD's perception that the training provided was poorly designed and executed. I do not think Mr Langtree could have left the meeting on 28 August 2014 believing that BAWM's worst case scenario was a loss of revenue in the amount of $7.6 million. He must have by then (if not before) appreciated that his analysis of 27 August 2014 was based on the false assumption that only CSP revenue was at risk. 321 Mr Hutchinson sent an email to Ms King, Mr Langtree, Ms Bonnici and Mr Gréwal late in the evening of 28 August 2014 shortly before he returned to Australia. In that email he provided what he described as a quick update in relation to the issues with DEECD, the proposed trial (which he apparently was now referring to as "Butterfly") and various other matters. He said that Ms Bonnici, Ms King and Mr Langtree had been handling a very stressful situation well. His email also includes the following remarks: Market • We have been actively managing the market and consensus earnings have come down • Very supportive shareholders who understand the scrutiny we are under in VIC and potential for repayments 322 It is not apparent who the "supportive shareholders" referred to by Mr Hutchinson were but his email seems to indicate that they may have had a more detailed understanding of the dispute with DEECD than other shareholders whose knowledge of the matter was based solely on Vocation's ASX announcement of 25 August 2014, which had not said anything about the amount of the withheld payments or the potential for any repayments. Meetings with Banks 323 On 29 August 2014 Mr Gréwal and Mr Halley met with Mr Foote and Mr Blazic of Westpac. Mr Foote's notes suggest that he was told that Vocation's cash position stood at about $4.0 million, that this would last until early October, and that a dividend had been declared for payment on 10 October 2014. It is clear from Mr Foote's notes that there was a lengthy discussion concerning the Victorian audits, and that Mr Foote was informed that the revenue being questioned by DEECD was in the range of $2.0 million to $4.0 million. That was not correct. 324 Mr Foote was also informed during this meeting that the amounts being withheld by DEECD related to the months of July ($10.0 million) and August ($9.0 million) meaning that $19.0 million or thereabouts would be outstanding by 12 September 2014. (In fact the amount outstanding at that date would be approximately $27.0 million.) He was also informed that Mr Dawkins met with DEECD the previous day to progress resolution of the matter and to request a partial release of funds, and that Vocation was told that DEECD would consider making partial payments, but had not provided a definitive timeframe. Mr Foote was told that Vocation expected to receive more information from DEECD during the coming week. 325 During the course of the meeting, Mr Gréwal and Mr Halley appear to have foreshadowed a formal request that the existing fully drawn facility be increased in an amount of $10.0 million or $15.0 million. Mr Foote's notes also suggests that he was told that a cash flow model and details of the dispute with DEECD would need to be provided in support of the request. 326 Mr Foote's notes also indicate that he was told by either Mr Halley or Mr Gréwal that in the event that no payment or resolution was forthcoming in September, Vocation would pursue a placement of $30.0 million to $50.0 million to cover the working capital issue and reduce debt. 327 The evidence includes a transcript of a file note made by either Mr Singh or Ms Jap of NAB in respect of a meeting with Mr Gréwal and Mr Halley that the note indicates took place on 27 August 2014. In his written evidence Mr Grewal said that the date of this note was an error and that the meeting actually occurred on 29 August 2014. I accept that evidence. 328 It is apparent from the note that Mr Gréwal and Mr Halley also visited NAB to explore the possibility of obtaining an increase in Vocation's banking facility. The note also indicates that there was discussion involving a possible acquisition and the placement of $30.0 million to $50.0 million to fund it. However, it appears that the main subject of discussion at the meeting was Vocation's cash flow and the Victorian audits. Relevantly, the file note states: - Review of top 50 RTOs in Victoria over the last 6 weeks $2-4m revenue (cohort of ~50 students, worst case need to repay). During investigation VIC can suspend the entire owing amount (therefore debtor risk). July and August not paid yet. - Not enough until October. - RTO Edge helps as they get the money in first then payout clients 2 days later. - Placement $30-50m to fund acquisition. - $15m facility increase for buffer. - Current balance of $4m. 329 It is clear that the bank was told by Mr Gréwal or Mr Halley that Vocation was running low on cash (with a current balance of $4.0 million), that cash would run out in October, and that it was looking for a $15.0 million facility increase to provide a cash flow buffer. This is consistent with what Mr Gréwal said to Mr Halley in his email of 11.00am, 26 August 2014 in which he forecast that Vocation would run out of cash in early October unless it got a $10.0 million "back-up facility" in place or received some funds from DEECD. 330 The file note also indicates that Mr Singh and Ms Jap were told that the amount of revenue in issue as a result of the Victorian audits was between $2.0 million to $4.0 million and involved a "cohort of 50 students". Based on Mr Langtree's analysis looking at CSP alone, approximately 4,000 CSP enrolments were in issue, and that his worst case scenario was $7.6 million. 331 In his evidence Mr Gréwal said that while he could not specifically recall what was said at this meeting, the representatives of NAB verbally indicated that the facility increase was being worked on internally and was likely to be complete in the next one to two weeks. I doubt that evidence is correct. In any event, NAB's file note does not provide any support for the view that any agreement had been reached with NAB, whether indicative or otherwise, that the facility would be extended in the next week or two, or at all. 332 Following the meetings with Westpac and NAB, Mr Gréwal and Mr Hutchinson received an email from Ms Dennyson and Mr Taylor of Westpac referring to recent meetings and setting out a list of further information that the banking syndicate Vocation's lenders required by close of business next day which included: 1. Time-line of dispute with Victorian Dept. of Education & Early Childhood Development "DEECD", including when dispute was first bought to Vocation's attention, preliminary audit findings, dispute correspondence, the status of this today with details of outstanding issues (if any) and the expected completion (approximate timing if more definitive timing is not possible) 2. Documentation and correspondence relating to the audit including suspension of payments 3. Full details of dispute, including amounts in dispute, courses impacted, forecast ongoing impact and how Vocation will manage the impact if the outcome of the review is not favourable 4. Timing of proposed resolution of dispute, including payment timing, audit issue resolution and compliance resolution 5. Resolution of outstanding Compliance requirements (FY15 Budgets and June 2014 reporting pack including covenant compliance certificate) 6. A formal request detailing exactly what Vocation is seeking from the Banking syndicate, including amounts, exact purpose, timeframe, any change in financial covenants, proposed structure of new debt and tenor 7. Are any further disclosures to ASX expected regarding the audit 8. A copy of any advice received from VET advisers outlining the issues aren't material (given this was the statement to the ASX) 9. A detailed daily cash flow until the 31st of October 10. Updated financial model on a monthly basis (with actual July 2014) outlining working capital/capex requirement, including a copy of the actual's to forecast with detailed explanation for >+/- 10% variation … 333 What this request clearly indicates is that the banking syndicate was seeking to ascertain as much as information as it could in relation to the Victorian audits, whether or not there had been a failure by Vocation to comply with its reporting obligations under the facility agreement, and what advice Vocation had to support the statement in the 25 August Announcement that the Victorian audits were not material. 334 The next day Mr Gréwal forwarded an email to Ms Tredenick (copied to the other directors) referring to his meetings with Westpac and NAB. Mr Gréwal said that they discussed extending the existing facilities by $15.0 million and that "[they] are supportive of our situation". He said that it would take one to two weeks to arrange. Mr Gréwal also said that he was meeting with the CBA on Tuesday. In the same email he said he was "recutting the short terms cash flow to on [sic] 12 September and will recirculate". He added that "the wider fy15 budget and the impact VIC has on this is being calculated by Michael [Langtree] and will be ready some time next week." 335 I am satisfied that by the time Mr Gréwal and Mr Hutchinson received the email from Ms Dennyson and Mr Taylor, Mr Gréwal must have appreciated that the relationship with the banking syndicate was strained as a result of Vocation's failure to provide information in a timely way in relation to the Victorian audits. From that time on, the focus of Vocation's meetings with the banking syndicate was primarily directed at disclosure issues rather than any proposed extension of the banking facility. 336 In his written evidence Mr Gréwal suggested that he had "a high degree of confidence that the banking syndicate would provide an extension of the banking facility in due course" although he does not say when or on what terms. Concerns had been expressed by Westpac and CBA in the email correspondence of 25 August 2014 and, I infer, in at least one of the meetings on 29 August 2014, concerning the lack of information that had been provided to the banking syndicate in relation to the Victorian audits. The record of the meeting with Mr Foote and the request for further information sent through to Vocation later that day suggest that the banking syndicate was troubled by Vocation's failure to provide information in a timely way in relation to the withholding of funds which they had only just been told would soon total approximately $19.0 million. Wendy Bonnici's Email of 1 September 2014 337 On 1 September 2014 Ms Bonnici sent an email to various Vocation employees, copied to Mr Gréwal, Mr Hutchinson, Ms King and Mr Langtree. In it she provided some notes entitled "Verbal communication to your teams". Among the points made in her notes, were the following: • As you know, Vocation announced last week that HESG is undertaking a review of three of the courses conducted by Vocation for which Vocation receives funding. These courses are across 2 of our RTO's (Bawm and Aspin). • Whilst our funding contracts are ongoing, HESG have withheld payments in relation to these RTO's whilst they complete a review. • In light of this, Vocation considers it prudent to temporarily cease enrolment in all BAWM and Aspin courses. • This means you will no longer be able to enrol students effective today in either BAWM or Aspin. 338 There are two short points to make about Ms Bonnici's note. First, it was wrong to suggest that DEECD was undertaking a review of three courses conducted by Vocation. The letter of 26 August 2014 made clear that the review would extend beyond those three courses. Secondly, the idea that Vocation was ceasing enrolments in courses offered by BAWM and Aspin because it considered it prudent to do so was not an accurate description of what had occurred. Finalisation of Financial Statements 339 A committee of the board met at 4.50pm on 2 September 2014 to approve Vocation's annual report including the audited financial statements. These contain a useful explanation of the facility agreement entered into by Vocation with the banking syndicate. According to the notes to Vocation's financial statements, the total amount available under the facility was $123.0 million comprising $120.0 million under Facility A and $3.0 million under Facility B. Facility A was a three year cash advance facility that could be used by Vocation towards financing permitted acquisitions (as defined in the facility agreement) and associated costs, fees and expenses to fund capital expenditure for the day to day operations and general corporate purposes. Facility B was a three year bank guarantee facility which could be used toward the issuance of bank guarantees. The facility agreement is also in evidence. A review of this document confirms that Facility A was only available for the financing of permitted acquisitions or capital expenditure, and not to provide working capital in any general sense. 340 There is nothing in the financial statements to indicate what provision or other accounting adjustment had been made in respect of DEECD's withholding of funds or the suspensions on enrolments either in relation to BAWM or Aspin. Mr Gréwal's Revised Cash Flow 341 In the course of the evening of 2 September 2014 Mr Gréwal sent to the non-executive directors (copied to Mr Hutchinson) an updated cash flow to January 2015. In his covering email he noted that the cash flow assumed that a $15.0 million bank facility would be available for draw down, that $6.5 million in dividends would be paid, that there would be no recovery of outstanding monies from DEECD, no funding payments for BAWM or Aspin for the months of September through to December (inclusive), and no related RTO edge payments. On the basis of those assumptions, Mr Gréwal advised that Vocation would run out of cash towards the end of November. 342 The cash flow shows the amount of $15.0 million as being received from the banking syndicate in about mid-September. If it is assumed that no additional funds were made available by the banking syndicate, then the cash flow would show a negative cash balance by 19 September 2014 of slightly over $1.0 million. Shortly before Mr Gréwal's updated cash flow was forwarded to the directors, Mr Hutchinson sent them an email advising that Mr Gréwal had "cut a worst case cash flow" assuming a $15.0 million extension of the banking facility, the payment of the dividend and no release of funds by DEECD. Mr Hutchinson said that this "… sees us okay from a cash perspective until the end of November … obviously we are monitoring cash across the group very carefully." 343 In his written evidence Mr Gréwal said that although the updated cash flow forecast included no payments by DEECD to BAWM or Aspin through to December 2014, he considered that to be a highly unlikely scenario based on the reports that he had received and read of the meeting with DEECD on 28 August 2014. Terms of Reference 344 On 3 September 2014 Ms Peake wrote to Ms Bonnici enclosing a copy of the terms of reference for "Review of Vocation Ltd RTOs". In her letter she confirmed that the Secretary of DEECD had directed that it conduct a review of Vocation subsidiaries holding either a 2014 or a 2014-2016 VET Funding Contract. In her letter she stated that it was anticipated the review panel would convene in the week of 8 September 2014 after which Vocation would be contacted to provide further information and documentation to progress the review. She also enclosed a copy of Ms McInnis' minutes of the meeting of 28 August 2014 which she referred to as "a record of the key points of discussion" that occurred at that meeting. The following day Ms Watts forwarded to Ms Bonnici revised terms of reference which were in slightly modified terms. In her covering email, copied to Mr Dawkins, Mr Langtree and Ms King, she explained that the earlier document was a "penultimate draft" which had been forwarded by mistake. 345 The terms of reference make clear that the review would encompass all Vocation RTOs that had a 2014 or 2014-2016 Funding Contract. These included BAWM, Aspin, Learning Verve, Green Skills and TDA. 346 The terms of reference were as follows: The Review will examine the adequacy and effectiveness of Vocation RTOs' overall compliance with the Contract from 1 January 2014, with a particular focus on the areas set out below. 1. Compliance of the RTO with the following aspects of the General Obligations (see clause 3 including clauses: 3.1d); 3.1e); 3.3a), 3.3c), 3.3d), 3.3e) and 3.4a)-f). 2. The adequacy and effectiveness of processes within and across Vocation RTOs with respect to: 2.1. student recruitment, including marketing activities (see Schedule 1, Part A, section 1.1d)); 2.2. student enrolments (see Schedule 1, Part A, section 4); and 2.3 Pre-Training Review (see Schedule 1, Part A, sections 4.6 - 4.10). 3. The delivery of Training Services (including but not limited to the kinds referred to in subparagraphs 2.1, 2.2 and 2.3) by Vocation RTOs where third party entities (including brokers, labour hire firms and contractors) have been, or are involved. Specifically, whether such Training Services have been delivered in accordance with clauses 4 and 5. 4. The provision of high quality of the Training Services provided by Vocation RTOs (whether or not third party entities are involved in delivery), specifically whether the training and assessment delivered under the Contract: 4.1. has complied and complies with the AQTF and/or the VET Quality Framework (see clause 3.1 e)); and 4.2. has been delivered and is being delivered according to the requirements of: 4.2.1. the relevant training packages; 4.2.2. the relevant curriculum materials; and 4.2.3. individual students' Training Plans. (see clause 3.1d) and e) and Schedule 1, Part A, section 6). … 347 The document referred to some of the powers of the panel under specified provisions of the Funding Contracts, the composition of the panel and an anticipated date for the completion of the report. The document stated that it was anticipated that the panel would provide its report to the Secretary of DEECD, through his delegate, the Deputy Secretary, no later than 31 October 2014. 348 Mr Hutchinson forwarded an email to Mr Dawkins and the other directors (copied to Mr Gréwal and Ms Bonnici) in the evening of 3 September 2014 commenting on the meeting that occurred earlier that day with the banking syndicate. In relation to that meeting Mr Hutchinson's email records: • Very positive meeting with the banks that Manny [ie. Mr Gréwal] and I attended in person, with John Dawkins on the phone • Feedback was "comfortable" with our explanation of what is happening and that is [sic] was a short-term issue • We have requested a confirmation by next Wednesday and expect to hear tomorrow on anything further they require • Manny and I feel very strong about the outcome - no reason to expect a NO at this stage 349 In the same email he commented on the terms of reference that had been received from DEECD noting, in particular, that these were "for review of ALL our RTOs in Victoria". According to Mr Hutchinson's email, he considered the key points of the review to encompass general obligations, student recruitment, enrolment and pre-training review, training delivery with third party providers and "compliance on everything – especially on content". He noted that the aim was to provide Richard Bolt (the Secretary of DEECD) with a report by 31 October 2014 at the latest. Ms Tredenick's Email 350 In the afternoon of 1 September 2014 Ms Tredenick sent an email to Mr Dawkins and Mr Hutchinson expressing some concerns about the way in which the issues with DEECD had been handled. The email focused on a number of issues that Ms Tredenick understood the directors needed to work through including, a significant set of audit/regulatory issues, the need to recast the budget for the financial year ending 30 June 2015, the need to manage market expectations, and the potential cash flow issues (including the securing of bank loans and understanding the possible revenue outcomes of the dispute). 351 Ms Tredenick continued: Board/CEO Whilst no one could have anticipated how the events of the week unfolded, I'm not sure that we were on top of the resolution of this sufficiently, understood the implications of delay and escalated it at the right points (we did have a no of distractions!). In some ways we have been lucky that the letter on Monday bought [sic] the issue to a head as if it had drifted it would have been worse. We also had no contingency plan in place eg making sure we had sufficient working capital/bank loans to withstand a further non payment in September - this left us very exposed when the letter came through. It felt quite uncomfortable from a board perspective to both deal with a potential cashflow issue but also to try and bottom out what was the potential Victorian liability (ie 4m) and why this was correct - we had only our questioning of Mark and Wendy as it occurred. We should have had a better understanding of the possible impacts of the issue and potential contingency actions earlier. Whilst all of this is learning for us a new company and board and learning for Mark, I'm left with a concern that we need stronger focus from you Mark and stronger governance from the board over the next few months to ensure we resolve these business issues – not something we could have contemplated any earlier by the way, just a result now of whats happened. I think we all - the board, CEO and the mgt team - did a great job last week, so this isn't being critical of anyone. I know we are also a young company without the deep resources of an established business. I also know some of the actions above are already underway eg banking facilities etc. Its more a reflection of what we may need to do going forward to best govern the company and give Mark the support and guidance he needs in his role as CEO. … 352 Mr Dawkins replied to this email the following day. According to his reply, there were three issues that he saw emerging from what he referred to as the Victorian situation. 353 The first matter was in the nature of a question: when would Vocation receive a payment from DEECD and, if it did not, what would be the effect on Vocation's cash flows? He confirmed that there was no commitment made by DEECD to pay anything on 12 September 2014 and all that was given was an undertaking to consider a partial release of withheld funds in the context of the trial. He indicated that Vocation would have to secure further borrowings by 12 September 2014 in case there was no payment made by then. 354 Another issue raised by Mr Dawkins was the effect of the Victorian situation on the budget for the financial year ending 30 June 2015. His comments on this issue related more to the future of the business in Victoria rather than cash flow implications of the Victorian situation. His comments indicate that he was optimistic that business lost as a result of the Victorian situation would be made up by taking advantage of new opportunities that he believed were emerging as the policy environment changed. 355 Mr Dawkins also raised the issue of disclosure. In relation to this he said: - when does the Vic situation require further disclosure[?]: In the absence of further clarity on where incorrect enrolments may have been accepted - and this will have to await the outcome of the review by Vic officials over the next few weeks - and even then we do not know what remedy Vic will seek - we remain of the view that the repayments will be of the order already reported to the board. I repeated this to the Vic officials indicating that if this is correct the amount is not material to Voc and there was no demur. 356 These comments reflect the view that the impact of the Victorian audits on Vocation's revenue would depend on how many incorrect enrolments may have been accepted and what remedy DEECD would seek. They also reflect an acceptance that this would depend on the outcome of the review. 357 Ms Tredenick's email shows that she was critical of the way in which the Victorian audit was being handled at board level in two respects: first the lack of focus by the CEO on a contingency plan in the event that there was no payment received from DEECD in September; second, the lack of information available to the board as to Vocation's potential exposure. 358 According to Ms Tredenick, the CEO and the board should have had a much better understanding of the possible impact of the Victorian audits before the 26 August 2014 meeting. It is apparent that she felt particularly uncomfortable at having to form a view as to Vocation's potential liability to DEECD based on the questioning of Mr Hutchinson and Ms Bonnici at that meeting. This suggests that the board had been provided with no papers explaining how management came to the view that Vocation's potential liability was limited to $4.0 million. That is consistent with the board minutes that make no reference to any written analysis, summary or other document having been provided to the board explaining how the $4.0 million figure was derived. Mr Langtree's analysis of 27 August 2014 came into existence after the board meetings to which Ms Tredenick refers had taken place. 359 Although Ms Tredenick's email is polite in its terms, and at times complimentary of the performance of the CEO and others during a difficult week, it conveys Ms Tredenick's frustration as to the quality of the information provided to the board, and the need for stronger performance on the part of the CEO and stronger governance on the part of the board. I think her view is consistent with the contemporaneous documents to which I have referred, which reflect a failure on the part of management to provide to the board any comprehensive analysis of the potential impact of the Victorian audits. 360 Mr Dawkins was asked a number of questions concerning Ms Tredenick's email in cross-examination. He recalled receiving the email and agreed that in his experience, it was out of the ordinary because (as Mr Halley SC then suggested to him) it was, in effect, a non-executive director writing to the Chair and CEO expressing concerns that might easily cause offence to the CEO. Mr Dawkins said, in responding to this suggestion, "Well, except she does say she is not criticising anyone." I think that Mr Dawkins, despite that answer, understood and quite correctly accepted the point implicitly made by the cross-examiner, namely, that Ms Tredenick, as an independent director, had taken a quite serious step in sending the email and raising her concerns about the performance of the CEO with the Chair and the CEO. Mr Dawkins also acknowledged that Ms Tredenick's email raised important issues. The Equity Capital Raising 361 On 3 September 2014, the morning after Mr Gréwal circulated his updated cash flow to the directors, Mr Hutchinson sent an email to Mr Petros of Macquarie. The email is significant because it provides some insight into the reasons why Mr Hutchinson wished to proceed with the capital raising. 362 In his email to Mr Petros, Mr Hutchinson said: Can you please check the process for us doing a $50.0m placement in the coming weeks to; • Recharge our facility • Ensure we can continue to invest in our 2015 strategy whilst we undergo the VIC review • Clean-up the 50% share holding of ASM • Acquire a very small New Zealand business for Endeavour that was part their strategy Questions; • Discount you would expect? • Board might chose to split it between you guys and Credit or UBS what do you think? Timing may be 2-weeks, its just a precautionary measure should this review with VIC take another month. Market is well informed about our cash stoppage in VIC so not so worried about the communication. 363 In his written evidence Mr Hutchinson said that the rationale for the Placement was primarily to fund various acquisitions. He also said that "[t]he Victorian audits affected my view about when to undertake a capital raising but were not the reason I recommended doing so". He added that his email to Mr Petros accurately recorded the purposes in seeking to undertake the capital raising. 364 Mr Hutchinson was questioned in relation to this email. He disagreed that at the time he sent the email it was his view that the Placement was a precautionary measure that Vocation was undertaking against the possibility that DEECD's review would take another month to conclude. In his cross-examination he gave the following evidence: Mr Halley: So I want to suggest to you, Mr Hutchinson, quite directly, that what you were suggesting in this email to Mr Petros was that the placement itself was a precautionary measure that you recommended that Vocation should undertake to protect itself against the position that the review being undertaken by the department would take another month. That's the case, isn't it? ––– No. I disagree HIS HONOUR: Well, are you able to tell me what you were intending to convey to Mr Petros in that last paragraph. If you just can't say - - -? ––– No. Certainly, your Honour. At this time, I – I had three major, if you like, projects that I thought that I was concentrating on, especially given the board and Ms Tredenick's emails of the last few days to me about, "You've got to manage the rest of the business as well". And we had just come off our roadshow. And the inorganic organic growth, regardless of the Victorian audit process, was still my responsibility to carry on as a substantial business with new acquisitions. We had been speaking about a capital raising for some time. We had a large debt facility that we, you know, didn't want to carry. So from a timing point of view, the review also was taking a fair amount of my - - - HIS HONOUR: Mr Hutchinson, the question I asked you was what, if you can say - - -? ––– No, sure. - - - you were intending to convey to Mr Petros in this final paragraph of your email? ––– Sorry, your Honour. I was – too much detail. As far as I can see – and I'm speculating – I'm talking about timing to get that part of my, you know, job out of the way in terms of the inorganic and organic part of the strategy to carry on. So then I could focus back on the Victorian audits. But, again, I'm speculating, your Honour. I can't recall my particular thought. 365 In my view Mr Hutchinson intended to convey to Mr Petros that he was investigating the possibility of arranging a $50.0 million placement for Vocation within the next two weeks as a precautionary measure should the review take another month. I am satisfied Mr Hutchinson's statement to Mr Petros to that effect was accurate. While I do not doubt that Mr Hutchinson expected that some of the proposed $50.0 million to be raised by the Placement would be used to repay group debt to the banking syndicate and to fund further acquisitions, I am satisfied that his primary purpose in arranging the Placement when he did was to obtain access to funds to replenish Vocation's working capital, which had been seriously depleted by DEECD's withholding of funds, and which would soon total approximately $27.0 million. 366 As mentioned previously, at the meeting with Westpac that was attended by Mr Gréwal and Mr Halley on 29 August 2014, Mr Foote was told that in the event that there was no resolution of the Victorian situation in September, Vocation would arrange a $30.0 million to $50.0 million placement to cover working capital and reduce debt. Mr Hutchinson's email to Mr Petros is consistent with what was said at that meeting. Further, as I later explain, Mr Hutchinson and Mr Gréwal attended another meeting with Ms Johnston and Mr Blazic of Westpac together with representatives of NAB and CBA on 3 September 2014 at which (I infer) Mr Hutchinson or Mr Gréwal informed those present that a $50.0 million placement could be arranged and executed at short notice to fund the cash flow shortage caused by the withholding of funds. There are other statements made by Mr Hutchinson and Mr Gréwal at a further meeting held with representatives of the banking syndicate on 9 September 2014 that are also relevant. I refer to that meeting in more detail later in these reasons. 367 As to Mr Hutchinson's written evidence, if he was intending to convey that the withholding of funds and the cash flow issues it created was not a reason for undertaking the capital raising, then I would reject it as inconsistent with the objective facts. 368 There were suggestions in the evidence of Mr Hutchinson and Mr Gréwal that Vocation always intended to undertake a capital raising before Vocation's annual general meeting to take maximum advantage of the company's placement capacity (see ASX Listing Rule 7.1). Mr Gréwal, in particular, referred to a number of acquisition opportunities which he claimed would require Vocation to raise $650 million through a mix of debt and equity and that it was necessary for Vocation to fully utilise its placement capacity before Vocation's AGM on 16 October 2014 if it were to raise sufficient capital (ie. other than by way of prospectus) to make such acquisitions possible. In fact, Mr Gréwal suggested that he understood there would need to be one capital raising before the AGM followed by another sometime after it. 369 I do not accept Mr Gréwal's evidence that Vocation was always intending to make maximum use of its placement capacity. It is inconsistent with statements made by Mr Halley at the meetings with Westpac and NAB on 29 August 2014 which refers to an amount ($30.0 million to $50.0 million) well below the full amount that it was open to Vocation to raise at this time without a prospectus. It is also inconsistent with cash flow projections prepared on 25 and 26 August 2014 by Mr Gréwal and Mr Thompson that make no reference to the proceeds of any capital raising in the period 25 August to 31 October 2014. I am not satisfied that there was any intention to raise new capital before the AGM and that the decision to undertake the Placement was driven by the cash flow issues created by the withholding of funds. 370 I should also say something about the last sentence in Mr Hutchinson's email to Mr Petros. While Mr Hutchinson may well have conveyed additional information beyond what appears in the 25 August Announcement to investors during the course of the Asian roadshow (there are suggestions in the evidence that he did so) I do not think there was any basis for the statement that the market was well-informed as at 3 September 2014 as to the "cash stoppage". All that the market had been told was that "recent payments" had been withheld and that Vocation did not think this was material. 371 At about 5.21pm on 4 September 2014, Mr Hutchinson sent an email to Mr Dawkins and the other directors (copied to Mr Gréwal and Ms Bonnici) in which he provided them with an update regarding the banking syndicate, the Placement, and the Victorian audits. In this email he advised that NAB was confident of getting Vocation's application through but that this was likely to be conditional on a capital raising. With regard to the Placement and the Victorian audits, Mr Hutchinson advised: Placement • I've spoken with all of you regarding my recommendation of a placement early next week • JWS and I are drawing up a cleansing statement for your approval tomorrow • Actions; • $75m is the recommended amount to show intent for future M&A, be under our 15% shareholder clause and ensure we have fire power to grow organically … • Monday or Tuesday to get this completed, is done in one-day • Reasons • 50% acquisition of ASM • New Zealand small tuck-in as part of Endeavour's organic growth • Acceleration of MyVocation strategy and investment • Re-charge the debt facility with a large volume of opportunities in the market • Ensure the business can continue to invest in strategic imperatives whilst we finalise our review with the VIC Government • I'll have JWS, Nightingales and banks review the statement [ie. a proposed ASX announcement] for Board approval VIC • Formal letter sent requesting partial release of funds no response • Call put into Richard Bolt for a meeting with John and myself on Monday no response • War room council set-up with expert advisors in Melbourne over the weekend to take a harder tack with the Department • Response to review panel and trial • No other NEW news really, we're just preparing all ammunition 372 I am satisfied that Mr Hutchinson appreciated at this time that the banking syndicate was unlikely to grant an extension of the existing banking facility until DEECD agreed to release a substantial portion of the withheld funds or Vocation completed a capital raising. Mr Hutchinson was aware at the time he sent his email that DEECD's stated position with regard to any release of the withheld funds as at 4 September 2014 was that this was a matter that would be given consideration after completion of the review. I am satisfied that the primary reason that led Mr Hutchinson to approach Mr Petros on 3 September 2014 in relation to a $50.0 million capital raising was the fact that Vocation was facing the real possibility of a cash flow crisis in the event that DEECD did not make a substantial part-payment to BAWM before completion of the review. 373 In his email Mr Hutchinson refers to "expert advisors" in Melbourne with whom Mr Dawkins, Mr Hutchinson, Ms Bonnici and Mr Langtree were proposing to meet on the Sunday before the meeting with Mr Bolt. The expert advisors who attended this meeting were Mr Joyce of Landers & Rogers and Mr Peter Coyne. It is clear that the purpose of the meeting was to prepare for the meeting with Mr Bolt at which Mr Dawkins would argue that the review be limited to three courses, that it be expedited, and that there be an early release of funds in connection with the proposed trial. 374 I have previously referred to the written advice provided by Mr Joyce. There is very little evidence as to what other advice he gave and nothing to suggest that his opinions changed. As to Mr Coyne, he was described in evidence as an "independent expert advisor" and "vocational industry specialist" to Vocation. Whether or not he had any legal qualifications or was familiar with the relevant contractual provisions is not apparent from the evidence. Mr Hutchinson gave some evidence suggesting that Mr Coyne was shown the relevant correspondence which he discussed with Ms Bonnici, Mr Langtree and Ms King and that he told them that DEECD "appeared to have overreacted" and that "he could see no basis for prolonging the withholding of payments or the suspension of enrolments". It is not necessary to decide whether advice was given by Mr Coyne to that effect. If it was, then it would appear to have been given without any regard to the relevant contractual provisions which provided the legal justification for both the withholding of funds and the suspensions on enrolments. Meeting with Banks on 3 September 2014 375 On the same day that Mr Hutchinson was writing to Mr Petros in relation to the possible capital raising, Mr Hutchinson and Mr Gréwal met with Mr Foote and other representatives of the banking syndicate. Mr Dawkins also participated in the meeting by telephone. I should say that Mr Dawkins did not deny that he participated in this meeting but his evidence was that he had no recollection of having done so. That evidence was not challenged and I accept it. 376 According to Mr Foote's notes, the meeting had been called by Vocation to address the banking syndicate regarding the withholding of funds by DEECD. Mr Foote's file note includes the following: • Meeting called by Vocation to address the banking syndicate regarding the withholding of payment of funds by the Department of Education and Early Childhood Development ("DEECD"). • The DEECD has withheld 2 payments (July and Aug) to Vocation, of approx. $18.0 due to a potential breach of compliance under the VET Funding Contract. • The potential breaches specifically relate to the pre-training review process, and identified those enrolments that were inappropriately undertaken. The DEECD raised concerns in relation to the courses provided to students under the age of 21 years old. Vocation advised there is a "grey" area regarding the current definition of "School Leavers" under the VET Funding Contract. The DEECD believes courses should only be provided to students over 21. • The breach involves the enrolments referred by external brokers. Vocation has now terminated the services of brokers who recently acted for BAWM. Vocation has implemented an internal brokerage division which will supersede all external referrals by the end of FY15. • Subsequently, Vocation has suspended new enrolments operated by BAWM Pty Ltd ("BAWM") and Aspin Pty Ltd ("Aspin") relating to the delivery of Certificate II in General Education for Adults, Certificate III in both Warehousing Operations and Competitive Systems and Processes. Aspin and BAWM are RTO holders that provide training to students in Victoria. • Vocation advises that whilst review impacts a maxium of $7.6 in revenue to be disputed, the Dept have withheld all funds owing on basis review will be expanded across all of Vocation's Vic courses. Vocation advise they have surveyed approx. 3,000 former clients as part of internal check to see if any issues exist. 16 clients had complaints as part of this process. Given this, Vocation believes no further revenue impact is expected (i.e. potential repayment limited to a max. of $7.6, with likely repayment $2-4). • Vocation advised all their other (9) RTO's are not impacted by the breach found in BAWM and Aspin. Vocation is actively working with the DEECD to resolve the compliance issues raised from the audit including implementation of a 4-6 week trial period for all new enrolments. • No definite timing has been provided by the DEECD however Vocation expects a reasonable timeframe for a resolution to be around the 12th October (4-6 weeks), with potential for part-payment of monies owed by Mon 8th Sept. Chairman (John Hawkins) [sic] had a meeting with the Dept on the 28th Aug. and asked "Did they want Vocation to be operating in Victoria?". Dept response was yes, and commented that industry consolidation is being supported. • Vocation advise early notification to the bank syndicate was not provided given they did not anticipate the audit process to take this long (advised usual timeframe to resolve a compliance issue / audit is around 2-4 weeks). The dispute between Vocation and the DEECD is now in its 8th week, and was confirmed 10-12 days ago that funding for the third month in a row may be withheld. • The Board met on the 19th August and approved dividends to be payable on the 10th October. Dividend reinvestment plan was discussed at the Board meeting however been deferred for consideration post FY15. • Vocation has submitted a formal request to the DEECD to release payment of funds to be paid on the 08/09/14 (requested amount to be ~$8.0-10.0). • PWC signed off the FY14 final accounts on 2nd September (despite the funding dispute with the DEECD – it is unknown whether PWC are aware of this current issue – no comments in FY14 final accounts). Vocation advise they have provisioned ~$4.3 in the FY15 accounts for non-payment of government funding. • Vocation AGM is on 5th October, and if the dispute / audit is not resolved by this date, they are proposing to disclose to the market. • A $50.0 placement was raised as a contingency plan to fund the cash flow shortage caused by the withholding payment of funds. CEO advises a placement can be arranged and executed at short notice. … 377 There are a number of observations to make regarding Mr Foote's file note. 378 First, in my view it is likely to constitute an accurate record of what was discussed at the meeting. The notes show that the focus of the discussion at the meeting was on Vocation's dispute with DEECD. 379 Secondly, I am satisfied that the primary reason for the meeting with the banking syndicate on 3 September 2014 was to address its concerns regarding Vocation's dispute with DEECD, the financial implications of that dispute and whether there had been a breach of any of Vocation's reporting obligations under the facility agreement. 380 Thirdly, the file note refers to a $50.0 million placement as a contingency plan to fund the cash flow shortage caused by DEECD's withholding of funds. This is apparently a reference to Mr Hutchinson's discussions with Mr Petros at Macquarie. The file note is explicit as to the purpose of the capital raising, ie. to fund the cash flow shortage caused by DEECD's withholding of funds. Mr Foote's file note also indicates that the banking syndicate's representatives were told that if the dispute with DEECD was not resolved before 5 October 2014, the date of Vocation's annual general meeting, then Vocation was "proposing to disclose to the market". 381 Mr Hutchinson gave evidence in cross-examination that he understood, as at 5 September 2014, that Vocation was facing what was potentially a very significant cash flow crisis over the coming weeks, and that unless there was a confirmation from DEECD that there would be an early release of funds, the banking syndicate was unlikely to extend the existing facility. In my opinion, Mr Gréwal's understanding was most likely to the same effect. I am satisfied that their understanding as at that date accurately reflected the reality of Vocation's situation. Request for Release of Funds 382 On 4 September 2014 Ms Bonnici sent to Ms Watts a letter marked "Without Prejudice Save as to Costs" which had been drafted by Mr Joyce on Ms Bonnici's instructions. In this letter, arguments were advanced as to why DEECD should release a total amount of $6.4 million to Vocation. The amount of the release sought, as explained by Ms Bonnici, involved two components: the first was an amount ($3.4 million) said to cover enrolments made by BAWM that had not been linked to any brokers and the second, an amount ($3.0 million) in respect of enrolments that would be made by BAWM during the course of the proposed six week trial. The reference to $3.4 million as the amount of withheld funding not linked to brokers is instructive because it indicates how much of the funding withheld from BAWM was linked to brokers (ie. more than 80%). 383 DEECD did not provide a written reply to this letter until 12 September 2014 when Ms Peake wrote to Mr Hutchinson attaching a copy of the revised terms of reference following the meeting of 8 September 2014. In her letter to Mr Hutchinson, Ms Peake confirmed that as a result of the meeting on 8 September 2014, DEECD would "… use the Initial Report from the Review Panel as a basis to further consider the continuation or otherwise of its actions pertaining to suspension of enrolments, commencements and Funds under its VET Funding Contracts with BAWM and Aspin Pty Ltd". The reference to the "Initial Report" in that letter is a reference to the report to be prepared after the first phase of the review of Vocation's RTOs under the revised terms of reference that were enclosed with Ms Peake's letter which had been prepared following a meeting held on 8 September 2014 discussed below. The Sunday 7 September 2014 Board Meeting 384 A board meeting was held by telephone conference at 2.10pm on Sunday, 7 September 2014. All directors were present except for Mr Halley. Mr Rozsa and Ms Bobeff of JWS were in attendance. During this meeting there was a discussion concerning the Victorian audits and the proposed equity raising. The minutes include the following entries in relation to these matters: UPDATE ON VICTORIAN AUDITS The Chairman advised that he is discussing legal and other options with the Melbourne management team ahead of the meeting with the Victorian Department of Education and Early Childhood Development (Department) on 8 September 2014. MH and JD advised that the situation in Victoria was still as expected and discussions/review with the management team would continue post the Board meeting to help preparation with the meeting tomorrow with the Department. MH advised that to answer the due diligence management questionnaire for the proposed placement, a further thorough review over the weekend of all correspondence related to the Victorian audit was conducted as well as of recent enrolment statistics. This confirmed that the overall enrolments for the Group over the last month had not been adversely impacted by the review. MH reconfirmed his view that the impact on the Company's business due to the Victorian review was not material. The Board discussed whether any additional disclosures to ASX were required in relation to this issue. At this stage based on above information none are required. It was agreed to review again following the outcome of the meeting with the Department on 8 September. PROPOSED EQUITY RAISING MH updated the Board on the proposed timing for the equity placement, advising that it is planned to commence after market close on Monday 8 September and announced Tuesday 9 September pre-market open. Underwriting Agreement The Board discussed the draft underwriting agreement, particularly the termination events. It was agreed that JR discuss potential to change clauses 12.1(a) and 12.1(r)(iii) with Macquarie's legal advisors. The Board agreed to re-assess its position on the termination events after the outcome of the meeting with the Department is known. As it was anticipated the current review by the Victorian Government would not have a material effect on the business, it was agreed not to pursue the removal of the termination event regarding funding agreements. Draft ASX Announcement The draft ASX announcement was discussed, noting the amendments made since the previous Board Meeting. It was agreed to finalise the announcement at the Board meeting on 8 September 2014. Draft Cleansing Notice The Board discussed and agreed the form of cleansing notice. Request for Trading Halt The request for trading halt was discussed and it was noted that with the current proposed timetable a trading halt will not be required. Appendix 3B The draft Appendix 3B was noted and agreed. Due Diligence Questionnaire The Due Diligence questionnaire was discussed. Directors asked management a number of questions and certain amendments were agreed. MH confirmed that in addition to the requirement for himself and MG to sign the questionnaire, Wendy Bonnici, Amanda King and Michael Langtree would also sign the questionnaire. Placement Board resolutions It was agreed to consider the Board resolutions at the 8 September 2014 Board meeting. 385 The minutes show that there was a discussion at this meeting concerning the DDQ and that certain amendments to it were agreed. 386 In relation to the matter of disclosure, the minutes indicate that Mr Hutchinson advised the board that following a thorough review of all correspondence relating to the Victorian audits as well as recent enrolments statistics, Mr Hutchinson reaffirmed his view that the impact on Vocation's business due to the Victorian review was not material. Presumably, this review included a review of the letter from DEECD dated 26 August 2014 and the terms of reference forwarded to Vocation on 4 September 2014. That correspondence made clear that the review that had been authorised by the Secretary of DEECD was not limited to two of Vocation's RTOs or three courses, that it was anticipated that the review would be completed by 31 October 2014, and that no consideration would be given to the release of any of the withheld monies until after the review panel had provided its report. Mr Hutchinson's Email of 7 September 2014 387 In light of the advice provided to the board on 7 September 2014, it is necessary to examine closely an email sent by Mr Hutchinson to Mr Dawkins and Mr Rozsa early on the morning of Sunday, 7 September 2014. In his written evidence, Mr Hutchinson said that he sent the email to Mr Dawkins and Mr Rozsa (and copied it to others) which I am satisfied he did. It is also apparent from the email that the persons to whom it was copied included Mr Gréwal but not the independent directors. There is no evidence to indicate that Mr Hutchinson's email was ever provided to the independent directors. 388 It is important to record that no questions were asked of Mr Dawkins in cross-examination by Mr Halley SC about Mr Hutchinson's email of 7 September 2014 and there is no evidence from Mr Dawkins indicating if and when he read it. On the other hand, Mr Pesman SC did not challenge Mr Hutchinson's evidence that the email was sent to Mr Dawkins. In those circumstances I am satisfied that it is more likely than not that the email was received and read by Mr Dawkins prior to the board meeting held later that day. 389 Mr Hutchinson's email attaches a draft ASX announcement informing the market of the capital raising. The draft (which is in mark-up) originally included the following statement regarding the Victorian audits: While the review has had an impact on some of Vocation's Victorian operations and enrolment activity, this has been mitigated by organic growth across the group, including other parts of the Victorian business. 390 In his email, Mr Hutchinson said that Macquarie had a major issue with that statement because "without a lot more detail [it] was a red rage [sic] to a bull if it wasn't to date a material impact on FY15". What I understand Mr Petros to have suggested was that the statement included in the draft ASX announcement originally prepared by Vocation was likely to convey to at least some readers that the suspensions would have a material impact on Vocation's earnings in the financial year ending 30 June 2015. 391 Mr Hutchinson then refers to discussions between himself, Mr Langtree and Macquarie the previous night. Referring to the statement in the draft ASX announcement to which Macquarie took exception, Mr Hutchinson said: We have altered the statement somewhat, given the following; • Actual enrolments in VIC we [sic] not impacted in July • Enrolments were impacted in August, but not by a material amount • Early September enrolments are being impacted, however mitigation strategies of; * Enrolling in our other VIC RTO's * Accelerating fee contributions across all enrolments * By the 15th of September our expectation that we commence some form of pilot where enrolments recommence in BAWM and Aspin * Adjustments in the Solutions business model that increase our margin also help compensate for less enrolments * Given the above Michael believes that enrolment activity will not be materially impacted in VIC * All other enrolment activity across the business remains strong • Fact is the market don't [sic] care if an enrolment goes through BAWM or TDA, as long as enrolments are going through … 392 Mr Hutchinson was cross-examined in relation to a part of his written evidence in which he dealt with his conversation with Mr Langtree. According to Mr Hutchinson, Mr Langtree conveyed to Mr Hutchinson each of the matters that are set out in the email and also that Mr Langtree believed that enrolment activity across Vocation as a whole would not be materially impacted by the Victorian review. 393 Mr Hutchinson also said in his written evidence that one of the reasons why enrolments in Victoria had not been affected by a material amount in July or August 2014 was that Vocation's enrolment numbers from 1 July 2014 included enrolments through Real Institute and Endeavour. These enrolments were apparently relied on by Mr Hutchinson to justify a statement to the board at the meeting on 7 September 2014 confirming that the impact of the review on Vocation's business was not material. There are five key points to make about Mr Hutchinson's email and that statement. 394 First, in deciding whether or not the Victorian suspensions were material, Mr Hutchinson determined, or at least accepted, that actual enrolments in Victoria were not impacted in July at all and were impacted in a non-material amount in August. Mr Hutchinson's evidence makes clear that he knew that the enrolment numbers on which these conclusions were based included enrolments of students by Real Institute and Endeavour, which were businesses for which Vocation had only recently paid a total of about $130 million or more. In cross-examination he accepted that the increased enrolments were enrolments that Vocation would have expected to have achieved as a result of those acquisitions. 395 Secondly, Mr Hutchinson's reference to enrolments in other Victorian RTOs apart from BAWM and Aspin is inconsistent with the objective facts. While I accept that there may have been some redirection of enrolments from BAWM and Aspin to other Victorian RTOs, the objective evidence shows that the numbers were negligible. 396 The combined amount of the payments by DEECD to Vocation's other Victorian RTOs under their 2014-2016 Funding Contracts amounted to approximately $7.76 million in June 2014, but following imposition of the DEECD contractual measures reduced to approximately $1.22 million in August 2014; $780,000 in September 2014 and $547,000 in October 2014. Those amounts may be contrasted with the payments by DEECD to BAWM under its Funding Contract of approximately $6.6 million in May 2014 and $8.7 million in June 2014 (no monthly payments were made to BAWM for training delivery under its Funding Contract in July, August or September 2014) and payments by DEECD to Aspin under its Funding Contract of approximately $1.8 million in May 2014; $2.0 million in June 2014 and $2.1 million in July 2014 (no monthly payments were made to Aspin for training delivery under its Funding Contract in August or September 2014). 397 The total payments received from DEECD by Vocation's other RTOs in August, September and October 2014, which would have included the impact of any increase in enrolments in the period to 10 September 2014, decreased significantly when compared to prior months. Any increased enrolments in these RTOs did not compensate for the monthly payments made to BAWM and Aspin in the months preceding the imposition of DEECD's contractual measures. 398 Thirdly, in relation to Mr Langtree's expectation that by 15 September 2014 there would be "some form of pilot" which would enable BAWM and Aspin to recommence enrolments, no agreement had been reached in relation to the proposed trial including how it would be funded. Nor was the proposed trial intended to cover CSP, Warehousing or CGEA, which had been the most lucrative of the VTG funded training courses delivered by Vocation until the suspensions took effect. 399 Fourthly, all other points raised in the email (such as improved margins and accelerated fee contributions) are vague, lacking in any detail, and not accompanied by any enrolment statistics or other information which might support Mr Langtree's (and Mr Hutchinson's) advice that enrolment activity in Victoria would not be materially impacted. 400 Fifthly, there is nothing in Mr Hutchinson's written or oral evidence to suggest that he challenged or even questioned any of the matters that supposedly led Mr Langtree to believe that enrolments activities in Victoria would not be materially impacted. 401 My strong impression of Mr Hutchinson's email of 7 September 2014 is that it was an attempt by management to justify previous advice given to the board, and fresh advice to be given to the board at its meeting on 7 September 2014, that the suspensions on enrolments imposed on BAWM and Aspin would not have any material impact on Vocation's revenue or earnings. Mr Hutchinson's email does not reflect what I would regard as a genuine attempt to objectively determine whether that advice was well founded. The 8 September 2014 Meeting with Mr Bolt 402 Another meeting was held between representatives of DEECD and Vocation on Monday, 8 September 2014. On this occasion the Secretary of DEECD, Mr Bolt, attended, together with Ms Peake and Ms Cowan. Vocation was represented by Mr Dawkins, Mr Hutchinson and Mr Mark Smith. Ms Cowan and Mr Smith made notes. 403 Mr Bolt, Ms Peake, Mr Dawkins and Mr Hutchinson all gave evidence in relation to the discussions that occurred at this meeting. Ms Cowan made an affidavit but was not cross-examined. In her evidence she explained that one of her responsibilities was to assist Mr Bolt and, if requested, attend meetings and take notes. She described her usual practice in relation to note taking at meetings with Mr Bolt which involved making notes on an iPad during the meeting and then emailing those notes to her work email address. She would then correct the notes for misspellings or shorthand that she had used when making them. This is a practice that she followed in relation to the meeting of 8 September 2014. 404 Ms Cowan forwarded a copy of her corrected notes by email to Ms Watts at around 3.30pm on 8 September 2014. In her email she said that she had not summarised them at all or cleared them with either Mr Bolt or Ms Peake "so there may be some errors". The notes are quite detailed and in my view provide a reasonably accurate though not totally complete record of the discussions that occurred at the meeting held earlier that day. Mr Dawkins gave evidence that, while he did not agree that Ms Cowan's notes accurately reflect the actual words and expressions used during the course of the meeting, he agreed that the notes reflected the substance of the discussions that took place. 405 Mr Smith and Mr Dawkins prepared a document on 8 September 2014 entitled "Report of Meeting Outcomes with Department of Education and Early Childhood Development 8 September 2014". The report was prepared shortly after the meeting with Mr Bolt concluded. 406 At about 11.00am on the same day as the meeting with Mr Bolt had occurred, Mr Smith forwarded a copy of the report to Mr Hutchinson by email, copied to Mr Dawkins, advising Mr Hutchinson that Mr Dawkins and Mr Smith had drafted the attached summary of the meeting. In the same email Mr Smith asked Mr Hutchinson to let him know if there were any amendments or additions that he wanted made before it was circulated more widely. The report was circulated to the directors by Mr Gréwal at 12.58pm on the same day, which was about two minutes before a board meeting took place via teleconference (discussed below) at which the directors resolved to approve a placement of shares. I will say more about this board meeting shortly but the timing of matters indicates the significance that Mr Dawkins attached to his meeting with Mr Bolt, and its outcome, to the proposed capital raising. 407 In my view Mr Dawkins' and Mr Smith's report is a less reliable record of matters discussed and agreed than Ms Cowan's notes. The report attributes to Mr Bolt the statement that the "[g]overnment is not here to drive Vocation out of the market, but we want to drive out others." In cross-examination Mr Bolt accepted that he said that the Government was not here to drive Vocation out of the market but did not accept that he said it was the Government's intention to drive others out of the market. I do not accept that Mr Bolt made that statement. More importantly, the report includes the following description of the review: The Review The proposed review will be confined to an isolated set of issues. This narrowed scope will be limited to the 3 qualifications in question. The three qualifications are: • Certificate II in General Education for Adults • Certificate III in Competitive Systems and Processes • Certificate III in Warehousing Operations It is anticipated that the review panel will be asked to expedite this process, and will conduct the review of these three qualifications within 7 to 14 days. Following that step Vocation will have an opportunity to comment on any findings before any decisions are taken, and at that point any extension of the scope to other qualifications will be discussed. The outcome of the review of the three qualifications, will inform a decision on the release of withheld funds. … Whilst the 31 October date remains as the outer limit of the review process, we can expect it to be completed earlier. 408 Based on what I am satisfied was agreed at the 8 September 2014 meeting, I consider this description to be inaccurate. In particular, it was not agreed that the proposed review would be confined to "an isolated set of issues" or that it would be limited to CGEA, CSP and Warehousing. 409 I am satisfied that the meeting of 8 September 2014 was arranged at the request of Mr Dawkins, and with the knowledge and encouragement of the board, in an attempt to narrow the scope of the issues that were to be the subject of the review and, in particular, to limit the review to an examination of CSP, Warehousing and CGEA. I am satisfied this was a matter of importance to Mr Dawkins and the other directors because the review that was initiated by DEECD as reflected in the terms of reference sent by Ms Peake to Ms Bonnici on 3 and 4 September 2014 was much broader than that described in the 25 August Announcement which had stated that DEECD was undertaking a review of three courses. As Mr Dawkins acknowledged in his cross-examination, "[i]f the terms of reference could not be clarified and improved, we would have … a more serious situation in front of us, and it … would require us to reconsider the nature of our announcements to the market". 410 I am satisfied that during the course of the 8 September 2014 meeting: Mr Dawkins contended that Vocation did not consider that BAWM or Aspin had breached their Funding Contracts. He contended that this was because CSP, Warehousing and CGEA did not have any entry requirements. He acknowledged that in the case of CGEA, DEECD had concerns about the suitability of that course for someone who had already completed Year 12 and that Vocation was prepared to remedy what had occurred (referring, presumably, to the offer previously made by Aspin) but did not accept there had been any breach of contract or any AQTF requirements. Mr Dawkins contended that since there was no entry requirement for the CSP and Warehousing qualifications, Vocation's enrolment practices did not breach either BAWM's Funding Contract or AQTF requirements. Mr Dawkins contended that everything came down to whether there had been a breach of contract or AQTF requirements in respect of CSP, Warehousing and CGEA and, on that basis, he contended that a broader review would be unreasonable, labour intensive and costly. Mr Dawkins suggested that the first step should be to determine whether Vocation had breached either its Funding Contracts or the AQTF requirements. He expressed concern about the way in which MMU's findings had been made and said that Vocation had never had a chance to contest them. He contended that the proposed review should focus on whether the matters covered in the MMU reports disclosed any breach of contract or AQTF. Mr Bolt (in response) referred to the fast growth that had occurred in the Victorian Government funding of private sector training. He contended that this gave rise to concerns as to whether the provision of training paid for using such funding was of an appropriate quality and that there had been alarming evidence – most of which was thought to be at the fringes – regarding the misrepresentation of the quality of training services provided. He contended that DEECD had been trying to control quality while also giving training providers flexibility to deliver their services as they thought best. Mr Bolt also said that DEECD liked the aggregation of private entities into larger groups because it was more likely to lead to higher standards of governance and that DEECD viewed Vocation's model positively. However, he raised concerns about the level of growth and the ability to manage such growth without sacrificing quality of training. He said that DEECD was worried that the Vocation model had not started well, and would establish a poor culture, and that it had concerns that students' interests were made "subservient to profit". Ms Peake stated there was also a concern about enrolment of students in dual qualifications "with little face time coupled with work place experience" and that "there seemed to be no quality assurance of the work place experience or assessment and it was not tailored for individual students." Mr Bolt also said that he was happy to consider who else might be appointed to the review panel in place of Quorum Australia (which was responsible for the preparation of the MMU reports). Mr Bolt suggested that there should be a short timeframe for an initial scoping that would prioritise where to drill down and then, on the basis of the initial conclusions, to consider whether there was cause to continue to withhold funding. Mr Hutchinson noted that Vocation had in the previous week made a request to Ms Watts for the release of $6.0 million. He suggested that a release of some of the withheld money "… would allow both good will and also investment to go ahead". 411 There was also discussion concerning evidence of "systemic failure" within Vocation. Mr Dawkins said that there had been a system problem regarding one part of the pre-training reviews but that the proposition that there had been systemic failures was either a misstatement or a statement taken out of context to mean "a systemic failure" and that any concession to that effect should be considered withdrawn. I think it unlikely that these statements by Mr Dawkins would have diminished the significance that Mr Bolt and Ms Peake attached to the statements previously made by Ms Bonnici on behalf of BAWM in her letter to Ms Watts of 24 July 2014 which referred to "systemic weaknesses across the business in relation to pre-training review" and her letter to Ms Watts of 19 August 2014 on behalf of Aspin "acknowledging … the systemic nature of the issues outlined over [sic] our past correspondence with you …". 412 Another matter of some significance concerns the structure and timing of the review. According to Ms Cowan's notes: JD said he was happy that the review would be confined to the outcome of the MMU findings and the three quals only. Also happy about the review of the membership of the panel. RB clarified that the review work was not predetermined to the three qualifications - the initial work would look at whether, in the view of the reviewers, the review should be narrowed to the three qualifications. … JD said would also like a chance to respond before any action taken. It was agreed this would be added. Also requested another discussion following the initial report re justification and scope - this was agreed. Noting that the question of funding could also be discussed. 413 I accept Ms Cowan's notes accurately record the substance of the discussion that occurred in relation to the structure of the review. In particular, I am satisfied that it was agreed that there would be an initial phase followed by an initial report by the review panel into CSP, Warehousing and CGEA qualifications delivered by BAWM and Aspin and that, in light of that report, and any comments provided by Vocation in relation to it, DEECD would then give consideration to making payment of the whole or some part of the withheld funds and the need (if any) for the second phase of the review that would cover the activities of all Vocation's RTOs. I am also satisfied that it was made clear at the meeting by Mr Bolt that the review would cover all of Vocation's RTOs across the two phases, subject to the possibility that the review might be terminated at the end of the first phase. 414 Ms Cowan's notes do not specifically address the timing of the review except to refer to Mr Bolt's suggestion that there be a "short time frame" for the first phase. I am satisfied that there was a discussion at the meeting in which it was agreed that the first phase of the review would take between 7-14 days to complete from the date of its commencement and that it was contemplated by those present that it would commence some time the following week (ie. commencing Monday 15 September 2014). I am also satisfied that it was agreed that the report that was to be completed following the first phase of the review would form the basis of DEECD's consideration of any possible release of funds. 415 I am satisfied that neither Mr Bolt nor Ms Peake made any express or implied representation during the course of this meeting that there would be any release of funds or that any release of funds would occur within 7-14 days. On the other hand, I accept that those present would have understood by the time the meeting concluded that if the review panel were to deliver an initial report that provided no reasonable justification for DEECD continuing to withhold the whole or some part of the withheld funds or the continuation of the review, DEECD could reasonably be expected to consider and decide upon those matters within a reasonable time of its receipt. I am therefore satisfied that Mr Dawkins and Mr Hutchinson would have left the meeting believing that DEECD would act expeditiously when considering the initial report. Of course, DEECD had agreed to consult with Vocation before making any decisions with respect to the initial report. The email correspondence exchanged between Mr Hutchinson and Ms Peake at around 6.30pm on 9 September 2014 indicates that they were both expecting that there would be another meeting with Mr Bolt in the week commencing 29 September following completion of the initial report, at which time Vocation (presumably Mr Dawkins and Mr Hutchinson) would be taken through the findings and given a decision on a partial release. 416 There is an issue between the parties as to whether or not Mr Bolt or Ms Peake made any statement to the effect that they "… supported the idea of Vocation being able to recommence enrolments promptly." Mr Bolt could not recall making any such statement when it was put to him in cross-examination, though he did not deny that he may have made it. The statement was not put to Ms Peake and she therefore (absent her being recalled in reply on this one point) was not given an opportunity to deal with it in her oral evidence. 417 There was some discussion at the meeting in relation to the provision to DEECD of BAWM and Aspin's policies and procedures, the expedition of the proposed trial, and the idea of embedding DEECD personnel in Aspin and BAWM to allow it to monitor the proposed trial. However, I am satisfied that there were other matters relating to the trial raised in the letter of 26 August 2014 (including terms of funding) that had still not been agreed. Further, it was understood (as Mr Dawkins accepted in his oral evidence) that the proposed trial would be in respect of "other courses" (ie. not CSP, Warehousing or CGEA) and that the trial would inform DEECD's consideration of whether to modify the suspensions on enrolments in respect of those courses only. Although I accept that Mr Bolt or Ms Peake may well have said something to the effect that DEECD was happy for the trial to commence as soon as possible, I think it most unlikely that they would have made any general statement of support of the kind referred to in Mr Dawkins' and Mr Smith's report which omits to mention that the proposed trial would exclude CSP, Warehousing and CGEA or that other matters relating to the proposed trial were yet to be agreed. 418 There are other minor issues that arose in relation to what was said at the meeting on 8 September 2014. In particular, there was a difference between the parties as to whether Mr Bolt said at the meeting that the entire matter (meaning, as I understood Mr Dawkins' evidence, all outstanding issues relating to Vocation's RTOs, the review and the withholding of funds) would be "wrapped up" by 31 October 2014. While I do not see this point of difference as being of any great significance, Mr Bolt did not accept that he made any such statement and I am not persuaded that he did so. It was also suggested to Mr Bolt in cross-examination that the reference to the total amount withheld from BAWM and Aspin as $27.0 million was incorrect. But the reference to $27.0 million is clearly correct. This is the figure that Ms Bonnici provided to Ms Tredenick in the email of 26 August 2014 as to the total of the amounts that would be due by about mid-September, with payments usually being made to the Vocation RTOs on the 12th of each month. Mr Langtree and his staff were the source of the $27.0 million figure. 419 Other points of difference between the parties in relation to the 8 September 2014 meeting are not, in my view, material to the resolution of any matter in issue in the case. 420 Mr Dawkins' evidence was that he was confident that the review would never enter the second phase because he was confident that DEECD's suspicions and concerns would be allayed by the initial report. I accept that was his belief between 8 September 2014 and 18 September 2014 (ie. the relevant period). However, for reasons that I will return to later in these reasons, I do not accept that there was a reasonable basis for that belief. 421 About midday on 8 September 2014 Mr Gréwal forwarded an email to Mr Petros, copied to Mr Hutchinson, attaching updated cash flows through to 31 October 2014. In that email Mr Gréwal said: Based on our meeting with DEECD (where they have promised to expedite the early release of a proportion of the $22m owing to us), we have assumed the release of $6.5m of this cash on the first Tuesday in October [ie. 7 October 2014]. The release can be a lot higher and sooner, but we have been conservative. 422 Prior to sending this email to Mr Petros, Mr Gréwal had received and (I infer) read the report prepared by Mr Smith and Mr Dawkins. I am satisfied that Mr Gréwal would have known at the time of writing his email to Mr Petros that DEECD had not promised to expedite the early release of a proportion of the withheld monies. That statement, made in the context of the provision of information to a prospective underwriter, misrepresented what had occurred at the meeting with DEECD. 423 Mr Gréwal was cross-examined in relation to this email and accepted that his statement was "not fully accurate" and he suggested that what he meant to convey was that he believed that there would be an early release of funds. I have no doubt that he appreciated the difference between a belief and a promise that a payment would be made. 424 Following Macquarie's withdrawal from the proposed capital raising (discussed below), Mr Gréwal forwarded an email to Mr Fitzgibbon of UBS in which he also said DEECD had at the 8 September meeting promised to expedite payment within the next 7-14 days of a substantial part of the $22.0 million that had been withheld. Mr Fitzgibbon and his colleague, Mr Digman, executed an agreement on behalf of UBS the next day in which UBS agreed to manage and underwrite the Placement. The statements made by Mr Gréwal to Macquarie and UBS in relation to the outcome of the 8 September 2014 meeting with DEECD reflect adversely on his credit. The 8 September 2014 Board Meeting 425 Shortly after Mr Dawkins' meeting with Mr Bolt concluded, and almost immediately after Mr Gréwal circulated Mr Dawkins' and Mr Smith's report to the board members, a board meeting was held via teleconference at 1.00pm on 8 September 2014 at which all directors were present. Mr Dawkins and Mr Hutchinson were still in Melbourne at this time though it is not clear from the evidence where they or the other directors were physically situated. Mr Gréwal, Ms Lawler, Mr Rozsa and Ms Bobeff were also in attendance. 426 According to the minutes, Mr Dawkins provided an update on his meeting held earlier that day with DEECD as outlined in his written report. According to the minutes: The Chairman advised the meeting was positive and noted: • The review scope was to be narrowed and will be confined to an isolated set of issues and scope limited to the 3 qualifications in question; • The review is only involving BAWM and Aspin; • The review will be expedited and is expected to be completed within 7 to 14 days and at this time it will be determined if the review will be extended to any other qualifications and a decision made on the release or partial release of withheld funds; • The 31st October still remains the outer limit date for the review process albeit earlier completion is expected • Vocation offered to embed a DEECD employee in Vocation's office to monitor recruitment, marketing and pace of enrolments for BAWM and Aspin as part of the trial. DEECD accepted this offer; • Enrolment in other courses offered by BAWM and Aspin can recommence; and • DEECD was not aware of the discussions between Vocation and the Victorian Premier regarding Lilydale. This was positively received. The Board agreed this was a very good outcome and thanked the Chairman and MH. 427 It was not correct to say that the scope of the review would be narrowed, that the review would be limited to three qualifications, or that it would only involve BAWM and Aspin. As I have explained, Mr Bolt made it clear at the meeting that the review would cover all of Vocation's RTOs, subject to the possibility that the review might be terminated at the end of the first phase. Mr Dawkins' advice to the board, as recorded in the minutes, may well have reflected an expectation on his part that the review would be terminated before the panel was required to consider other Vocation RTOs' compliance with their Funding Contracts, but that did not mean that the review was confined to BAWM and Aspin or three qualifications only. 428 The minutes also record that Mr Dawkins advised that enrolments in other courses offered by BAWM and Aspin (ie. apart from CSP, Warehousing and CGEA) can recommence promptly. For the reasons previously given, I do not accept that either Mr Bolt or Ms Peake made any statement to that effect during the course of their 8 September 2014 meeting. 429 The minutes record that there was some discussion concerning a draft ASX announcement to which certain amendments were agreed. The minutes then note that Vocation proposed to conduct an equity capital raising involving a placement to institutional and professional investors to raise a minimum of $75.0 million with the issue price of those shares to be determined in consultation with Macquarie. There is no reference made in the minutes to UBS or Credit Suisse. By this time Mr Hutchinson and the other directors were intending that Macquarie would act as the sole underwriter of the Placement. 430 The minutes record the various documents that were tabled. As Mr Dawkins noted in his evidence, the documents may not have been tabled in a physical sense because the meeting was being conducted by video conference. However, he accepted, and I am satisfied, that prior to the meeting the directors (including himself) had been provided with copies of a proposed underwriting agreement between Vocation and Macquarie, a draft ASX announcement, a draft cleansing notice, various signed confirmations provided by Mr Hutchinson and Mr Gréwal dated 5 September 2014, and a due diligence questionnaire completed by them in relation to the proposed placement which was to be provided to Macquarie in accordance with the terms of the proposed placement agreement. 431 The minutes record that there was a discussion concerning these documents although they are no more specific than that. The minutes then record resolutions by the directors approving the proposed placement, and authorising Vocation to enter into a placement agreement with Macquarie. The minutes also record that each director gave various confirmations to the effect that, in his or her opinion and to the best of his or her knowledge and belief, he or she was not aware of any instance of non-compliance by Vocation with its financial reporting or continuous disclosure obligations under the ASX Listing Rules or the Corporations Act 2001 (Cth). 432 The minutes also note that subject to the placement agreement being executed by Vocation and Macquarie, a trading halt request be lodged with the ASX, a copy of the ASX announcement as amended during the meeting be lodged with the ASX as soon as possible following the completion of the Placement, and that a copy of the Cleansing Statement be lodged with the ASX. 433 There is some other business recorded in the minutes including an update provided by Mr Gréwal on discussions with the banks. According to the minutes, Mr Gréwal advised the directors that a further meeting with the banks was being held on Tuesday, 9 September 2014. Macquarie Bows Out 434 In the late afternoon of Monday, 8 September 2014, Mr Hutchinson was still proceeding on the basis that Macquarie would underwrite the whole of the Placement. Earlier that day he had provided to Mr Petros by email a copy of Mr Smith's and Mr Dawkins' report. The speed with which he was acting at this time is evidenced by the fact that he provided that report to Mr Petros before it had been circulated to other directors. 435 According to the evidence, the last communication between Mr Hutchinson and Mr Petros in relation to the Placement occurred on 8 September 2014. Email correspondence between them late that day reflects some tension between Mr Petros and Mr Hutchinson concerning the proposed ASX announcement notifying the market of the Placement. Mr Petros suggested in an email that day that the ASX announcement state that the proceeds of the Placement would be used to repay the working capital component of Vocation's $120.0 million debt facility to provide additional working capital whilst DEECD completes its review. Mr Hutchinson's reply to Mr Petros was as follows: Hey Manny, We just tried you. Again this is a false statement as we're not linking the review to the repayment of working capital why do we need to make this point? There is also no need to reiterate the withheld funds as we've already announced that on the ASX. Not sure why this is now such a big deal when the cash flows show we don't need it? The fact we have a $15m working capital facility should be enough for whatever we need it for just like any business. We're here for a call. MH It is not clear what the $15.0 million working capital facilities referred to by Mr Hutchinson were, but I infer it was the $15.0 million extension that Vocation was still hoping the banking syndicate would make available. 436 Macquarie's involvement in the proposed placement ceased around 9.30pm on the night of 8 September 2014. The email correspondence between Mr Hutchinson and Mr Petros at around this time suggests that Mr Petros was unable to convince his colleagues to underwrite the proposed placement. 437 Later that evening Mr Hutchinson made further contact with Mr Fitzgibbon and Mr Digman of UBS concerning the proposed placement. Early the following morning, Mr Grewal, at their request, forwarded to them a copy of the DDQ which had previously been prepared for Macquarie. Mr Hutchinson was at UBS that day while the proposed placement was considered by UBS. 438 At 6.09pm, Mr Hutchinson forwarded an email to Mr Dawkins and the other directors indicating, in relation to his progress, "OK through credit and risk, just waiting on final pricing here at UBS at 6.30". It appears, and I infer, that it was not until sometime in the afternoon of 9 September 2014 that in principle agreement was reached in relation to the proposed underwriting by UBS. The underwriting agreement was executed on behalf of UBS early the following morning. Meeting on 9 September 2014 with Banking Syndicate 439 Another meeting with representatives of the banking syndicate was held on 9 September 2014. Westpac, CBA and NAB were all represented. Mr Foote of Westpac made a file note which is in evidence. It records that the meeting was attended by Mr Hutchinson and Mr Gréwal on behalf of Vocation and that Ms Bonnici also attended by telephone. The banking syndicate had specifically requested that she attend. 440 During this meeting Mr Hutchinson or Mr Gréwal told those present that the purpose of the Placement (which was now said to be for $85.0 million consisting of a $75.0 million wholesale placement and a $10.0 million retail placement) would be to provide Vocation with "a working capital buffer" and to assist with future acquisitions. 441 Mr Foote's file note suggests that either Mr Hutchinson or Mr Gréwal also told those present that "[a]ll investors have been advised of possibility of loss of DEECD contract (at a high level)." 442 Mr Foote's file note also suggests that the banking syndicate was advised that Vocation withdrew its request for funding subject to the Placement proceeding. 443 Most of the discussion recorded in the file note of the meeting concerns the dispute with DEECD. As to this the note records: Vic Dept of Education & Early Childhood Development "DEECD" update - Meeting with Richard Bolt (Secretary of Dept) - Advised they will expediate request for release of funds (formal request for $6.5m submitted), agreed total payment suspension is not appropriate, agreed with reduced review of the 3 relevant courses only, agreed review panel (different from prior review), process to be undertaken over a 7-14 day period - Measures undertaken seen as necessary to protect reputation of Dept, given size of Vocation - Review items / issues still not considered material by Vocation - Tone of relationship with DEECD now more positive – a partnership rather than litigious, more contact and engagement than prior weeks. Requested 3 times "Are you going to shut us down", 3 times answer was No - 31st Oct seen as worst case date re outcome of review / request for release of funds - Vocation view that no further issues to be found – on basis they have surveyed 3,000 past students, with an immaterial amount of issues raised - Re-enrolments in BAWM and Aspin commencing next week. To be slowly ramped up under review framework - No contagion to other states as yet (with remark from W.A. Dept. rep only) - Vocation view that their review on all other states has found no issues, hence would withstand any increased scrutiny 444 The file note also records that the banking syndicate advised Vocation during the course of this meeting that Vocation was in breach of various terms of the facility agreement by failing to disclose details of Vocation's dispute with DEECD and that the business syndicate had already obtained preliminary legal advice to this effect. The substance of the complaint was that Vocation had provided the banking syndicate too little information and that what had been provided should have been provided sooner. The evidence shows that the banking syndicate first became aware of the dispute with DEECD the day that the 25 August Announcement was released. I have previously referred to the emails sent to Mr Gréwal and Mr Hutchinson that morning by Mr Foote of Westpac and Mr Hyman of CBA in relation to Vocation's dispute with DEECD. 445 Before moving to the next topic it is necessary to say something about Mr Gréwal's evidence concerning the 9 September 2014 meeting with the banking syndicate. The evidence he gave on this topic was in my view unsatisfactory. He was asked questions in cross-examination concerning the statement in the file note indicating that the Placement would provide Vocation with "a working capital buffer". His evidence was to this effect: MR HALLEY: … One of the purposes of the placement was to provide a working capital buffer pending the resolution of the dispute with the department, wasn't it? ––It ended up being a working capital buffer, but at that point in time, when the placement was undertaken, based on the knowledge that we had and the expectations that we had of the department expecting to be – expecting to provide Vocation with a sum of money pending the – on the conclusion of the seven to 14 day period, there was expectation of that money coming in. So that was still the case at the time the placement occurred. And that was what transpired. And what I want to put to you, Mr Grewal, to the extent that you will not acknowledge that a purpose of the placement as at 9 September was to provide a working capital buffer pending the resolution of the dispute with the department that you are giving evidence that is not correct? ––– Well, the working capital facility provided – it provided a flexibility, but what I'm saying is it wasn't design to – it ended up providing flexibility, but it wasn't – the main purpose of the working capital facility … of the placement, was to do the things we said in the announcement. You've used two words there, "designed" and "primary purpose". What I was putting to you - - - HIS HONOUR: "Main purpose" is the word that was used. MR HALLEY: … What I was putting to you was that, to the extent you are suggesting that it was not a purpose of the placement to provide a working capital buffer pending the resolution of Vocation's dispute with the department, your evidence is not correct? ––– ..... I mean, there's a placement that was undertaken. It could be used for a great many different things. And one of those purposes, as you understood it, as at 9 September, was to provide a working capital buffer for Vocation pending the resolution of its dispute with the department? ––– Well, if you want to characterise it as that, what I'm saying was it was not expected to be used for that purpose. The placement wasn't expected to be used for that purpose, given the knowledge that we had at that time and the expectation that we had at that time. Mr Grewal, I'm now putting to you that that last evidence that you gave is false? –––I disagree. … HIS HONOUR: Just so I understand that last answer, you're suggesting, are you, that you weren't expecting at this time to use the proceeds of the placement, or any part thereof, for working capital purposes? ––– Not at that time given the expectation of moneys coming in from the department which is built into the cash flow forecast. All right. 446 I do not propose to give an exhaustive account of my difficulties with this evidence. I will confine myself to a few key points. 447 Mr Gréwal's evidence that the Placement was not expected to be used for the purpose of providing "a working capital buffer" is not credible. It had been made clear at the meeting between Mr Dawkins and Mr Bolt on 8 September 2014 that consideration would be given to the release of the withheld funds (or some part thereof) after the first phase of the review was completed and Vocation was given the opportunity to respond to any proposed findings. There was no serious prospect as at 9 September 2014 that any of the withheld funds would be released before late September or early October. 448 On 2 September 2014 Mr Gréwal forwarded his updated cash flow to the directors indicating that if the bank did not extend the facility, and DEECD did not make any payment to Vocation before 19 September 2014, Vocation would as of that date have a negative cash balance of just over $1.0 million. As CFO of Vocation, Mr Gréwal would have understood, as at 9 September 2014, that it was imperative that Vocation source additional cash to fund this deficiency. At that time, the only realistic prospect of doing so was to proceed with the Placement because the banking syndicate had been told at the meeting on that date that the request for an extension of the facility was "withdrawn". By that stage, the Placement was the only source of cash that would see Vocation through until completion of the first phase of the review. 449 Another matter I should mention in relation to Mr Gréwal and the meeting with the banking syndicate on 9 September 2014 concerns an updated cash flow forecast to 31 October 2014 which Mr Gréwal sent to Ms Dennyson at Westpac (and copied to representatives of the others members of the banking syndicate) about an hour before the meeting commenced. There are a number of questionable statements made in that email but the most significant of them for present purposes is Mr Gréwal's statement that "DEECD have indicated that the substantial portion of the $22m will be released in the next 7-14 days". In cross-examination Mr Gréwal denied that he was endeavouring to mislead the banking syndicate in making this statement. However, he acknowledged that it was inaccurate and that it "wasn't detailed enough", and stated that the banking syndicate had been provided with a copy of Mr Smith's and Mr Dawkins' report of the 8 September 2014 meeting. Some oral evidence given by Mr Dawkins corroborates this latter statement, but that is no answer to the proposition that the statement in the email was false. 450 I should also mention in the context of the 9 September 2014 meeting with the banking syndicate that, in his email to Mr Dawkins and the other directors sent at 6.09pm that evening, Mr Hutchinson said that he and Mr Gréwal had been "roughed up by the banks who want to see the placement happen until they decide." Having regard to the discussions about breach of reporting obligations recorded in Mr Foote's file note, I think the words "roughed up" are apt. However, contrary to what Mr Hutchinson said in his email, I am satisfied the banks did not say that they did not want to make any decision until the Placement happened. Rather, I am satisfied that in the face of resistance from the banking syndicate to the request for a $15.0 million extension of Vocation's facility, and as a result of the banking syndicate's difficulty in coming to grips with the financial implications of Vocation's dispute with DEECD, Vocation simply withdrew its application. The 10 September 2014 ASX Announcement 451 On the morning of 10 September 2014 the ASX, at Vocation's request, placed the company's shares in a trading halt pursuant to ASX Listing Rule 17.2. Vocation also issued the following ASX announcement: Vocation Ltd (ASX: VET) (Vocation) today announces a fully underwritten placement to institutional and sophisticated investors to raise approximately $74 million (Offer) at the offer price of $3.05 (Offer Price) through the issue of approximately 24.3 million new shares. The Offer Price of $3.05 represents a discount of 7.9 per cent to the last close price of $3.31 as at 9 September 2014 and a 7.3 per cent discount to the 5-day VWAP to 9 September of $3.29 per share. Shares will be issued under the Offer utilising part of Vocation's 15 per cent placement capacity under Listing Rule 7.1 and will rank equally with Vocation's existing fully paid ordinary shares. … Use of funds The funds will be employed: • To pay down a large portion of Vocation's $120 million acquisition facility^ (fully drawn since the $84 million fully debt funded acquisition of Endeavour which completed in July) that allows Vocation to: o Increase balance sheet capacity to provide the business with the ability to take advantage of strategic opportunities in the market, both organic and through acquisition as the education sector continues to consolidate o Increase working capital flexibility as the business continues to grow and diversify across States, FEE HELP programs and Higher Education opportunities through Endeavour o Continue diversifying Vocation across multiple channels to improve student choice, quality education and job outcomes. • To fund two small acquisitions totalling approximately $7 million, including: o The remaining 50 per cent stake in the Australian School of Management (ASM), which will enable Vocation to accelerate expansion of its course offerings across the East Coast utilising excess capacity in Endeavour's campus network o An addition to Endeavour's New Zealand operations in respect of which Vocation is in advanced discussions. This acquisition will substantially increase Endeavour's student capacity in that market. • To deliver accelerated investment in the MyVocation platform, in line with Vocation's strategy to deliver positive student outcomes, in particular job opportunities, and decrease reliance on brokers Vocation Group CEO and Managing Director Mark Hutchinson said, "Vocation's business continues to enjoy good momentum. The fund raising will provide us with ongoing flexibility to grow and further diversify our business through organic and acquisitive growth." Vocation is comfortable with current earnings consensus estimates, including EPS, prior to the dilutionary impact of the capital raising. Further to the ASX announcement dated 25 August 2014, Vocation advises that the review being conducted by the Victorian Department of Education and Early Childhood Development is expected to conclude no later than the end of October (confirmed in its meeting with the Department earlier this week). Vocation considers that neither the review nor its anticipated outcomes are material to Vocation. ^$120 million acquisition facility (including a $15 million working capital line) is repayable in June 2017 … 452 There are a number of observations to make in relation to the ASX announcement of 10 September 2014. 453 First, the document in the section headed "Use of funds" refers to the funds being employed to increase working capital flexibility as the business grows and diversifies but makes no reference to DEECD's withholding of funds which would very soon total about $27.0 million. 454 Secondly, the document refers back to the 25 August Announcement in which Vocation had stated that DEECD was undertaking a review of three courses conducted by Vocation for which it received funding. The document does not disclose that the review had since that time been expanded to cover all of Vocation's RTOs that were party to relevant funding contracts with DEECD. 455 Thirdly, the announcement does not disclose that the amount being withheld by DEECD for what had previously been described as "recent payments" was being held not only in respect of the claims to which those particular withheld payments related, but also for payments previously paid by DEECD to BAWM and Aspin under the Funding Contracts. 456 Fourthly, as was the case with the 25 August Announcement, the document makes no reference to any suspension of enrolments or commencements. Completion of the Placement and Lodgement of the Cleansing Notice 457 On 11 September 2014 trading in Vocation shares resumed on the ASX. Prior to the market opening, Vocation issued another ASX announcement confirming the completion of the successful placement of shares to institutional investors raising $74.0 million at a price of $3.05. On 15 September 2014 as a result of the Placement, Vocation received slightly over $72.5 million into its bank account. The next day Mr Gréwal forwarded to Mr Daniels at the ASX the Cleansing Notice dated 16 September 2014 signed by Mr Gréwal and expressed to be given by Vocation under s 708A(5)(e) of the Act. The Revised Terms of Reference 458 In the evening of 12 September 2014 Ms Peake forwarded to Mr Hutchinson the revised terms of reference which she said in a covering letter had been updated to reflect the outcome of the discussions. 459 In a covering letter also attached to her email, she referred to Ms Bonnici's letter of 4 September 2014 requesting a partial release of funds to BAWM. Ms Peake confirmed that, as a result of the meeting, DEECD would use the initial report "… as a basis to further consider the continuation or otherwise of its actions pertaining to suspension of enrolments, commencements and Funds under its VET Funding Contracts with BAWM and Aspin Pty. Ltd." That statement was made in response to Ms Bonnici's request in her letter of 4 September 2014 for the release of $6.0 million, at least some of which she had indicated would be used to fund the trial. By her letter, Ms Peake was confirming that there would be no payment of funds to BAWM or Aspin (whether in respect of the trial or otherwise) until such time as DEECD had considered the initial report. 460 Ms Peake's covering email refers to the first phase of the review as "the 2 week review" and indicated that the aim was for it to commence on Tuesday, 16 September 2014. 461 The revised terms of reference referred to the direction given by the Secretary of DEECD that DEECD conduct a review of all of Vocation Ltd's RTOs holding VET Funding Contracts from 2014 onwards. It nominated the persons or entities who were to conduct the review (which no longer included Quorum Australia) and made reference to cl 10 of the Funding Contracts as the source of DEECD's power to conduct a review. 462 The purpose and scope of the review, as set out in the revised terms of reference, was as follows: C. Purpose & Scope The Review will consider whether the Vocation RTOs are, and have been, compliant with their Contracts. The Review has been prompted by various factors, including: • the Department's reasonable suspicion that Vocation RTOs have breached or may breach the Contract; • complaints relating to non-compliance with the Contract by Vocation RTOs; and • an overarching concern that the rapid growth of Vocation RTOs may have come at the expense of quality training outcomes for students as required by the Contract; and • use of third parties to provide Training Services, in particular a concern about the performance of Training Services by the third parties and the quality of the resulting training outcomes. The Review may encompass the following Vocation RTOs that have a 2014 and/or 2014-16 Contract, namely: • BAWM Pty Ltd (Training Organisation Identification Number (TOID) 21357); • Aspin Pty Ltd (TOID 21756); • Learning Verve Ltd (TOID 21766); • Green Skills Institute (Aust) Pty Ltd (TOID 70060, up to 31 August 2014 when registration was voluntarily cancelled); • Training and Development Australia Pty Ltd (TOID 91246); and • Real Corporate Partners Pty Ltd (TOID 91669). First phase of the Review and Initial Report The first phase of the Review will focus on the Certificate III in Warehousing and Certificate III in Competitive Systems and Practices at BAWM Pty Ltd; and the Certificate II In General Education for Adults at Aspin Pty Ltd (priority qualifications). Within two (2) weeks of the commencement of the Review, the Review Panel will produce an Initial Report of findings from activities completed for some or all of Section D of this document. Further phases and Final Report Upon completion of the Initial Report, the Department may request the Review Panel to undertake further review activity into any Vocation RTO listed above and any other qualifications delivered by Vocation RTOs. The Review Panel will produce a Final Report detailing all relevant findings from all phases of the Review. [There followed a number of paragraphs dealing with various procedural matters] D. Terms of Reference [All references are to the Contract] The first phase of the Review will examine the adequacy and effectiveness of Vocation RTOs' overall compliance with the Contract from 1 January 2014 to 31 July 2014 in relation to the priority qualifications, with a particular focus on the areas set out below. 1. Compliance of the RTO with the following aspects of the General Obligations (see clause 3 including clauses: 3.1d); 3.1e); 3.3a), 3.3c), 3.3d), 3.3e) and 3.4a) - f). 2. The adequacy and effectiveness of processes within and across Vocation RTOs with respect to: 2.1. student recruitment, including marketing activities (see Schedule 1, Part A, section 1.1d)); 2.2. student enrolments (see Schedule 1, Part A, section 4); and 2.3. Pre-Training Review (see Schedule 1, Part A, sections 4.6 - 4.10). 3. The delivery of Training Services (including but not limited to the kinds referred to in subparagraphs 2.1, 2.2 and 2.3) by Vocation RTOs where third party entities (including brokers, labour hire firms and contractors) have been, or are involved. Specifically, whether such Training Services have been delivered in accordance with clauses 4 and 5. 4. The provision of high quality of the Training Services provided by Vocation RTOs (whether or not third party entities are involved in delivery), specifically whether the training and assessment delivered under the Contract: 4.1. has complied and complies with the AQTF and/or the VET Quality Framework (see clause 3.1e)); and 4.2. has been delivered and is being delivered according to the requirements of: 4.2.1 the relevant training packages; 4.2.2. the relevant curriculum materials; and 4.2.3. individual students' Training Plans. (see clause 3.1d) and e) and Schedule 1, Part A, section 6). 5. The extent to which Vocation RTOs' approach to compliance with VET Funding Contracts has met/and continues to meet the principles set out in the Department's Statement of Expectations (19 April 2013), specifically: 5.1 the objects and values underpinning the Victorian Training Guarantee (see clause 3.3c)iii) and Principle 1.2 of the Statement of Expectations); and 5.2. the principles as to training outcomes and the overall student experience of vocational education and training (see Principles 1.4, 2.4, 3.2, 3.3 and 4.1 of the Statement of Expectations). 463 Following some email communication between Ms Peake and Mr Hutchinson late in the afternoon of 15 September 2014, Mr Hutchinson forwarded an email to the other directors at around 8.00am the next day confirming that what he referred to as the "2-week review" would start on that day, that DEECD would have the recommendations to Vocation within 5 days thereafter, including how much funding would be released on what Mr Hutchinson said he assumed would be the next payment date, ie. 12 October 2014. The 18 September AFR Article 464 On 18 September 2014, another article concerning Vocation appeared in the Rear Window section of AFR. The article included the following: The business, floated in December last year, derived 80 per cent of its revenues from subsidiary BAWM in FY14. Ninety per cent of BAWM's revenue is in the form of contracts with the Victorian government to run training courses (i.e. Certificate III in landscape gardening, and so forth). Back on August 25, in response to a searching story in this column about the suspension of this government funding, Vocation advised the market rather obtusely that Victoria's Department of Education "is undertaking a review of three of the courses conducted by Vocation for which Vocation receives funding under those contracts. As part of the review process, the DEECD has withheld recent payments under the funding contracts". They added that "neither the review nor its anticipated outcomes are material to Vocation". We've tried to clarify whether that funding being withheld by the Department is just the funding for those three courses, or absolutely all of BAWM's funding – as in $5 million a month. Because if it's the latter (as is the chatter around the market), we'd call that fairly material! And, given that two weeks later Vocation tapped the market for $74 million in new capital, it would certainly raise questions about the capital raising's stated purpose of paying down debt and funding acquisitions. Should they have added "to keep the lights on"? 465 As I previously mentioned, the AFR articles are not evidence of the truth of their contents. Nevertheless, the 18 September 2014 article provides important context to the ASX announcement that was issued by Vocation on that date, and the flurry of activity which I will now describe. 466 Shortly after the Placement was announced, a number of research reports were published in relation to Vocation. One of these was written by Mr Conor O'Prey of Patersons Securities Limited. Mr O'Prey sent an email to Mr Hutchinson and Mr Gréwal at about 10.36am on 18 September 2014, commenting on the AFR article which he said contained "some pretty inflammatory comments … not least that the company has raised new equity under false pretences" and asking whether the company " … would be suing or seeking an injunction." Mr Hutchinson responded a little later describing the situation as "very frustrating". At around 1.00pm on the same day, Mr O'Prey sent another email asking Mr Hutchinson and Mr Gréwal a very specific question: On the announcement – has funding been withheld on all courses relating to the two RTOs under audit or just from the three courses offered by the two RTOs in question? 467 The context of Mr O'Prey's inquiry suggests that he was referring to the 25 August Announcement. Another email sent by Mr O'Prey to Mr Gréwal later in the day suggests they had spoken sometime after Mr O'Prey sent his first email but it is not apparent from the evidence what was discussed. 468 At around 11.00am Mr Daniels from the ASX sent an email to Mr Gréwal (copied to Mr Hutchinson and Mr Koster) following a telephone discussion between Mr Daniels and Mr Hutchinson or Mr Gréwal (or perhaps both of them) earlier that day. Mr Hutchinson's evidence was that he had no recollection of having a conversation with Mr Daniels earlier that day. In his email Mr Daniels sought specific confirmation of the following matters: - That by the announcement made to ASX on 25 August 2014 "The DEECD is undertaking a review of three of the courses conducted by Vocation for which Vocation receives funding under those contracts. As part of the review process, the DEECD has withheld recent payments under the funding contracts" the Company intended to communicate that there had been a withholding of all payments to BAWM and the withholding of all payments to Aspin (as opposed to funding just for those contracts). In addition that the Company considers the market sufficiently informed. - That an adverse outcome that would see the DEECD cancelling the three courses referred to in the announcement on 25 August 2014 would not be material to the Company. (original underlining) 469 Mr Hutchinson replied to Mr Daniels' email at 11.24am. In his reply, Mr Hutchinson confirmed that it was Vocation's intention to communicate that there had been a withholding of all payments to BAWM and a withholding of all payments to Aspin. He also confirmed that Vocation considered that the market was sufficiently informed. As to the second of the questions posed by Mr Daniels, Mr Hutchinson said: In relation to your second point, please note that DEECD had a concern on a very specific and small cohort of students that had undertaken those three courses and therefore if DEECD took an adverse view of that student cohort (which we still consider the worst case scenario based on our recent ongoing dialogue with DEECD), then that would be not material. 470 According to Mr Hutchinson's written evidence, Mr Koster dictated the reply to Mr Daniels' email, but there was no suggestion in the evidence that there was anything in the email that Mr Hutchinson considered to be inaccurate. 471 Mr Hutchinson's email to Mr Daniels was misleading in that it incorrectly suggested that DEECD's concerns were confined to "a very specific and small cohort of students". This characterisation of DEECD's concerns cannot be reconciled with the evidence including DEECD's letter of 26 August 2014, the agreement reached at the meeting on 8 September 2014, and the revised terms of reference governing the review which had commenced the previous day. Nor did Mr Hutchinson's email address the second question asked by Mr Daniels which was whether cancellation of the three courses referred to in the 25 August Announcement would be material. The question was both relevant and important because around 50% of BAWM's revenue and virtually all of Aspin's revenue between January and June 2014 were attributable to these three courses. The 18 September 2014 ASX Announcement 472 Sometime after Mr Hutchinson had received the emails from Mr Daniels and Mr O'Prey, it was decided that Vocation would issue an ASX announcement. Mr Hutchinson gave evidence that he agreed with Mr Dawkins that a draft of the proposed announcement should be provided to DEECD in order to build goodwill with DEECD and avoid taking it by surprise. According to Mr Hutchinson, it was agreed that Mr Dawkins would call Mr Bolt and Mr Hutchinson would call Ms Peake. 473 At 1.07pm on 18 September 2014 Mr Hutchinson sent an email to Ms Peake attaching a copy of Vocation's draft ASX announcement. In his email he drew attention to some highlighted sections in the draft in relation to partial payment. Mr Hutchison said: Please see highlighted section about partial payment that we are unsure of timing - this is a critical part of the issue for us as the market are speculating that the entire amount of funding is at risk. Any statement we can make in this regard would really help the extremely negative sentiment. (The grammatical errors no doubt reflect the haste with which the email was prepared.) 474 The draft ASX announcement included the following statements to which Ms Peake took exception: • Vocation's funding contracts with the DEECD have not been suspended and are continuing. • The review continues to only relate to only three of the courses conducted by Vocation for which Vocation receives funding. … • The review from the DEECD remains focused on three courses (as previously stated) which comprise only a proportion of the payments withheld. 475 The draft also included a paragraph in these terms: [DEECD have advised that a portion of the withheld payment (not in relation to the three courses under review) will be released in XX day] 476 On the same day Mr Dawkins had a number of telephone conversations with Mr Bolt who was travelling in regional Victoria at this time. It is unnecessary to refer to those conversations in any detail. Ms Cowan, who was travelling with Mr Bolt, made notes of what Mr Bolt said during the course of these conversations. I am satisfied that Ms Cowan's notes provide a reasonably accurate account of what was said by Mr Bolt. I am satisfied that during the course of these conversations, Mr Dawkins again sought the release of some funding (this time $3.0 million) ahead of completion of the review. For various reasons summarised in Ms Cowan's notes, Mr Bolt effectively ruled this out including on the ground that DEECD had very grave concerns about BAWM. Mr Dawkins also sought Mr Bolt's agreement to DEECD and Vocation issuing some form of agreed statement that might be issued by Vocation and which might help calm the market. Mr Bolt indicated that he was not confident that there would be any reason to approve such a statement but that Mr Dawkins should arrange for a draft to be sent to Ms Peake who would then get back to Vocation about it. 477 The upshot of these communications between Mr Dawkins and Mr Bolt, and Mr Hutchinson and Ms Peake, was that DEECD refused to approve Vocation's draft announcement. DEECD's decision was conveyed to Mr Hutchinson in an email sent to him at 1.40pm in which Ms Peake stated: We could not endorse the content of the ASX announcement. We are concerned that some of the representations are misleading, including: • While the contracts with BAWM and Aspin have not been suspended, significant entitlements under the Contract have been suspended. The announcement refers to suspension of funding but not the entitlement to commence new students who will attract government subsidy. • The announcement does not accurately reflect that approximately 90 per cent of Vocation's payments from DEECD in 2014 relate to BAWM and Aspin and that the majority of funding that has been withheld relates to the qualifications that are subject to the first phase of the review. As previously discussed, any decisions regarding release of funds is subject to the outcomes of the review. 478 Later that day Vocation issued the following ASX announcement: Vocation is aware of ongoing press and market speculation regarding the Company's Victorian funding contracts. Vocation would like to reiterate, as stated in ASX announcements on 25 August 2014 and 10 September 2014, that neither the review nor its anticipated outcomes are expected to be material to Vocation. The Company restates; • Vocation's funding contracts with the DEECD have not been suspended and are continuing. • The review continues to only relate to three of the courses conducted by Vocation for which Vocation receives funding. • As stated in the ASX announcement on 25 August 2014, DEECD has withheld recent payments under the funding contracts. To clarify, the withheld payments relate to funding across two of Vocation's four Victorian RTOs. Vocation's remaining contracted RTO's continue to receive all payments. Under the terms of the funding contract DEECD has the ability to withhold payments to an RTO while undertaking a review of a course provided by that RTO, and the DEECD regularly applies this approach when undertaking its normal course review processes. • The review from the DEECD remains focused on three courses (as previously stated). Vocation has also advised that the review is expected to conclude no later than 31 October 2014. Vocation takes its disclosure obligations seriously and remains comfortable that it has complied with these obligations at all times. The operation of funding contracts and the audit and review processes that accompany those are part of Vocation's normal business activities. Vocation looks forward to maintaining a strong presence in Victoria in partnership with DEECD. 479 There are several points to make in relation to this announcement. 480 First, there was no change to what appears next to the first bullet point arising out of Ms Peake's complaint that the announcement made no reference to the suspension of enrolments. It will be necessary to say more on this topic when I return to consider ASIC's misleading and deceptive conduct case under s 1041H of the Act based on the 25 August Announcement. 481 Secondly, there was no change to what appears next to the third bullet point notwithstanding Ms Peake's concern that approximately 90% of Vocation's payments in the 2014 calendar year relate to the RTOs whose payments had been withheld. 482 Thirdly, to the extent that the statement next to the fourth bullet point was referencing the 25 August Announcement (which it clearly was) it was inaccurate. This is because the 25 August Announcement said nothing about "focus" and only that DEECD was "undertaking a review of the three courses." The change in language is subtle, but in my view reflects an appreciation of the fact that since 26 August 2014 the review encompassed all of Vocation's Victorian RTOs and their courses. 483 I do not accept Mr Hutchinson's evidence that the purpose of providing a draft of the announcement to DEECD was to build goodwill. I am satisfied that the purpose of doing so was to agree on the form of an announcement that carried added credibility (which was by this time a serious problem for Vocation) by reason of its having been endorsed by DEECD and to ensure that there was no room for any complaint by DEECD to the ASX concerning its sufficiency or accuracy. The Board Charter 484 The purpose of the Board Charter was to set out the role, responsibilities, structure and processes for the board of Vocation. Clause 2.1 stated: The Board of the Company is ultimately responsible for the overall direction of the Company and oversight and review of the management, administration and overall governance of the Company, including: (a) the protection of shareholders' interests; (b) authorising policies and overseeing the strategic direction of the Company; (c) establishing goals for management and monitoring the achievement of these goals; and (d) engaging, reviewing and replacing the Chief Executive Officer. The Board does not participate in the day to day affairs or management of the Company. 485 Clause 2.2 of the Board Charter stated: In carrying out its responsibilities the Board will at all times recognise its responsibility: (a) to act honestly, fairly and diligently in the best interests of all shareholders; (b) to act in accordance with relevant laws and regulations; (c) to act in accordance with all relevant Company policies; and (d) to avoid or manage conflicts of interests. 486 Clause 4 of the Board Charter also set out some of the board's responsibilities. These included monitoring communications to shareholders and the ASX including disclosures made under the ASX continuous disclosure requirements. 487 Clause 6 of the Board Charter dealt with the responsibilities of the Chairman. Those responsibilities were stated to include: (a) maintain effective communication between the Board and management; (b) lead the Board; (c) ensure the efficient organisation and conduct of the Board's function; (d) brief all directors in relation to issues arising at Board meetings; (e) chair general meetings of the Company; and (f) exercise such specific and express powers as are delegated to the Chairman by the Board from time to time. 488 Clause 7 of the Board Charter dealt with the role of management and described the key responsibilities of the CEO. It stated: The day-to-day management of the Company and its businesses is the responsibility of the CEO, supported by the executive team. The Board delegates to the CEO the necessary powers to manage the day-to-day business of the Company, subject to those powers reserved to the board in section 4 any [sic] specific delegations of authority approved by the Board. The key responsibilities of the CEO are to: (a) manage and administer the day-to-day operations of the Company and its businesses in accordance with the strategy, business plans and policies approved by the Board; (b) develop strategies for the Company, its businesses and management, and make recommendations to the Board on such strategies; (c) develop the Company's annual budget and conduct the Company's activities within the approved annual budget; (d) develop and maintain the Company's risk management systems, including internal compliance and control mechanisms; (e) assign responsibilities clearly to the executive team, and supervise and report on their performance to the Board; (f) recommend to the Board significant operational changes, and major capital expenditure, acquisitions or divestments, which are beyond any delegated thresholds; (g) report regularly to the Board with timely and quality information, such that the Board is fully informed to discharge its responsibilities effectively; and (h) exercise such additional powers as are delegated to the CEO by the Board from time to time. 489 Clause 8 of the Board Charter set out the responsibilities of the Company Secretary. These were stated to include: (a) organising Board and Board committee meetings, including preparing agendas and papers; (b) preparing minutes of Board and Board committee meetings; (c) monitoring completion of action items arising from Board and Board committee meetings; (d) providing governance, administrative, technical and other support to the Directors: (e) retaining professional advisers at the request of the Board or a Board committee; (f) keeping statutory records up to date; and (g) attending to the statutory requirements relating to Vocation's registered office, annual returns and lodgement of other documents with ASIC and the ASX. The Continuous Disclosure Policy 490 As previously mentioned, the directors of Vocation adopted a Continuous Disclosure Policy ("the Policy") which was current throughout the relevant period. The Policy contains a detailed discussion of the scope of the disclosure obligation and related matters. Clause 3.1 of the Policy stated: 3.1 Disclosure obligation (a) Legal obligation of disclosure Vocation has continuous disclosure obligations under the Corporations Act and ASX Listing Rules to keep the market fully informed of any price sensitive information relating to the Company. ASX Listing Rule 3.1 requires that Vocation immediately notify the ASX of any information that Vocation becomes aware, concerning Vocation that a reasonable person would expect to have a material effect on the price or value of any securities issued by Vocation (Material Information). (b) Material effect on the price of securities A reasonable person is taken to expect information to have a material effect on the price or value of securities if it would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, buy or sell the securities. In forming a view as to whether a reasonable person would consider information to be material, previous disclosure to the market should be considered, for example previously released profit expectations, commentary on likely results, or detailed business plans or strategies. A list of matters that may be considered material is set out in Annexure A. This list is merely indicative and should not be seen as an exhaustive list of matters that should be considered for disclosure. It is not necessary to set out all of the 16 items listed in Annexure A to the Policy. That which is most relevant for present purposes is the following: "the financial condition, results of operations, company issued forecasts and earning performance of Vocation or a controlled entity, which are significantly different from that anticipated by Vocation or the market." 491 It is not disputed that Mr Hutchinson and Mr Dawkins were both familiar with the Policy. Nor is there is any dispute as to the accuracy or sufficiency of the Policy as a guide to Vocation's continuous disclosure obligations. Accordingly, any failure on their part to exercise their duties with due care and diligence cannot be attributed to any lack of appreciation on their part of the nature of the continuous disclosure obligation. Any such failure must instead reside in their application of that policy to the Withholding and Suspension Information. The Role of JWS 492 Mr Hutchinson and Mr Dawkins submitted that they relied on advice given by JWS in relation to the content of the 25 August Announcement and, more generally, in relation to the materiality of the Withholding and Suspension Information. They accepted that the part played by JWS, and the fact that it advised Vocation in relation to such matters, cannot excuse any contravention of the Act by Vocation, but submitted that this does play a significant role in assessing whether Mr Hutchinson and Mr Dawkins breached their duties under s 180 of the Act and, if so, whether they should be released from liability for those breaches under s 1137S or s 1138 of the Act. 493 In submissions made on behalf of Mr Dawkins it was stated that "Vocation's lawyers were JWS." While it is clear that JWS acted as lawyers for Vocation in a number of transactions (including the IPO, the raising of debt finance, the acquisitions of Real Institute and Endeavour, and the possible acquisition of Acquire), the evidence does not show that JWS was ever requested to provide, or did provide, advice in relation to BAWM and Aspin's contractual arrangements or dispute with DEECD, the validity of the actions taken by DEECD under the Funding Contracts, or BAWM or Aspin's financial exposure to DEECD arising out of any suspected or actual breach by either of them of the Funding Contracts. The evidence shows that, to the extent that the board asked for advice in relation to those matters, that advice was sought and obtained from Landers & Rogers. 494 Nevertheless, there is no doubt that JWS played a significant role in advising Vocation and its directors in relation to Vocation's duties and obligations under the Act. In particular, I am satisfied that JWS advised Vocation in relation to the content of the 25 August Announcement and that it played a significant role in drafting that document. I am also satisfied that JWS advised Vocation that it was open to Vocation to issue the 25 August Announcement. 495 In the period between 24 July 2014 and 11 August 2014, Mr Rozsa provided some advice to both Ms Bonnici and Mr Hutchinson. The advice provided to Mr Hutchinson by Mr Rozsa was said on behalf of Mr Dawkins to have been relayed by Mr Hutchinson to the board at its meeting of 11 August 2014. The advice said to have been relayed to the board was essentially the same as the information set out in the minutes of the 11 August 2014 meeting which was, as I have previously discussed, based upon a number of assumptions that were both incorrect and much too simplistic. Importantly, Mr Hutchinson's later report, which was provided to the board at or shortly prior to the board meeting on 19 August 2014, also included his estimate of the revenue impact for the enrolment suspensions ($8.0 million to $10.0 million) which, as I have found, was also communicated to the board orally at that meeting. 496 JWS was not represented at the Audit and Risk Committee meeting or the board meeting held on 19 August 2014 nor at any other meeting at which any of the Withholding and Suspension Information was discussed until the board meeting held at 11.00am on 22 August 2014. According to the minutes of that meeting, it was then that JWS provided advice in relation to Listing Rule 3.1, on the basis of which advice the board concluded that: … disclosure is not required at this stage … as the expected outcome of the investigation is that only a relatively small amount of funding ($2 million) is expected to be affected which is not material in Vocation's context and the outcome would not be expected to have a material effect on the price or value of Vocation's securities. The minutes also record that "JWS confirmed their view that this approach was appropriate." However, the minutes do not provide any detailed account of the advice given by JWS, particularly in relation to any percentage revenue or earnings impact that might be considered sufficient to trigger the need for disclosure. Nor does the written or oral evidence of the individual defendants provide any such detail. All that may be inferred is that JWS did not consider a $2.0 million revenue impact as material in Vocation's circumstances, presumably on the basis that consensus earnings forecasts assumed revenue of over $200.0 million for the financial year ending 30 June 2015. 497 The board minutes of 22 August 2014 do not record whether JWS was asked to provide advice in relation to the materiality of the suspensions and I am not satisfied on the evidence before me that JWS was asked to do so. Mr Hutchinson was asked, according to the minutes, what proportion of enrolments were being impacted (according to him 20% for BAWM, and most for Aspin) but there is no indication in the minutes that Mr Hutchinson or anyone else sought to quantify the revenue or earnings impact of the suspensions during the meeting for the purpose of determining whether the revenue or earnings impact of the withholding and suspensions would be material. 498 One matter of significance when considering JWS's role is Vocation's letter to the ASX of 22 August 2014. Mr Koster was involved in the preparation of that letter which went through a number of drafts. In an early draft sent to Mr Hutchinson at 11.01 am, Mr Koster said in the accompanying email "… the letter does not deal with the effect of the requirement that enrolments be stopped. It would be good to discuss whether some reference should be made to that." In his written evidence Mr Hutchinson said when addressing the issue raised by Mr Koster's email: My understanding at the time was that a decline in enrolments in CSP and Warehousing had been factored into the budget because Vocation was changing focus in any case. However, for any demand that there was for many of the courses offered by BAWM and Aspin in which enrolments had been suspended, I understood that Vocation could enrol students in other Vocation RTO's that had a scope of works covering those courses. 499 I should make it clear that I do not accept that Mr Hutchinson, as at 22 August 2014, or at any time thereafter, had any reasonable basis to believe that any decline in enrolments had already been factored into the budget or would be made up by enrolling students in courses offered by other RTOs. Nevertheless, on the basis of that evidence, I think it likely that Mr Hutchinson informed Mr Koster (when responding to the question in Mr Koster's email) that the suspensions would not have a material impact on Vocation's forecast revenue or earnings. To the extent that JWS may have provided any advice as to the materiality of the suspensions on enrolments, it is likely that it was based on instructions reflecting Mr Hutchinson's stated understanding as at 22 August 2014. 500 Mr Koster and Mr Rozsa were also present at the board meeting held on the evening of 26 August 2014 at which Ms Watts' letter of that date was discussed. The letter was significant in various respects which I have already mentioned and need not repeat. What is also significant is that at this board meeting the directors were openly discussing the risk of revenue loss associated with the withholding of payments as being in a range of $4.0 million to $10.0 million, which was considerably more than the $2.0 million figure previously provided to JWS. 501 The minutes refer to the board "taking advice from JWS" but there is nothing in those minutes to indicate that the advice given by JWS was different from that previously provided in relation to Listing Rule 3.1. To the extent that it was suggested by Mr Dawkins or Mr Hutchinson in their submissions that there should be a finding that JWS advised the board that the development constituted by the receipt of the letter of 26 August 2014 did not require disclosure, then I am not prepared to make such a finding. This seems to me to be a matter on which the board made its own assessment in light of the letter of 26 August 2014 and the revised figures provided by management. 502 JWS provided other advice and assistance after the 26 August 2014 board meeting in connection with the placement. In particular, Mr Rozsa and Mr Koster (or at least one of them) attended board meetings on 5, 7 and 8 September 2014. There is no evidence from which I am prepared to infer that JWS advised that the contractual measures imposed by DEECD were not material. Rather, it appears to me that from 8 September 2014 onward, the board, acting on advice previously given by JWS, and perhaps reiterated at those meetings, in relation to Listing Rule 3.1, made its own assessment of the materiality of those measures informed by advice received from management as to the amount of money likely to be permanently withheld by DEECD, the revenue that was likely to be lost due to the suspensions and enrolments, and the cash flow implications of any further delay in payment. Based on that assessment, the board stood by its view that there was nothing that Vocation was obliged to disclose in accordance with Listing Rule 3.1 arising out of the Victorian audits, the imposition of the contractual measures, or the cash flow implications of the withholding of funds. 503 Mr Rozsa and Ms Bobeff of JWS were in attendance at the board meeting held at 2.10pm on Sunday, 7 September 2014. There is nothing in the minutes to suggest that either Mr Rozsa or Ms Bobeff provided any further advice to the board concerning the need for any disclosure in relation to the Victorian audits. For reasons I have previously explained, the advice given to the board by Mr Hutchinson on 7 September 2014 concerning "overall enrolments for the group" was based upon enrolments of students by Real Institute and Endeavour which Vocation would have expected to have achieved as a result of those acquisitions in any event. There is nothing in the evidence to indicate that this information was conveyed to JWS or that it had reason to believe that the suspensions on enrolments would have a material impact on Vocation's forecast revenue or earnings. 504 It was submitted on behalf of Mr Dawkins that JWS was immersed in the details of the continuous disclosure issue and gave advice to the board in and outside board meetings, expressly and implicitly, that disclosure was not required. I think it is more accurate to say that JWS advised Vocation that, on the basis of the revenue and earnings impact of the withholding of payments and the suspension of enrolments as assessed by management, Vocation was not required to disclose the existence of those measures because in both revenue and earnings terms, the impact would not be expected to have a material effect on the price or value of Vocation's securities. 505 I accept that Mr Dawkins and other directors relied on advice from JWS as to the extent of Vocation's disclosure obligations but, in doing so, I am satisfied that they were aware, or at least ought to have been aware, that the advice provided was based upon a number of important assumptions that JWS was asked to make, and that JWS was not in a position to independently assess or verify the validity of those assumptions or the veracity of any other pertinent information provided to them by management. 506 Mr Koster also gave some advice relating to the 18 September 2014 ASX announcement. Although Mr Koster suggested one slight change to a draft sent to him, his involvement in the drafting of that announcement was minor. There is a suggestion in the submissions made by Mr Dawkins that Mr Koster was on this occasion providing advice (at least implicitly) that the contractual measures imposed on Vocation by DEECD were not material to Vocation as at 25 August 2014 and that nothing had relevantly changed since then. What I have just said in relation to JWS's role at the more general level applies to the advice provided by Mr Koster in relation to the 18 September 2014 ASX announcement. 507 In the context of this discussion about the role of JWS, it is important to note that on 7 September 2014 Mr Dawkins and members of the management team met with Mr Joyce of Landers & Rogers in Melbourne in preparation for the meeting with Mr Bolt the following day. I have already referred to the advice provided by Mr Joyce on 25 August 2014. Although evidence was given by Mr Dawkins and Mr Hutchinson concerning the meeting with Mr Joyce and others on 7 September 2014, they did not give any evidence as to the content or effect of any legal advice that was received on that occasion including in relation to the letter of 26 August 2014 or the contractual provisions specifically referred to in that letter. Section 674(2) – Contravention of Continuous Disclosure Obligations The Relevant Statutory Provisions 508 At all relevant times s 674, s 676 and s 677 provided: 674. Continuous disclosure—listed disclosing entity bound by a disclosure requirement in market listing rules Obligation to disclose in accordance with listing rules (1) Subsection (2) applies to a listed disclosing entity if provisions of the listing rules of a listing market in relation to that entity require the entity to notify the market operator of information about specified events or matters as they arise for the purpose of the operator making that information available to participants in the market. (2) If: (a) this subsection applies to a listed disclosing entity; and (b) the entity has information that those provisions require the entity to notify to the market operator; and (c) that information: (i) is not generally available; and (ii) is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity; the entity must notify the market operator of that information in accordance with those provisions. (2A) A person who is involved in a listed disclosing entity's contravention of subsection (2) contravenes this subsection. (2B) A person does not contravene subsection (2A) if the person proves that they: (a) took all steps (if any) that were reasonable in the circumstances to ensure that the listed disclosing entity complied with its obligations under subsection (2); and (b) after doing so, believed on reasonable grounds that the listed disclosing entity was complying with its obligations under that subsection. 676 Sections 674 and 675—when information is generally available (1) This section has effect for the purposes of sections 674 and 675. (2) Information is generally available if: (a) it consists of readily observable matter; or (b) without limiting the generality of paragraph (a), both of the following subparagraphs apply: (i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in securities of a kind whose price or value might be affected by the information; and (ii) since it was so made known, a reasonable period for it to be disseminated among such persons has elapsed. (3) Information is also generally available if it consists of deductions, conclusions or inferences made or drawn from either or both of the following: (a) information referred to in paragraph (2)(a); (b) information made known as mentioned in subparagraph (2)(b)(i). 677 Sections 674 and 675—material effect on price or value For the purposes of sections 674 and 675, a reasonable person would be taken to expect information to have a material effect on the price or value of ED securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities. 509 At all relevant times, Listing Rule 3.1 provided: Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information. … 510 At all relevant times s 79 of the Act provided: 79 Involvement in contraventions A person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. The Relevant Principles 511 Section 674(2) of the Act imposes on a listed disclosing entity an obligation to disclose information within the meaning of ASX Listing Rule 3.1, in accordance with the Listing Rules. There is no question that Vocation was, at all relevant times, a listed disclosing entity. 512 To establish a contravention of s 674(2) in the present case, it is necessary for ASIC to demonstrate that: there existed "information" within the meaning of Listing Rule 3.1 and s 674(2)(b); the entity had that information (s 674(2)(b)) and was aware of it (Listing Rule 3.1); the information was not generally available (s 674(2)(c)(i), Listing Rule 3.1A.1); and a reasonable person would have expected that information to have had a material effect on the price or value of the entity's shares, if it had been generally available (s 674(2)(c)(ii), Listing Rule 3.1). 513 Section 676(2) provides that for the purposes of s 674, information is generally available if it consists of readily observable matter. 514 In the present case, the critical element of s 674(2) is the "materiality" requirement in s 674(2)(c)(ii). As made clear by the reference to "a reasonable person" in s 674(2), that element involves an objective enquiry. 515 The fact that an entity with an obligation to disclose may itself reasonably believe that information would not be expected to have a material effect on the price or value of its securities, does not answer the question whether the material was disclosable as required by s 674: James Hardie Industries NV v ASIC (2010) 81 ACSR 1 ("James Hardie"). As the Court of Appeal said in that case at [527] and [546]: [527] … The test is an objective one. The matters a company takes into account and the reasons it has for deciding that information is not disclosable may be relevant, in that they provide part of the factual matrix in which the determination of materiality has to be made. However, the company's deliberations and ultimate decision are not determinative of whether information is material. That is the court's decision after an evaluation of the whole of the evidence. Even if there was no other evidence apart from the company's own deliberations, it remains for the trial judge to evaluate whether information is material so as to require disclosure under s 674. [546] The test under s 674 is an objective test, determined ex ante the relevant event which requires disclosure. That the party with the obligation to disclose might convince itself that information would not be expected to have a material effect on the price or value of its securities, does not answer the question whether the material was disclosable as required by s 674. 516 Some guidance on the concept of materiality is given by s 677 of the Act, which provides that a reasonable person will be taken to expect information to have a "material effect" on the price or value of securities if the information "would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities". Section 677 is in the nature of a deeming provision which describes a sufficient, but not a necessary, foundation for establishing the materiality requirement under s 674(2)(c)(ii). 517 The hypothetical class of persons to which s 677 refers embraces both sophisticated and unsophisticated investors, and persons investing in any securities (not just shares in the type of company in question, whether as to size or sector): Grant-Taylor v Babcock & Brown Limited (in liq) (2016) 245 FCR 402 (Grant-Taylor) at [130]-[131]. 518 Section 677 differs in its focus from the accounting treatment of materiality: Grant-Taylor at [96]. In particular, the accounting treatment of materiality has less relevance where the information is not financial information of a type that is required to be disclosed in a company's accounts: Grant-Taylor at [96]. 519 To satisfy the "materiality" requirement imposed by s 674(2)(c)(ii), the information must be "non-trivial" and rise beyond information that merely "might" influence a decision by investors. Determining whether information is material may sometimes involve balancing the probability that a particular event will occur and the potential impact of the event on the company's business. As the Full Court explained in Grant-Taylor at [96]: What is meant by "material effect" in s 674(2)(c)(ii)? As stated earlier, s 677 illuminates this concept and also identifies the genus of the class of "persons who commonly invest in securities". It refers to the concept of whether "the information would, or would be likely to, influence [such] persons … in deciding whether to acquire or dispose of" the relevant shares. The concept of "materiality" in terms of its capacity to influence a person whether to acquire or dispose of shares must refer to information which is non-trivial at least. It is insufficient that the information "may" or "might" influence a decision: it is "would" or "would be likely" that is required to be shown: TSC Industries Inc v Northway Inc 426 US 438 (1976). Materiality may also then depend upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event on the company's affairs (Basic Inc v Levinson 485 US 224 (1988) at 238 and 239; see also TSC v Northway). Finally, the accounting treatment of "materiality" may not be irrelevant if the information is of a financial nature that ought to be disclosed in the company's accounts. But accounting materiality does have a different, albeit not completely unrelated, focus. […] 520 The Full Court's reasons indicate that there may be situations in which information relating to a possible future event may be material in the relevant sense even though the risk of it occurring may be slight. This may be true of situations in which the risk, were it to materialise, could be expected to have a substantial impact on the value of the company's business and, therefore, the value of its shares. The same may also be true of situations where the extent of risk and its impact are by their nature open to a range of outcomes extending from the relatively inconsequential through to the catastrophic. The Relevant Information 521 ASIC's pleaded case based on s 674 refers to what is defined in para 11 of ASIC's Consolidated Concise Statement ("CCS") as the Withholding and Suspension Information and the Relevant Period. Paragraph 11 states: 11. The nature and extent of the impact of the DEECD's contractual measures on Vocation and the Aspin Claims Reversal (Withholding and Suspension Information) was not generally available in the period between 28 August 2014 and 18 September 2014 (Relevant Period). Particulars The Withholding and Suspension Information comprised the following matters: a. the DEECD had been withholding payment of all funds due to BAWM under BAWM's 2014-2016 contract (BAWM Contract) since 3 July 2014; b. the DEECD had been withholding payment of all funds due to Aspin under Aspin's 2014-2016 contract (Aspin Contract) since 5 August 2014; c. by 28 August 2014 the amount of payments withheld by the DEECD pursuant to the BAWM Contract and the Aspin Contract was in excess of $20 million; d. on or about 24 July 2014, the DEECD had directed BAWM to suspend all future enrolments of students and suspend the commencement of training delivery for all students who had enrolled but not yet commenced; e. on or about 5 August 2014, the DEECD had directed Aspin to suspend all future enrolments of students and suspend the commencement of training delivery for all students who had enrolled but not yet commenced; f. on or about 19 August 2014, Vocation had notified the DEECD of the Aspin Claims Reversal; g. on or about 26 August 2014, the DEECD had notified Vocation that it suspected that breaches of the BAWM Contract had occurred in relation to the Warehousing and CSP courses from the commencement of 2014, such that a portion of funds that it had paid to BAWM prior to 3 July 2014 may be recoverable; h. on or about 26 August 2014, the DEECD had notified Vocation that it regarded as premature any variation of the withholding of funds in relation to BAWM and that it did not propose to agree a separate outcome limited to Aspin. 522 The materiality of the Withholding and Suspension Information is pleaded in para 12 of the CCS as follows: 12. If the Withholding and Suspension Information had been generally available in the Relevant Period it would be likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of shares in Vocation, given: (a) the extent of the reliance by Vocation on the receipt of government funding; (b) the quantum of both the funds withheld by the DEECD and the Aspin Claims Reversal, as a proportion of revenue generated by the businesses operated by Vocation; and (c) the effect of the DEECD's contractual measures and the Aspin Claims Reversal on the operational cash flow and reputation of Vocation. Particulars (i) The actions taken by the DEECD under the BAWM Contract and the Aspin Contract with respect to the Withholding and Suspension Information constituted matters in relation to government payments to BAWM and Aspin about which limited, if any, information was available to investors and potential investors from general research or public enquiries. (ii) The Withholding and Suspension Information indicated a risk to the continuation of the BAWM Contract and the Aspin Contract, given that the DEECD had taken action under cl 16.1 and 16.2 of the BAWM Contract and the Aspin Contract on the basis that it reasonably suspected that BAWM and Aspin had breached or may breach the BAWM Contract and the Aspin Contract respectively. (iii) The Withholding and Suspension Information concerned the risk of loss of one or more State government funding contracts due to breaches or non-compliance, which was one of the key business risk factors that Vocation had stated prior to listing its securities. (iv) The Withholding and Suspension Information concerned the risk of damage to the company's reputation given that actions taken by the DEECD in relation to Vocation's RTOs BAWM and Aspin raised questions of non-compliance with the BAWM Contract and the Aspin Contract. (v) Vocation had acknowledged prior to listing its securities that any factor that could undermine the strength of Vocation's reputation could impact on the company's competitiveness, growth and profitability. (vi) Vocation had received payments from the DEECD of approximately $86.2 million in respect of the provision of vocational education and training services by BAWM in the financial year ended 30 June 2014, an amount that was equal to 67% of Vocation's pro forma revenue in that period. (vii) The imposition of the suspension by the DEECD of enrolments and commencements in BAWM and Aspin had the effect of significantly reducing the vocational education and training services that could be offered by BAWM and Aspin and in turn the operational revenue that could be generated by Vocation such that the incremental value of claims withheld by the DEECD from payment to BAWM between the monthly payment calculation dates of 6 August 2014 and 3 September 2014 fell from $9,284,534.62 to $5,401,095.60. (viii) The Withholding and Suspension Information indicated that payments in amounts in excess of 15% of Vocation's pro forma revenue for the financial year ending 30 June 2014 were at risk. (ix) Given the overall pro forma revenue that Vocation had derived in the financial year ending 30 June 2014, and the overall revenue that Vocation had forecast to receive in the financial year ending 30 June 2015, the Withholding and Suspension Information represented a significant and ongoing risk to Vocation's revenue stream. (x) The Withholding and Suspension Information indicated a significant and ongoing risk to Vocation's operating cashflow position, given that in the month of July 2014 and in the period to 28 August 2014, Vocation had a net negative operating cashflow. (xi) The Withholding and Suspension Information would have undermined the level of confidence that persons who commonly invest in securities could have in Vocation's projected income for the financial year ended 30 June 2015. Was the relevant information generally available? 523 It is not disputed by the defendants that the Withholding and Suspension Information constituted information within the meaning of Listing Rule 3.1 and s 674(2)(b), that Vocation had that information, and was aware of it during the relevant period. 524 Mr Studdy SC accepted that the Withholding and Suspension Information was known to Mr Hutchinson and was not generally available during the relevant period. Mr Pesman SC also, as I understood him, did not dispute that the Withholding and Suspension Information was known to Mr Dawkins and not generally available during the relevant period. 525 Mr Leopold SC submitted that information to the effect of that alleged in para 11(f) of ASIC's CCS was generally available during the relevant period. The information referred to in that paragraph is that "on or about 19 August 2014, Vocation had notified the DEECD of the Aspin Claims Reversal". There is no substance to that submission. 526 There is no evidence to suggest that the information set out in para 11(f) of the CCS was available to anyone outside of Vocation or DEECD. The argument advanced in support of Mr Leopold's submission was directed at showing that the reversal would be apparent from the Appendix 4E which document became generally available on 21 August 2014. However, that document says nothing about any communication between Vocation and DEECD and does not provide any information from which a reader could deduce that Vocation had made any provision in its accounts in respect of any settlement by Aspin. The financial statements in the Appendix 4E include an amount of $1,774,000 representing "deferred revenue" but there is nothing in the document to connect that entry to Aspin or DEECD. 527 Mr Leopold SC also relied upon the 25 August Announcement in support of the submission that at least some of the Withholding and Suspension Information referred to in para 11(a) and (b) of the CCS was not shown by the evidence to be "not generally available". In support of this submission he referred to the statement in that announcement that "DEECD has withheld recent payments under the Funding Contracts." Again, there is no substance to this submission. 528 The information referred to in para 11(a) and (b) of the CCS is that DEECD had withheld all funds due to BAWM and Aspin under their Funding Contracts since 3 July 2014 and 5 August 2014 respectively. That information was not made generally available as a result of the release of the 25 August Announcement. It was not until 18 September 2014 (after the completion of the Placement and lodgement of the Cleansing Notice with the ASX) that a further ASX announcement was made by Vocation that disclosed to the market that "… the withheld payments relate to funding across two of Vocation's four Victorian RTOs." Even that announcement did not specify which of Vocation's RTOs had their funds withheld. 529 I am satisfied that none of the information comprising the Withholding and Suspension Information was generally available at any time during the relevant period. 530 It is convenient at this point to deal with a related submission made by Mr Leopold SC. He submitted that it would have been generally known from 25 August 2014 onwards that the amounts withheld by DEECD would run into the "tens of millions of dollars". The argument assumed that those wishing to know how much money had been withheld need only to look at the document entitled "FY14 Results Presentation" published on 21 August 2014 which disclosed that the contribution made by Victorian government funding to Vocation during the financial year ended 30 June 2014 represented approximately 80% of Vocation's total revenue of $128.0 million. He submitted that by multiplying $128 million by 80% ($102.0 million) and dividing the result by 12 to get a monthly figure ($8.5 million) that it would be inferred that funds were being withheld at the rate of about $8.0 million per month. There are many difficulties with this submission. However, it is sufficient to dispose of it by noting that the 25 August Announcement did not identify the Victorian RTOs whose funds had been withheld and it would therefore be impossible to draw any such inference. Of course, if the 25 August Announcement had identified BAWM as one of the affected RTOs, the market may well have deduced that the withheld amounts might have been substantial. Mr Sisson's Evidence 531 Mr Sisson was an expert witness called by ASIC on the issue of materiality. He obtained a Bachelor of Science degree in mathematics and statistics from the University of Melbourne in 1973. He is a share analyst and share portfolio manager and the Managing Director and Chief Investment Officer of Balanced Equity Management Pty Limited ("BEM"), a company he founded in 1998 which was sold in 2011 to Franklin Templeton. 532 Mr Sisson made a detailed report which was, subject to certain objections that were upheld, admitted into evidence. He was cross-examined at length by Mr Leopold SC for Mr Gréwal and, more briefly, by Mr Studdy SC for Mr Hutchinson, and Mr Pesman SC for Mr Dawkins. There was no suggestion in the cross-examination or the individual defendants' submissions that Mr Sisson was anything other than a very experienced institutional investor. As was made clear in his evidence, he has spent many years managing share market portfolios in Australia on behalf of large institutions which entrust funds to BEM for investment in the share market. Neither the cross-examination nor the individual defendants' submissions raised any issue as to the honesty, professionalism or the impartiality of his evidence. In my view he was a meticulous witness. Nevertheless, the individual defendants criticized his evidence on relevance grounds and ultimately submitted that it should be given no weight. For reasons which I will come to I do not accept that submission. 533 BEM is an institutional investor. As Mr Sisson explained, that term is used to describe investment organisations which are in the business of managing portfolios of investments for longer term returns. Their clients are generally superannuation funds and managed investment funds. Some institutional investors invest "passively" (with little or no variance from a published benchmark index) whereas others invest according to where they believe the best returns can be achieved. Such "active" institutional investors rely largely on a company's fundamentals (such as expected earnings) to reach their opinions on whether to invest, and generally prefer to invest in companies with a predictable outlook and which can be subject to research. In addition, they prefer companies with a reasonably sizable market capitalisation, so they can build up a holding which can make a difference to their investment returns, and which also trade in volume on the stock exchange so the investment can in due course be realised. 534 In his report, Mr Sisson identified a range of individuals and entities that commonly invest in securities. He assigned these to different categories which included (i) private investors, (ii) speculators and day traders, (iii) institutional investors and (iv) hedge funds. In light of a number of objections taken by the individual defendants to Mr Sisson's report, it was agreed by the parties that it should be received into evidence on the basis that it constituted admissible evidence of a person who had expertise in the behaviour of institutional investors but not of the other categories of investor identified by Mr Sisson in his report. Accordingly, where Mr Sisson refers to "relevant investors" in his written report, the effect of the agreed evidentiary ruling to which I have referred requires that I treat this as a reference to institutional investors, which is what I have done. 535 According to Mr Sisson, the price of a company's securities in the share market reflects a balance of buyers and sellers at any given price level. Active institutional investors usually have a dominant influence in generating the buying and selling orders which set the market price of a company's securities. 536 Mr Sisson gave evidence of how in 2014 (and in any other year in recent times) institutional investors typically determined whether to acquire or dispose of securities. He made it clear that for this purpose he was to be understood as referring to shares in listed public companies (as opposed to, for example, debt securities). 537 According to Mr Sisson's evidence: not all institutional investors would have applied the same approach to determine whether to acquire or dispose of securities in a listed company. However they would apply a typical approach if they made the determination on whether their assessment of the future value of the company was greater or less than its current value in the share market. While the current market value can be precisely determined, the future value of the company cannot. The principal determinants are the earnings of the company excluding any transitional components, the future growth rate of those earnings and the rate of return required by the individual investor to induce them to invest in securities, after making an allowance for risk. Each of these determinants is subject to continual reassessment which is the principal reason behind the frequent movement in the prices of securities; institutional investors use a variety of sources of information when trying to assess the factors helping to determine future value. The primary source is reports from the company, particularly profit reports including the annual report, but also announcements about broader matters such as business developments and management changes. Further information sources are broker reports and the press. As well as information about the company itself, relevant investors are interested in information about the industry in which the company operates and the broader economic and political environment. There is a wide variation in the degree of diligence used to assess these matters and in the sophistication of the analysis, but new information generally influences investors' decisions very quickly after it becomes generally available. 538 Mr Sisson also gave evidence as to what statements made or information disseminated by a listed corporation of the kind similar to Vocation would be likely to influence institutional investors in deciding whether to acquire or dispose of shares in a listed corporation of a kind similar to Vocation. He drew attention to a number of matters relevant to his opinion on this question. 539 The first of these concerns the history of Vocation, the movement in its share price, its potential for growth and its reliance on government funding. Vocation listed on the ASX in December 2013 after shares were offered to the public at $1.89 per share. By the middle of 2014 it was trading at over $3.00 per share with brokers projecting strong earnings based on continuing revenue growth and stable margins. Vocation could be fairly regarded as a company that had only recently been listed, but with a profitable business model and with the potential for further growth including from the acquisition of other companies in its sector. Vocation's first annual report showed that funding from various governments for the financial year ended 30 June 2014 accounted for approximately 80% of Vocation's revenue. 540 The second matter likely to influence institutional investors relates to the information likely to be considered by them when considering investing in shares in a listed public company. According to Mr Sisson, institutional investors, when considering investment in companies with the same general characteristics of Vocation, are likely to be interested in the following matters: the revenue growth outlook for the industry and particularly whether governments are favourably disposed to maintain and increase funding; the competitive position of the particular company within the industry; the company's opportunity to acquire other companies while maintaining cost control; the stability of profit margins into the future due to costs being able to be managed in line with revenue changes; and regulatory and compliance risks, particularly in relation to the government entities providing funding. Mr Sisson explained that although institutional investors are likely to consider all information disseminated by a listed corporation, information that bears upon those five matters was likely to be of particular interest. 541 Mr Sisson also explained that additional information that becomes available needs to be considered in the context of the information already generally available to institutional investors at that time. If the additional information confirmed and supported the information already available to them, it would be unlikely to influence them in deciding whether to acquire or dispose of shares in Vocation. However, if it materially varied from their previous understanding, it would be likely to so influence them. This would particularly be the case if it undermined or contradicted public statements that had previously been made by the company. 542 Mr Sisson referred in his report to research reports published by brokers following the release of Vocation's results for the year ended 30 June 2014 on 21 August 2014 which would have been taken into account in the trading which set the share market price of Vocation shares as at 28 August 2014 (that being the first day of the relevant period). These brokers' reports include various projections showing continuing after tax earnings growth for each of the next three financial years. The average of the brokers' projections for after tax profit ("ATP") was calculated by Mr Sisson to be $41.7 million for the financial year ending 30 June 2015. Mr Sisson also used the brokers' projections to calculate the averages for earnings before interest and tax (EBIT), which was $63.7 million for the financial year ending 30 June 2015. The brokers' research reports and projections would have been taken into account by institutional investors when deciding whether to acquire or dispose of shares in Vocation, and were the source of what are usually referred to as the consensus revenue and earnings forecasts for Vocation for the financial year ending 30 June 2015. 543 According to Mr Sisson, institutional investors would also have taken into account Vocation's 25 August Announcement disclosing that DEECD was undertaking a review of three of Vocation's courses and that "as part of the review process, DEECD has withheld recent payments under the funding contracts" that "Vocation considers that neither the review nor its anticipated outcomes are material to Vocation". They would also have taken into account Vocation's results presentation on 21 August 2014 which indicated that the Victorian Government funding represented 80% of Vocation's revenue in the financial year ended 30 June 2014, but that this was expected to reduce to 40% in the financial year ending 30 June 2015. 544 Mr Sisson's opinion was that given the high degree of dependence on Victorian Government funding, the 25 August Announcement that DEECD was withholding payments would have had the potential to influence institutional investors to dispose of shares in Vocation. He identified three matters which in his opinion would be critical issues for consideration by institutional investors when assessing the potential implications of the announcement of the 25 August Announcement: whether the quantum of withheld revenue was significant; whether the matter was only one of timing of cash flows or whether revenue might be permanently lost; and whether matters were sufficiently serious that the prospects for revenue growth in the future might be impaired due to reputational damage or to a loss of trust or confidence by Government clients. 545 Mr Sisson explained that knowledge of additional information is likely to influence relevant investors in deciding whether to acquire or dispose of securities only if it is at variance with the information that was generally available at the time, and the difference between the two is interpreted as being sufficiently material to the future value of the company. For that reason, analysis of the Withholding and Suspension Information and its likely influence on relevant investors as at 28 August 2014 had it been available at that time, needs to be carried out bearing in mind the information about the matter that had been made generally available by Vocation in its ASX announcement of 25 August 2014. This included the statement in relation to the lack of materiality of the review and its outcomes. 546 According to Mr Sisson, the Withholding and Suspension Information, if made known to institutional investors as at 28 August 2014 would have raised various concerns for them. In particular: At face value, investors would be concerned that all funds due to BAWM had been withheld since 3 July 2014. Given that the prospectus showed BAWM to be central to Vocation's past operations there would be concern that withholding funds due to BAWM would potentially impact a material proportion of Vocation's total revenue. The 25 August Announcement made direct reference to only three courses conducted by Vocation and did not make it clear that the withholding of payments related to all funds due to BAWM or mention BAWM at all. Similar concerns would apply to the information that all funds due to Aspin under the Aspin contract had been withheld since 5 August 2014. The fact that a second Vocation RTO was in this position would increase the level of concern. The percentage of Vocation's total revenue that was affected would be a crucial consideration for institutional investors, and the knowledge that $20.0 million was withheld by the end of August would be a measure of materiality, given that revenue in the six months to June 2014 was $82.0 million and that the average of broker forecasts of revenue for the full year to June 2015 was slightly under $250.0 million. The suspension of BAWM's enrolments and the commencement of training delivery where it had not yet commenced and the fact that it applied to all courses (not just the three that the 25 August Announcement said were under review) would be likely to indicate to institutional investors that the concerns behind the DEECD's actions were serious. In addition, the fact that enrolments were suspended would be likely to cause potential students to enrol elsewhere (or not at all) which would imply a permanent loss of revenue, a more material issue than just the timing of receipt of monies. Similar concerns would apply to the extension of these restrictions to Aspin. The notification by Aspin that it would reverse current claims for funding from DEECD in the amount of $4.5 million and that this included some claims that had already been paid, would give additional concern that revenue already deemed to have been earned would be permanently lost. The notification by DEECD on or about 26 August 2014 that it suspected breaches of BAWM's funding contract which could cause claims prior to 3 July 2014 to be recoverable would give relevant investors further concerns about the seriousness of the matters involved. 547 Mr Sisson said that notification by DEECD on or about 26 August 2014 that it regarded as premature any variation of the withholding of funds in relation to BAWM and that it did not propose to agree a separate outcome limited to Aspin would have significance in the light of the other Withholding and Suspension Information, but little in its own right. 548 In Mr Sisson's opinion, knowledge of the information in the Withholding and Suspension Information would as at 28 August 2014, have been likely to have influenced institutional investors in deciding whether to acquire or dispose of shares in Vocation because: the information indicated the quantum of affected revenue was significant; the information would have raised concern that significant revenue related to past services could be permanently lost and that revenue related to future services could be adversely impacted; and the way in which DEECD appeared to be dealing with the issues indicated a level of serious concern which could well have implications for future revenue. 549 I accept Mr Sisson's evidence which I have summarised thus far. It was not contradicted by any expert witnesses called by any of the defendants. Further, while the relevance of that evidence was disputed, the substance of it was not challenged in cross-examination. The Defendant's Criticisms of Mr Sisson's Evidence 550 It was submitted by the individual defendants that Mr Sisson's evidence, which was only given in relation to the investing behaviour of institutional investors, provides an insufficient basis from which to draw a conclusion in relation to the investing behaviour of persons who commonly invest in securities. The submission, as framed by Mr Pesman SC for Mr Dawkins, was that it is insufficient that the Court only has before it expert evidence regarding the expected influence of the Withholding and Suspension Information on a sub-set of the class of persons embraced by s 677. 551 I do not accept this submission. 552 Mr Sisson's evidence indicates that institutional investors are most likely to determine the price at which publicly listed securities trade. Further, the use of the word "invest" rather than purchase or acquire in s 677 suggests that the hypothetical reasonable person referred to in that section will be someone who makes an assessment as to whether to buy or sell securities on the basis of a company's earnings or potential earnings and the potential return the investment offers after making an allowance for risk. 553 I do not think a knowledge of the investing behaviour of speculators and day traders who seek to profit on the back of rumour or momentum rather than company fundamentals would be of any assistance in determining what information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of particular securities. That observation would also hold true for hedge funds at least in circumstances where they are not making their investment decisions based on company fundamentals. 554 Some of the cross-examination by Mr Leopold SC was intended, as I understood it, to support his submission that Mr Sisson was not properly qualified by his training or experience to express the opinions given by him in his report. There were four matters relied upon by him in support of that submission. 555 First, it was submitted by Mr Leopold SC that Mr Sisson's evidence should be given no weight because BEM, and the funds it manages, have all been invested in companies in the ASX 100. I do not think there is any substance to that submission. The fact that the funds managed by Mr Sisson invest only in companies that meet the market capitalisation and liquidity criteria necessary for admission to the ASX 100 does not diminish the weight of his evidence as to the investment behaviour of institutional investors who invest across the ASX more broadly. His evidence in chief, when read in accordance with the agreed ruling, was not expressed to be confined to institutional investors who invest in any particular type of publicly listed company whether on the basis of market capitalisation or otherwise. 556 Secondly, it was submitted by Mr Leopold SC that Mr Sisson was not in a position to give evidence as to investment behaviour of other institutional investors. That submission ignores the fact that Mr Sisson has spent most of his life working in the funds management industry in which, it may be inferred, he has become familiar with the investing behaviour of many other professional investors. I am satisfied that Mr Sisson is very well placed given his experience in funds management to give the evidence he gave. I found his evidence persuasive and I have given it significant weight. 557 Thirdly, Mr Leopold SC submitted Mr Sisson's evidence should be given no weight because he had not been shown to have invested in a company that was primarily operating in the vocational education and training industry or one that was heavily dependent on government funding. There is no evidence to indicate that either of those characteristics would make any difference to the investment strategies and techniques applied by Mr Sisson and other institutional investors when determining whether to acquire or dispose of a particular company's shares. Nor was he asked any question in cross-examination aimed at establishing that there was any such difference. 558 Fourthly, after eliciting from Mr Sisson's evidence that he from time to time regularly meets with management of the companies in which BEM invests, it was submitted by Mr Leopold SC that this somehow set Mr Sisson apart from other persons who commonly invest in securities. I accept that private investors, day traders and other categories of investors may not have the same level of access to management that Mr Sisson is regularly allowed. But there is no reason to think that other institutional investors do not also meet with management from time to time and I am certain many of them do. As Mr Sisson's evidence made clear, meetings of this kind provide institutional investors with the opportunity to obtain additional information and insight into the operations of the company beyond what is made available in periodic reports and other publicly available information. Mr Gréwal gave evidence that he and Mr Hutchinson attended a number of one on one investment meetings on 21 August 2014 with various institutional investors including Platypus Asset Management, Wilson Asset Management, Paradise Investment Management, Ophir Asset Management and Tyndall Investment Management. The fact that Mr Sisson may participate in such one on one discussions from time to time does not diminish the value of his evidence. 559 The individual defendants made various submissions in relation to Mr Sisson's evidence based on the limited content of the Withholding and Suspension Information about which he was asked to express his opinions. The most extreme of the submissions, which was advanced by Mr Leopold SC, was that Mr Sisson's evidence should be given no weight because he did not consider all qualifying or contextual information relevant to the materiality of the contractual measures imposed on BAWM and Aspin by DEECD under the Funding Contracts. Jubilee Mines NL v Riley 560 The individual defendants' reliance upon what they described as the qualifying or contextual information was based on observations made by Martin CJ (with whom Le Miere AJA agreed) and McLure JA in Jubilee Mines NL v Riley (2009) 253 ALR 673 ("Jubilee"). 561 In Jubilee the appellant (Jubilee) was an ASX listed company focused on gold exploration at a number of tenements it acquired in 1993. In 1994, another company (WMC) inadvertently carried out drilling on one of those tenements. WMC later provided the drilling data to Jubilee which was then reviewed by its geologist. The drilling data pointed to the existence of a deposit of low grade nickel. However, in the geologist's opinion, the ore width as suggested by the drilling data was insufficient to sustain an economic mine, and, in his view, the prospect of ever proving an economic deposit of nickel within the tenement was remote. Jubilee's geologist reviewed and discussed the drilling data with the managing director of the company, who decided that the drilling data did not need to be disclosed pursuant to the relevant ASX Listing Rule (r 3A) which was in force at that time because it was not material. The respondent to the appeal (Mr Riley) sued Jubilee for damages some years later after it made an ASX announcement disclosing that WMC had inadvertently drilled on Jubilee's tenement and providing further information that Jubilee had subsequently obtained as to the significance of the drilling data. 562 In upholding Jubilee's appeal from the decision of the Master awarding Mr Riley substantial damages, the Court concluded that the information concerning the nickel deposit obtained from WMC in 1994 was not material for the purposes of s 1001A or s 1001D of the Corporations Law. 563 Martin CJ said at [87]-[90]: [87] There are a number of preliminary observations appropriately made in relation to these grounds. The first is that the evident purpose of each of the listing rule and the relevant statutory provisions is to ensure an informed market in listed securities. Put another way, the legislative objective is to ensure that all participants in the market for listed securities have equal access to all information which is relevant to, or more accurately, likely to, influence decisions to buy or sell those securities. It would be entirely contrary to that evident purpose to construe either the listing rule or the statutory provisions as countenancing the disclosure of incomplete or misleading information. [88] The next relevant general observation is that the ultimate determination of the ambit of the information appropriately disclosed, on the proper construction of the listing rule and the statutory provisions, was essentially a determination for the master drawing upon the facts established by the evidence. If the proper conclusion from the facts established by the evidence is that disclosure of the information gained from WMC without disclosure of the surrounding circumstances would have been incomplete or misleading, it would be wrong to award damages on the basis that Jubilee had failed to comply with its obligations in that way. [89] The final general observation appropriately made is that the obligations imposed by the Listing Rules and the relevant statutory provisions are limited to the disclosure of information. The obligations do not extend to include, for example, making business decisions which might or even should be made as a result of the receipt of the information. At points in the argument advanced on behalf of Mr Riley, and in the master's reasons, it seems to be supposed that if Jubilee should have attached greater significance to the drill hole data it received and should have immediately undertaken exploratory drilling (perhaps by raising funds to enable that to occur), it was somehow a breach of the continuous disclosure provisions for Jubilee not to announce and take that course. Plainly, the obligations of continuous disclosure do not go that far. [90] Jubilee can only have been obliged to disclose information which it had or ought to have had. The latter expression cannot be construed as extending to information arising from business decisions which Jubilee had not made — such as the decision to undertake exploratory drilling. Jubilee's obligations of disclosure must be assessed having regard to the totality of relevant information. It follows that if, for whatever reason (including flawed reasons), Jubilee had no current intention of undertaking exploratory drilling on the tenement, and that intention was relevant to the assessment of the extent to which provision of the drill hole data provided by WMC would be likely to influence those who commonly invest in securities in deciding whether or not to buy or sell Jubilee's shares, Jubilee's obligations of disclosure must be assessed in that light. 564 The Chief Justice went on to refer to the view taken by the Master of s 1001D of the Corporations Law which led him to ask whether persons who commonly invest in the shares of junior mining explorers would, or would be likely to be, influenced in their decision to buy or sell shares in such a company by the information allegedly not disclosed in breach of Jubilee's continuous disclosure obligations. His Honour noted that neither party challenged that aspect of the Master's decision. Of most relevance to the defendants' submission presently under consideration are the paragraphs in the Chief Justice's reasons at [123] and [124]: [123] Looking at this issue from the perspective of such a trader, as the master found, the relevance of the WMC drill hole information lay in its revelation of the prospectivity of the tenement. Following the announcement of such data, the prospect of gain for such a trader would lie in the possibility that further exploratory work would prove up the preliminary data, resulting in an increase in the price of the shares, which could then be sold at a profit. On that hypothetical scenario, if the announcement of the drill hole data was accompanied by a statement to the effect that the company had no current intention of undertaking exploratory work, and lacked the financial capacity or the inclination to do so, the hypothetical scenario of gain would appear, to such a trader, to be most unlikely or improbable, at least in the foreseeable future. Accordingly, doing the best one can to stand in the shoes of the hypothetical investor nominated by s 1001D, and taking into account the evidence of Mr Le Page, Dr Rudenno and Mr Riley, I conclude that an announcement by Jubilee of all relevant information pertaining to the WMC drill hole data would not, or would not have been likely to, influence persons who commonly invest in securities in deciding whether or not to buy or sell its shares. It follows that s 1001D did not operate to require Jubilee to disclose any information relating to the data provided by WMC until June 1996, when it made such disclosure. [124] As I have observed above (at [58]), s 1001D is not, theoretically at least, the only means by which it can be concluded that a reasonable person would expect the information, if made available, to have a material effect on the price or value of Jubilee's shares. However, in the circumstances of the present case, once it is concluded that disclosure of all relevant information would not have influenced persons who commonly invest in securities in deciding whether to buy Jubilee's shares, it is impossible to see any other basis upon which it could be concluded that a reasonable person would expect disclosure of that information to have a material effect on the price of Jubilee's shares. 565 McLure JA, who gave a separate judgment, said at [162]: [162] The respondent would narrowly confine the "information" by taking it out of its broader factual and commercial/corporate context then gauge whether that information has the deemed material effect on the price of the companies securities by reference to the common investor who assesses the information in the context of publicly available information. That in my view is inconsistent with the purpose of the disclosure regime which is a fully informed market. Where share price sensitivity depends upon the company having an expert assessment of core information and business decisions are made based on that expert assessment, the disclosure of only the core information (conveying an imputation that it is, in the company's assessment, likely to have a material effect on the share price) may be misleading. The disclosure regime does not countenance disclosure of incomplete information just because that information alone would influence persons who commonly invest to buy or sell shares. 566 Properly understood, Jubilee is authority for the proposition that information that is alleged by a plaintiff to be material, may need to be considered in its broader context for the purpose of determining whether it satisfies the relevant statutory test of materiality. For that reason it will often be necessary to consider whether there is additional information beyond what is alleged not to have been disclosed and what impact it would have on the assessment of the information that the plaintiff alleges should have been disclosed. The judgment of the Court of Appeal in James Hardie (referred to above) is authority for the same general proposition. The Additional Information 567 Mr Leopold SC identified a total of 15 matters which he submitted Mr Sisson's evidence failed to take into account and which, were they not to have been disclosed as at 16 September 2014, would have, in the words of Mr Leopold SC, "painted a fundamentally misleading picture of hopelessness." In his submissions Mr Leopold SC referred to this as the qualifying or contextual information (I will call it "the additional information") which was said to comprise: (a) The withholding by DEECD of payment of all funds to RTOs under VET funding contracts as at June 2014 was not an unusual course and occurred in respect of about five RTOs per month. (b) The release by DEECD of funds which had been withheld by it occurred on a regular basis when the RTO demonstrated compliance with its funding contract. (c) The withholding of funds and the suspension of enrolments had occurred on the basis of "mere suspicions" rather than on the basis of any breach or breaches of contract. (d) That there was no reasonable foundation for DEECD's suspicions that the Vocation RTOs had breached or may breach any of their contracts. (e) Mr Langtree's analysis of 27 August 2014, which concluded that only about $4.37 million of amounts withheld by DEECD from BAWM would be forfeited or have to be repaid. (f) Aspin had proposed a reversal of current claims (paid and pending) to the value of over $4.5 million which would be offset against future revenue. (g) As at late August 2014, the anticipated negative impact on Vocation's profit from the withholding of funds (in aggregate) from BAWM and Aspin (in aggregate and after taking into account the Aspin revenue reversal) was about $1.2 million after applying an EBITDA margin of 26.5% to Mr Langtree's $4.37 million. (h) For the financial year ending 30 June 2015, Vocation's budgeted ebitda was $68.0 million which broadly conformed with consensus forecasts. $1.2 million was a small fraction (about 2%) of that figure. (i) Enrolments and new commencements in BAWM were suspended from 3 July 2014. However, in respect of courses other than CSP and Warehousing, the suspension only took effect in late August 2014 due to a misunderstanding. The July 2014 enrolments were not impacted by the suspensions, and the August 2014 enrolments were not impacted in any material respect. Further, revenue from VET Fee Help (which was different from VET Funding and unaffected by DEECD's contractual measures) increased. (j) Students who had been enrolled in courses through BAWM and Aspin could be either enrolled through other Vocation RTOs in courses in which those RTOs were authorised to deliver or else "banked up" and enrolled later in BAWM or Aspin if and when the suspension of enrolments was lifted. (k) Countervailing profit growth was occurring in relation to the VET Fee Helpline and other areas of Vocation's business. (l) On 8 September 2014 an important meeting occurred between Vocation and DEECD confining the scope of the review and providing for completion of the first phase within about two weeks. (m) On 15 September 2014, following the Placement, Vocation received net proceeds of approximately $72.5 million. 568 None of these matters was dealt with by any expert witness called by any of the individual defendants. Some of them were taken up with Mr Sisson in cross-examination while others were first raised in final submissions. Some that were raised in cross-examination were raised only faintly and not developed in any meaningful way. 569 There was no acceptance by Mr Sisson that any of the additional information that was put to him would alter his view that the Withholding and Suspension Information would have been likely to have influenced institutional investors in deciding whether to acquire or dispose of Vocation's shares. 570 Mr Sisson was asked whether in expressing the opinions given in his report he had taken into account the extent to which the withholding of funds by DEECD was out of the ordinary (see para a). He agreed that he did not take that matter into account because he was not given any information in relation to it. The cross-examination by Mr Leopold SC in relation to that matter included the following: But you have no difficulty in accepting that it is something which would bear on the conclusions that you expressed if you had been given information about that? ––– It's conceivable it could. It depends whether that extra information was directly comparable with the information I had been given. In other words, if the withholding amounts were of a similar quantum and with similar, I guess, conditions, if – that would make a difference. … You proceeded on the assumption, I suggest to you, that the measure imposed by the department was an unusual measure, that is, the measure of withholding funds was an unusual measure, you proceeded on that basis; didn't you? ––– Well, when I looked at the totality of the information, it would be true to say that I assumed that the withholding of the amount of $20 million would be unusual. I mean, in other words, what I'm trying to say, here, is that if it was quite usual for the department to withhold, say, half a million dollars, I don't think that would have very much impact on the way I would have answered question – this question. However, if, in fact, I had been given the information that, in fact, it was quite standard practice for these amounts of money to be withheld, then it could well have had an influence on my answer. You assumed that the amount withheld was just a product of the size of the particular RTO and the number of courses and students it had, that was what you assumed; wasn't it? ––– I'm not sure I can be quite that precise about what I assumed … I haven't actually assumed too much. What I've have looked at is the fact that a large proportion of the revenue of Vocation had, in fact, been withheld. And that's what gave me a concern. Now, it's possible that those concerns could have been put to bed with context, etcetera, etcetera, but I actually didn't particularly assume what you said I assumed … I just relied on the fact that in the context of Vocation, $20 million was a very material amount of money. … You understood that Vocation was the largest operator of registered training organisations operating in Victoria, didn't you? ––– I had certainly – certainly knew that it was one of the largest, if not the largest, yes. And you assumed that if there was any withholding imposed by the department, that it would follow as night follows day that the amount withheld would be higher for that entity than for other entities? ––– That's a reasonable conclusion. The question I would be asking – look, if I was in this hypothetical room of your grilling the - - - Yes? ––– - - - company management and they said, "Look, don't worry, it's not out of the usual", then I might say – "And it is 20 million, but that – but it's not out of the usual because we are just a larger company", if that's – if that was the general defence, I would then say, "Well, compared to your turn over from the Victorian Government, what percentage is it?" And then I would be interested in these other companies, what percentage of their turnover was – had been withheld on a more, shall we say, usual basis. Now … I'm not trying to put words in your mouth, but, in fact, … if these other companies were a tenth of the size of Vocation and they had $2 million withheld, I would have said that that's on a par. In other words, I would be looking – I wouldn't be just saying, "They're the biggest, therefore, hey, it's going to be a lot of money." I would be trying to say, "Well, compared to their size, relative to their size, is it a large amount of money." 571 The evidence does not support a finding that the withholding of about $20.0 million was not out of the ordinary even when allowance is made for the fact that Vocation was a company with forecast revenue for the financial year ending 30 June 2015 of about $250.0 million. Mr Sisson's evidence was that even in the context of a company with that revenue, $20.0 million was "a very material amount of money". 572 Some of the additional information may be put aside on the basis that it is manifestly incorrect. In particular, it is incorrect to say that DEECD imposed the relevant contractual measures on the basis of "mere suspicions" (para c) or that DEECD's suspicions had "no reasonable foundation" (see para d). The information available to DEECD in the MMU report, statements made by Ms Bonnici in her capacity as Vocation's Chief Operating Officer admitting to systemic failings, and Vocation's acceptance that students had been enrolled in CSP, Warehousing and CGEA courses without having undergone an appropriate pre-training review, were more than sufficient to found a reasonable suspicion that BAWM and Aspin had breached their Funding Contracts. 573 Mr Langtree's analysis is more problematic (see para e). I am satisfied it was prepared by Mr Langtree without a complete understanding of the scope of Vocation's contractual obligations and on the assumption that BAWM's maximum exposure was limited to the amount of CSP revenue claimed from January to June. That assumption was not reasonable for reasons I have previously explained. The true position was much more uncertain. The profit and EBITDA information (see paras g-h) is also based on Mr Langtree's figure of $4.37 million and is therefore equally uncertain. 574 The fact that enrolments and new commencements in courses other than CSP and Warehousing continued through until late August 2014 (see para i) is in my view of no significance. Any expectation that enrolments in those courses would have some positive impact on BAWM's revenue was necessarily based on the assumption that DEECD would make payments in respect of those enrolments notwithstanding that they occurred at a time when the suspension was in force and contrary to what I am satisfied was a valid direction given by DEECD under the terms of the relevant Funding Contract. There is no evidence to suggest that DEECD would have looked favourably on a claim for payment arising out of those unauthorised enrolments. 575 In cross-examination Mr Sisson was taken to para 21(d) of his report which refers to the fact that the amount of payments withheld by DEECD from BAWM and Aspin was approximately $20.0 million. He was asked to assume that he was also provided by management with two additional pieces of information: first, that it was management's considered view that, of the total amount withheld, "the absolute worst case" was that there would be a permanent loss of no more than $7.6 million in revenue; and secondly, that there were other growth areas which had exceeded the budgeted outlook that would wholly, or in substantial part, make up that amount. On those assumptions Mr Sisson was asked whether that additional information would lead him to an opinion different from that stated in his report. Mr Sisson's response was: … It would make you think. It would not necessarily mean that you accept that – those statements from management. And the other point is that the – your reference to the budged – expected budgeted outcomes – I mean, that's not quite the same as outcomes relative to market expectations. Now, in other words, if the market had already assumed a growth of X, let's say 10 per cent, and the budget had assumed a growth of these businesses you're referring to of eight per cent, if all that – if all that adjustment did was bring the budget – well, bring the expectations albeit higher than budget but into line with market, well, that wouldn't have any impact, of course. But, more importantly, companies all the time like to convey a story which we as investors have to appraise very, very critically to see whether, in fact, they – their assessment really is an even handed best case assessment … I say "best case" in the sense of whether it's an even handed assessment of all the probabilities on a best endeavours basis, or whether … it's really trying to spin a story to minimise the damage to the company. Now, I would hate to disabuse you if you always think it's the first. 576 Mr Sisson went on to accept that he would take such information into account but would not accept it uncritically. He also went on to say that one always comes back to the question of reliance because the company may be telling him something but the question would be how much could he really rely on it? 577 Mr Sisson's reluctance to accept uncritically a statement by management to the effect that the "absolute worst case scenario" would involve a permanent loss of no more than $7.6 million of revenue in the hypothetical scenario put to him is vindicated by a consideration of Mr Langtree's analysis of 27 August 2014 which a not uncritical mind would soon conclude was unlikely to constitute an accurate or reliable assessment of the risk of permanent loss once regard was had to the relevant contractual provisions and the relevant correspondence. Mr Langtree's analysis was not what I understood Mr Sisson to mean by "an even handed assessment." 578 I should make clear that Mr Langtree's analysis was not provided to Mr Sisson nor was he taken to it in cross-examination so he was never given the opportunity to express an opinion as to whether or not it would lead him to change any of the opinions given in his report. 579 Some of the other information referred to by Mr Leopold SC carries little weight on the question of materiality once it is accepted that Mr Langtree's $4.37 million and $7.6 million figures are not an accurate or reliable estimate of the extent of revenue at risk of permanent loss. 580 I accept that some students who had been enrolled in courses through BAWM and Aspin could be enrolled through other Vocation RTOs (para j) including those that had funding contracts with DEECD. But the evidence (which I discuss further below) suggests that there was limited scope for this to occur. Mr Hutchinson's report to the board dated 19 August 2014 indicated the suspensions on enrolments imposed on BAWM and Aspin were likely to reduce revenue by between $8.0 million and $10.0 million in the financial year ending 30 June 2015. He noted that some countervailing action would be taken but nowhere did he suggest that all, or even a substantial part, of that reduction could be made up by enrolling students who might otherwise have enrolled in CSP, Warehousing and CGEA into other courses. If Mr Hutchinson's assumption was that the suspension would be in place for two months, then I think his estimate was on the low side, but not entirely unreasonable. 581 As to the suggestion that there was countervailing profit growth occurring in relation to the VET Fee Help and other areas of Vocation's business (para k), I am satisfied that the additional revenue and earnings growth that was anticipated to flow from VET Fee Help had already been factored into relevant earnings estimates. During the conference call on 21 August 2014 announcing the results for the financial year ending 30 June 2014, Mr Gréwal stated that Vocation believed that VET Fee Help was a significant growth driver for the company in the 2015 financial year. VET Fee Help was referred to specifically in the FY2014 Presentation (slide 9) and was picked up in analysts' reports issued shortly afterwards. Credit Suisse referred to VET Fee Help as a significant driver of Commonwealth government revenue. As at 21 August 2014, Credit Suisse was forecasting after tax profit of $41.3 million for the financial year ending 30 June 2015, which is very close to the consensus estimate of $41.7 million calculated by Mr Sisson. In my opinion, disclosure of information to the effect that there would be profit growth occurring in relation to VET Fee Help would have involved nothing more than the recycling of old news and would not have provided any new information to the market at any time during the relevant period. The other project in which Vocation was expecting to grow revenue and profits was known as "My Vocation." That was a longer term project which was going to take two to three years to develop. 582 It is also important to remember that Vocation's Victorian RTOs were also suffering from the effects of the VET pricing changes which Mr Hutchinson had estimated would reduce their revenue by another $15.0 million. This was on top of the $8.0 million to $10.0 million revenue impact that he estimated the suspensions on enrolments would have. 583 As to the 8 September 2014 meeting (para l), I do not accept that the scope of the review was confined as is suggested by the paragraph. Leaving that point aside, if there was a significant risk to Vocation that it would forfeit a large but otherwise uncertain portion of the withheld amounts, then the meeting held on 8 September 2014 may have brought forward the time at which the loss would be crystallised (ie. after completion of the review) but did nothing to reduce the risk that such a loss would be incurred. 584 As to the last of the matters referred to by Mr Leopold SC (para m), I accept that it is in a different category. If the materiality of the Withholding and Suspension Information in the period 15 September 2014 (the date on which the proceeds of the Placement were received by Vocation) to 18 September 2014 was founded solely on any actual or potential cash flow problems that were likely to be experienced by Vocation as a result of the imposition of the contractual measures by DEECD then I would accept that the Withholding and Suspension Information could not be material after receipt of the proceeds of the Placement. Any cash flow problems that were likely to be suffered by Vocation (at least in the short term) were essentially resolved by the Placement. But if the materiality of the Withholding and Suspension Information is assessed by reference to the risk of permanent loss of the withheld funds, then the Placement is in my view irrelevant because it did not reduce the risk of such a loss occurring. 585 The defendants submitted that it was not open to me to find that the withholding of payments by DEECD would result in any permanent loss of revenue because it was not open to me to find that there had been any actual breach by BAWM or Aspin of its Funding Contract. There are two answers to this submission. 586 The first is that the power to withhold funds does not depend for its existence upon there being any actual breach by the RTO of the Funding Contract. Under the terms of the Funding Contract, the power to withhold payment is enlivened if DEECD reasonably suspects that the RTO has breached the Funding Contract. Even if it is assumed that DEECD cannot establish that such a breach has occurred, the Funding Contract would still permit DEECD to withhold, suspend or terminate payment until DEECD was satisfied that "the issue" (eg. whether or not the RTO had complied with its contractual obligations with respect to the enrolment process) had been satisfactorily resolved. The difficulties that this may cause an RTO that has failed to properly conduct or document pre-training reviews with prospective students are obvious. It could be very difficult for the RTO to ever satisfy DEECD that the issue was resolved if the RTO had failed to create and maintain documentary records in accordance with the requirements of its Funding Contract. 587 The second answer to the defendants' submission is a more fundamental one. The assessment of materiality takes place on an ex ante basis. Hence, a company may be required to disclose the existence of a lawsuit that would, if decided against the company, substantially reduce its earning capacity notwithstanding that the outcome of the lawsuit is not known at the date of its commencement. That is not to say that disclosure would be required if such a lawsuit could reasonably be characterised as bound to fail. But in the circumstances of the present case there was far too much uncertainty to conclude that either BAWM or Aspin would be able to satisfy DEECD that its reasonable suspicions were unjustified or that the issues raised by DEECD in its 26 August 2014 letter would be resolved to DEECD's satisfaction. 588 Mr Pesman SC on behalf of Mr Dawkins developed a detailed argument in support of the proposition that the suspension on enrolments and new commencements was not material. One of the matters he relied on was that "the suspension of enrolments was a temporary measure only". However, until the outcomes of the review into CSP, Warehousing and CGEA, and the proposed trial in respect of BAWM's and Aspin's others courses were known, it was not possible to say with any confidence whether BAWM's or Aspin's Funding Contract might not be terminated or that the suspensions on enrolments and commencements in particular courses (eg. CSP and Warehousing) would not continue indefinitely. 589 Another matter relied upon by Mr Pesman SC in support of his submission that the suspensions on enrolments and commencements was not material was the "redirection opportunity" that the suspensions were said to have created. In essence, the submission was that it was open to Vocation to enrol students who would otherwise have been enrolled by BAWM or Aspin into courses conducted by its other RTOs. I have already said something about this submission when considering Mr Leopold SC's arguments, but Mr Pesman SC's submission focused on some additional details. 590 Mr Pesman SC placed reliance on the email sent by Mr Langtree to Mr Thompson at around 11.00pm on the night of 25 August 2014 to which I have previously referred. In that email Mr Langtree stated that in respect of the VTG payment for 9 September, "AVANA/LV should be approx. $600K better off (redirection of BAWM enrolments)." Mr Langtree's email also stated that AVANA/Learning Verve payments should be $1.5 million better off come the VTG payment for 7 October due to redirection of BAWM enrolments. 591 One difficulty with this submission is that neither AVANA nor Learning Verve was at this time in a position to enrol VTG funded students either because it did not have a current funding contract with DEECD or because its payments had been suspended. As Mr Hutchinson's report to the board dated 19 August 2014 made clear, Learning Verve had problems of its own. All of its enrolments after December 2013 had been cancelled and it was progressively repaying money to DEECD for "incorrect claiming". The payment records show that no VTG payments were made to either AVANA or Learning Verve during the 2014 calendar year. 592 In any event, even if there was a redirection of enrolments to the value forecast by Mr Langtree (about $2.1 million in total for September and October) this would only provide a modest offset given that CSP and Warehousing alone had generated revenue of about $9.0 million (exclusive of GST) during the last two months of the financial year ending 30 June 2014. That would suggest a net loss of revenue for September and October of about $7.0 million. Based on consensus revenue estimates for the financial year ending 30 June 2015 of just under $250.0 million, that figure may not in itself seem material, but not if one also considers the other courses that had been delivered by BAWM and Aspin in the last two months of the financial year ending 30 June 2014. These generated about $8.0 million (inclusive of GST) in additional revenue. That would take the loss of revenue figure to about $15.0 million which would be about 6% of forecast revenue or about $3.8 million in earnings (applying an EBIT margin of 25.5%). In my opinion, given the consensus forecasts for ATP of $41.7 million and EBIT of $63.7 million, that figure would have been material in that it would be likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of Vocation shares throughout the relevant period. 593 It is also important to recognise that the suspension of enrolments and commencements was part of a combination of measures imposed against both BAWM and Aspin. The total amount that had been claimed by BAWM in respect of CSP and Warehousing (including the paid and unpaid components) for training delivered between January and June 2014 was about $22.0 million (exclusive of GST). That equates to slightly less than $6.0 million in earnings before making any allowance for the negative earnings impact of the suspensions on enrolments and commencements. Even if one were to ignore Warehousing altogether, and assume in accordance with Mr Langtree's worst case scenario that only $7.6 million of revenue was at risk, this would still equate to about $2.0 million in earnings which, when coupled with the negative earnings impact of the suspensions, is still material ($2.0 million + $3.8 million = $5.8 million). 594 In my opinion the evidence establishes that the contractual measures imposed by DEECD had the potential to negatively impact Vocation's earnings in the financial year ending 30 June 2015 by upwards of $5.8 million (about 9% of EBIT) and quite possibly upwards of $10.0 million (about 16% of EBIT). In those circumstances, I am satisfied that the Withholding and Suspension Information was material in that it would have been likely to have influenced persons who commonly invest in securities in deciding whether to acquire or dispose of Vocation shares throughout the relevant period. 595 As Mr Sisson explained, institutional investors would be particularly concerned by regulatory and compliance risks, particularly in relation to government entities providing funding. Both the Prospectus and the Annual Report identified various risk factors that Vocation faced arising out of the fact that it was operating in a highly regulated industry that was heavily dependent on government grants and subsidies. 596 The fact that DEECD was withholding all payments totalling approximately $20.0 million in funding based on suspected breaches of the Funding Contracts, and that DEECD had directed BAWM and Aspin to suspend all student enrolments and commencements, would have been likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of Vocation shares throughout the relevant period. 597 ASIC also relied upon the impact of the Withholding and Suspension Information on Vocation's cash flow. In his report Mr Sisson did not (because he was not asked to) express any opinion as to the materiality of the Withholding and Suspension Information from a cash flow perspective. But his oral evidence made clear that, generally speaking, a delay in the payment of money, even a relatively substantial amount, to a company by its debtor would be of less concern than the possibility that the sum would be permanently lost. As Mr Sisson explained: … I'm assuming that if it's a temporary withholding of money that it's not going to be catastrophic. I mean, it's not going to be… let's just say – let's just say $8 million was being withheld, it normally would have been paid 4 million in July, 4 million in August but instead that 8 million didn't come through until October, let's just say, and the bank was supportive, then the impact on the company would not be material. 598 His qualification "and the bank was supportive" is important. The cash flow effects of a delay in payment that can be smoothed over using available credit facilities would not usually constitute a threat to the viability of the business or the likelihood of the company meeting any earnings expectations. However, if the delay in payment is out of the ordinary, and could not be accommodated using the company's available credit facilities, requiring the company to turn to equity markets in order to raise new capital, then it may well be material, particularly if the company is required to undertake a dilutive capital raising at a discount to the market price at which its shares trade. This is exactly what occurred in the present case. 599 I have previously referred to Mr Hutchinson's acceptance in cross-examination that by 5 September 2014 Vocation was facing what was potentially a very significant cash flow crisis. A forensic accountant called by ASIC, Ms Dawna Wright, gave evidence which establishes that Vocation had negative operational cash flow in the period 1 July 2014 to 18 September 2014. Her evidence provides further confirmation (if it were needed) of just how heavily dependent Vocation was on VTG funding to BAWM and Aspin for cash flow. 600 I am satisfied that the cash flow impact of the contractual measures imposed by DEECD on BAWM and Aspin left Vocation with no alternative other than to undertake a capital raising to protect itself against the very real possibility that DEECD would not make a partial payment of the withheld funds before completion of the proposed review. On that basis, and independently of the anticipated impact of the relevant contractual measures on Vocation's forecast earnings, the Withholding and Suspension Information was material in that it would have been likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of shares in Vocation. 601 ASIC also relied upon what it described as the "reputational risk" arising out of Vocation's dispute with DEECD which it submitted would have been likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of shares in Vocation. 602 As previously stated, Mr Sisson gave evidence that the prospect that the Withholding and Suspension Information may suggest that revenue growth in the future might be impaired due to reputational damage, or a loss of trust or confidence by Government clients, was one of a number of considerations that would influence institutional investors in deciding whether to acquire or dispose of shares in Vocation. Once this additional risk is weighed up along with the potential earnings and cash flow impact of the measures imposed by DEECD, then it seems to me to be fanciful to think that institutional investors, or any other person who ordinarily invests in shares in listed public companies, would not be influenced by the Withholding and Suspension Information when deciding whether to acquire or dispose of shares in Vocation. 603 I am therefore satisfied that the Withholding and Suspension Information was information that a reasonable person would expect to have a material effect on the price or value of Vocation shares. In particular, I am satisfied that the Withholding and Suspension Information would have been likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of shares in Vocation. 604 I am satisfied that Vocation contravened s 674(2) of the Act during the relevant period by failing to comply with Listing Rule 3.1 by not notifying the ASX of the Withholding and Suspension Information. Section 674(2A) – Involvement in Contravention of Section 674 605 I have previously set out the relevant statutory provisions including s 674(2A), s 674(2B), and s 79 of the Act. 606 ASIC contends that Mr Hutchinson and Mr Dawkins abetted, or by their acts and omissions were directly or indirectly knowingly concerned in, Vocation's failure to disclose the Withholding and Suspension Information in the period between 28 August 2014 and 18 September 2014, and thereby contravened s 674(2A) of the Act. 607 As previously stated, ASIC does not contend that either Mr Hutchinson or Mr Dawkins knew that the Withholding and Suspension Information was material in the relevant sense. However, ASIC contends that each of them knew the underlying facts from which the Court could infer that a reasonable person would have expected such information to be likely to influence an investor in making a decision whether to acquire or dispose of shares in Vocation. 608 Mr Halley SC submitted that knowledge of the underlying facts was sufficient to found liability under s 674(2A). That approach was said by ASIC to be supported by a number of relevant authorities and by the presence in s 674 of subsection (2B) which provides that a person does not contravene subsection (2A) if the person proves that he or she took all steps (if any) that were reasonable in the circumstances to ensure that the listed disclosing entity complied with its continuous disclosure obligations and that, after doing so, believed on reasonable grounds that it was complying with such obligations. 609 On behalf of Mr Hutchinson and Mr Dawkins it was submitted that ASIC has misstated the test to be applied under s 674(2A) for the purpose of determining whether a person was involved in a contravention of s 674(1) and that ASIC's approach is contrary to decisions of the High Court and the Full Court and, in a case that was said to be directly on point, the decision of Davies J in Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (in liq) (2016) 115 ACSR 437 ("Sino") at [52]-[54]. In that case her Honour, who was required to determine whether the second defendant (Mr Shao) was liable under s 674(2A), set out the definition of "involved in a contravention" that appears in s 79 of the Act, and said: [54] Thus, to find that Mr Shao was "involved" in the company's contravention of s 674(2), the Court needs to be satisfied that Mr Shao: (i) knew that the company's profit had deteriorated in the second half of the 2013 calendar year; and (ii) knew that this was information which was not generally available and was information which a reasonable person would have expected, if it were generally available, to have had a material effect on the company's share price. Mr Shao in his defence admitted the second element and made partial admissions about the matters of which he had knowledge. 610 ASIC submitted that Davies J was in error in so far as her Honour held that for a person to be involved in a contravention of s 674(2) he or she must know that the relevant information was not generally available and was information which a reasonable person would have expected, if it were generally available, to have had a material effect on the company's share price. 611 Before turning to some other relevant authorities, I should first refer to some relevant legislative history. Section 674(2A) and (2B) were introduced into the Act by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth). The Bill for that Act in its original form included only the clause (Item 102) corresponding to s 674(2A). The Explanatory Memorandum stated: 5.446 The amendments to the Corporations Act contained in this Part of the Bill will extend civil liability for contraventions of the continuous disclosure provisions of the Corporations Act by disclosing entities to any other persons involved in a contravention. They will enable ASIC to seek a pecuniary penalty order against an individual involved in a contravention by a disclosing entity, whereas previously such a penalty could only be sought against the entity itself. 5.447 The amendments are intended to apply to individuals with real involvement in a contravention of the continuous disclosure provisions, including individuals who: aided, abetted, counselled or procured the contravention; were knowingly concerned in, or party to, the contravention; and conspired to effect the contravention. Involvement in a contravention therefore requires some form of intentional participation and actual knowledge of the essential elements of the contravention. Furthermore, an individual involved in a contravention only faces a pecuniary penalty if the contravention is serious (section 1317G). 612 A Supplementary Explanatory Memorandum was subsequently circulated that referred to some proposed amendments to the Bill including provision for a due diligence defence for persons involved in contraventions of s 674(2) or s 675(2). The Supplementary Explanatory Memorandum stated: Schedule 6 – Continuous disclosure 4.81 Sections 674 and 675 of the Corporations Act impose obligations on disclosing entities in relation to continuous disclosure. The Bill currently includes amendments to these sections (proposed subsections 674(2A) and 675(2A) — see Schedule 6, Item 102, in the Bill) which would have the result that a person who is involved in a contravention of these provisions also contravenes subsection 674(2) or 675(2). 4.82 It is now proposed to include a due diligence defence for persons involved in the contravention. This defence is proposed to address concern expressed that persons involved in the management of a disclosing entity may be considered to have contravened the continuous disclosure requirement even though they had done their best to ensure that the entity complied with its continuous disclosure obligations. … Item 102 4.88 This amendment provides a defence to a breach of proposed subsection 675(2A) in relation to a person who is involved in a breach of a disclosing entity's continuous disclosure obligations, where the person took all reasonable steps to ensure the entity complied with its disclosure obligations and had reasonable grounds to believe that the entity was complying with its disclosure obligations. 4.89 The onus is on the defendant to prove that they satisfy the requirements of this defence. Further explanation is provided in relation to Item 101. 613 A person reading s 674(2A) without an understanding of the definition of "involved in a contravention" including the judicial interpretation of equivalent provisions in other legislation could well perceive a need for a due diligence defence of the kind found in s 674(2B). That thinking may have informed the enactment of s 674(2B). Whether that is correct or not probably does not matter. I say that because the expression defined in s 79 is used in a number of other provisions of the Act besides s 674(2B). In those circumstances, there is little if any scope to argue that s 79 should be given a meaning that allows for the presence of the due diligence defence in s 674(2B). 614 The language in s 79 of the Act is not precisely identical to what previously appeared in s 75B(1) of the Trade Practices Act 1974 (Cth) ("TPA"). However, each of the four subparagraphs to s 75B(1) is identical to each of the subparagraphs to s 79 of the Act save that subparagraph (c) of s 79 includes the words "by act or omission". For present purposes, there is no material difference between the four subparagraphs of each of these sections. 615 Section 75B of the TPA was the statutory provision (which later became s 75B(1)) with which the High Court was concerned in Yorke v Lucas (1985) 158 CLR 661. In that case the High Court held that to be liable under para (a) of s 75B, a person must have knowledge of the essential matters which go to make up the relevant contravention and that this was also true of a person said to be in any way directly, or indirectly, knowingly concerned in, or party to, the contravention under para (c) of s 75B. The Full Court in Quinlivan v Australian Competition & Consumer Commission (2004) 160 FCR 1 ("Quinlivan") referred to this as the "Yorke principle". In their consideration of the interaction between s 51A, s 52 and s 75B(1) of the TPA the Court (Heerey, Sundberg and Dowsett JJ) said at [8]-[10]: [8] The leading case on s 75B is Yorke v Lucas (1985) 158 CLR 661. The High Court held that the section imports the requirements of the criminal law. The person sought to be made liable must be shown to have had knowledge of the essential matters which go to make up the contravention. This contrasts with the rule as to primary liability under s 52 where liability may attach even though a corporation acts honestly and reasonably: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228, Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197. [9] In Yorke 158 CLR 661 itself the alleged accessory, an employee of a corporate respondent, was held not to be liable because although he was aware of the representations made — indeed they were made by him — he had no knowledge of their falsity. Therefore he could not be said to have intentionally participated in the contravention: Yorke 158 CLR at 668. "Knowledge" means actual and not constructive knowledge: Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 5. What is said in Yorke 158 CLR 661 about s 75B is applicable to s 80(1)(c), (d), (e) and (f). [10] From the interaction of these provisions three conclusions emerge. First, s 51A does not detract from the Yorke principle that actual knowledge of the essential elements of the contravention is required if s 75B or s 80 is to apply. Where the contravening conduct involves misrepresentation, whether as to a future matter or not, this principle requires actual knowledge by the accessorial respondent of the falsity of the representation. This is an essential matter which must be alleged and proved: Su v Direct Flights International Pty Ltd [1999] FCA 78 at [38]; Fernandez v Glev Pty Ltd [2000] FCA 1859 at [18]. 616 In Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 ("Cassidy") Moore J (with whom Mansfield J agreed, Stone J dissenting) interpreted the Yorke principle to mean that a person could be liable for involvement in a corporation's contravention of s 52 of the TPA based on the making of a misleading representation even though the person was unaware that the representation had the capacity to mislead. Stone J considered that proposition to be inconsistent with the Yorke principle. I respectfully agree with her Honour. 617 To my knowledge the majority view in Cassidy has been followed only once before, and that was by the Full Court in Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Ltd (2012) 202 FCR 158 (per Collier J at [119], Stone J agreeing at [1]). However, although Cassidy was cited and referred to by Collier J, the later Full Court decision in Quinlivan was not. Quinlivan was followed in McGrath v HNSW Pty Limited (2014) 219 FCR 489 (Cowdroy J) and in Australian Competition & Consumer Commission v TF Woollam & Son Pty Ltd (2011) 196 FCR 212 (Logan J). 618 Santow J (as he then was) interpreted s 79 of the Act in accordance with the Yorke principle in Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 ("Adler"). His Honour's decision on this point was approved by the New South Wales Court of Appeal in Forge v Australian Securities Investments Commissions (2004) 52 ACSR 1. McColl JA (with whom Handley and Santow JJA agreed) said at [202]: In ASIC v Adler, above at [209], Santow J (as he then was) held that to be "involved" within the meaning of s 79 of the Corporations Act in a contravention of the Corporations Act, it was necessary that a person know of "the actual events, though only the essential ones, which constitute that offence". His Honour said that that "[k]nowledge may be inferred from the fact of exposure to the obvious, though that [did] not obviate the need for actual knowledge of the essential facts constituting the contravention", referring to Giorgianni v R (1985) 156 CLR 473 at 507–8; 58 ALR 641 at 656; [1985] HCA 29 per Wilson, Deane and Dawson JJ. In a later passage, his Honour dealt again with the issue of accessorial liability saying: [357] In Yorke v Lucas ... in construing the equivalent provision in the Trade Practices Act 1974 (Cth) to s 79, the High Court held that where it is sought to make a person liable as an accessory to a contravention it is necessary to establish that the person had intentionally participated in the contravention. To establish intentional participation, the court held that it must be proven that the person has knowledge of the essential matters that make up the offence or breach (in that case of s 52(1) of the Trade Practices Act). At 670, the majority comprising Mason ACJ, Wilson, Deane and Dawson JJ, observed that the words require: "... a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention." The majority went on to say: "There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention." [358] That knowledge is actual and not constructive. But a combination of suspicious circumstances and the failure to make appropriate inquiry when confronted with the obvious, makes it possible to infer knowledge of the relevant essential matters: Pereira v DPP (1989) 82 ALR 217 at 219; 63 ALJR 1 at 3. 619 Given the weight of authority supporting the construction of s 79 of the Act adopted by Davies J in Sino, I do not think it is open to me to uphold ASIC's submission as to the proper construction of that section. Even if it were, I would reject ASIC's submission on the basis that it is incorrect. 620 It follows that the case against Mr Hutchinson and Mr Dawkins based on s 674(2A) of the Act must fail. Section 1041H: Misleading and Deceptive Conduct 621 Section 1041H of the Act relevantly provides that "a person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive" (s 1041H(1)). Securities in a company such as Vocation constitute financial products for this purpose. "Conduct in relation to a financial product" is defined to include, inter alia, "issuing a financial product" (s 1041H(2)(b)(i)), "publishing a notice in relation to a financial product" (s 1041H(2)(b)(ii)) or "carrying on negotiations, or making arrangements, or doing any other act, preparatory to, or in any way related to" either of those activities (s 1041H(2)(b)(x)). 622 The principles to be applied in determining whether conduct is misleading or deceptive or likely to mislead or deceive are well settled and were not in dispute. Most of them have been developed in the context of other statutory provisions that use the same relevant language including s 52 of the TPA and s 18 of the Australian Consumer Law 2010 (Cth). 623 The question whether conduct is misleading or deceptive or likely to mislead or deceive is a question of fact that must be determined in light of the relevant surrounding facts and circumstances. As McHugh J observed in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 ("Butcher") at [109]: The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document. (Citations omitted) His Honour's observations were approved by the plurality in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 ("Campbell") at [102]. 624 A person may be found to have engaged in conduct that is misleading or deceptive, or likely to mislead or deceive even though the person lacked any intention to mislead or deceive: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 ("Hornsby") at 228 per Stephen J. 625 The word "likely" in this context means a real and not remote chance that relevant persons will be misled or deceived: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87. 626 Conduct may be misleading or deceptive if it induces error but it is not sufficient merely to show that it may have led to confusion or caused people to wonder: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 per Gibbs CJ. 627 Evidence that some people may have been misled is not essential but it is admissible and may be persuasive if given: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202 per Deane and Fitzgerald JJ. 628 In order to establish that conduct is misleading or likely to mislead it is not necessary to show that it conveys a misrepresentation: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No. 1) (1988) 39 FCR 546 at 555 per Lockhart J. But if the conduct alleged by a plaintiff to be misleading or deceptive or likely to mislead or deceive is said to consist of the making of a representation having one or more of those qualities then it will be necessary for the plaintiff to establish that the relevant representation was actually conveyed and that it was misleading or deceptive. 629 A statement which is literally true may nonetheless be misleading or deceptive. As Stephen J explained in Hornsby at 227: To announce an opera as one in which a named and famous prima donna will appear and then to produce an unknown young lady bearing by chance that name will clearly be to mislead and deceive. The announcement would be literally true but none the less deceptive, and this because it conveyed to others something more than the literal meaning which the words spelled out. 630 As Dowsett J observed in National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369 ("National Exchange") at [36]: [A] document may be misleading even if a full and perfect understanding of its contents would not create that effect. This inevitably flows from the general proposition that a truthful statement may nonetheless be misleading or deceptive. 631 In the present case, at least some of the representations complained of were made to the general public or a section of the general public whereas others were directed to identified individuals or, at least, the servants or agents of an identified business (ie. UBS). In Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45, the High Court stated at [102]-[103]: [102] It is in these cases of representations to the public, of which the first appeal is one, that there enter the "ordinary" or "reasonable" members of the class of prospective purchasers. Although a class of consumers may be expected to include a wide range of persons, in isolating the "ordinary" or "reasonable" members of that class, there is an objective attribution of certain characteristics. Thus, in Puxu, Gibbs CJ determined that the legislation did not impose burdens which operated for the benefit of persons "who fail[ed] to take reasonable care of their own interests". In the same case, Mason J concluded that, whilst it was unlikely that an ordinary purchaser would notice the very slight differences in the appearance of the two items of furniture in question, nevertheless such a prospective purchaser reasonably could be expected to attempt to ascertain the brand name of the particular type of furniture on offer. [103] Where the persons in question are not identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld, but are members of a class to which the conduct in question was directed in a general sense, it is necessary to isolate by some criterion a representative member of that class. The inquiry thus is to be made with respect to this hypothetical individual why the misconception complained has arisen or is likely to arise if no injunctive relief be granted. In formulating this inquiry, the courts have had regard to what appears to be the outer limits of the purpose and scope of the statutory norm of conduct fixed by s 52. Thus, in Puxu, Gibbs CJ observed that conduct not intended to mislead or deceive and which was engaged in "honestly and reasonably" might nevertheless contravene s 52. Having regard to these "heavy burdens" which the statute created, his Honour concluded that, where the effect of conduct on a class of persons, such as consumers, was in issue, the section must be "regarded as contemplating the effect of the conduct on reasonable members of the class". (Citations omitted) 632 The High Court's statement of the test to be applied in determining whether a misleading or deceptive representation has been made to the general public or a section of the general public has been considered in a number of later cases: see, for example, Domain Names Australia Pty Ltd v .au Domain Administration Ltd (2004) 139 FCR 215 at [26] per Wilcox, Heerey and RD Nicholson JJ, and National Exchange at [25] per Dowsett J and at [68] per Jacobson and Bennett JJ. Those cases recognise, consistently with what the High Court said, that the class of persons by reference to which the effect of the relevant conduct is to be assessed may be quite large. In particular, the relevant class may cover a wide range of people whose personal capacity, knowledge and experience may vary quite significantly. Where the statement is made to the public or a section of the public, the court considers its effect upon ordinary or reasonable members of the class in question all of whom are presumed to take reasonable care to protect their own interests. 633 In Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 ("Forrest"), a case in which a contravention of s 1041H was alleged based on the company's letters to the ASX and related media releases, the High Court considered that the intended audience of the company's communications could sufficiently be identified as (at [36]) "investors (both present and possible future investors) and, perhaps, as some wider section of the commercial or business community". 634 Where conduct that is alleged to have been misleading or deceptive, or likely to mislead or deceive, is directed towards identified individuals, the relevant enquiry will focus on whether or not those particular individuals were misled or deceived or were likely to be misled or deceived by the relevant conduct. As French CJ explained in Campbell at [26]: [26] This Court has drawn a practical distinction between the approach to characterisation of conduct as misleading or deceptive when the public is involved, on the one hand, and where the conduct occurs in dealings between individuals on the other. In the former case, the sufficiency of the connection between the conduct and the misleading or deception of prospective purchasers "is to be approached at a level of abstraction not present where the case is one involving an express untrue representation allegedly made only to identified individuals". Where the conduct is directed to members of a class in a general sense, then the characterisation inquiry is to be made with respect to a hypothetical individual "isolate[d] by some criterion" as a "representative member of that class". In the case of an individual it is not necessary that he or she be reconstructed into a hypothetical, "ordinary" person. Characterisation may proceed by reference to the circumstances and context of the questioned conduct. The state of knowledge of the person to whom the conduct is directed may be relevant, at least in so far as it relates to the content and circumstances of the conduct. (Footnotes omitted) 635 But it is important to emphasise that in such a case a plaintiff can establish that there has been a contravention of the relevant statutory provisions without proving that those identified individuals were actually misled or deceived. Of course, different considerations will apply in circumstances where compensation is sought by or on their behalf because of the need to prove that they suffered loss or damage as a result of such conduct: see Butcher at [27]. Section 1041H: The 25 August 2014 ASX Announcement 636 It is useful at this stage to draw attention to two features of the 25 August Announcement. 637 First, the announcement states that Vocation's funding contracts with DEECD have not been suspended and are continuing. That statement was literally true. In fact neither of the Funding Contracts make provision for their "suspension" which is something that could only occur by mutual agreement. They do, however, make express provision allowing DEECD to direct the RTO to suspend the provision of training services under the contract (cl 16.2(a)) and to suspend payment of money by DEECD to the RTO under the contract (cl 16.2). 638 Secondly, the announcement states that DEECD was conducting a review of three courses conducted by Vocation. That was literally true except that the courses were conducted not by Vocation, but by BAWM and Aspin, the RTOs with which DEECD had entered into funding contracts. Because the announcement referred to Vocation rather than BAWM or Aspin, it was impossible for the reader to ascertain from the announcement which RTO's payments had been withheld. 639 These observations demonstrate that the language used in the ASX announcement is in places very loose (eg. "Vocation's funding contracts") whereas in other places it is very precise (eg. "funding contracts … have not been suspended"). 640 ASIC alleged that the 25 August Announcement conveyed representations to the following effect: (a) none of Vocation's entitlements under its RTOs' funding contracts with DEECD had been suspended other than the withholding of recent payments due under the contracts ("R1"); (b) Vocation was able to continue to enrol students and deliver vocational education and training and ancillary services under all of its RTOs' funding contracts with DEECD ("R2"); and (c) Vocation had reasonable grounds to represent that the withholding by DEECD of recent payments under Vocation's RTOs' funding contracts was not material to Vocation ("R3"). 641 ASIC also alleged that each of the representations was "continuing". Based on what was said in closing submissions, I did not understand ASIC to press that allegation. Nor do I think that it could, even if it were pressed, have any bearing on any entitlement ASIC may have to the relief specified in the originating process. 642 The first question to consider concerns the audience to which the announcement was directed. For this purpose the High Court's definition of the relevant audience in Forrest provides a useful starting point. The relevant audience included investors (both present and possible future investors) in Vocation. These would have included institutional investors and private investors with varying degrees of sophistication and experience in financial and corporate matters. In addition, the relevant audience would have included other persons who had a professional interest in Vocation including brokers, analysts and bankers who might reasonably be expected to show an interest in Vocation's affairs including any public announcements made by the company. 643 I am satisfied that a large proportion of the relevant audience would have a reasonable understanding of Vocation's operations based on its prior public announcements (eg. the Prospectus, the Appendix 4E and the 2014 FY Presentation). Many of these people would also be familiar with articles appearing in the financial press concerning Vocation including, in particular, the article appearing in the AFR on the morning of 25 August 2014. I am satisfied that it would have been read by a large proportion of the relevant audience which would have understood the 25 August Announcement to be Vocation's considered response to the article. The fact that Vocation, through its subsidiary BAWM, was so heavily dependent on Victorian government revenue in the 2014 financial year was something that most existing and many potential investors in Vocation would have appreciated before they read the article. 644 The statement in the 25 August Announcement that Vocation's funding contracts have not been suspended and are continuing, when read in the context of the document as a whole, suggests that Vocation's funding arrangements under those contracts were operating normally. This suggestion is reinforced by the reference in the final paragraph to the operation of the funding contracts and the audit and review processes that are said to be part of Vocation's normal business activities. 645 The announcement does state that recent payments have been withheld. However, given the reference to the three courses that are said to be the subject of the review that appears immediately before the reference to withheld payments, I think many readers would be led to the erroneous understanding that these payments were in respect of Victorian government funding for just those three courses. The 25 August Announcement does not state that DEECD had determined that it would withhold payment of all funds to BAWM and all funds to Aspin until such time as DEECD was satisfied that issues it had identified were satisfactorily resolved. In my opinion it would be likely to convey to many readers something very different from that, ie. that only some of the affected RTO's Victorian government funding was being withheld. 646 The 25 August Announcement makes no reference to the suspension of enrolments and commencements. I think many readers would also be led to understand that Vocation could continue to enrol and provide training to students under its funding contracts with DEECD including in the three courses that were the subject of the review. That understanding would be reinforced by the statement that "Vocation's funding contracts…have not been suspended and are continuing" and the statement in the last paragraph that "[t]he operation of funding contracts … are part of Vocation's normal business activities". 647 In my view, the announcement was likely to convey the impression that while a review of three courses was taking place and recent payments in respect of those courses had been withheld as part of that review, Vocation's funding contracts were operating normally and that Vocation's entitlements under the funding contracts were not otherwise affected by the review. This impression was misleading because, while the funding contracts may not have been suspended, the RTO's entitlements under those funding contracts to receive payment for training previously delivered and to enrol new students for future training had been suspended. 648 Mr Pesman SC submitted on behalf of Mr Dawkins that the Funding Contracts did not confer on the RTOs any right to enrol students and that, in contractual terms, their only entitlement under the Funding Contracts was to receive funding payments from DEECD. It followed, as I understood the submission, that it would be incorrect to assert that any right or entitlement on the part of BAWM or Aspin to enrol students in courses had been suspended. 649 I do not think there is any substance to Mr Pesman SC's submission. When regard is had to the Funding Contracts, it is apparent that the RTOs had a right to be paid by DEECD for "Training Services" delivered to "Eligible Individuals" (see cl 7.1). Subject to any direction to the contrary, the RTOs were entitled to provide Training Services to students in accordance with the terms of the Funding Contracts. These services were defined in the Funding Contracts to include "determination of eligibility" and "completion of student enrolment forms" and related matters. Clause 16.2(a) expressly permitted DEECD to give directions to the RTOs to suspend part or all of the provision of the Training Services. 650 The Funding Contracts (subject to their terms) entitled BAWM and Aspin to provide Training Services. This included enrolling students whose training could later be made the subject of a claim for a funding payment. The pre-training review and enrolment of a student were necessary first steps in obtaining a funding payment. If a student could not be enrolled by the RTO because of a direction given under cl 16.2(a), then DEECD's obligation to make a funding payment to the RTO in respect of the training of that student could never be engaged. On that basis, I am satisfied that the RTO's right to enrol was a distinct and valuable right capable of being suspended in accordance with a written notice given pursuant to cl 16.2(a). 651 Mr Pesman SC also placed some reliance on the observations of Heydon J in Forrest at [105]. His Honour said: [105] Fortescue's remarks were not directed to the public as a whole. They were directed to a section of the public. It comprised superannuation funds, other large institutions, other wealthy investors, stock brokers and other financial advisers, specialised financial journalists, as well as smaller investors reliant on advice. This was not a naive audience … It may be accepted that the audience to which the 25 August Announcement was not naïve. But it does not follow that the audience would not reasonably infer based upon a fair reading of the 25 August Announcement that the affected RTOs remained free to provide training services to students pursuant to the terms of the relevant funding contracts. 652 I am satisfied that the 25 August Announcement would convey to many ordinary and reasonable members of the relevant audience each of representations R1 and R2. I am also satisfied each of representations R1 and R2 was misleading and deceptive or likely to mislead or deceive. This brings me to representation R3. 653 None of the defendants suggested that the 25 August Announcement did not convey an implied representation that Vocation had reasonable grounds to represent that the withholding by DEECD of recent payments under the Funding Contracts was not material to Vocation. I am satisfied that representation R3 was conveyed. 654 The question then arises as to whether Vocation had reasonable grounds to make representation R3. I do not think it did. My reasons are as follows. 655 I am satisfied that as at 25 August 2014, Vocation lacked any proper appreciation of the nature and scope of the parties' rights and obligations under the Funding Contracts. This lack of appreciation continued beyond 25 August 2014 up to and after Mr Langtree prepared his 27 August 2014 analysis. That analysis assumed that even if a pre-training review of a student who was later enrolled in the CSP and Warehousing dual qualification was inadequate to determine the suitability of those qualifications to an individual student's needs then this was of no significance provided the student satisfied any eligibility requirements specified in the relevant training package. This reflects a lack of understanding of the relevant contractual provisions as a whole and too narrow a view of the RTOs' obligations under their funding contracts. 656 The first written legal advice that Vocation appears to have received in relation to its dispute with DEECD was Mr Joyce's advice of 25 August 2014 which was not provided to the directors until after the ASX announcement was issued. It highlighted the weakness of BAWM's contractual position and effectively urged Vocation to engage in urgent without prejudice discussions to avoid any continued withholding of funds and the possible termination of the Funding Contracts. Mr Joyce's advice recognised that the dispute between DEECD and Vocation was rapidly evolving, that DEECD may not release funds for some time, possibly not at all, and that Vocation's right to recover all or even part of the withheld funds was the subject of considerable uncertainty. 657 Mr Langtree's analysis of 27 August 2014 had not come into existence at the time the board resolved to approve the release of the 25 August Announcement. The minutes of the board meeting held on that day do not mention a figure for BAWM's funding that was considered at risk of permanent loss. However, Mr Langtree's email to Mr Hutchinson of 21 August 2014 and Mr Hutchinson's letter to Mr Daniels of the ASX on 22 August 2014 indicates that Vocation was operating by that time on the assumption that the amount at risk was only $2.0 million. I have previously pointed to the uncertainty surrounding that figure. In my view, the calculations that give rise to that figure did not provide a reasonable basis for R3. 658 I am satisfied that the 25 August Announcement was misleading and deceptive, and likely to mislead and deceive in each of the respects alleged by ASIC. Section 1041H: The DDQ 659 ASIC contends that by providing the DDQ to UBS, Vocation contravened s 1041H of the Act. It further alleges that Mr Hutchinson and Mr Gréwal contravened s 180 of the Act by causing or permitting Vocation to contravene that provision. ASIC does not make any claim against Mr Dawkins in relation to the DDQ. When I refer in this section of my reasons to the defendants' submissions, I am referring to those made on behalf of Mr Hutchinson and Mr Gréwal. 660 ASIC alleges that on 10 September 2014 Vocation represented, in its responses to the DDQ, that: (a) the focus of DEECD's concerns was the extent to which school leavers were undertaking particular courses offered by BAWM and Aspin (R1); (b) the loss of revenue to Vocation from suspensions on enrolments in courses offered by BAWM and Aspin had been offset by enrolling students in qualifications offered by Vocation's other Victorian RTOs (R2); and (c) DEECD had indicated to Vocation a willingness to pay a substantial portion of the currently withheld funds within 7 to 14 days (R3). 661 ASIC alleges that each of the representations made in the DDQ was misleading and deceptive in that DEECD's concerns were not limited to the extent to which school leavers were undertaking particular courses offered by BAWM and Aspin, suspensions on enrolments had not been offset by enrolling students in courses offered by its other Victorian RTOs, and DEECD had not indicated to Vocation a willingness to pay a substantial portion of the currently withheld funds within 7 to 14 days. The DDQ 662 The DDQ, as signed by Mr Hutchinson and Mr Gréwal on 10 September 2014, was given to UBS in circumstances where UBS was considering underwriting the proposed offer of shares under a Placement. The DDQ is almost identical to the document that was prepared in consultation with Macquarie which had been discussed by the directors at the board meeting held on 8 September 2014. 663 The DDQ (in which UBS is referred to as the "LM") consists of 17 pages including a declaration made by each of Mr Hutchinson and Mr Gréwal. The declaration is in these terms: 11. DECLARATION By signing this document for and on behalf of the Issuer, each of the following authorised representatives of the Issuer undertakes and represents to the LM that: • Each of the persons participating in this Questionnaire and providing information has been authorised by the Issuer to do so and the Issuer assumes full responsibility for this document and the conduct of its representatives. • The answers provided in this document are, having made all necessary enquiries of its directors, officers, employees, representatives and advisers, and having considered any relevant documentation and other information, true and correct and complete and not misleading or deceptive (whether by omission or otherwise). • The Issuer has released all information required by Listing Rule 3.1 and the Issuer is in compliance with all provisions of the ASX Listing Rules and the continuous disclosure requirements of the Corporations Act in making the Offer, and the Issuer will disclose any inside information and will comply with all applicable disclosure requirements of the Corporations Act, the ASX Listing Rules and all applicable laws in any jurisdiction in which it conducts business and in which it will make the Offer. • By completing, signing and returning this Questionnaire to the LM, the Issuer acknowledges that LM will: • be relying on the answers provided to these questions as being complete, true and correct and not misleading or deceptive: and • Use and rely on the information in connection with the scope and terms of its engagement without having independently verified the information. • If, after completing and returning this Questionnaire and prior to the issuance of Securities under the proposed Offer, any of the answers change or any new information comes to light which may reasonably be expected to influence the decision of an investor whether or not to subscribe to the Offer or may otherwise affect the outcome of the Offer or the business or prospects of the Issuer, the Issuer will immediately notify the LM of such changes or new information. 664 For the most part, the DDQ is in question and answer form. The questions asked in it are not all proforma, and include questions that are specifically directed to issues peculiar to Vocation. These include many questions that specifically relate to the Victorian situation. Most of these questions are directed at ascertaining whether it is or may be "material" to Vocation. The DDQ includes the following definition of that word: In this Questionnaire "material" means: (a) Resulting in a increase or decrease in EBITDA, EBIT or by an amount equal to or greater than 5% of Vocation's EBITDA, EBIT NPAT respectively as set out in the Vocation's FY2014 annual accounts: (b) Resulting in an increase or decrease in the value of the Vocation's net assets by an amount equal to or greater than 5% of the Vocation's net assets as set out in the Vocation's FY2014 annual accounts: or (c) Otherwise material because the matter: (i) Is of such a nature and extent that the image, reputation or commercial prospects of the Group has or could be seriously and adversely affected: (ii) Is of such a nature and extent that the Group's ability to carry on business in the ordinary course may be seriously affected: (iii) Is outside the ordinary course of business of the Group: (iv) Relates to an area of critical risk: (v) Might result in the Group incurring a significant unexpected liability: or (vi) Is otherwise a matter which may reasonably be expected to influence the decision of an investor as to whether or not it will subscribe for Securities under the Offer. 665 In other relevant parts of the DDQ extracted below, I have highlighted and identified the particular statements which are said to convey each of R1, R2 and R3. Of course, it is necessary for contextual purposes to refer to more than just the particular answers that are alleged by ASIC to be misleading and deceptive. 666 Page 6 of the DDQ includes the following: Victoria • When were the Victorian funding payments suspended? ° 12th July was first payment missed, we get paid on around the 12th of every month • Is it usual for funding to be suspended in this manner? ° Yes. This is common and there are several RTO's we know of in VIC under the same process. It has happened in the past to BAWM and Real RTO's with recommencement of funding after 2-3 months. The contract (in its ability to suspend all payments for the RTO and not just the courses that are being investigated) is a legacy of dealing with small RTO's in that suspending payments whilst investigations are occurring was necessary for the department to protect it's position as small RTO's probably wouldn't have the funds to make any repayments. The same contract and mechanism applies to a $2m RTO as its does to a $650m listed company. • Is it the funding contracts or payments that have been suspended? ° Only payments. There is no indication that they is any variation to the terms in the contract, withholding funding is a mechanism the Department can use whilst an RTO is under review. • Specifically, why is this investigation occurring? ° Regular monitoring check of contracted RTO's in Victoria often results in areas the Department would like more information on. The monitoring body is called the Market Monitoring Unit (MMU). It is an annual event and this year is the most scrutiny RTO's in Victoria have come under as the general trend of increased compliance flows across the sector. • Which courses does the investigation relate to? ° Competitive Systems, General Education and Warehousing • How much revenue is being withheld? ° $22m – July/August claiming • When do you expect to receive a decision? ° We have received a letter stating review findings will be delivered no later than the 31st of October – this letter came in late last week. This was reconfirmed in a meeting on 8 September in which DEECD also promised to expedite the review. • When do you expect the revenue to be released? ° We would expect partial funding released in the next 14 days, then after full resolution the remainder November, less any funding we may need to repay which we continue to believe is a non material amount. … 667 Page 7 of the DDQ includes the following questions and answers: … • Can you please comment on the risk of the review being extended to additional courses provided in Victoria, including any recent dialogue you have had with the Department? ° Vocation's Chairman and CEO met with the Secretary (Richard Bolt) and Executive Director (Kym Peake) of DEECD on 8 September. The meeting confirmed that the proposed review will be confined to an isolated set of issues limited to the 3 qualifications in question being Certificate II in General Education for Adult, Certificate III in Competitive Systems and Processes and Certificate III in Warehousing Operations. It is anticipated that the review panel will be asked to expedite this process, and will conduct the review of those three qualifications within 7 to 14 days. Following that step Vocation will have an opportunity to comment on any findings before any decisions are taken, and at that point any extension of the scope to other qualifications will be discussed. Vocation is of the view that the risk of the review being extended to additional courses provided in Victoria is extremely low based on the internal review work Vocation has carried out. • Is this investigation material? Should it be disclosed to the market? ° Board and Management are comfortable with current disclosures and extended disclosure that will appear post placement next week and believe that the market is fully informed. • What steps have been taken to ascertain if this is material? ° Countless models cut, recut and cut again. Based on all communication we have with the Department on what exactly they have issues with, that is focused on a very small issue of "school leaver" definitions around particular students brokered into our solutions line. [R1] Other specific findings have not been made available to us from the Department, more vague comments on course duration and applicability – we just keep answering questions and providing evidence. ° There are no outstanding requests for information at this stage as far as we know. DEECD indicated on 8 September that they will expedite the review to conclude no later than the end of October. • Will the investigation impact the business model going forward? If so how? ° We have already adjusted our business model to decrease the reliance on our Solutions business by investing in the MyVocation platform to reduce reliance on brokers. We have also said goodbye to 5 Brokers so far. To procure a student internally costs us 7% of a course fee vs. an average of 30% brokered, so the marginal benefits are significant and given the current heavy hand of the Department that is focused on Brokered students accelerating the MyVocation platform that has always been part of our strategy will be a focus of FY15. … 668 At page 8 the following questions and answers appear: … • Will the current investigation affect FY15 results? If so please specify how and by how much? ° Enrolments in BAWM or Aspin RTO's were only impacted negligibly in July and by an immaterial amount in August. Enrolments in these two RTO's were halted on 25 August however will recommence by Mid September. The impact in August/September is being is being [sic] made up through enrolments in our other RTO's in Victorian that remain able to enrol and receive funding. [R2] ° With significant cost and revenue levers across the group that we have accelerated there are many ways we are making up any potential prolonged enrolment stoppage (which based on the meeting we had with DEECD on 8 September is highly unlikely as they have indicated that the review will be completed by the end of October by the latest). ° Should the outcome of the review be as expected, these enrolments would ramp up again under a higher margining business model that we will be rolling out progressively over FY15, as we decrease broker reliance over the next 12-months. Should the review determine any other adjustments to our business model, then there may be an impact in FY15 however it is too early to tell at this point. November will be the likely confirmation of how we're looking which gives the business plenty of time to look for alternative growth in FY15. … 669 At page 10 the following question and answer appears: … • Are there any present issues with regard to liquidity or receipt of cash flows vis a vis accounting profit? ° The suspension of funding with the Victorian review is starting to impact our normal high cash flows, however receipt of cash flow from all other parts of the business are normal and the business is forecast to be cash flow positive into CY15. ° DEECD indicated on 8 September their willingness to pay a substantial part of the withheld funds in the next 7-14 days. [R3] The banking syndicate are also supportive of extending the current bank facility by $15m (by 12 September). … 670 Detailed submissions were made by the defendants in relation to the representations that ASIC alleges were conveyed by answers given in the DDQ. These submissions emphasised the importance of considering the answers given in the context of the DDQ as a whole, including qualifying language in the same answers that are said to convey the alleged representations and answers given in respect of other questions which also provide context to the particular words upon which ASIC was said to have fixed. I accept that submission. I also accept that the DDQ was given to UBS and, in particular, individuals working within that business who were responsible for determining whether or not UBS should enter into the proposed placement agreement. The individuals who are likely to have read and considered the DDQ were likely to be experienced banking and finance executives who I will assume would have read the document with great care. Representation R1 Was R1 conveyed? 671 My first impression on reading the DDQ was that R1 was conveyed by the first of the highlighted statements. This is because this statement suggests that all relevant communications between DEECD and Vocation concerning "what DEECD have issues with" show that DEECD was focused on a very small issue of school leaver definitions around particular students enrolled by brokers ("the school leavers issue"). That is how I considered that statement would be understood by a reasonable reader in the circumstances of UBS. But it is necessary for me to re-examine the matter in light of other material appearing in the DDQ upon which the defendants relied and their submissions more generally. 672 The defendants drew attention to the following matters which were said to provide context to the particular statement upon which ASIC relied: The statement appears in the context of an answer to a specific question that is directed to understanding what steps had been taken by Vocation to ascertain whether the investigation was material. There are other statements in the DDQ that indicate that DEECD has other concerns (ie. course duration and applicability) that were unrelated to the school leavers issue. There is the reference made in the DDQ to DEECD having focused on three courses and a reference to the proposed review that "… will be confined to a set of isolated issues limited to 3 qualifications" (ie. CSP, Warehousing and CGEA). There is the statement in the DDQ that "the heavy hand of the Department is focused on brokered students." 673 It is true that the relevant statement is made in response to a specific question about what steps Vocation had taken to establish whether the investigation (ie. the proposed review) was material. The reference to "countless models cut, recut and cut again" suggests that modelling had been undertaken to determine whether or not the outcome of the investigation was material in the relevant sense. The answer to the question suggests that this modelling was undertaken on the basis that DEECD was focused on an issue that turned on definitions of "school leaver" and whether or not students who were enrolled by some brokers were within those definitions. The context provided by the question would suggest to the reader that, for the purposes of determining materiality, Vocation had considered the communications with DEECD and determined that DEECD was focused on a "very small issue" (ie. the school leavers issue) and that this formed the basis of Vocation's modelling. 674 I accept that there are other statements in the DDQ which indicate that DEECD may have had other concerns apart from that based on school leaver definitions. But that is not inconsistent with the statement that DEECD was focused on one very small issue. The reference to "brokered students" is not inconsistent with the suggestion that DEECD is focused on the school leaver issue when regard is had to the description of the "very small issue" which itself refers to brokered students. Nor is the reference in the DDQ to DEECD having focused on three courses inconsistent with the statement in the DDQ. The two are not mutually exclusive. When the DDQ is read as a whole the reader is likely to understand that the school leaver issue affected enrolments of "brokered students" in three particulars courses. 675 The defendants submitted that R1 as pleaded was a representation based on DEECD's actual (as opposed to communicated) concerns. I think the case as pleaded and as run was always founded upon DEECD's actual concerns as communicated to Vocation. It was not suggested by the defendants to any of DEECD's witnesses in cross-examination or in submissions that there was any difference between DEECD's actual concerns and its communicated concerns. I am satisfied that DEECD's actual concerns were those it communicated to Vocation. 676 Mr Leopold SC submitted that DEECD's particulars of falsity required that R1, as pleaded, should be taken to mean that the school leavers issue was DEECD's sole and only concern. However, R1, as pleaded, means what it says, ie. that the "very small issue" referred to in the statement was the focus of DEECD's concerns. That is not the same as saying that the issue was DEECD's sole concern or that DEECD had not raised other issues. Nor do I consider that R1 should be interpreted in that way. 677 Mr Studdy SC submitted that the statement in the DDQ upon which R1 relied was not a statement of fact but a statement of opinion. I do not agree. It was an assertion that DEECD's concerns (as revealed by all communication between DEECD and Vocation) were focused on a particular issue. In any event, in the circumstances of the present case I am satisfied that the statement in the DDQ was likely to mislead irrespective of whether it is characterised as a statement of fact or opinion. If it were understood by the reasonable reader as a statement of opinion (I do not think it would be) it would be an opinion lacking any reasonable basis. I explain why below. 678 Mr Leopold SC also submitted that the case based on R1 failed to take into account the fact that UBS had also been provided with a copy of the report prepared by Mr Dawkins and Mr Smith on 8 September 2014. I have previously set out relevant extracts from that report. For the purpose of considering R1 it is sufficient to note that all that appears in the report relevant to the case based on R1 is also found in the DDQ. (See the first question and answer extracted above from page 7 of the DDQ). However, it will be necessary to say more about the report when considering R3. 679 I am satisfied that representation R1 was conveyed by the DDQ. Was R1 likely to mislead or deceive? 680 The defendants submitted that, even if R1 was conveyed, it was not misleading or deceptive or likely to mislead or deceive. It was submitted that R1 was substantially true because the school leavers issue was a central concern of DEECD. I do not accept that submission. 681 It may be that Vocation viewed the definition of "school leavers" as the central issue in its dispute with DEECD, as is suggested by Mr Langtree's 27 August 2014 analysis and his email exchange with Mr Dawkins on 31 August and 3 September 2014 discussing the "school leavers" issue. But to say that DEECD's concerns were focused on that issue is not an accurate or reasonable characterisation of the concerns that had been communicated by DEECD to Vocation both orally and in writing. 682 By no later than 3 September 2014 it was clear that DEECD was focused on a number of issues including the quality of pre-training reviews and the quality of the training delivered to students in the CSP and Warehousing dual qualification. In her letter of 26 August 2014 Ms Watts stated that "the review will focus on particular areas of compliance to be specified in separate correspondence." The separate correspondence included the terms of reference forwarded to Ms Bonnici on 3 September 2014. It is clear from the terms of reference that DEECD's concerns extended to the relevant RTO's overall compliance with their obligations under the Funding Contracts with a particular focus on the five areas specified in Section D. 683 Nothing was put to Ms Bolt, Ms Peake or Ms Watts in cross-examination to suggest that the focus of DEECD's concerns was on the school leavers issue. Evidence given by Ms Peake and Ms Watts in cross-examination which Mr Leopold SC referred me to in his written submissions does no more than demonstrate that the school leavers issue was one of a number of significant concerns that DEECD had and wished to investigate. 684 Mr Studdy SC accepted that the terms of reference forwarded to Ms Bonnici on 3 September 2014 were broader than the school leavers issue, but submitted that they included that issue and that the evidence did not establish one way or the other what, in the mind of DEECD, was to be the focus of its investigation within those terms of reference. That submission is answered by previous findings as to the nature of the case pleaded and run by ASIC and my finding that DEECD's actual concerns were those communicated to Vocation. Representation R2 Was R2 conveyed? 685 The defendants submitted that representation R2 was not conveyed. In support of this submission they drew attention to the difference between the language of R2 as pleaded and the language of R2 as it appears in the DDQ. The relevant statement in the DDQ is that "[t]he impact in August/September is being is being [sic] made up through enrolments in our other RTOs in Victorian [sic] that remain able to enrol and receive funding" which appears in the context of an answer to a question concerning the impact of the investigation on Vocation's financial results for the year ending 30 June 2015. 686 The defendants submitted that there is "a world of difference" between that statement and R2 as pleaded, which implies that the loss of revenue had already been made up (rather than was "being made up") through enrolments in other RTOs. In particular, Mr Leopold SC submitted that the relevant statement in the DDQ, viewed objectively, and in the context of the question asked, conveyed that steps were being taken, over the course of the financial year ending 30 June 2015, towards making up the financial impact of the suspension of enrolments over the next nine and half months. 687 In my view the substance of the representation conveyed by the relevant statement as it appears in the DDQ is that enrolments in other RTOs have, and will continue, to make up for enrolments lost by BAWM and Aspin due to the suspensions imposed by DEECD. I think the words used in the DDQ speak to the past and the future, implying that enrolments lost by BAWM and Aspin up to the time (in August/September in particular) it was signed had been made up, and that enrolments that may be lost by them going forward, would also be made up. In my view representation R2, as pleaded by ASIC, was conveyed by the DDQ. Was R2 likely to mislead or deceive? 688 The defendants submitted that it had not been shown on the evidence that enrolments in other RTOs had not made up for the loss of enrolments in BAWM and Aspin. In particular, the defendants drew attention on the absence of any detailed enrolment data showing that this had not in fact occurred. 689 Payments in respect of training for students enrolled in the CSP and Warehousing courses comprised the majority of payments made by DEECD to BAWM in the months prior to the imposition of the contractual measures. Payments in respect of training for students enrolled in the CGEA course comprised about 90% or more of payments made by DEECD to Aspin in the months prior to the imposition of the contractual measures. 690 The combined amount of the payments by DEECD to Vocation's other Victorian RTOs (CSIA, Green Skills, Real and TDA) under their Funding Contracts amounted to about $1.76 million in June 2014, but following the imposition of the suspensions reduced to about $1.22 million in August 2014, $780,000 in September 2014 and $547,000 in October 2014. Those amounts may be contrasted with the payments by DEECD to BAWM under its Funding Contract of about $6.6 million in May 2014 and $8.7 million in June 2014 (no monthly payments were made to BAWM for training delivery in July, August or September 2014) and payments by DEECD to Aspin under its Funding Contract of about $1.76 million in May 2014, $2.06 million in June 2014 and $2.10 million in July 2014 (no monthly payments were made to Aspin for training delivery in August or September 2014). 691 There is no other evidence suggesting that at the time of making representation R2 that the suspensions on enrolments imposed by DEECD had been offset by enrolling students in qualifications offered by Vocation's other RTOs. In my view it is highly unlikely that the impact on Vocation of suspensions on enrolments had been made up by enrolments in courses delivered by other Vocation RTOs at the time the DDQ was signed and provided to UBS. 692 Mr Gréwal in his cross-examination said that he understood the relevant statement in the DDQ to mean that enrolments were being made up rather than had been made up. For the reasons given, I do not accept that this is how the DDQ was likely to be interpreted by a reasonable reader in the position of UBS. That said, Mr Gréwal accepted in cross-examination that he "knew the level of enrolments diversions [sic] was only a small amount" and, as I understood his evidence, that it would be false to state that the enrolments lost as a result of the suspensions imposed on BAWM and Aspin had been made up by enrolments in other RTOs. 693 I am satisfied that representation R2 was misleading and deceptive and likely to mislead and deceive. Representation R3 Was R3 conveyed? 694 The defendants again emphasised that R3 must be read in context of the DDQ as a whole and, that when this is done, it would be apparent to a reasonable reader in the position of UBS that the willingness of DEECD to pay a substantial portion of the withheld funds in the next 7-14 days would be dependent on the outcome of the review into CSP, Warehousing and CGEA. 695 In their submissions the defendants placed some reliance on the use of the word "indicated" in R3 which was said to convey something well short of a clear and firm statement that DEECD was willing to pay a substantial portion of the currently withheld funds. I do not think there is anything in this point. I think a reasonable reader would understand the word "indicated" to mean that DEECD had communicated its willingness to pay a substantial portion of the currently withheld funds within 7-14 days. 696 The defendants also placed some emphasis on the use of the indefinite article in the phrase "DEECD indicated a willingness to pay". Again, I do not think there is any substance to this point. According to the statement in the DDQ, DEECD had communicated its willingness to pay a substantial portion of the withheld funds within 7-14 days. 697 The real issue that arises in relation to R3 is whether it would convey to the reasonable reader in the position of UBS that DEECD had communicated an unqualified willingness to pay a substantial portion [etc] or whether, when viewed in the context of the DDQ as a whole, it would be understood by the reader that DEECD's willingness to make any such payment would depend on the outcome of the review. 698 The defendants drew particular attention to some of the questions and answers on page 6 and 7 of the DDQ which it was submitted would indicate to the reader that DEECD's willingness to make a payment of the withheld funds depended on the outcome of the review. Particular reliance was placed on the answer that refers to the "opportunity to comment … before any decisions are taken" which, it was submitted, would include any decision not to pay a substantial portion of the withheld funds to BAWM and Aspin. 699 However, there are other parts of the DDQ which point the other way. Page 6 includes the answer suggesting that the ability to suspend all payments for an RTO was a legacy of dealing with small RTOs. The clear implication of what appears there is that the amount withheld was necessarily far greater than the amount in dispute. In my view this would reinforce the message conveyed by the relevant statement to the effect that DEECD had already (ie. in advance of the outcome of the review) conveyed its willingness to pay a substantial portion of the funds withheld including, at least, those funds that related to courses not the subject of the first phase of the review. 700 In my view, the relevant statement in the DDQ would, when the document is read as a whole and in context, convey to the reasonable reader in the position of UBS that DEECD had communicated its willingness to pay a substantial portion of the withheld funds to BAWM and Aspin within 7-14 days. Was R3 likely to mislead or deceive? 701 As I have previously mentioned, Mr Leopold SC placed some reliance on Mr Dawkins' and Mr Smith's report of the 8 September 2014 meeting, as well as Mr Gréwal's cash flow of 8 September 2014. These documents were emailed by Mr Gréwal to Mr Fitzgibbon, Mr Snowball and Mr Digman of UBS on 8 September 2014. The submission made on behalf of Mr Gréwal was that these documents, if read and considered by UBS together with the DDQ, would have made clear to UBS that any decision by DEECD to release the withheld funds would depend on the outcome of the review. 702 There are several points to make about this submission. 703 First, I have already commented on the content of Mr Gréwal's email to UBS of 8 September 2014 in which he stated that DEECD had "… promised to expedite the early release of a proportion of the $22m owing to us …". That email, if read with the DDQ, would only lead a person in the position of UBS to understand that DEECD had assured Vocation that it would pay a substantial part of the $22.0 million that had been withheld. 704 Mr Gréwal's email described the attached cash flow as "very conservative" in that it assumed that only $6.5 million would be received on the first Tuesday in October. He said in a note included in the cash flow that the $6.5 million payment could be "higher and earlier." When the cash flow is read with the email it would suggest to the reasonable reader that, even though DEECD had promised to make an expedited payment of a substantial part of $22.0 million to Vocation, Mr Gréwal had assumed, for the purposes of his cash flow modelling, that only $6.5 million would be received, and that it may not be received until the date the next monthly payment by DEECD to the Vocation RTOs would ordinarily be made. In any event, the DDQ, when read with the email and the cash flow, clearly suggests that DEECD had promised to pay a substantial sum (which Mr Gréwal's email said would be $6.5 million or more) within 7-14 days. In my opinion, the cash flow, which must be read with the email to which it was attached, only makes ASIC's case based on R3 stronger. 705 As to Mr Dawkins' and Mr Smith's report, it states: … Vocation will have an opportunity to comment on any findings [of the review panel] before any decisions are taken, and at that point any extension of the scope to other qualifications will be discussed. The outcome of the review of the three qualifications, will inform a decision on the release of withheld funds. 706 Page 7 of the DDQ reproduces the first sentence in that paragraph but omits the second sentence. Why the second sentence was omitted from the DDQ was not addressed in either Mr Hutchinson's or Mr Gréwal's evidence. 707 I think it would be expecting too much of a reasonable reader in the position of UBS to understand that the unqualified statement (ie. R3) appearing in the DDQ, particularly when the DDQ is read in light of Mr Hutchinson's and Mr Gréwal's detailed declarations, should be read as being subject to the qualification appearing in the report, especially in circumstances were the report was supplied to UBS as an attachment to an email in which Vocation expressly represented that DEECD had "promised to expedite the early release of a proportion of the $22m owing to us." 708 If the DDQ is read in the broader context that takes into account the contents of the email, the cash flow, and the report, the reasonable reader might be led to understand (assuming he or she focused on the relevant sentence of the report) that the review would inform a decision as to precisely how much of the $22.0 million would be released but that DEECD had already communicated its willingness to pay at least $6.5 million or more within 7-14 days. In that case the reader would still have been led into error. 709 I am satisfied that representation R3 was misleading and deceptive and likely to mislead and deceive. Section 708A of the Act: The Cleansing Notice 710 Part 6D.2 of the Act provides for disclosure to investors about securities. It is common ground that the issue and sale of shares pursuant to the Placement would have required disclosure by way of a prospectus were it not for the operation of s 708A of the Act. The question is whether the relevant requirements of that section were complied with by Vocation and, if not, whether Vocation contravened s 708A(9). 711 Section 708A creates three exceptions to the disclosure obligation, each dealing with "circumstances where comparable information to that which would be given in a disclosure document is publicly available before an offer for sale is made": Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17 at [30]. The effect of the exceptions is to protect a person who later sells the issued securities within 12 months from being independently required to make disclosures to investors under Pt 6D.2. Section 708A thus provides a means of addressing the practical difficulties that a subsequent seller of securities would encounter in performing the disclosure obligation and proving the issuing body's purpose at the time of the issue: Re Austpac Resources NL [2010] NSWSC 1438 ("Austpac") at [19]. 712 The relevant exception for present purposes is created by s 708A(5) which is known as the "cleansing notice" exception. A seller of securities is only entitled to protection under s 708A(5) if the issuer of those securities took certain action before the seller made the sale offer: Austpac at [12]. Specifically, the issuer must have given the "relevant market operator" (relevantly here, the ASX) a notice pursuant to s 708A(5)(e)(i) that complies with s 708A(6). 713 Relevantly, s 708A(5)(e)(i) requires that "… the body gives the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made …". A notice given under s 708A(5)(e) must comply with the requirements of s 708A(6)-(8) which provide: (6) A notice complies with this subsection if the notice: (a) is given within 5 business days after the day on which the relevant securities were issued by the body; and (b) states that the body issued the relevant securities without disclosure to investors under this Part; and (c) states that the notice is being given under paragraph (5)(e); and (d) states that, as at the date of the notice, the body has complied with: (i) the provisions of Chapter 2M as they apply to the body; and (ii) section 674; and (e) sets out any information that is excluded information as at the date of the notice (see subsections (7) and (8)). Note 1: A person is taken not to contravene section 727 if a notice purports to comply with this subsection but does not actually comply with this subsection: see subsection 727(5). Note 2: A notice must not be false or misleading in a material particular, or omit anything that would render it misleading in a material respect: see sections 1308 and 1309. The body has an obligation to correct a defective notice: see subsection (9) of this section. (7) For the purposes of subsection (6), excluded information is information: (a) that has been excluded from a continuous disclosure notice in accordance with the listing rules of the relevant market operator to whom that notice is required to be given; and (b) that investors and their professional advisers would reasonably require for the purpose of making an informed assessment of: (i) the assets and liabilities, financial position and performance, profits and losses and prospects of the body; or (ii) the rights and liabilities attaching to the relevant securities. (8) The notice given under subsection (5) must contain any excluded information only to the extent to which it is reasonable for investors and their professional advisers to expect to find the information in a disclosure document. 714 Section 708(9)-(10) requires the relevant body to correct a defective cleansing notice. Section 708A(9)-(10) provide: Obligation to correct defective notice (9) The body contravenes this subsection if: (a) the notice given under subsection (5) is defective; and (b) the body becomes aware of the defect in the notice within 12 months after the relevant securities are issued; and (c) the body does not, within a reasonable time after becoming aware of the defect, give the relevant market operator a notice that sets out the information necessary to correct the defect. (10) For the purposes of subsection (9), the notice under subsection (5) is defective if the notice: (a) does not comply with paragraph (6)(e); or (b) is false or misleading in a material particular; or (c) has omitted from it a matter or thing the omission of which renders the notice misleading in a material respect. 715 Given my previous findings, it is clear that the Cleansing Notice lodged by Vocation with the ASX on 16 September 2014 was defective within the meaning of s 708A(10). This is because it included an express statement that Vocation had complied with the provisions of Chapter 2M and s 674 of the Act. That statement was incorrect. The Cleansing Notice was therefore false in a material particular. 716 The principal issue that arises is whether it has been established that Vocation became aware of the defect in the Cleansing Notice. 717 The state of mind of a corporation must be sourced in the person or persons who represent its "directing mind and will": Hamilton v Whitehead (1988) 166 CLR 121 at 127, Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170. The person or persons from whom the state of mind is sourced must be "so closely and relevantly connected" with the corporation that their knowledge can be treated as being identified with it: Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563. In Krakowski, the majority (Brennan, Deane, Gaudron and McHugh JJ), in considering a case of fraud against a company, said at 582-583: As Bright J said in Brambles Holdings Ltd v Carey (1976) 15 SASR 270 at 279: Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company. This process is often necessary in cases in which companies are charged with offences such as conspiracy to defraud. A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them: see Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446 at 485; Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170. (some citations omitted). 718 There is a difference of opinion in the authorities as to how this "theory of collective knowledge" (Ipp JA's words) is to be applied at least in situations involving contentious behaviour: see Port Stephens Shire Council v Tellamist Pty Ltd (2004) 135 LGERA 98 at [407]-[408] per Ipp JA (with whom Giles JA agreed); cf. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1 at [2179]-[2187]. However, this is of no relevance to the present case. 719 Mr Halley SC submitted that Vocation knew of the Withholding and Suspension Information as at 16 September 2016 when Mr Gréwal signed and gave the Cleansing Notice to the ASX. That is plainly correct. But it does not follow that Vocation was aware that the Cleansing Notice was defective. That would only be true if Vocation became aware that the Withholding and Suspension Information was material in the relevant sense. 720 The difficulty for ASIC is the present case is that ASIC did not contend that any person who may be taken to reflect the corporate mind of Vocation was aware that any of the Withholding and Suspension Information was material in the relevant sense. In his closing submissions Mr Halley SC made clear that he did not contend that any of the defendants had actual knowledge of the materiality of the Withholding and Suspension Information. 721 The submission that was advanced by Mr Halley SC was that Mr Hutchinson, Mr Dawkins, and Mr Gréwal (and therefore Vocation), ought reasonably to have been aware that the Withholding and Suspension Information was material. But that submission does not reflect the language of the relevant statutory provision which requires that the corporation "becomes aware" that the notice is defective. If the relevant corporate officers do not become aware that the notice was defective, then the corporation cannot be liable under s 708A(9) for failing to correct a defective notice. 722 There are other provisions in the Act that draw on notions of reasonableness as a criterion of liability. Section 1041E(1) of the Act, by way of example, refers in subpara (c)(ii) to the making of a statement or the dissemination of information by a person when "… the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading." Section 708A(9) does not use comparable language. It may be that the absence of words such as "or ought reasonably to have been aware" reflects a gap in s 708A(9). If so, then the question is whether that gap can be filled by a remedial construction that reads s 708A(9) as if it contained those words: see Taylor v Owners – Strata Plan No 11564 (2014) 253 CLR 531 at [38]-[40]. There are two closely related difficulties with such a construction. First, I do not think it is consistent with the actual words used in the legislation. Secondly, I am not satisfied that it was the legislature's intention to confer on s 708A(9) an operation as wide as such a construction would provide. 723 There were other arguments raised by the defendants in relation to Vocation's liability under s 708A(9). In particular, they argued that if a corporation knew that a notice was defective at the time the relevant notice was brought into existence, then there could be no contravention of s 708A(9) because it could not be said that the corporation "became aware" during the relevant period that the notice was defective. I do not think that is right. In my opinion, a corporation may become aware that a notice that is given under s 708A(5)(e) is defective the moment it is given to the relevant market operator. It is at that moment that the corporation will become aware that the notice that it has given to the market operator is defective. 724 The defendants' argument was taken a step further by Mr Leopold SC who submitted that the relevant period would commence on the day following the issue of the securities: see s 36 of the Acts Interpretation Act 1901 (Cth). That would mean that if the securities were issued and the notice given to the ASX on the same day (as occurred in this case) then the relevant 12 month period would not commence until the following day. If that were correct, there could be no contravention of s 708A(9) where the corporation became aware that the notice given on the same day as the securities were issued was defective. That seems to me to be an absurd result and one that leads me to conclude that the relevant period commences on the day the securities are issued: see s 2(2) of the Acts Interpretation Act 1901 (Cth). Section 180 – liability of individual defendants for breach of duty The Relevant Principles 725 Section 180 of the Act provides: 180 Care and diligence—civil obligation only Care and diligence—directors and other officers (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 or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. Note: This subsection is a civil penalty provision (see section 1317E). Business judgment rule (2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a) make the judgment in good faith for a proper purpose; and (b) do not have a material personal interest in the subject matter of the judgment; and (c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d) rationally believe that the judgment is in the best interests of the corporation. The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—it does not operate in relation to duties under any other provision of this Act or under any other laws. (3) In this section: business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. 726 Under the definition in s 9, an "officer" of a corporation means (relevantly) a director or secretary (para (a)), a person who makes or participates in making decisions that affect the whole or a substantial part of the corporation's business (para (b)(i)), or a person who has the capacity to affect significantly the corporation's financial standing (para (b)(ii)). 727 The statutory duty of care and diligence in s 180 reflects the concept of negligence at general law, in that a director (or officer) of a company "owes to the company a duty to take reasonable care in the performance of the office": Australian Securities and Investments Commission v Maxwell (No 2) (2006) 59 ACSR 373 ("Maxwell") per Brereton J (as he then was) at [102], citing Daniels v Anderson (1995) 37 NSWLR 438. 728 The duty arising under s 180 reflects what is objectively expected of a person appointed to the office held by the defendant. The question is what an ordinary person, with the knowledge and experience of the defendant, might be expected to have done in the circumstances. Various principles relevant to the content of duty under s 180 were summarised by Santow J in Adler at [372]. Most relevantly, these include: • [I]n determining whether a director has exercised reasonable care and diligence one must ask what an ordinary person, with the knowledge and experience of the defendant might be expected to have done in the circumstances if he or she was acting on their own behalf: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109; 14 ACSR 109 per Ipp J (at ACSR 159); Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43; • [I]n determining whether a director has breached the statutory standard of care and diligence (s 180(1)), the court will have regard to the company's circumstances and the director's position and responsibilities within the company … • [I]n accordance with these responsibilities directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company: [Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607; at 664]. That is to say … : (a) a director should become familiar with the fundamentals of the business in which the corporation is engaged; (b) a director is under a continuing obligation to keep informed about the activities of the corporation; (c) directorial management requires a general monitoring of corporate affairs and policies, by way of regular attendance at board meetings; and (d) a director should maintain familiarity with the financial status of the corporation by a regular review of financial statements … • [A] director appointed to a company because of special expertise in an area of the company's business is not relieved of the duty to pay attention to the company's affairs which might reasonably be expected to attract inquiry, even outside that area of expertise: Re Property Force Consultants Pty Ltd [1997] 1 Qd R 300; (1995) 13 ACLC 1051 at 1061; • [A]t general law, a director is entitled to rely without verification on the judgment, information and advice of management and other officers appropriately so entrusted. However, reliance would be unreasonable where directors know, or by the exercise of ordinary care should have known, any facts that would deny reliance on others: Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607 at ACSR 665–6; … See also Maxwell at [99]-[102] per Brereton J. 729 As Edelman J explained in Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 226 ALR 209 at [530]: The steps which a reasonable director (in the terms of s 180(1)) must take will always depend on all of the corporation's circumstances. An assessment of whether a breach by a particular director has been committed will depend on the response of a reasonable person who is a director of a corporation in those circumstances with the same responsibilities within the corporation as the director. Each case should be assessed on its own facts … 730 The conduct of a director contributing to a company's breach of the Act which exposes the company to prejudice (including any actual or potential exposure to civil penalties or other liability under the Act) may give rise to breaches of s 180(1). Such liability does not automatically follow from the fact that the company contravened a provision of the Act at the time the defendant was a director. However, liability under s 180(1) may be triggered where a director's failure to exercise reasonable care and diligence has caused or allowed the company to contravene the Act, at least where it was reasonably foreseeable that such contravention might harm the company's interests. 731 In Maxwell, Brereton J noted at [104]: There are cases in which it will be a contravention of their duties, owed to the company, for directors to authorise or permit the company to commit contraventions of provisions of the Corporations Act. Relevant jeopardy to the interests of the company may be found in the actual or potential exposure of the company to civil penalties or other liability under the Act, and it may no doubt be a breach of a relevant duty for a director to embark on or authorise a course which attracts the risk of that exposure, at least if the risk is clear and the countervailing potential benefits insignificant. But it is a mistake to think that ss 180, 181 and 182 are concerned with any general obligation owed by directors at large to conduct the affairs of the company in accordance with law generally or the Corporations Act in particular; they are not. They are concerned with duties owed to the company. … 732 Beach J referred to this statement with approval in Australian Securities and Investments Commission v Avestra Asset Management Limited (In Liquidation) (2017) 348 ALR 525. Referring to a situation in which it was alleged that the directors had breached their duty by exposing the company to the risk of pecuniary penalties and other financial loss, his Honour observed at [216]: … [T]he necessary requirement for liability in such a case is that the director failed to exercise reasonable care and diligence in circumstances that caused or failed to prevent the company from contravening the Act and where it was reasonably foreseeable that such contravention might harm the interests of the company (Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502 at [448]–[452]). However, as his Honour also noted at [214], "… s 180 does not provide a backdoor method for visiting directors with accessorial liability for every contravention of the Act committed by a corporation." 733 Determining whether a director has breached the duty imposed by s 180(1) requires balancing the foreseeable risk of harm to the company (including the magnitude of the risk and the probability of its occurrence) against the potential benefits that could reasonably be expected to accrue to the company from the conduct in question, along with the expense and difficulty of taking alleviating action and any conflicting responsibilities of a defendant: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450 per Ipp J, Maxwell at [102] per Brereton J. 734 Mr Halley SC submitted that there is a degree of artificiality in imposing a balancing test in circumstances where the foreseeable risk involves contravention of the Act. He submitted that, at least where the contravention could give rise to legal proceedings and a civil penalty, it is difficult to conceive a situation where that risk is outweighed by benefits to the company. 735 I do not accept Mr Halley SC's submission. Although the directors of a company may honestly and reasonably believe that information is not material and that disclosure is therefore not required, they may out of an abundance of caution, and against the possibility that their view as to materiality is mistaken, authorise disclosure of the information to the market. But the benefits associated with such a disclosure may be outweighed by risks to the company in making it. For example, the question may be whether a highly significant but confidential negotiation between the company and a third party (in circumstances where a relevant regulatory or statutory exception might arguably not apply) should be disclosed. If disclosure could jeopardise a favourable outcome then why would it not be necessary for the directors to weigh up the risk of contravention against a foreseeable risk that the company may suffer significant damage if there is a disclosure to the market which the directors honestly and reasonably believe is not required? I think the directors would be bound to weigh up the competing risks in such circumstances. 736 Each of the individual defendants contended that he relied upon advice provided by JWS and management in relation to Vocation's continuous disclosure obligations and the 25 August Announcement, though none of them expressly relied on s 189 of the Act. In any event, the submissions made in relation to such advice have been addressed elsewhere in these reasons. 737 Mr Hutchinson also relied on s 180(2) of the Act (the business judgment rule) by way of defence to the claims made against him based on s 180(1). However, in my view none of the decisions made by him that are said to form the basis for those claims was a business judgment in the relevant sense. In Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 ("Fortescue") Keane CJ said at [197]-[198]: [197] Forrest bore the onus of proving that he made a judgment in good faith and for a proper purpose and that his shareholding in FMG was not a material personal interest in the subject matter of that judgment. The absence of evidence from Forrest makes it difficult to see how Forrest could discharge the onus which he bore to establish these elements of this defence. This difficulty apart, the decision not to disclose the true effect of the agreements cannot be described as "business judgment" at all. A decision not to make accurate disclosure of the terms of a major contract is not a decision related to the "business operations" of the corporation. Rather it is a decision related to compliance with the requirements of the Act. [198] It is not an intention lightly to be attributed to the legislature that a director of a company might lawfully decide, as a matter of business judgment, that a corporation under his or her direction should not comply with a requirement of the Act. Section 180(3) of the Act defines "business judgment" to mean a judgment "to take or not take action in respect of a matter relevant to the business operations of the corporation". In the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (para 6.8) it is said that: The operation of the business judgment rule will be confined to cases involving decision making about the ordinary business operations of the company. For example, the decision to undertake a particular kind of business activity promoted in a prospectus would be the kind of business judgment to which the proposed rule may apply. However, compliance (or otherwise) with the prospectus requirements imposed by the Law would not be a decision to which the proposed rule could apply. Emmett J at [216] and Finkelstein J at [218] agreed with the Chief Justice. 738 Although the appeal from the Full Court's judgment was allowed in Forrest, the High Court did not comment on the scope of the business judgment rule. 739 I do not think Mr Hutchinson's defence based on s 180(2) of the Act can succeed given the Full Court's judgment in Fortescue. This is because his decision to cause or permit the publication of an ASX announcement that was likely to mislead its readers was not a decision to take action in respect of a matter relevant to the business operations of Vocation. The decision to take such action did not have any effect, and was not intended to have any effect, on any aspect of Vocation's existing or potential business operations or any matter relevant to such operations. This is equally true of Mr Hutchinson's decisions to cause or permit Vocation not to disclose the Withholding and Suspension Information or to provide the DDQ to UBS. 740 Mr Studdy SC relied on the decision of Beach J in Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502 at [487]. However, the facts there were very different from this case. In particular, his Honour characterised the relevant decision that he found to be a business judgment within the meaning of s 180(3) of the Act as a decision to cause the company to make a takeover offer and a related ASX announcement informing the market of the company's intentions. The claim against the directors under s 180(1) related to the reasonableness of that decision having regard to the financial capacity of the company to fund the proposed takeover at the time the decision was made. 741 Even if the decisions taken by Mr Hutchinson were business judgments within the meaning of s 180(3), I am not satisfied that he informed himself to the extent that he could reasonably have believed to be appropriate (cf. s 180(2)(c)). For reason which appear below, I do not think that a reasonable person in his position would have made any of those decisions without ensuring that they were much better informed than Mr Hutchinson. To the extent that Mr Hutchinson may have believed at the time of making those decisions that he had appropriately informed himself in relation to such matters (something that is not readily apparent from the evidence), I am not satisfied that such a belief was reasonable. As will become clear, I think Mr Hutchinson's most significant failing as CEO of Vocation, was his failure to adequately inform himself as to the nature and scope of the issues raised by DEECD, the rights and obligations imposed by the Funding Contracts, and the scope and impact of the contractual measures imposed on BAWM and Aspin. 742 Further, I am not satisfied that any of the decisions taken by Mr Hutchinson to which the business judgment rule was said to apply were decisions which Mr Hutchinson rationally believed to be in the best interests of the Vocation (cf. s 180(2)(d)). Neither Mr Hutchinson's written (including those parts relied on by Mr Studdy SC in his closing submissions) or his oral evidence persuades me that Mr Hutchinson believed that such decisions were in the best interests of Vocation or that there were reasonable grounds for any such belief. Mr Hutchinson Section 180(1) – Continuous Disclosure Mr Hutchinson's knowledge of the Withholding and Suspension Information. 743 I am satisfied that by no later than 28 August 2014, Mr Hutchinson was aware of the Withholding and Suspension Information and the fact that it was not generally available. I am also satisfied that he knew that Vocation was required to disclose the Withholding and Suspension Information in accordance with Listing Rule 3.1 if a reasonable person would expect that information to have a material effect on the price or value of shares in Vocation. 744 I am also satisfied that Mr Hutchinson appreciated at all relevant times, that any failure by Vocation to comply with its continuous disclosure obligations could expose Vocation to significant financial harm including, in particular, liability for civil penalties or damages in the event that Vocation failed to comply with such obligations. Mr Hutchinson's responsibilities 745 As the CEO of Vocation, Mr Hutchinson was responsible to the board of Vocation for the management of Vocation and its business. His key responsibilities, as identified in the Board Charter, included to develop and maintain the company's risk management systems including internal compliance and control mechanisms, to assign responsibilities clearly to the executive team and supervise and report on their performance to the board, and to report regularly to the board with timely and quality information such that the board was fully informed to discharge its responsibilities effectively. In cross-examination Mr Hutchinson agreed that these were key responsibilities of his as CEO of Vocation. 746 Pursuant to the Board Charter, the Board delegated management of Vocation's resources to the senior management team under the leadership of the CEO. The day to day management of Vocation's business included administering the Funding Contracts and understanding and, if necessary, responding to, the contractual measures imposed by DEECD on BAWM and Aspin pursuant to those contracts. 747 I am satisfied that Mr Hutchinson understood that one of his key responsibilities as the CEO of Vocation was to provide to the board timely and quality information that would assist it to make decisions as to what information should be made publicly available by Vocation through the ASX in order for Vocation to comply with its continuous disclosure obligations. 748 At all relevant times the members of the management team (including Ms Bonnici, Mr Langtree and Ms King) reported to Mr Hutchinson. The fact that at the time Mr Hutchinson accepted his appointment as CEO he had very little knowledge of the Victorian VET market is a relevant but not a decisive consideration when determining the standard against which his conduct should be assessed. This is because Mr Hutchinson was required to take reasonable steps to become familiar with Vocation's businesses, including BAWM's business, which was at all relevant times a major contributor to Vocation's revenue. Although Mr Hutchinson referred in his written evidence to Ms Bonnici "in effect" taking on the role of "internal CEO" because of her extensive experience in Victoria, there is no document formalising that arrangement nor any evidence that the board agreed to or acquiesced in it. Mr Hutchinson accepted in his evidence that any such arrangement was not intended to derogate from his own responsibilities as CEO. Consideration 749 As I have said before, it is not suggested by ASIC that Mr Hutchinson knew that the Withholding and Suspension Information was material in the relevant sense. In Mr Hutchinson's case, the question is whether he breached his duty under s 180 of the Act by failing to appreciate that the Withholding and Suspension Information was information that Vocation was required to disclose. The answer to that question will depend on whether, having regard to Vocation's circumstances, a person in Mr Hutchinson's position exercising reasonable care and diligence would have appreciated that the Withholding and Suspension Information was information that was material in the relevant sense. 750 ASIC's case under s 180 based upon Vocation's non-disclosure of the Withholding and Suspension Information is confined to the relevant period which did not commence until 28 August 2014. Nevertheless, events that occurred prior to that date are relevant to determining how a person in Mr Hutchinson's position exercising reasonable care and diligence would have reacted to the Withholding and Suspension Information in the relevant period. They are also relevant to the question whether Mr Hutchinson should be granted relief in respect of any breach of his s 180 duties under s 1317S or s 1318 of the Act. 751 On or about 4 July 2014, Mr Hutchinson read a copy of DEECD's letter of 3 July 2014. Mr Langtree told him that it was nothing to be worried about, that the suspension of funds was a compliance tool used by DEECD, and that it was not uncommon for DEECD to use it. Mr Langtree told him that funding had been suspended on two prior occasions and that the withheld funds were eventually released. It was around this time that Mr Langtree also told Mr Hutchinson that the most money that had ever been forfeited to the Victorian government by an RTO was $2.0 million which was repaid after a court settlement. Mr Langtree also said that the suspended payments were likely to be paid in full in due course and that Mr Langtree would report back to Mr Hutchinson after Mr Langtree and Ms Bonnici had met with DEECD on 10 July 2014. 752 According to Mr Hutchinson's written evidence, he understood, as at 10 July 2014, that DEECD had a number of key concerns. These related to first, BAWM's practice of outsourcing much of its student recruitment to third party entities known as "brokers"; secondly, the pre-training reviews that were conducted by brokers to ensure that candidates were suitable for the courses in which they were enrolled; and thirdly, the duration of the training provided. As to the pre-training reviews, Mr Hutchinson's evidence was that, as at 10 July 2014, he understood that DEECD was particularly concerned about the suitability of CSP for school leavers. As to the duration of training provided as part of the CSP and Warehousing dual qualification, he understood that there was "no stipulation" about course length that had been breached, but that DEECD had concerns that the duration of the training provided was not sufficient to properly cover the content of those courses. 753 Ms Bonnici also told Mr Hutchinson around this time that BAWM was not the only RTO that had its payments suspended, that when it had happened to BAWM previously it had provided a written response to DEECD's request for information following which BAWM was paid. According to Mr Hutchinson, Ms Bonnici also told him that: "This is business as usual." 754 Mr Hutchinson also had a discussion with Mr Ross Robinson around this time concerning Real Institute. Mr Robinson told him that Real Institute had in the past had its funding suspended. According to Mr Hutchinson, Mr Robinson said that Real Institute "had to jump through all sorts of hoops for a month or so but the funding was subsequently released." 755 As previously mentioned, Mr Hutchinson said in his written evidence that he read Ms King's letter to Ms Watts of 21 July 2014 and thought that it provided a sufficient answer to DEECD's concerns. Based on Mr Hutchinson's cross-examination, it appears to me that he either did not read the letter (contrary to his written evidence) or, if he did, he gave it, at best, cursory attention. If he genuinely believed that it provided a sufficient answer to DEECD's concern then that was, in my view, a belief that lacked a reasonable foundation. I say this because there was really no way Mr Hutchinson could know whether it would be a sufficient answer in the absence of reading it and identifying the questions raised by DEECD that it needed to address. As it happened, Ms King's letter failed to address important questions specifically raised by DEECD at the 10 July 2014 meeting. 756 On 22 July 2014, Mr Hutchinson provided an update on the Victorian audits to the Investment Committee. He advised the directors at that meeting that further information requested by DEECD had been provided on 22 July 2014 and that "payment is expected to be unblocked by end of July". That advice to the Investment Committee was based on Mr Hutchinson's prior conversations with management and his cursory reading of Ms King's letter which apparently led him to believe that all of DEECD's concerns had been addressed and that all of the withheld funds would be released within the following seven or eight days. 757 Less than two days after Mr Hutchinson updated the Investment Committee, BAWM received the letter from DEECD dated 24 July 2014 which drew attention to deficiencies in Ms King's response and which again sought the information that Ms King had not provided. Apart from drawing attention to the deficiencies in Ms King's response, it also provided further information as to DEECD's concerns and confirmed that DEECD would continue to withhold payment of funds to BAWM under cl 16.2(b) of the Funding Contract. This was also the letter by which DEECD first notified BAWM of the suspension on enrolments. 758 The following day Mr Hutchinson sent an email to the board providing a further update in relation to the Victorian audits. There was nothing in that email to suggest that payment would not be received by the end of July even though the 24 July 2014 letter from DEECD quite clearly indicated that Ms King's letter had not adequately addressed DEECD's concerns. Nor did his email say anything about the suspension on enrolments. 759 In his written evidence, Mr Hutchinson said that he did not recall receiving a copy of DEECD's letter of 24 July 2014. It is not apparent when Mr Hutchinson first read the letter of 24 July 2014, but he claimed not to have seen it at the time he sent his email. It may well be that Ms Bonnici did not forward it to him until sometime later. I see no reason why I should not accept Mr Hutchinson's evidence on that point. 760 At the board meeting held on 29 July 2014, Ms King provided the board with an update in relation to the Victorian audits. There is nothing in the minutes that indicates that the board was told about DEECD's letter of 24 July 2014. In particular, the evidence given by Mr Dawkins in relation to this meeting, which I have preferred to that given by Mr Hutchinson, confirms that nothing was said about the suspension on enrolments imposed with effect from 24 July 2014 or the fact that, contrary to the advice previously given to the directors, not all the information sought by DEECD from BAWM had been provided. It was at this board meeting that management was directed by the board to obtain legal advice in relation to the withheld payments, something that does not appear to have been done until sometime in late August 2014. 761 Some time after the board meeting, Mr Hutchinson had his conversation with Ms Bonnici concerning the scope of the suspension on enrolments. That suggests that he knew on or shortly after the board meeting of 29 July 2014 that DEECD had imposed the suspension on enrolments by BAWM (even though he may not have appreciated the full extent of it) and that, rather than moving towards an early resolution, BAWM's dispute with DEECD had escalated significantly, and in a manner that was likely to have a direct and immediate impact on BAWM's revenue. 762 I have already referred to communications in early August between Ms Bonnici and Mr Rozsa of JWS in relation to her proposed response to Ms Watts' letter of 24 July 2014. The advice that was sought related to some comments that Ms Bonnici proposed to include in that letter concerning Vocation's continuous disclosure obligations. At the time Ms Bonnici sent her letter of 4 August 2014 to DEECD, neither Mr Hutchinson nor Ms Bonnici had obtained any legal advice in relation to DEECD's rights and obligations under the Funding Contract with BAWM including with respect to those provisions that expressly related to pre-training reviews. 763 As I have explained, Ms Bonnici's letter made significant concessions as to the lack of appropriate controls with respect to the enrolment process and pre-training reviews, and the absence of relevant documentary records. The letter, and the concessions made in it, was tantamount to an admission that BAWM had committed significant breaches of its Funding Contract. The following day DEECD wrote to Ms Bonnici advising her that Aspin's payments were also being withheld and directing that it cease all future enrolments of Eligible Individuals. 764 Pausing there, having previously informed the board that all outstanding payments would be received by BAWM by the end of July, and that all of DEECD's concerns had been addressed, it should have been apparent to a person in Mr Hutchinson's position exercising reasonable care and diligence that the various statements made to him by management up until this time indicating that the withheld funds would soon be released, and that, so far as BAWM's Funding Contract was concerned, the contractual measures imposed were "business as usual", had proven to be wholly unreliable. Whatever BAWM's previous experiences with DEECD had been, it should have been clear to Mr Hutchinson that the current dispute had not played out as either Ms Bonnici or Mr Langtree had predicted. 765 Mr Hutchinson provided his further update on the Victorian audits to the board on 11 August 2014. This was the meeting at which Mr Hutchinson said that he had received advice from JWS that disclosure to the market in relation to the withholding of payments was not required because it was "a debtor timing issue". The advice given by JWS (at least as reported by Mr Hutchinson) appeared to assume that there had simply been a delay by DEECD in making payments which was likened during the discussion at the board meeting to delay in the payment of an invoice. That view of the matter assumed that the amount of the withheld payments at risk of being permanently lost was either nil or negligible which, it may be inferred, was the basis on which JWS gave the advice it did. However, I am satisfied that, at the time this advice was given to the board, none of Mr Hutchinson, Ms Bonnici or Mr Langtree had any proper appreciation of the relevant contractual provisions (including, in particular, those relating to pre-training reviews) or the significance of the concessions made by Ms Bonnici in her letter of 4 August 2014. 766 In short, the proposition that DEECD would in due course pay to Vocation all, or even most of the funds withheld, and that this was a simple case of late payment of an undisputed debt, was based upon a significant lack of understanding on the part of Vocation as to the weakness of both its contractual and negotiating position. And for all of Ms Bonnici's and Mr Langtree's excessively optimistic prognostications about payment, it was clear from the relevant correspondence by the time of the 11 August 2014 board meeting that there had been a substantial escalation in the dispute with DEECD and the commercial and business risks that it posed to Vocation, and that Vocation was still no closer to securing any release of funds to either BAWM or Aspin. 767 Nowhere is Mr Hutchinson's lack of understanding of the contractual situation more apparent than in his report to the board of 19 August 2014. In that report, Mr Hutchinson made two statements in support of his advice that there was no reason to suspect that payment would not be made. The first was that the student cohort under review comprised less than 300 school leavers. The second was that the payment system only permitted DEECD to suspend all payments to an RTO. According to Mr Hutchinson, both pieces of information came from management, which I took to mean Ms Bonnici or Mr Langtree, whose advice on both issues (assuming that is what they told Mr Hutchinson) was plainly wrong, as would have been readily apparent from a review of the relevant correspondence and the relevant provisions of the Funding Contracts. Had Mr Hutchinson read the Funding Contract for himself, or at least the relevant clauses referred to by DEECD in its correspondence, he would have understood that DEECD had the power to suspend payments in whole or part. Had he read the relevant correspondence he would also have appreciated that DEECD's concerns were not limited to any particular student cohort. That critical point aside, Mr Hutchinson's reference to a cohort of 300 students was out by a factor of more than ten based on Mr Langtree's subsequent analysis. 768 The other matter of significance to emerge from Mr Hutchinson's report was his estimate of the revenue loss that would be suffered as a consequence of the suspensions on enrolments, which he at that stage understood to apply to CSP, Warehousing and CGEA only. I am satisfied that his estimate of $8.0 million to $10.0 million was not unreasonable based on the information available to him at that time and that, leaving aside that he subsequently learnt that the suspensions were broader than he at this time thought them to be, nothing really changed after 19 August 2014 which would have reasonably led him to believe that the revenue loss that would be suffered by Vocation as a result of the suspensions would be any less than was estimated in his report. I am satisfied that a person in Mr Hutchinson's position exercising reasonable care and diligence would have understood that, in determining whether or not the Withholding and Suspension Information was material, it would be necessary to take into account the revenue that was likely to be lost from the suspensions on enrolments and commencements imposed on BAWM and Aspin when seeking to arrive at a reasonable estimate of the financial impact of DEECD's contractual measures when considered as a whole. 769 A person in Mr Hutchinson's position exercising reasonable care and diligence would before 19 August 2014 have sought to obtain a detailed understanding of the dispute with DEECD based upon a review of the Funding Contracts, the relevant correspondence, and the legal advice that the board had previously directed management to obtain. By this time, he or she would also be very cautious about relying on information provided by Ms Bonnici or Mr Langtree as to the scope or likely outcome of the dispute without taking steps to confirm the accuracy of such information by reading the relevant correspondence and, if necessary, obtaining appropriate legal advice. 770 A person in Mr Hutchinson's position exercising reasonable care and diligence would also have realised, when he or she did come to understand that the suspensions extended beyond CSP, Warehousing and CGEA, that it would be extremely difficult to justify funding claims in respect of enrolments in other courses that had occurred contrary to the terms of those suspensions. He or she would therefore have understood that the financial impact on Vocation of the suspensions on enrolments imposed on BAWM would very likely exceed the $8.0 million to $10.0 million estimate by a substantial amount. 771 The minutes record that at the board meeting held on 25 August 2014 Mr Hutchinson informed the board that the next payment from DEECD was due on 12 September 2014 and "there is no reason to believe that payment will be withheld." There was no reasonable basis for that statement. DEECD's attitude had hardened considerably following its receipt of Ms Bonnici's letter of 4 August 2014, and DEECD had not given any indication that any of the issues that it had raised with either BAWM or Aspin had been resolved to its satisfaction. To the extent it was suggested by Mr Hutchinson that his statement, as recorded in the minutes, was made in reliance upon advice provided to him by management, I am satisfied that any such reliance by him was unreasonable. By 25 August 2014 a person in Mr Hutchinson's position exercising reasonable care and diligence would have understood that he could not rely on management's assurances that the withheld amounts would be paid in the next two or three weeks or that BAWM and Aspin had done all that was required to satisfy DEECD in relation to the issues it had raised. He or she would also have understood that the advice provided by Ms Bonnici and Mr Langtree in relation to the dispute with DEECD could not be relied upon for the purpose of making important decisions with respect to compliance with Vocation's continuous disclosure obligations or the management of Vocation's (negative) cash flow. 772 By 26 August 2014, Mr Hutchinson had most likely read Ms Bonnici's email attaching the advice from Landers & Rogers. That advice was clear as to the scope of the suspensions on enrolments notified in DEECD's previous correspondence and the weakness of Vocation's position from a contractual standpoint. On the basis of that advice a person in Mr Hutchinson's position exercising reasonable care and diligence would have understood that there was a significant risk that a substantial portion of the amounts withheld would not be repaid, and that DEECD would seek to exercise rights of termination conferred on it under the Funding Contracts. 773 DEECD's letter of 26 August 2014 advised that there would be a review of all Vocation's Victorian RTOs pursuant to cl 10.1 of their Funding Contracts. Significantly, it also made clear that, subject to the outcome of the review, the withheld funds could be applied toward the recovery of all funding previously claimed by BAWM and Aspin under their Funding Contracts. I have previously referred to the amounts paid and claimed under those contracts. In the case of Aspin alone, the total amount involved was approximately $10.0 million (exclusive of GST) which was considerably more than the amount of the adjustment that had been made in the accounts for the financial year ending 30 June 2014 based on Aspin's settlement proposal. 774 DEECD's letter of 26 August 2014 represented another escalation in the contractual dispute with BAWM which put paid to the suggestion that the withholding of funds represented a debtor timing issue. By this time a person in Mr Hutchinson's position exercising reasonable care and diligence would have appreciated that the resolution of the issues raised by DEECD in relation to BAWM's and Aspin's entitlements to payment of the withheld funds would depend upon the outcome of an independent investigation into BAWM and Aspin's compliance with their contractual obligations under the Funding Contracts including, but not limited to, the various contractual provisions referred to in DEECD's letter and the terms of reference governing that investigation. 775 I have already referred in some detail to the board meetings of 25 and 26 August 2014 and Ms Tredenick's email communications with Mr Hutchinson and Mr Dawkins during the following days. As previously mentioned, Ms Tredenick wrote to Mr Hutchinson on 27 August 2014 informing him that the board would need a detailed report addressing the revenue impact of the Victorian audits and a detailed view from management as to the amount of money at risk and how and why that view had been reached. Ms Tredenick also urged Mr Hutchinson to "get on top of the issues" and to closely manage how and what information was provided to the board for the purposes of its decision-making. She described this as "critical for all our sakes." It was implicit in Ms Tredenick's observations, as Mr Hutchinson must have appreciated, that the quality of the information provided to the board by the CEO and management in relation to the Victorian audits had been less than satisfactory, a criticism borne out by my findings in relation to what had occurred up to this point in time. 776 By no later than 28 August 2014 Mr Hutchinson understood that the Board expected him to be across the detail of the issues relating to DEECD. He also understood, in particular, that knowledge of the detail of DEECD's contractual measures and their impact on Vocation was important in circumstances where the directors had to make an assessment of the materiality of the information relevant to those measures for the purpose of complying with Vocation's continuous disclosure obligations. 777 Mr Hutchinson's response to Ms Tredenick's request for a detailed report came in the form of Mr Langtree's analysis of 27 August 2014 which appears to be the nearest management came to providing a report of the kind Ms Tredenick requested. I do not propose to repeat all that I said concerning Mr Langtree's analysis. It took an unreasonably narrow view as to the scope of DEECD's concerns and the risk that DEECD would seek to permanently withhold payments in respect of courses besides CSP on account of non-compliance by BAWM and Aspin with their contractual obligations. It wrongly assumed that Vocation's maximum exposure could be calculated by reference to the number of school leavers, under 21 year olds or unemployed who had been enrolled in CSP. 778 A person in Mr Hutchinson's position exercising reasonable care and diligence would have appreciated as at 28 August 2014 that DEECD's concerns extended beyond whether or not what Mr Langtree referred to as "the training rules" had been satisfied in relation to CSP and Warehousing, and would also have appreciated that if the pre-training reviews conducted by BAWM or its brokers fell short of what was required under the Funding Contracts, then this would put at risk funding that had been claimed in respect of enrolments in CSP, Warehousing and CGEA and also other courses into which any student had been enrolled in the absence of a contractually compliant pre-training review. Leaving aside other issues raised by DEECD concerning course structure, duration and assessment, the risk that DEECD would permanently withhold all, or a substantial part, of the funds withheld as at 28 August 2014, on account of what BAWM and Aspin had acknowledged to be systemic problems associated with the pre-training review process, was considerable, and too great to dismiss as a remote or unlikely possibility. 779 A person in Mr Hutchinson's circumstances who exercised care and diligence, who had read and considered DEECD's letter of 26 August 2014, and the contents of Ms Bonnici's prior correspondence with DEECD, would have appreciated that Mr Langtree's analysis was based on too narrow a view of the range of contractual issues confronting BAWM and Aspin and, potentially, other Vocation RTOs which had received VTG funding in the 2014 calendar year. He or she would also have appreciated that there was too much uncertainty surrounding the dispute with DEECD, its likely outcome, and its ultimate impact on Vocation's revenue, earnings, and cash flow, to conclude that the Withholding and Suspension Information was not material in Vocation's circumstances. 780 A person in Mr Hutchinson's position exercising reasonable care and diligence would also have understood that the provision made in respect of Aspin was less than half of the total of what DEECD paid and Aspin claimed in respect of CGEA in the 2014 calendar year and that DEECD by its letter of 26 August 2014, was indicating that it may seek to recover from Aspin all funds (including amounts previously paid) on account of Aspin's breaches of its Funding Contract. He or she would also have recognised that Mr Langtree's analysis made no allowance for that fact nor for the loss of revenue attributable to the suspension on enrolments imposed on both BAWM and Aspin, or the fact that DEECD would be unlikely to meet funding claims by those companies in respect of enrolments which had occurred in breach of DEECD's directions. 781 In my view there was no reasonable basis for Mr Hutchinson to believe that BAWM's exposure was limited, or was likely to be limited, to either $4.0 million or (using Mr Langtree's worst case scenario) $7.6 million given the amounts received under the Funding Contracts in the period from 1 January 2014, the admissions made in Ms Bonnici's correspondence with DEECD, and the terms of the Funding Contracts. 782 For reasons previously stated, I am satisfied that DEECD's contractual measures were likely to negatively impact Vocation's earnings in the financial year ending 30 June 2015 significantly, by between $5.8 million (ie. more than 9% of forecast EBIT) and $10.0 million or even more. The information available to Mr Hutchinson did not provide any reasonable basis to believe that it was likely to be any less than $5.8 million. Nothing occurred after 28 August 2014 that would have suggested to a person in Mr Hutchinson's position exercising reasonable care and diligence that the likely earnings impact would be any less than $5.8 million. 783 There are two particular matters relied upon by Mr Hutchinson that are said to tell against any finding that he failed to exercise the degree of care and diligence that a reasonable person would have exercised in his position. 784 First, it was submitted by Mr Studdy SC for Mr Hutchinson that the fact that DEECD did not put any specific figure on its claims was a relevant matter. However, this is of little significance except in so far as it may have added to the uncertainty of Vocation's position. In my view, it would have reinforced in the mind of a person in Mr Hutchinson's position exercising reasonable care and diligence that reliance on modelling of the kind used by Mr Langtree based on narrow assumptions as to the scope of DEECD's concerns and BAWM's contractual obligations was unsafe and inappropriate. 785 Secondly, it was submitted by Mr Studdy SC that the fact that all of the other directors of Vocation (at least some of whom were experienced public company directors) accepted that there was no need to disclose the Withholding and Suspension Information, was another relevant matter which was consistent with Mr Hutchinson not having failed to exercise reasonable care and diligence when assessing the materiality of the Withholding and Suspension Information. 786 Mr Hutchinson's statement at the board meeting on 25 August 2014 that there was no reason to expect that payment would not be made by DEECD on 12 September 2014 may well have encouraged the independent directors to the view that the dispute was still nothing more than a "debtor timing issue" which need not be disclosed on that basis. Similarly, statements made by management at the next board meeting held on 26 August 2014 confirming that the funds that management expected to be permanently withheld were still in their view around $2.0 million may well have encouraged the independent directors to the view that the Withholding and Suspension Information was not material in spite of the developments reflected in DEECD's letter of that date. 787 Ms Tredenick's email correspondence indicated that she was uncomfortable with the way in which the continuous disclosure issue was dealt with at the 26 August 2014 board meeting. She is likely to have had the same reaction at the board meeting held on 7 September 2014 at which the board was provided with some very vague statements by Mr Hutchinson concerning the impact of the suspensions on enrolments which apparently reflected the observations contained in his equally vague email of that date. 788 In any event, what is clear is that the information given to the independent directors by Mr Hutchinson and other members of the management as to the materiality of both the withholding of funds and the suspensions on enrolments was of very poor quality and, in my opinion, the product of a serious failure on his part to provide the board with any organised or coherent information or analysis which the board could draw upon for the purpose of determining whether or not further disclosure should be made. I think this observation is particularly true of the board meetings at which the directors considered the proposed capital raising which was allowed to proceed without Vocation making any disclosure to the market in relation to the contractual measures in place beyond what was made in the 25 August Announcement. 789 For those reasons, I do not think it is of any assistance in determining whether Mr Hutchinson breached his duty of care and diligence to make assumptions, or seek to draw inferences, as to why the other directors may have concluded that the Withholding and Suspension Information was not information that Vocation was required to disclose or whether they may have breached their own duties of care and diligence. Mr Hutchinson was in a very different position to Mr Dawkins and the other non-executive directors. As the CEO and the leader of the management team, he was responsible for the day to day management of Vocation's business. It was also his responsibility to see that the board was provided with timely and quality information that would enable the board to form a view as to the materiality of the relevant information. 790 I am satisfied that Mr Hutchinson failed to exercise the degree of care and diligence that a reasonable person would have exercised in his position during the relevant period in his consideration of the Withholding and Suspension Information and the question whether Vocation was required to disclose such information pursuant to Listing Rule 3.1. In particular, I am satisfied that Mr Hutchinson failed to exercise such care and diligence in assessing the likely financial impact of the contractual measures imposed by DEECD on BAWM and Aspin and the risk that those measures presented to Vocation's forecast earnings and Vocation's cash flow. 791 I am also satisfied that a person in Mr Hutchinson's position who exercised reasonable care and diligence in his or her consideration of the Withholding and Suspension Information would have understood throughout the relevant period that the Withholding and Suspension Information was information which, if it were generally available, would be likely to have a negative impact on the price or value of Vocation's shares due to investors' perception of the risk that DEECD's contractual measures posed to Vocation's forecast earnings and its cash flow. Section 180(1) – the 25 August Announcement 792 I previously found that the 25 August Announcement conveyed three representations (R1, R2 and R3) which I found misleading and deceptive, and likely to mislead and deceive. The question that now arises is whether Mr Hutchinson breached his duty under s 180(1) of the Act by failing to exercise the degree of care and diligence that a reasonable person in his position would have exercised when approving the 25 August Announcement. R3 793 It is convenient to begin my consideration of this issue by reference to R3, which was that Vocation had reasonable grounds to represent that the withholding by DEECD of recent payments under Vocation's RTOs' funding contracts was not material to Vocation. 794 I am satisfied that a person in Mr Hutchinson's position, exercising reasonable care and diligence, would have, prior to 25 August 2014, attempted to develop an understanding of the nature and the scope of the dispute with DEECD and, for the purposes of doing this, would have reviewed the relevant correspondence, the Funding Contracts and, if necessary, obtained legal advice in relation to them. 795 With regard to legal advice, it is important to note that the board instructed management to obtain such legal advice on 29 July 2014 but that it was not received until late in the day on 25 August 2014. That meant that the board was left to assess the materiality of the withholding of funds at the board meetings held on 22 and 25 August 2014 without the benefit of the legal advice that was eventually forwarded to the board only after the 25 August Announcement was issued. 796 A consideration of the relevant correspondence and an understanding of relevant provisions of the Funding Contracts would have indicated to a person in Mr Hutchinson's position exercising reasonable care and diligence that there was (contrary to what he told the board) good reason to believe that no payment would be received by BAWM until the completion of DEECD's review of CSP and Warehousing which was likely to determine what proportion (if any) of the withheld funds would then be paid to BAWM. 797 Had legal advice been obtained, as requested by the board at the 29 July 2014 meeting, it would have alerted management and the board to the contractual powers available to DEECD under cl 16 and the extent of the obligations imposed on BAWM and Aspin under Sch 1 of the Funding Contracts particularly in relation to pre-training reviews. This legal advice is likely to have made clear that failure to comply with such obligations was defined under the Funding Contract as a "Material Breach" entitling DEECD to terminate the agreement immediately by written notice (cl 17.3). This is (I infer) the basis upon which Mr Joyce advised that there was a possibility that DEECD may terminate BAWM's funding contract at any time. A lawyer providing advice of that nature to the board would appreciate the significance of the concessions made in Ms Bonnici's correspondence in relation to pre-training reviews, and would also have drawn to management's attention (as Mr Joyce did) the difficulties facing BAWM in any effort to recover the withheld funds by way of legal proceedings. 798 Mr Hutchinson should have been aware based on Ms King's report of 19 August 2014, and the correspondence from DEECD, that DEECD was concerned about the quality of pre-training reviews conducted by or on behalf of BAWM and that there was a need to ensure that these were properly documented. In her correspondence with DEECD, Ms Bonnici accepted that there were systemic weaknesses in BAWM's pre-training processes and procedures and the documentation of the pre-training reviews. As previously explained, the term "Training Services" was defined broadly, and encompassed the "Pre-Training Review" requirements of the Funding Contracts. So there was a very strong argument that BAWM and Aspin would most likely have had to confront, that DEECD was not required to pay funding in respect of any student until BAWM or Aspin satisfied DEECD that the student had participated in a pre-training review that complied with those requirements. Ms Bonnici's correspondence showed that BAWM and Aspin would have difficulty satisfying DEECD of that fact at least in relation to enrolments that occurred prior to the introduction of the changes outlined in her letter of 4 August 2014. 799 A person in Mr Hutchinson's position exercising reasonable care and diligence would have understood that, in order to assess the extent of the risk that a substantial part, or possibly all, of the funds withheld would be permanently withheld, some assessment had to be made of the pre-training reviews that had been conducted with a view to ascertaining which of them may not have complied with the specific requirements of the Funding Contracts. There is nothing in Mr Hutchinson's evidence to indicate that he requested, or was provided with, the results of such an assessment. He instead relied upon the $2.0 million figure without any true understanding of how it had been calculated and whether it constituted a reliable estimate of the loss of revenue that BAWM was likely to suffer as a result of the review. 800 In the result, I do not think Mr Hutchinson had any reasonable basis to believe that the amount of withheld funds that would be permanently lost was unlikely to exceed $2.0 million. A person in Mr Hutchinson's position exercising reasonable care and diligence would have understood that the outcome of the review was too uncertain to enable any such conclusion to be drawn with any reasonable level of confidence. 801 I am therefore satisfied that Mr Hutchinson breached his duty under s 180 of the Act by approving the 25 August Announcement in circumstances where he lacked any reasonable basis to believe that the withholding of funds was not material to Vocation. R1 and R2 802 In cross-examination, Mr Hutchinson accepted that the right to enrol students and the right to obtain payment in respect of their training were at the heart of the Funding Contracts. To make the same point in slightly different language, I am satisfied Mr Hutchinson understood that those were the RTOs' core entitlements under their Funding Contracts. I am also satisfied that this reflected his understanding as at 25 August 2014. 803 It may be that Mr Hutchinson believed as at 25 August 2014 that the suspensions on enrolments were limited to CSP, Warehousing and CGEA. However, by that time a person in his position exercising reasonable care and diligence would have understood that the suspensions on enrolments applied to all of BAWM's and Aspin's courses. Mr Hutchinson had read Ms Watts' email to Ms Bonnici of 21 August 2014 either that day or, at least, the following day, and noted what had been said about a possible release of funds. A person in his position exercising reasonable care and diligence who read that email could not fail to appreciate that DEECD's position was that the suspensions on enrolments extended to all of BAWM's and Aspin's courses. A review of prior correspondence from DEECD would have confirmed this. 804 I am satisfied that a person in Mr Hutchinson's position exercising reasonable care and diligence on 25 August 2014 would have appreciated that an announcement that said nothing about the suspensions imposed on BAWM and Aspin, but which stated that the RTOs' contracts had not been suspended, was likely to mislead or deceive. Although it was correct, as a matter of contractual analysis, to say that the Funding Contracts had not been suspended, I consider that a person in Mr Hutchinson's position, exercising reasonable care and diligence, would have recognised that the 25 August Announcement was likely to be interpreted by many readers to mean that the RTOs' entitlements to enrol and train students under the Funding Contracts had not been suspended and that, even though recent payments may have been withheld, the RTOs could continue to enrol and train students pursuant to those contracts. He or she would therefore also have understood the 25 August Announcement was likely to mislead or deceive. He or she would also have understood that this may well result in Vocation being exposed to regulatory action or civil liability. 805 Mr Studdy SC placed considerable reliance in his submissions on the fact that JWS had drafted and approved the 25 August ASX Announcement. That is certainly a relevant matter, but it did not relieve Mr Hutchinson of his obligation to exercise care and diligence in his consideration of the terms of the 25 August Announcement for the purpose of satisfying himself that it was accurate and not likely to mislead investors or potential investors including, in particular, those who may have been familiar with the press speculation referred to in it. I am satisfied that, by approving the 25 August Announcement, Mr Hutchinson failed to exercise reasonable care and diligence and breached his duty under s 180 of the Act. Section 180(1) – The DDQ 806 A person in Mr Hutchinson's position exercising reasonable care and diligence would have appreciated that the DDQ was likely to be relied upon by UBS when deciding whether or not to underwrite the proposed $74.0 million placement of Vocation shares. I have previously set out the declaration included in the DDQ in which both Mr Hutchinson and Mr Gréwal acknowledged that UBS would be relying on the answers provided to the questions contained in the DDQ as being complete, true and correct, and not misleading or deceptive. Each of them would have understood, at the time of signing the DDQ, that a failure to exercise reasonable care and diligence in answering the questions asked in the DDQ could expose Vocation to civil liability to UBS in the event that it was induced to underwrite the Placement in reliance upon an answer that was misleading or deceptive. It would have been apparent to Mr Hutchinson and Mr Gréwal from a consideration of the DDQ as a whole and the emphasis placed upon Vocation's dispute with DEECD that UBS, as the particular underwriter of the proposed placement, considered it to be a particularly significant issue. R1 807 I have previously found that the DDQ conveyed a representation that the focus of DEECD's concerns was the extent to which school leavers were undertaking particular courses offered by BAWM and Aspin (R1). I also found that R1 was misleading and deceptive and likely to mislead and deceive. A person in Mr Hutchinson's position exercising reasonable care and diligence would have understood, at the time of signing the DDQ, that R1 was likely to be conveyed to a person in the position of UBS and that it was likely to mislead and deceive. 808 I am satisfied that Mr Hutchinson, at the time of signing the DDQ, was seeking by his answers to minimise the significance of Vocation's dispute with DEECD by (among other things) representing that the outcome of the dispute depended on whether BAWM and Aspin had wrongly enrolled "school leavers" into CSP, Warehousing and CGEA, which in turn depended upon how the term "school leaver" should be interpreted. A person in Mr Hutchinson's position exercising reasonable care and diligence would have understood, at the time of signing the DDQ, that compliance with the eligibility requirements specified in the Training Packages was one of a number of matters upon which DEECD was focused and that it would therefore be misleading to represent that DEECD was focused on the enrolment of school leavers in those three courses. 809 I am satisfied that Mr Hutchinson breached his duty under s 180(1) of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R1. R2 810 A person in Mr Hutchinson's position exercising reasonable care and diligence would have appreciated that the DDQ was likely to be understood by UBS as stating that enrolments in the period 1 August 2014 to 9 or 10 September 2014 that were precluded by the suspensions imposed by DEECD had been fully offset by enrolments by other RTOs owned by Vocation that were still able to enrol and receive funding under their funding contacts with DEECD. I am satisfied that a person in Mr Hutchinson's position exercising reasonable care and diligence would have also understood that this statement was incorrect or, at least, that he or she did not have adequate information to justify making such a statement. Either way, I am satisfied that Mr Hutchinson breached his duty under s 180(1) of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R2. R3 811 I am satisfied that a person in Mr Hutchinson's position exercising reasonable care and diligence would have appreciated that the DDQ conveyed a representation that DEECD had indicated on 8 September 2014 its willingness to pay a substantial part of the withheld funds in the next 7 to 14 days. Whether that representation would be understood by the reader to mean 7 to 14 days calculated from 8 September 2014 or 10 September 2014 (being the date the DDQ was signed) hardly matters. Such a person would have understood that it was incorrect to represent that DEECD had indicated any such willingness. He or she would have understood that DEECD's willingness to pay any part of the withheld funds depended on the outcome of the review, and that DEECD had made clear at the meeting on 8 September 2014 that any decision to release any part of the withheld funds would be informed by the initial report of the review panel into CSP, Warehousing and CGEA. 812 I am satisfied that Mr Hutchinson breached his duty under s 180(1) of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R3. Mr Dawkins Section 180(1) – Continuous Disclosure Mr Dawkins' knowledge of the Withholding and Suspension Information. 813 I am satisfied that by no later than 28 August 2014, Mr Dawkins was aware of the Withholding and Suspension Information and the fact that it was not generally available. I am also satisfied that he knew that Vocation was required to disclose the Withholding and Suspension Information in accordance with Listing Rule 3.1 if a reasonable person would expect that information to have a material effect on the price or value of shares in Vocation. 814 I am also satisfied that Mr Dawkins appreciated at all relevant times, that any failure by Vocation to comply with its continuous disclosure obligations could expose Vocation to significant financial harm including, in particular, liability for civil penalties or damages in the event that Vocation failed to comply with such obligations. Mr Dawkins' responsibilities 815 As the Chairman of the Vocation board, Mr Dawkins' responsibilities, as described in the Board Charter, included maintaining effective communication between the board and management; leading the board; ensuring the efficient organisation and conduct of the board's function; and to brief the directors in relation to issues arising at board meetings. 816 As a non-executive director, Mr Dawkins was also a member of the Audit and Risk Committee. Its purpose was to assist the board in fulfilling its responsibilities in relation to (inter alia) Vocation's financial reports, its associated reporting processes, and its risk management systems and compliance framework. The Audit and Risk Committee's Charter identified the Committee's responsibilities as including overseeing the establishment, methodology and implementation of Vocation's risk management system and its resourcing and reporting to the board on specific risks. 817 From 26 August 2014, Mr Dawkins was provided with all relevant correspondence with DEECD. On that date he assumed direct responsibility for the negotiations with DEECD, with the aim of securing the release of at least some of the withheld funds, a relaxation of the suspensions of enrolments and commencements, and favourable terms for the proposed review and the proposed trial. His first direct contact with DEECD in relation to those matters was on 28 August 2014 when he met with Ms Peake and Ms Watts. 818 ASIC's case against Mr Dawkins based upon Vocation's non-disclosure of the Withholding and Suspension Information is confined to the relevant period which did not commence until 28 August 2014. However, events that occurred prior to that date are relevant to determining how a person in Mr Dawkins' position exercising reasonable care and diligence would have reacted to the Withholding and Suspension Information in the relevant period. They are also relevant to the question whether Mr Dawkins should be granted relief in respect of any breach of his s 180 duties under s 1317S or s 1318 of the Act. Consideration 819 Mr Pesman SC developed a number of detailed submissions of particular relevance to the case against Mr Dawkins based on his alleged breach of s 180 of the Act. In essence, it was submitted by Mr Pesman SC that based on the high degree of attention that the board's consideration of its continuous disclosure obligations received (as noted in the minutes), the advice received from JWS (as also noted in the minutes), and the high level of attention that Mr Dawkins gave the dispute with DEECD from 26 August 2014 onwards, it was not open to find that Mr Dawkins failed to exercise the degree of care and diligence that would be expected of a person in his position. I will consider these matters and various other points made by Mr Pesman SC in more detail in the course of the following consideration of Mr Dawkins' liability under s 180 of the Act. 820 The first important matter to note is that ASIC has not sought to impugn Mr Dawkins' honesty. I therefore proceed on the basis that whatever else might be said in relation to Mr Dawkins' consideration of the Withholding and Suspension Information or, more broadly, the facts and circumstances relating to Vocation's dispute with DEECD, it is not disputed by ASIC that he honestly believed that the Withholding and Suspension Information was not material in the relevant sense, and that Vocation was therefore not required to disclose any of it. I agree with Mr Pesman SC that is a significant factor to be borne in mind in any consideration of Mr Dawkins' liability under s 180 of the Act. 821 Another matter that I think is important in understanding Mr Dawkins' role in what I have found to be a contravention by Vocation of s 674 of the Act is the significant change in position that occurred on 26 August 2014 when Vocation received Ms Watts' letter of that date. Up until that time, Mr Dawkins was highly reliant on information provided to him by Mr Hutchinson and other members of management for the purposes of deciding whether or not Vocation was required to disclose the Withholding and Suspension Information. However, from 26 August 2014 he was in a position to form views and draw conclusions based on his own review of the relevant correspondence and face-to-face meetings that he had with Ms Peake and Ms Watts on 28 August 2014 and with Mr Bolt on 8 September 2014. 822 As I have previously explained, the quality of the information provided by management to the board up to 26 August 2014 was very poor. I do not need to repeat all that I have said in relation to Mr Hutchinson's position, but by the time the letter of 26 August 2014 had been received and considered, it would have been quite clear to a person in Mr Dawkins' position exercising reasonable care and diligence that previous decisions made by the board in relation to the disclosure of the Withholding and Suspension Information were based on inaccurate and misleading information. 823 In my view by 26 August 2014 it would have been clear to a person in Mr Dawkins' position exercising reasonable care and diligence that the dispute with DEECD involved much more than a mere "debtor timing issue" and that management's prior characterisation of the dispute in those terms was inapt and misleading. Similarly, by 26 August 2014 it would also have been clear to such a person that the size of the withholding of funds had nothing to do with any inability on the part of DEECD to make a partial payment and that management's prior advice to that effect was incorrect. The independent directors had good reason to be highly critical of management for providing the board with such unreliable and inaccurate advice on a matter of importance. 824 None of this is to suggest that a person in Mr Dawkins' position exercising reasonable care and diligence, would have appreciated, at the time any of this advice was first provided to the board, that it was inaccurate. But by the time the board met on 26 August 2014 it would have been apparent to such a person that management could not be relied upon to provide accurate or reliable information in relation to BAWM's and Aspin's dispute with DEECD and the crisis that had developed around what management had led the directors to believe was a routine delay in obtaining payment of the withheld funds. It is therefore not surprising that Mr Dawkins assumed direct responsibility for the negotiations with DEECD from 26 August 2014 onwards. What is perhaps more surprising is that the board did not take steps to admonish management for the poor information and advice that they had provided up to that point. 825 That said, it is important to distinguish what I accept were diligent efforts on the part of Mr Dawkins to engage with management and with DEECD for the purpose of securing a release of funds and a relaxation of the suspensions on enrolments and commencements, from his efforts to assess the materiality of the Withholding and Suspension Information in light of the developments occurring on and after 26 August 2014. 826 By 28 August 2014 a person in Mr Dawkins' position exercising reasonable care and diligence would have been evaluating the information from management relevant to Vocation's dispute with DEECD relatively critically, especially when it was based on broad and generalised statements or opinions unsupported by any reasoned or sustained analysis provided to the directors in board papers or elsewhere. 827 In Mr Dawkins' case I am satisfied that from 26 August 2014 through to 18 September 2014 he accepted what he was told by management much too uncritically, and without challenging the correctness of the advice or the assumptions on which that advice was based. In this regard, I am satisfied that, in doing so, he failed to exercise the care and diligence that could be expected of a person in his position exercising reasonable care and diligence. 828 The minutes of the board meeting held in the evening of 26 August 2014 make no reference to Mr Joyce's written advice of the previous day. What they do record is that Ms Bonnici explained to the board the issues raised in the 26 August 2014 letter and the effect on BAWM and Aspin. I have already commented on this in my earlier discussion of the minutes of the meeting of 26 August 2014. Her explanation to the board appears to have been given without the benefit of any legal advice in respect of the letter of 26 August 2014. Although Mr Koster and Mr Rozsa were present, there is no suggestion contained in the minutes that they provided any legal advice at that meeting in relation to the contractual issues raised in the 26 August 2014 letter. 829 The minutes record that management was questioned at length concerning the revenue at risk. The advice given by management was that "the revenue at risk … was still in their view around $2 million, with $4 million being used as a safety margin." It is apparent from the minutes that the $4.0 million figure was arrived at simply by doubling the $2.0 million for the purpose of creating what was described as a "safety margin". 830 The $2.0 million figure mentioned during the meeting can be traced back to that quoted in Ms Bonnici's letter to DEECD dated 20 August 2014 which was derived using a different methodology from that adopted in Mr Langtree's analysis of 27 August 2014. The former was based on the proportion of withheld funds that were referable to enrolments by five brokers in all of BAWM's courses whereas Mr Langtree's 27 August 2014 analysis focused solely on training rules and the number of students within particulars cohorts who had been enrolled in CSP. 831 The minutes also record that the board was advised that the estimate given was reasonable because "the issues related to only a proportion of the students in the three courses". This advice was not recorded in any written report or analysis given to the directors at or prior to the meeting and was, I infer, first communicated to them during the course of the discussions that occurred during the meeting. 832 Contrary to what the board was told at the 26 August 2014 meeting, Mr Langtree's analysis of 27 August 2014 assumed that the issues raised by DEECD related only to a proportion of students enrolled in a single course, ie. CSP. It also shows that he calculated a prospective repayment of $4.37 million (with no allowance for any margin of safety) and a worst case scenario of $7.6 million. Both of these figures assumed BAWM had no financial exposure with respect to enrolments in any course apart from CSP. The change in management's advice on this issue seems to have gone unnoticed, with nothing being said about it at the 28 August, 7 September or 8 September 2014 board meetings. 833 Mr Dawkins' principal failing in my view was his failure to properly turn his mind to the correctness of the assumptions underlying Mr Langtree's analysis of 27 August 2014. Mr Langtree wrongly assumed that BAWM's potential liability to DEECD was based solely on non-compliance with enrolment requirements specified in the training packages. This reflected a view that does not appear to have been based on any relevant legal advice and which failed to take into account a number of important contractual provisions referred to in the letter of 26 August 2014, and the related concessions made in Ms Bonnici's previous correspondence with DEECD. 834 In his written evidence Mr Dawkins explained that he had arranged for Mr Joyce to be at the preparation meeting held on 7 September 2014 to advise on options for contesting DEECD's decision (presumably to impose the contractual measures) before the Victorian Civil and Administrative Tribunal. The evidence does not disclose what advice Mr Joyce gave on that issue. I have previously mentioned that there was no evidence given of legal advice provided by Mr Joyce on 7 September 2014 regarding the risk of DEECD permanently withholding all or a significant proportion of the withheld funds. Nor was there any evidence to suggest that Mr Joyce had provided advice at that meeting different from that which appeared in his 25 August 2014 email or, more importantly, that he had endorsed either the general approach or methodology adopted by Mr Langtree in his 27 August 2014 analysis or Mr Langtree's "worst case scenario". 835 A person in Mr Dawkins' position exercising reasonable care and diligence would have, as at 28 August 2014, regarded the Withholding and Suspension Information as material because of the uncertain financial impact that the withholding of funds would have on Vocation's forecast earnings and its cash flow. He or she would not have relied on assertions made by management which purported to define the limits of BAWM's and Aspin's financial exposure to DEECD in circumstances where these were not supported by relevant legal advice as to the scope of BAWM's and Aspin's obligations under the Funding Contracts or any other analysis of the relevant contractual provisions. 836 With regard to the impact of the suspensions on enrolments and commencements, one of the stated reasons why Vocation did not consider that the Withholding and Suspension Information was material was that they applied only to CSP, Warehousing and CGEA. But once the letter of 26 August 2014 was received, there could be no doubt that the suspensions extended to all of the courses offered by BAWM and Aspin and that this justification for not disclosing their existence was no longer tenable. 837 At that time a person in Mr Dawkins' position exercising reasonable care and diligence would have re-examined the likely impact of such measures on BAWM. In doing so he or she would not be satisfied by management's vague and uncertain references to the "banking up" of enrolments or the "re-direction" of students into other courses as a justification for concluding that the suspensions on enrolments and commencements were not material to Vocation. Nor would a person in Mr Dawkins' position exercising reasonable care and diligence have relied upon Mr Hutchinson's assertions at the 7 September 2014 meeting concerning "overall enrolments" without seeking more information as to the nature and origin of any increases in enrolments relied upon in support of the supposition that the suspensions on enrolments were not likely to have any material impact on Vocation's revenue or earnings. 838 There was no material provided to the board after 26 August 2014 that would have led a person in Mr Dawkins' position exercising reasonable care and diligence to conclude that the estimate of the revenue that would be lost as a result of the imposition of the suspensions on enrolments and commencements was likely to be any less than what it had been estimated to be at the board meeting held on 19 August 2014 (an estimate based on the mistaken assumption as to the scope of the suspensions). Vague indications by management that those enrolments had been, or would be, made up, did not provide a sound basis for a person in Mr Dawkins' position exercising due care and diligence to conclude that the effect of the suspensions on enrolments and commencements (which by 28 August 2014 were known to extend to all of BAWM and Aspin's courses) were unlikely to materially impact Vocation's earnings and cash flow. 839 In his oral evidence Mr Dawkins was asked some questions by Mr Studdy SC concerning the "restoration of funds". In the answering those questions, Mr Dawkins stated that he believed that at the end of the initial review "there was a clear possibility that funding would be restored." He was then asked (in the absence of any objection) whether he was confident that the funding would be restored. His answer was that he was confident that DEECD's suspicions and concerns would not be substantiated, in which case he expected there would be a favourable decision about the restoration of funding. By "restoration of funding" I understood Mr Dawkins to be referring to both the payment of the withheld funds and the lifting of the suspensions on enrolments. 840 I accept that Mr Dawkins was confident during the relevant period that a substantial proportion of the funds withheld by DEECD would be paid. But I do not accept that a person in his position exercising reasonable care and diligence could have been confident that all, or even most of the withheld funds, would be paid. From on or about 28 August 2014, Mr Dawkins' confidence was founded on his understanding that the amount permanently withheld would be limited to a proportion of funding referable to enrolments in CSP and that the balance of the withheld funds referable to Warehousing and all other courses conducted by BAWM was not at risk of permanent loss. 841 In my opinion Mr Dawkins' expectations were excessively optimistic and ill-founded because they did not take into account the RTOs' obligations under the Funding Contracts or the importance that DEECD attributed to such obligations. A consideration of the relevant contractual provisions relating to pre-training reviews would have indicated to a person in Mr Dawkins' position who was exercising reasonable care and diligence that there was a very strong possibility that DEECD would refuse to accept any of the claims made in respect of CSP and Warehousing on the basis that the pre-training reviews conducted by the RTOs (or their brokers) were contractually non-compliant. 842 Rather than act on Mr Langtree's analysis of 27 August 2014, a person in Mr Dawkins' position, exercising reasonable care and diligence, who was acquainted with the Funding Contracts and the relevant correspondence, would have sought to ascertain, before coming to any view as to the likely extent of BAWM's financial exposure, what proportion of the pre-training reviews conducted in relation to the CSP and Warehousing dual qualification were contractually compliant. This would be essential in order to come to a reliable view as to the extent of the withheld funds that were likely to be paid after completion of the review. Even then, it would still be necessary to consider other issues raised by DEECD (eg. course structure and duration) for the purpose of assessing whether these gave rise to any additional risk that the withheld funds would not be paid. In that respect I accept that the effect of the Funding Contracts (and the Standards they imported) may not have been entirely clear, but this in my view merely added to the general uncertainty as to the likely outcome of the review and the quantum of any payments that would eventually be made to BAWM and Aspin. 843 I accept that Mr Dawkins had a reasonable basis to believe that, subject to the outcome of the proposed trial (in respect of courses other than CSP, Warehousing and CGEA) and the outcome of the review (in respect of those three courses), DEECD may eventually remove the suspensions on enrolments that had been imposed on BAWM and Aspin. However, the outcomes of the trial and the review were uncertain and not assured and I do not think there was any reasonable basis for concluding that DEECD was likely, following their completion, to allow BAWM and Aspin to resume delivery of training. 844 DEECD had raised particular concerns in relation to the delivery of CSP and Warehousing as a dual qualification and I do not think a person in Mr Dawkins' position acting with care and diligence could have reasonably supposed during the relevant period that there was anything less than a substantial risk that DEECD would decline to remove the suspensions it had imposed pursuant to cl 16.2(a) of the Funding Contracts at least in relation to those courses. 845 It is clear that under the Funding Contract DEECD would be entitled to maintain the suspensions on enrolments if the review concluded that there had been non-compliance by BAWM and Aspin with the Funding Contracts (see cl 11.3). This is significant because, for reasons previously stated, it would have been difficult for either BAWM or Aspin to have avoided a finding of breach given the concessions made in Ms Bonnici's correspondence with DEECD. 846 In his submissions Mr Pesman SC emphasised that the evidence indicated that JWS did not provide any advice that would have led a person in Mr Dawkins' position exercising reasonable care and diligence to understand that the impact of DEECD's contractual measures on Vocation's cash flow was a matter that may require disclosure pursuant to Listing Rule 3.1. That appears to be true of the advice on that topic provided by JWS to the board prior to 26 August 2014. However, from that date it becomes much more difficult to know what advice JWS provided on the topic since very little of it is recorded in the board minutes. 847 In any event, once it is accepted that Vocation was required, due to the cash flow impact of DEECD's contractual measures, to undertake the capital raising when it did, then I think JWS's advice (or lack of advice) is of less significance than Mr Pesman SC's submission suggested. In my view a person in Mr Dawkins' position exercising reasonable care and diligence between 28 August 2014 and September 2014 would have appreciated that the Withholding and Suspension Information would, if generally available, be likely to affect Vocation's share price not merely due to the potential earnings impact of DEECD's contractual measures, but also due to their cash flow impact, which had resulted in a situation which, if it were not for the capital raising that was undertaken on 10 September 2014, was likely to have resulted in Vocation running out of cash before any substantial payment had been received from DEECD. 848 For the above reasons I am satisfied that Mr Dawkins breached his duty under s 180(1) of the Act during the period 28 August 2014 to 18 September 2014. Section 180(1) – 25 August Announcement 849 In support of its case against Mr Dawkins based on the 25 August Announcement (insofar as it conveyed R1 and R2), ASIC submitted that a person in his position exercising reasonable care and diligence would have recognised that the 25 August Announcement was misleading or deceptive, or likely to mislead or deceive. This was because, according to ASIC's submission, as at 25 August 2014: Mr Dawkins would have appreciated that the RTOs' ability to enrol students (which was a fundamental entitlement under the Funding Contracts) had been compromised; Mr Dawkins had not been provided with any information to suggest that the contractual measures, including the suspensions on enrolments, would soon be lifted; A person in Mr Dawkins' position exercising reasonable care and diligence would have appreciated that readers of the 25 August Announcement would understand from the statement that the Funding Contracts "have not been suspended and are continuing" that Vocation's RTOs were able to continue to enrol students and deliver training services under all of their Funding Contracts. 850 It was not contended by ASIC that Mr Dawkins knew as at 25 August 2014 that the suspension on enrolments extended to all of the courses conducted by BAWM and Aspin. On 22 August and again on 25 August 2014, he was informed by management that the suspensions on enrolments applied to only three courses. At this point in time (ie. before receipt of Mr Joyce's advice or Ms Watts' letter of 26 August 2014) Mr Dawkins was, in my view, entitled to rely upon management's representation to the effect that the suspensions on enrolments only applied to the three courses that were the subject of the review. His position was in this respect different from that of Mr Hutchinson who, as I have found, should have appreciated before 25 August 2014 that all of BAWM's and Aspin's courses were affected by the suspensions on enrolments. 851 With respect to R1 and R2, I am not satisfied that Mr Dawkins, in approving the ASX announcement, and permitting it to be issued by Vocation, breached his duty of care and diligence. 852 With respect to R3, it seems to me that Mr Dawkins was, as at 25 August 2014, entitled to rely upon management's assurances that the amount of funds likely to be permanently withheld was not material in Vocation's circumstances given the amount of revenue said to be at risk was approximately $2.0 million. In his written evidence, Mr Dawkins stated that he believed that the figure of $2.0 million discussed at the board meeting of 22 August 2014 was likely to be the upper limit of Vocation's exposure. At this time he still understood (in accordance with Mr Hutchinson's prior advice) that DEECD was withholding all funds because it was unable to make partial payments. The minutes record that Mr Hutchinson told the board at its 25 August 2014 meeting that there was no reason to believe that DEECD would not make its next payment on 12 September 2014. 853 All of this suggests that, at the time Mr Dawkins approved the 25 August Announcement, he believed, based on Mr Hutchinson's advice, that BAWM would receive a payment of approximately $16.0 million or more on or about 12 September 2014. 854 It is easy with hindsight to suggest that Mr Dawkins should not have accepted Mr Hutchinson's advice without questioning it or seeking to verify its accuracy. However, as at 25 August 2014, I do not think Mr Dawkins had reason to doubt the reliability of the information provided to him by management in relation to BAWM's or Aspin's exposure. Of course, things changed the next day when the letter of 26 August 2014 was received. But as of 25 August 2014, I do not think it was unreasonable for Mr Dawkins to have relied on what management had told him with regard to both the scope and likely impact of DEECD's contractual measures. 855 In the result, I am not persuaded that Mr Dawkins breached his duty under s 180(1) by approving the 25 August Announcement. Mr Gréwal Section 180(1) – The DDQ 856 I have already made some findings in relation to Mr Hutchinson's liability under s 180 of the Act in respect of the DDQ that also apply to Mr Gréwal. In particular, I am satisfied that a person in Mr Gréwal's position exercising reasonable care and diligence would have appreciated that the DDQ was likely to be relied upon by UBS when deciding whether or not to underwrite the proposed $74.0 million placement of Vocation shares. A person in Mr Gréwal's position would also have understood, at the time of signing the DDQ, that a failure to exercise care and diligence in answering the questions asked in the DDQ could expose Vocation to civil liability to UBS in the event that it was induced to undertake the Placement in reliance upon an answer that was misleading or deceptive. In the circumstances, I am satisfied that a person in Mr Gréwal's position exercising reasonable care and diligence would have understood that it was important to ensure that the answers given in the DDQ were to the best of his or her knowledge and belief accurate and not likely to mislead or deceive UBS. 857 As company secretary and CFO, the drafting and completion of due diligence questionnaires was a task within Mr Gréwal's area of responsibility. That responsibility would include, where necessary, reviewing key correspondence and documents for the purpose of drafting and completing the due diligence questionnaire and satisfying himself to the best of his knowledge and belief that the answers given were correct and not likely to mislead or deceive. R1 858 The particular answer that I am satisfied conveyed R1 was drafted by Mr Hutchinson. Mr Gréwal's evidence was that he believed that the answer was accurate. He said this belief was based upon what he had been told by other members of management, including what was conveyed in Mr Hutchinson's 19 August 2014 report to the board and Mr Langtree's 27 August 2014 analysis. He also said he believed that the subject matter of R1 was very much within Mr Hutchinson's knowledge and responsibility and that if the DDQ was inaccurate in so far as it conveyed R1, then he would have expected Mr Hutchinson to have corrected it. 859 ASIC relied on the fact that Mr Gréwal had been provided with the contents of the terms of reference for the independent review which explicitly indicated that DEECD was focused on a number of matters that extended well beyond the "school leaver" issue. ASIC also relied upon Mr Gréwal's acceptance in cross-examination that the terms of reference did not indicate to him that DEECD's concerns were limited to school leavers. Of course, that is not quite the same as saying that the focus of DEECD's concerns was the extent to which school leavers were undertaking particular courses offered by BAWM and Aspin. In that regard, I accept Mr Leopold SC's submission that the words of the DDQ which Mr Gréwal signed did not indicate that DEECD's concerns were "limited" to school leavers. 860 Mr Gréwal did not attend the meeting with Mr Bolt on 8 September 2014. In that respect he was at a disadvantage to Mr Hutchinson who not only attended the meeting but also claimed to have had the benefit of a detailed review of relevant correspondence as part of management's preparation for that meeting. 861 There is some force in the submission made on behalf of Mr Gréwal that he was, at least in so far as R1 is concerned, entitled to rely on Mr Hutchinson's assessment of DEECD's concerns on the basis that Mr Hutchinson was better placed than Mr Gréwal to know the focus of DEECD's concerns. But the fact that Mr Gréwal had been provided with the terms of reference is in my view significant because these would have indicated to a person in his position exercising a reasonable case and diligence that the answer drafted by Mr Hutchinson was most likely incorrect. 862 Another matter to note is that Ms King's report to the board of 19 August 2019 (which was cross-referenced in Mr Hutchinson's report) clearly indicated that DEECD's concerns extended beyond a small cohort of school leavers and that DEECD was focused on the quality of the pre-training reviews conducted by or on behalf of BAWM and Aspin more generally and some other matters relating specifically to the duration of the dual qualification. There is no reason to think that Mr Gréwal did not read her report before he arranged for it to be provided to the board for its consideration and I am satisfied that he would have done so. 863 I consider that a person in Mr Gréwal's position exercising reasonable care and diligence would have appreciated that the DDQ was inaccurate and likely to mislead a person in the position of UBS in so far as it conveyed R1. He or she would at the very least have reviewed the key correspondence from DEECD (including, in particular the letter of 26 August 2014 and the terms of reference) for the purpose of confirming the accuracy of the answer drafted by Mr Hutchinson. Once this was done he or she would realise that what Mr Hutchinson had written was incorrect and likely to mislead a person in the position of UBS. 864 I am satisfied that Mr Gréwal breached his duty under s 180(1) of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R1. He or she would also have understood that a representation to that effect was likely to mislead a person in the position of UBS. R2 865 In his written evidence Mr Gréwal said that he understood at the time he signed the DDQ that the impact of the suspensions on enrolments on BAWM and Aspin "… was in the process of being made up by enrolling students in … other Victorian RTOs that had funding contracts with the Victorian government." According to his evidence, this understanding was based on Mr Langtree's email of 25 August 2014, Ms Bonnici's email of 28 August 2014 and a discussion he had with Mr Langtree on Sunday, 7 September 2014 prior to sending by email to Mr Hutchinson at 6.56am that morning, an email that Mr Gréwal described as a file note of his discussion with Mr Langtree. 866 According to Mr Gréwal, Mr Langtree told him that BAWM's and Aspin's enrolments for July 2014 were not impacted by the Victorian review and that their enrolments in August and September 2014 were impacted in "a non-material amount". He said he was told by Mr Langtree that the impact in September 2014 would be "mitigated" by enrolling students in Learning Verve and TDA. It is not at all apparent from Mr Gréwal's evidence what Mr Langtree understood when he said that enrolments in August and September 2014 were "impacted by a non-material amount." 867 Because I do not regard Mr Gréwal as a reliable witness, I have serious doubts as to what he was told by Mr Langtree on the morning of 7 September 2014. In any event, I am satisfied that, even if the information provided to Mr Gréwal by Mr Langtree is accurately recorded in Mr Gréwal's email of 7 September 2014, it did not provide Mr Gréwal with a reasonable basis to make R2. 868 It would have been apparent to Mr Gréwal (and Mr Langtree) that the suspensions on enrolments were having a significant impact on Vocation's revenue in August and September 2014 which had not been made up by the time Mr Gréwal came to sign the DDQ. The aim of the trial that had been proposed was to satisfy DEECD, prior to the finalisation of the review, that BAWM and Aspin should be permitted to resume enrolments in some of their courses (but not CSP, Warehousing or CGEA), which might partially restore the revenue stream that had been stopped as a result of the suspensions. Mr Gréwal would have known this at the time he signed the DDQ, and would also have understood that there would be no point in engaging in such a trial unless the continuation of the suspensions was having a significant impact on Vocation's revenues. 869 I am satisfied that Mr Gréwal breached his duty under s 180(1) of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R2. He or she would also have understood that a representation to that effect was likely to mislead a person in the position of UBS. R3 870 A person in Mr Gréwal's position exercising reasonable care and diligence would have appreciated that the DDQ conveyed a representation that DEECD had indicated on 8 September 2014 its willingness to pay a substantial part of the withheld funds in the next 7 to 14 days. He or she also would have understood that it was incorrect to state that DEECD had indicated any such willingness, and that DEECD's willingness to pay any part of the withheld funds depended on the outcome of the review panel's initial report into CSP, Warehousing and CGEA. 871 I am satisfied that Mr Gréwal breached his duty under s 180 of the Act by providing the DDQ to UBS in circumstances where a person in his position exercising reasonable care and diligence would have understood that it conveyed R3. He or she would also have understood that a representation to that effect was likely to mislead a person in the position of UBS. Remaining Issues 872 Each of the individual defendants has sought relief under s 1317S and s 1318 of the Act. During the course of the hearing I gave a ruling to the effect that I would determine the individual defendant's application for relief under s 1317S and s 1318 of the Act at the same time I made my principal findings. That ruling had been opposed by both Mr Dawkins and Mr Gréwal essentially on the basis that it would be difficult to make submissions in support of their case for such relief without the benefit of the Court's findings. In spite of my earlier ruling, I have decided that I will give each of the individual defendants the opportunity to make further submissions in relation to s 1317S and s 1318 of the Act after they have had time to consider my reasons for judgment and the findings made against them before I determine what, if any, relief should be granted under either of those provisions. Although this involves a change in the approach I had previously indicated I would follow, I do not think it will cause ASIC any prejudice. It was always envisaged that there would need to be a further hearing to consider the question of what, if any, penalty should be imposed on the individual defendants in the event that any of them were found to have contravened a relevant provision of the Act. 873 In the circumstances, I propose to fix the matter for a further hearing which will deal with all remaining questions in the proceeding including those arising under s 1317S and s 1318 of the Act, the form of any declaratory relief, all questions of penalty, and all questions of costs. There will be an order made fixing a case management hearing at which I will make further orders for the filing of some brief supplementary written submissions and appointing a further hearing date. I certify that the preceding eight hundred and seventy-three (873) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate: Dated: 18 June 2019