Reported Decision : (2003) 12 ANZ Insurance Cases 61-573 New South Wales Supreme Court CITATION : Porter v GIO Australia Ltd & Anor [2003] NSWSC 668 HEARING DATE(S) : 6-7 May 2002,16-17 October 2002, 21 October 2002, 17-20 March 2003, 24 March-22 May 2003, 26 May-5 June 2003, 16 June-27 June 2003 JUDGMENT DATE : 21 August 2003 JURISDICTION: Equity Divison Commercial List JUDGMENT OF : McClellan J DECISION : Summons dismissed CATCHWORDS : INSURANCE - DIRECTORS AND OFFICERS INSURANCE - Plaintiff sought indemnity under policy for costs of civil proceedings brought by former employer and criminal proceedings in which nolle prosequi granted - whether insurer entitled to rectification of policy - period of cover - date of entry into policy - construction of insuring clauses and exclusion clauses - whether dishonest, fraudulent or criminal conduct - whether plaintiff involved in contravention of s 205 Corporations Law by provision of financial assistance for purchase of company's own shares - whether claim notified during policy period - whether official 'Inquiry' commenced prior to policy period - whether non-disclosure or fraudulent misrepresentation by plaintiff - whether plaintiff entitled to indemnity under professional indemnity policy - whether insurer estopped from relying on matters not previously relied upon - whether insurer acted in bad faith by obtaining documents through misrepresentation - CORPORATIONS LAW - DIRECTORS INDEMNITY - whether plaintiff entitled to indemnity under company's Articles of Association or common law - whether plaintiff's costs arose out of conduct involving lack of good faith - whether nolle prosequi amounts to acquittal or judgment in favour - whether obligation of good faith owed to plaintiff, implied from board resolution - whether former employer breached such obligation by cancelling policy - DEEDS AND INSTRUMENTS - CONSTRUCTION - Deed of Release - whether general release contained in Deed extended to bar claim for criminal defence costs - limitation of general words of release to matters in contemplation of parties at time deed entered - whether unconscionable for former employer to rely on deed - whether inequality of knowledge Australian Securities & Investments Commission Act 1989 (Cth) Contracts Review Act 1980 (NSW) Corporate Law Economic Reform Act 1999 Corporate Law Reform Act 1994 (Cth) LEGISLATION CITED : Corporations Act 2001 Corporations Law Insurance Agents and Brokers Act 1984 Insurance Acquisition and Takeovers Act Insurance Contracts Act 1984 Trade Practices Act 1989 (Cth) Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Alexander Ward & Co Ltd Samyang Navigation Co Ltd [1975] 1 WLR 673 Aleyn v Belchier (1758) 28 ER 634 Atkins v National Australia Bank (1994) 34 NSWLR 155 Australian Competition & Consumer Commissioner v C G Belatis Holdings Pty Ltd (2003) 197 ALR 153 Australian Growth Resources Corp Pty Limited v Van Reesema (1988) 13 ACLR 261 Bahr v Nicolay (No 2) (1988) 64 CLR 604 Bank of Credit and Commerce International SA (in liquidation) v Ali [2001] 1 All ER 961 Barrett v State of South Australia (1994) 63 SASR 208 Bonelli's Telegraph Company, in re (1871) LR 12 Eq. 246 Bradshaw v McEwans Pty Ltd (unreported, High Court of Australia, 27 April 1951) Brambles Holdings v Bathurst City Council (2001) 53 NSWLR 153 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Burton v Palmer [1980] 2 NSWLR 878 Bush v National Australia Bank Limited (1992) 35 NSWLR 390 Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1986] BCLC 1 Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94 Chew v R (1991) 107 ALR 171 Comino v Manettas (1993) 7 ANZ Ins Cas 61-162 Commercial Bank of Australia Ltd v Armadio (1983) 151 CLR 447 Commonwealth Life Assurance Ltd v Smith (1938) 59 CLR 527 Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503 Danish Mercantile Co Ltd v Beaumont [1951] Ch 680 Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260 Davis v Gell (1924) 35 CLR 275 Dempster v National Companies & Securities Commission (1993) 10 ACSR 215, Devine v Sun Alliance Australia Ltd (unreported, Supreme Court of New South Wales, 18 June 1992, Giles J). Dwyer v Long (1992) 7 ANZ Ins Cas 61 - 120 East End Real Estate Pty Limited t/as City Living v C E Heath Casualty & General Insurance Ltd (1992) 7 ANZ Ins Cas 61-151 Edwards v R (1992) 173 CLR 653 Emanuel Management Pty Ltd (in liq) v Emanuele (2002) 83 SASR 501 Fitzsimmons v R (1997) 23 ACSR 355. Giorgianni v R (1985) 156 CLR 473 Goodwin v State Government Insurance Office (Queensland) (1991) 6 ANZ Ins Cas 61-064 Grant v John Grant & Sons (1954) 91 CLR 112 HG & R Nominees Pty Ltd v Fara [1997] 2 VR 368 H L Bolton (Engineering) Co Limited v T J Graham & Sons Limited [1957] 1 QB 159 Howard Smith v Ampol Petroleum Ltd [1974] AC 821 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 Independent Steels Pty Ltd v Ryan [1990] VR 247 Karger v Paul [1984] VR 161 CASES CITED : London & South Western Railway Co v Blackmore (1870) 4 HR 610 Luxton v Vines (1952) 85 CLR 352 Magnacrete Limited v Douglas-Hill (1988) 15 ACLR 325 Marchesi v Barnes [1970] VR 434 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 Meinhard v Salmon 249 NY 458 1928 Mid-Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCR 290 Milburn v Pivot Ltd (1997) 78 FCR 472 Mills v Mills (1938) 60 CLR 150 Moore; in re Faithfull, ex parte (1885) 14 QBD 627 Myer Retail Investments Pty Ltd, re (1983) 68 FLR 15 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 New Zealand Forest Products Limited v New Zealand Insurance Co Limited [1997] 1 WLR 1237 Noye v Robbins [2000] WASC 81 Onslow v Commissioners of Inland Revenue (1890) 25 QBD 465 Overlook v Foxtel (2002) ATPR (Digest) 46-219, (2002) Aust Contracts Rep 90-143 Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) [2003] HCA 25 Plasteel Windows Australia Pty Limited v C E Heath Underwriting Agencies Pty Limited (1989) 5 ANZ Ins Cas 60-926 Poliwka v Heven Holdings Pty Ltd (No 2) (1992) 8 ACSR 747 Presentaciones Musicales SA v Secunda [1994] Ch 271 Prime Forme Cutting Pty Limited v Baltica General Insurance Co Limited (1991) 6 ANZ Ins Cas 61-028 Questions of Law Reserved on Acquittal (3 of 1995) Michael Charles Baenisct (1996) A Crim R 1 Rankin v North Waterloo Farmers Mutual Insurance Co (1979) 25 OR (2d) 102 Rejfek v McElroy (1965) 112 CLR 517 Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 186 ALR 289 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Silbermann Greaves and Rich v CGU Insurance Limited [2002] NSWSC 1195. Smith v New South Wales Bar Association (1992) 176 CLR 256 State of South Australia v Clark (1996) 66 SASR 199 Sterileair Pty Ltd v Papallo (1998) 29 ASCR 461 Studdert v Grosvenor (1886) 33 Ch D 528 Talbot v NRMA Ltd (2000) 50 NSWLR 300 Tallglen Pty Ltd v Optus Communications Pty Ltd (1998) 16 ACLC 1526 Tomlinson v Liquidators of Scottish Amalgamated Silks Limited (1935) SC(HL) 1 Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Victorian Teachers Credit Union v KPMG (a firm) (2000) 1 VR 654 Wallersteiner v Moir [1974] 1 WLR 991 [1974] 3 All ER 217 Wambo Mining Corporation Pty td v Wall Street (Holding) Pty Ltd (1998) 28 ACSR 654 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495 Robert Arthur Porter (Pltf) PARTIES : GIO Australia Ltd (1D) OAMPS Limited (2D) FILE NUMBER(S) : SC 50072/01 P R Hayes QC/A Paterson/Chettle (Pltf) COUNSEL : J T Gleeson SC/C Moore (1D) P M Biscoe QC/A M Gruzman (2D) Withnell Hetherington (Pltf) SOLICITORS : Ebsworth & Ebsworth (1D) Bamford Associates (2D IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McCLELLAN J THURSDAY 21 AUGUST 2003 50072/01 PORTER v GIO & ANOR JUDGMENT HIS HONOUR : PART I - INTRODUCTION 1 The plaintiff, Robert Porter, was the Managing Director of the second defendant, OAMPS Limited. He was removed from that position on 27 November 1998. OAMPS is a public company operating as an insurance underwriter and broker. 2 Porter's problems stemmed from events which occurred on 30 June 1998. On that day OAMPS, through its wholly owned subsidiary AIIL Pty Ltd, at the suggestion of Porter agreed to buy and, on that day pay for, the acquisition of 6,527,429 shares in Clifford Corporation. This transaction is conveniently referred to as the "Clifford transaction." 3 The Clifford shares were purchased from two companies controlled by Mr Barrie Loiterton, Blenheim Pty Ltd and Leisuremark Pty Ltd. Loiterton was the Executive Chairman of Clifford Corporation. 4 On the same day, Blenheim bought 3,075,000 shares in OAMPS from a company associated with Mr Rodney Adler who was the Chief Executive Officer of FAI Insurances Limited. The OAMPS shares controlled by Adler are conveniently referred to as the "FAI parcel." 5 Within months of the Clifford transaction Clifford Corporation had gone into liquidation. Porter was subsequently accused of a breach of s 205 of the Corporations Law which prohibited a company from financing the purchase of its own shares. He was investigated by the Australian Securities and Investment Commission. OAMPS and AIIL also sued Porter for damages. Porter brought a cross-claim. The proceedings, which I shall refer to as the Civil Proceedings, were settled and a Deed of Release was executed on 17 February 2000. 6 After the Deed had been executed Porter was charged by the Commonwealth Director of Public Prosecutions with breaches of s 205 and other sections of the Corporations Law. He was committed and brought to trial. However, the trial judge in the County Court in Victoria had a heart attack and could not continue. Porter was subsequently to stand trial before another judge and jury but the DPP entered a nolle prosequi. 7 Porter incurred substantial costs for legal representation at his committal hearing and at the criminal trial. In these proceedings he sues OAMPS and GIO Insurance Limited (now Gordian Runoff Limited), which provided Directors and Officers insurance to OAMPS, to recover the costs of that representation. In addition he sues Gordian to recover his legal costs of the Civil Proceedings, which were compromised with OAMPS. He also claims damages by way of consequential loss, alleging that having been denied indemnity he was forced to raise funds by selling assets at an undervalue. 8 The defences raised by Gordian and OAMPS are numerous and complex. However, a fundamental element is the allegation that, by his actions on 30 June, Porter breached the law and improperly placed his own interests before those of OAMPS. 9 The parties have raised various complex legal problems. However, before they can be considered it is necessary to determine the relevant facts. Some facts can be ascertained from the available documents. Many other matters must be determined from the recollection of various persons. It is necessary to carefully assess the credit of a number of witnesses. Standard of Proof 10 The allegations made against Porter are serious with potentially grave consequences for him both financially and for his reputation and future prospects. 11 The defendants seek to prove a complex sequence of events. Their case depends upon the inferences which can be drawn from various known facts. In these circumstances the approach which must be taken was defined by the High Court in Bradshaw v McEwans Pty Ltd (unreported, High Court of Australia, 27 April 1951). See Luxton v Vines (1952) 85 CLR 352 at 358. 12 Although the appropriate standard of proof is the balance of probabilities, having regard to the serious matters raised, it is necessary for the court to be actually persuaded to the relevant conclusion by the evidence. See Rejfek v McElroy (1965) 112 CLR 517, 521; Smith v New South Wales Bar Association (1992) 176 CLR 256, 272. In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 the High Court said: "The strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that cogent proof is necessary 'where so serious a matter as fraud is to be found.' Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." See also Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. 13 It is important to approach the task by evaluating the evidence as a whole. The object is to seek a true picture if it can be derived from the detail. See Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 141. 14 I have approached all factual questions with these principles in mind. The Clifford Transaction 15 The Clifford transaction involved OAMPS, through its insurance underwriting subsidiary Australian International Insurance Ltd ("AIIL"), purchasing 6,527,249 of the issued shares in Clifford Corporation from Blenheim and Leisuremark. The total purchase price was $3,160,420.54 (including stamp duty and brokerage) which represented a price of 48.25 cents per share, a premium to the market price, which was then about 43.5 cents per share. The broker for both parties was HSBC Securities Australia Limited. One of the HSBC people who handled the transaction was Ian Porter who is the plaintiff's brother. 16 At 3:45pm on 30 June 1998, on the instructions of Blenheim and Leisuremark and at the request of Ian Porter, the net sale proceeds of $3,138,374.59 were deposited into the bank trust account of Perth stockbrokers D.J. Carmichael P/L ("Carmichaels"). At the same time another sum of $232,500 was deposited into that bank account. These two amounts, totalling $3,370,874.59, were identified to Carmichaels as payments intended for the purchase by Blenheim of 3,075,000 OAMPS shares. Settlement occurred that day. The parcel of Clifford shares represented about 4.6% of the issued Clifford shares which, together with a further 400,000 shares which Porter caused OAMPS to purchase on the market between 22 and 29 June, totalled about 4.9% of Clifford's issued shares. 17 At 3:52pm on the same day - 7 minutes after the deposit of funds to Carmichaels' account - Blenheim through Carmichaels contracted to purchase 3,075,000 (about 17%) of the issued shares in OAMPS from a nominee of FAI Insurances Ltd ("FAI") for $3,397,721.58 ($3,367,278.75 plus brokerage and stamp duty) at a price of $1.10 per share. The market price at the time was about 75 cents. Carmichaels acted for FAI and Blenheim on this purchase and received FAI's sell order at 3:55pm Sydney time. The Carmichaels people handling the transaction were Connolly and Sturgess-Smith. On 14 July a shortfall of $26,846.66 required for the purchase of the FAI parcel was sought and received by Carmichaels from Blenheim. The purchase settled that day. 18 By 18 September the market price of Clifford shares had declined to around 28 cents. On 9 December 1998 an administrator was appointed to Clifford. On 23 March 1999 Clifford was placed in liquidation. AIIL's entire investment was lost. 19 At the time of the Clifford Transaction, Porter was the managing director of OAMPS which was the holding company of a group whose main activities are insurance broking and underwriting. He was a director from 31 January 1995, having been nominated by Rodney Adler of FAI. He was the managing director from 22 November 1996 pursuant to a service agreement dated 27 November 1996. On 27 November 1998 the board of OAMPS resolved that he cease to be managing director and terminated his employment. On 1 April 1999 an extraordinary general meeting of OAMPS also resolved to remove him as a director. The ASIC Investigation 20 From September 1998 ASIC conducted an inquiry into the Clifford Transaction. ASIC interviewed Porter on 6 October 1998 and 20 January 1999. In late 1998 and early 1999 ASIC also interviewed and took statements from many others. In January 1999 ASIC briefed the DPP to advise on whether Porter should be charged. On 20 March 2000 the DPP advised ASIC that he should be charged. He was charged on 28 March 2000. The Civil Proceedings 21 On 8 December 1998 OAMPS and AIIL commenced Civil Proceedings against Porter in the Supreme Court of NSW, Equity Division. They claimed inter alia:- (a) injunctions to restrain Porter from holding himself out as managing director, director or secretary, and (b) damages for breach of director's duties in relation to the Clifford Transaction. 22 In about April 1999 Porter cross-claimed against OAMPS. He claimed inter alia his costs of the ASIC inquiry. In August 1999 he also cross-claimed against five of OAMPS' current or former directors or officers - Siggins, Sharkey, Harris, Windebank and Glasgow. The Deed of Release 23 On 17 February 2000 the parties to the Civil Proceedings entered into a deed entitled Deed to Settle and Release. A copy of the Deed is annexed to these reasons. Under the terms of the Deed OAMPS and AIIL gave up their claim of over $3 million plus interest and costs against Porter, Porter was paid $400,000 and he was granted the right to exercise 500,000 options for OAMPS' shares. Of the sum of $400,000, $300,000 had to be applied under the terms of the Deed to the exercise of the 500,000 options. He immediately sold the shares which yielded him $510,000. Thus his total monetary benefit pursuant to the Deed was $610,000. The Criminal Proceedings 24 On 28 March 2000 Porter was charged with three breaches of the Corporations Law in relation to the Clifford Transaction ("the Criminal Proceedings"). The charges were:- "Charge 1 On or about 30 June 1998 at Melbourne ROBERT ARTHUR PORTER did directly or indirectly give financial assistance, namely by procuring the purchase by OAMPS Ltd of shares in Clifford Corporation Ltd, for the purpose of, or in connection with the acquisition by a person, whether before or at the same time as the giving of financial assistance, of shares or units of shares in the company, namely the acquisition of shares in OAMPS Ltd by Leisuremark Pty Ltd and Blenheim Holdings Ltd, AND THAT the said ROBERT ARTHUR PORTER was an officer of the company OAMPS Ltd who was in default contrary to section 205(5) of the Corporations Law. Charge 2 On or about 30 June 1998 at Melbourne ROBERT ARTHUR PORTER did, whilst an officer of OAMPS Ltd, make improper use of his position as such an officer, to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation, namely by procuring the purchase by OAMPS Ltd of shares in Clifford Corporation Ltd, for the purpose of, or in connection with the acquisition by a person, whether before or at the same time as the giving of financial assistance, of shares or units of shares in the company, namely the acquisition of shares in OAMPS Ltd by Leisuremark Pty Ltd and Blenheim Holdings Ltd, contrary to section 232(6) of the Corporations Law Charge 3 On or about 2 July 1998 at Melbourne ROBERT ARTHUR PORTER did, whilst being an officer of OAMPS Ltd, furnish information to the Australian Stock Exchange ('ASX') which he knew to be false and misleading in a material particular, namely a letter to the ASX dated 2 July 1998." 25 The committal hearing took place in July and August 2000. On 26 November 2000 Porter was committed for trial. The indictment issued in August 2001 contained the following three counts: "Count 1 The DIRECTOR OF PUBLIC PROSECUTIONS, who prosecutes in this behalf for Her Majesty the Queen, INFORMS THE COURT AND CHARGES that on or about the 30th day of June 1998 at Melbourne in the State of Victoria ROBERT ARTHUR PORTER did contravene sections 1311(1) and 205(5) of the Corporations Law as taken to be included in the Corporations Act 2001 by section 1401 of that Act, in that he, being an officer of OAMPS Ltd, was involved in the contravention by OAMPS Ltd of sub-section 205(1)(a) of the Corporations Law, in that OAMPS Ltd directly or indirectly gave financial assistance to another company, namely Blenheim Holdings Ltd ('Blenheim'), for the purpose of, or in connection with the acquisition, by Blenheim, whether before or at the same time as the giving of financial assistance, or shares in OAMPS Ltd. Count 2 And the DIRECTOR OF PUBLIC PROSECUTIONS further INFORMS THE COURT AND CHARGES that on or about the 30th day of June 1998 at Melbourne in the State of Victoria ROBERT ARTHUR PORTER did contravene sections 1317FA and 232(6) of the Corporations Law as taken to be included in the Corporations Act 2001 by section 1401 of that Act, in that he, being an officer of a corporation, namely OAMPS Ltd knowingly, intentionally or recklessly made improper use of his position dishonestly and intending to gain directly or indirectly an advantage for himself or another, by being involved in the giving of financial assistance by OAMPS Ltd directly or indirectly to another corporation, namely Blenheim Holdings Ltd ('Blenheim') for the purpose of, or in connection with the acquisition, by Blenheim, whether before or at the same time as the giving of financial assistance, of shares in OAMPS Ltd. Count 3 And the DIRECTOR OF PUBLIC PROSECUTIONS further INFORMS THE COURT AND CHARGES that on or about the 2nd day of July 1998 at Melbourne in the State of Victoria ROBERT ARTHUR PORTER did, contrary to sub-section 1309(1) of the Corporations Act 2001, being an officer of OAMPS Ltd, furnish or authorise the furnishing of information to the Australian Stock Exchange ('ASX') which he knew to be false and misleading in a material particular, namely a letter to the ASX dated 2 July 1998." 26 The provisions of the Corporations Law referred to in these counts – ss.205, 232(6), 1309(1), 1311(1), 1317FA - relevantly provided as follows:- "205(1) Except as otherwise expressly provided by this Law, a company shall not: (a) whether directly or indirectly, give any financial assistance for the purpose of, or in connection with: (i) the acquisition by any person, whether before, or at the same time as, the giving of financial assistance, of: (A) shares ... in the company; or (B) shares ... ; or (ii) the proposed acquisition by any person of: (A) shares ... in the company; or (B) shares ...; (b) ... (c) ... (1A) ... (2) A reference in this section to the giving of financial assistance includes a reference to the giving of financial assistance by means of the making of a loan, the giving of a guarantee, the provision of security, the release of an obligation or the forgiving of a debt or otherwise. (3) For the purposes of this section, a company shall be taken to have given financial assistance for the purpose of an acquisition or proposed acquisition referred to in paragraph (1)(a) (in this subsection called the 'relevant purpose') if: (a) the company gave the financial assistance for purposes that included the relevant purpose; and (b) the relevant purpose was a substantial purpose of the giving of the financial assistance. (4) For the purposes of this section, a company shall be taken to have given financial assistance in connection with an acquisition or proposed acquisition referred to in paragraph (1)(a) if, when the financial assistance was given to a person, the company was aware that the financial assistance would financially assist: (a) the acquisition by a person of shares ... in the company; or (b) ... (5) A company that contravenes this section is not guilty of an offence by virtue of this section or section 1311, but each officer of the company who is involved in the contravention contravenes this subsection ." "232(6) An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation." "1309(1) An officer of a corporation who makes available or furnishes information, or authorises or permits the making available or furnishing of information, to: (a) ... (b) ... (c) a securities exchange in Australia or elsewhere or an officer of such a securities exchange; being information, whether in documentary or any other form, that relates to the affairs of the corporation and that, to the knowledge of the officer: (d) is false or misleading in a material particular; or (e) has omitted from it a matter or thing the omission of which renders the information misleading in a material respect; is guilty of an offence." "1311(1) A person who: (a) does an act or thing that the person is forbidden to do by or under a provision of this Law; (b) does not do an act or thing that the person if required or directed to do by or under a provision of this Law; or (c) otherwise contravenes a provision of this Law; is guilty of an offence by virtue of this subsection, unless that or another provision of this Law provides that the person: (d) is guilty of an offence; or (e) is not guilty of an offence." "1317FA A person is guilty of an offence if the person contravenes a civil penalty provision: (a) knowingly, intentionally or recklessly; and (b) either: (i) dishonestly and intending to gain, whether directly or indirectly, an advantage for that or any other person; or (ii) intending to deceive or defraud someone." 27 Porter was committed for trial in July 2000. The trial commenced in June 2002. The hearing was vacated when the trial judge became ill. A further trial recommenced in July 2002. On 19 July 2002 the Commonwealth Director of Public Prosecutions filed a Notice of Discontinuance. 28 On 26 July 2002 Porter made, for the first time, a claim on OAMPS for payment of his costs and expenses of the Criminal Proceedings. The Present Proceedings 29 Porter commenced these proceedings against the first defendant Gordian in May 2001 claiming indemnity for his costs and expenses of defending the Civil Proceedings and the Criminal Proceedings (plus consequential losses) under a Directors & Officers Liability Insurance policy. Gordian later cross-claimed against Porter and OAMPS seeking rectification of the date of inception of the D & O Policy. 30 In October 2002 Porter amended his summons to claim against OAMPS indemnity in respect of his costs and expenses of defending the Criminal Proceedings (but not the Civil Proceedings) and consequential losses. The pleaded causes of action relied upon Article 35 of OAMPS' Articles and an alleged common law right of indemnity. 31 At an advanced stage of the hearing Porter obtained leave to amend his claim against OAMPS by adding (on a contingent basis) a claim for damages in the amount of that indemnity and consequential losses arising from the fact that OAMPS cancelled the D & O policy with effect from 1 November 1999. The pleaded causes of action for this claim are breach of an implied contractual obligation of good faith and the torts of intentional injury, unlawful interference with his rights and using unlawful means to injure him. Porter claims that the Deed of Release does not bar his claim against OAMPS, or alternatively, that it has been or should be set aside or avoided and that the defendants are estopped from relying on it. The Trial Process and Submissions 32 The trial occupied 63 days. A number of days were given over to oral submissions. Each party also provided comprehensive written submissions of high quality with a detailed account of the relevant facts. Many of the facts are not in dispute. Some are. Because of the quality of the written submissions it has been possible to draw upon them when making factual findings and recording the arguments of the parties in relation to matters of fact and law. 33 A great many issues required determination. Although, having regard to my decision in relation to some fundamental matters, other matters need not have been resolved, but, having regard to the length of the trial and the comprehensive nature of all submissions I have proceeded to determine most issues. All necessary facts have been found. By expressing my view on those matters these reasons will, I trust be of utility to others who may come to read them. Throughout these reasons I have emphasised in bold parts of submissions, transcript or documents which, in the context of the discussion, may be of greater significance. PART II – THE ISSUES IN THESE PROCEEDINGS 34 The issues in these proceedings are complex. Drawing upon the parties' submissions I have attempted to provide a summary to assist the reader of these reasons. Issues in Porter's Claim against Gordian 35 Porter pleads that Gordian is liable to indemnify him under a D & O policy effected by OAMPS for:- (a) $136,012.13 being his costs and expenses of defending the Civil Proceedings. (b) $872,327.26 being his costs and expenses of defending the Criminal Proceedings. 36 He also seeks consequential losses allegedly arising from the forced sale of assets at a loss. 37 Porter pleads that the insurance policy commenced on or about 15 September 1998 for a period of 3 years. Gordian pleads that the policy commenced on 29 September 1998. Because of events which happened in the second half of September the commencement date is of significance to the application of some of the exclusions in the policy. Gordian's Defence 38 Gordian pleads:- (a) that Porter's claim is barred by the Deed of Release. (b) that it is not liable having regard to the proper construction of the terms of the policy and also because of Porter's non-disclosure, active concealment, fraud and unlawful conduct. 39 The quantum of Porter's claim is also disputed. Failure to Satisfy Proviso in Insuring Clause A 40 The insurance policy provides for indemnity under two provisions known as Insuring Clause A and Insuring Clause B. 41 Gordian says that Porter has failed to satisfy the proviso in Insuring Clause A and therefore that it is not liable in respect for the criminal defence costs. Insuring clauses A and B provide as follows:- "INSURING CLAUSE A DIRECTORS AND OFFICERS LIABILITY GIO will pay on behalf of the Insured, all Loss arising from any Claim first made against an Insured during the Period of Insurance and notified to GIO during the Period of Insurance by reason of any Wrongful Act PROVIDED THAT the Organisation is not required or permitted to indemnify the Insured for such Loss. INSURING CLAUSE B COMPANY REIMBURSEMENT GIO will pay on behalf of the Organisation, all Loss arising from any Claim first made against an Insured during the Period of Insurance and notified to GIO during the Period of Insurance by reason of any Wrongful Act PROVIDED THAT the Organisation is required or permitted to indemnify the Insured for such Loss." 42 Gordian says that:- (a) if, as Porter pleads against OAMPS, he is "entitled" to be indemnified by OAMPS in respect of the criminal defence costs, then the proviso in Insuring Clause A is not satisfied. (b) alternatively, Gordian says that if OAMPS is "permitted " to indemnify Porter in respect of the criminal defence costs and the civil defence costs (notwithstanding the Deed of Release) then the proviso is also not satisfied. Because Porter has not been found guilty in the Criminal Proceedings, or to have a liability in the Civil Proceedings, s.199A of the Corporations Act 2001 does not prohibit OAMPS from indemnifying Porter in respect of the criminal or civil defence costs. Exclusion 10(iv) of the Policy 43 Gordian denies liability on the basis of exclusion 10(iv) of the policy which provides as follows:- "This policy does not insure Loss arising out of any Claim: ... 10.(iv) arising from any litigation or Inquiry that was either in progress or pending prior to the Period of Insurance." 44 Gordian says that:- (a) an Inquiry (being an inquiry by ASIC) was in progress, or alternatively pending, prior to 4.00pm on 29 September 1998 or alternatively 4.00pm on 15 September 1998. The policy defines "Inquiry " to mean any " official investigation, examination, inquiry or other proceedings ordered or commissioned by any official body or institution empowered to investigate the powers of the Organisation " ; (b) the criminal charges arose from the Inquiry; and (c) further or alternatively, the Civil Proceedings were prompted by the Inquiry and the civil defence costs thus arose from the Inquiry. 45 On 25 March 2003, senior counsel for the plaintiff obtained the Court's leave to withdraw his admission made on 24 October 2002 that the criminal charges, which led to the criminal costs, arose from the inquiry that ASIC was conducting in September 1999. At the same time, I granted leave to the plaintiff to amend his Reply, to plead that his criminal costs were not a loss arising "directly" from any inquiry or litigation within exclusion 10(iv), and that, on its proper construction, the exclusion only applies to "direct" costs incurred in participating in the Inquiry. 46 Gordian then filed a Rejoinder to plead that if the Reply was correct, then the policy did not respond under Insuring Clause A, because the plaintiff's claim for criminal costs was made after OAMPS terminated the policy on 1 November 1999. The plaintiff then obtained leave (over objection) to amend his summons, to plead against OAMPS that if the Rejoinder was successful, and he could not recover from Gordian, then he claimed against OAMPS for cancelling the policy. Exclusion 10(v) of the Policy 47 Gordian also denies liability on the basis of exclusion clause 10(v) of the policy which provides as follows:- "This policy does not insure Loss arising out of any Claim: ... 10(v) arising from circumstances of which any Insured had become aware prior to the Period of Insurance AND which that Insured knew (or ought reasonably to have known) to be circumstances which may give rise to a Claim." 48 Gordian pleads that Porter's entitlement to indemnity for the civil defence costs and the criminal defence costs is excluded by exclusion clause 10(v), because prior to 4.00pm on 29 September 1998, or alternatively prior to 4.00pm on 15 September 1998 Porter knew of various matters which he knew or ought reasonably have known to be circumstances which might give rise to a claim under the policy. Exclusion 12 of the Policy 49 Gordian denies liability on the basis of exclusion clause 12 of the policy which provides as follows:- "This policy does not insure Loss arising out of any Claim: ... 12. brought by or behalf of any individual or entity owning or controlling more than 15% of the issued capital of the Organisation." 50 The policy defines "Organisation" as follows:- "Organisation means: the organisation shown under Item 1.0 of the Schedule and any entity which was a Subsidiary of that organisation at the commencement of the Period of Insurance." 51 Item 1.0 of the schedule to the policy states as follows:- "1.0 ORGANISATION: OAMPS Limited." 52 The policy defines "Subsidiary" as follows:- "Subsidiary means any organisation where the Organisation (or any Subsidiary of the Organisation) directly or indirectly: (i) controls the composition of the board of directors; (ii) controls more than half of the voting rights; or (iii) holds more than half of the issued share capital." 53 Gordian says that Porter's entitlement to indemnity for the costs of defending the claim by OAMPS in the Civil Proceedings is excluded by exclusion 12, because at all material times OAMPS owned or controlled 100% of the issued capital in AIIL. The plaintiffs in the Civil Proceedings were both OAMPS and AIIL. Exclusion 13 of the Policy 54 Gordian denies liability on the basis of exclusion 13 of the policy which provides as follows:- "This policy does not insure Loss arising out of any Claim: ... 13. brought by or on behalf of the Organisation except a Claim which is either: (i) initiated by one or more shareholders not being the Insured and acting without the solicitation, assistance or participation of the Insured; or ..." 55 Gordian says that any entitlement of Porter to indemnity for the costs of defending the Civil Proceedings is excluded by exclusion 13, because OAMPS and AIIL fall within the definition of "the Organisation" in item 1.0 of the schedule. Non-Disclosure 56 Gordian pleads non-disclosure and active concealment by Porter in relation to the Clifford Transaction. 57 Gordian also pleads fraud by Porter, in knowingly or recklessly not making such disclosure whereby it is entitled to avoid the policy. Exclusion 7 of the Policy 58 Gordian also denies liability on the basis of exclusion 7 of the policy which provides as follows:- "This policy does not insure Loss arising out of any Claim: ... 7. based upon, attributable to, or in consequence of: (i) any dishonest , fraudulent , criminal or malicious act or omission; or (ii) any deliberate breach of any statute , regulation or contract; where such act, omission or breach has in fact occurred." (emphasis added) 59 Gordian pleads that Porter's entitlement to an indemnity is excluded by exclusion 7 because relevant acts by Porter were dishonest, fraudulent, criminal or a deliberate breach of the Corporation Law. No "Loss" Arising From Any Claim –Effect of the Deed and the Civil Claim. 60 Gordian also says that Porter has not suffered any "Loss" within the meaning of the policy because pursuant to the Deed of Release of 17 February 2000 he settled the civil claim and by clause 3.1 AIIL agreed to pay him $400,000 inclusive of costs. The Allegations that Porter was Involved in Illegal Conduct 61 Gordian pleads that Porter (acting as the guiding mind of OAMPS and AIIL and deliberately acting in his own interest) acted unlawfully in the following respects: (a) aided, abetted, counselled, procured or was knowingly involved in contraventions by OAMPS and AIIL of s.205(5) of the Corporations Law, in that they provided financial assistance for the purchase of OAMPS' own shares. (b) failed to act honestly in exercise of his powers and discharge of his duties as a director of OAMPS and AIIL, in breach of s.232(2 ) . (c) made use of his position as a director of OAMPS and AIIL to obtain an advantage for himself, in breach of s.232(6 ) . (d) failed to exercise the degree of care and diligence as a director that a reasonable director in his position would exercise, in breach of s.232(4). (e) was present at a directors' investment committee meeting of OAMPS and AIIL and voted in favour of the Clifford Transaction, in which he had a material interest, in breach of s.232A. (f) was aware of the effect of those sections and that his conduct would contravene them, and therefore engaged in deliberate contraventions. (g) settled or instructed OAMPS' company secretary, Glasgow, to write a letter to ASX on 2.7.03 which contained statements that were knowingly false and misleading, in contravention of s.1309, and did so deliberately. 62 With respect to the damages claimed by Porter both causation and quantum are in issue. Porter's Reply - Insurance Contracts Act 1984 s.13 – "utmost good faith" 63 In his Reply Porter pleads that if the period of insurance commenced at 4:00pm on 29 September 1998, reliance by Gordian upon exclusion 10(iv) and (v) involves a failure by Gordian to act with utmost good faith in accordance with s.13 of the Insurance Contracts Act 1984. Porter's Reply - Insurance Contracts Act 1984 s.31 64 In his Reply Porter also pleads that if there was a fraudulent failure to comply with the duty of disclosure, Gordian's avoidance is harsh or unfair and Porter asks the Court to disregard it under s.31 to the extent it considers just and equitable. Porter's Reply - Waiver and Estoppel 65 Porter also pleads waiver and estoppel against OAMPS for various reasons. Issues in Porter's Claim Against OAMPS 66 Porter claims against OAMPS an indemnity for his costs and expenses of defending the Criminal Proceedings and consequential losses including alleged losses on forced sales of assets prior to 26 July 2002 to fund those costs and expenses. It was only on 26 July 2002 that Porter first made a claim on OAMPS for an indemnity for his costs and expenses of defending the Criminal Proceedings. He does not claim against OAMPS for his costs of defending the Civil Proceedings. 67 Porter's pleaded causes of action against OAMPS are based firstly on Article 35(1) (a) of OAMPS' Articles. Article 35(1) provides as follows:- "35.1 Indemnities To the extent permitted by law: (a) the Company indemnifies every person who is or has been an Officer of the Company or of a subsidiary of the Company against any liability for costs and expenses reasonably incurred by that person in defending any Proceedings in which judgment is given in that person's favour, or in which the person is acquitted, or in connection with an application in relation to any Proceedings in which the Court grants relief to the person under the Corporations Law; and (b) the Company indemnifies every person who is or has been an Officer of the Company or of a subsidiary of the Company against any liability incurred by the person, as an Officer of the Company or a Subsidiary of the Company, to another person (other than the Company or related body corporate of the Company) unless the liability arises out of conduct involving a lack of good faith." 68 The issues in relation to Article 35.1(a) include: (a) whether the DPP's Notice of Discontinuance of 18 July 2000 was an "acquittal " or a "judgment in his favour " . (b) whether the liability was incurred as an officer of the company as required by the Corporations Law. (c) the effect of the repeal of Article 35.1 on 26 October 2000. 69 Porter bases a further cause of action on Article 35(1)(b), in respect of which the issues include the following:- (a) whether Article 35.1(a) covers the field in relation to indemnity against costs and expenses incurred in defending legal proceedings. (b) whether Porter's costs and expenses of defending the Criminal Proceedings were liabilities "incurred as an officer of OAMPS " . (c) whether Porter's liability for such costs and expenses "arises out of conduct involving a lack of good faith". (d) the effect of the repeal of Article 35.1 on 26 October 2000. 70 Porter also claims a director's common law right of indemnity. On this claim the issues include: (a) whether there is any such common law right of indemnity at all or in the circumstances of this case. (b) whether any such right is precluded by Porter's conduct in relation to the Clifford Transaction. 71 Porter's fourth claim, which is contingent upon his claim against Gordian failing, is based upon OAMPS' cancellation of the GIO policy on 1 November 1999. Porter pleads that this was a breach of an implied contractual obligation of good faith in a contract said to be constituted by a 1997 board resolution, known as the Bardie Russell resolution. There are issues as to whether the resolution constituted a contract; if so whether there was breach of any implied obligation of good faith; and, if so, whether it caused Porter any damage. 72 The same contingent claim for cancellation of the policy is pleaded tortiously as intentional injury, unlawful interference with Porter's rights under the policy or using unlawful means to injure him. There are issues as to whether there is a tort of intentional injury, whether OAMPS' conduct in cancelling the policy was tortious as alleged and if so whether Porter suffered damage. 73 Porter pleads that the Deed of Release does not bar his claim on its proper construction. Alternatively he pleads:- (a) it is voidable at his option and he has avoided it. (b) OAMPS is estopped from relying on it. (c) it should be set aside or avoided because:- (i) OAMPS' conduct in relation to the Deed was fraudulent. (ii) OAMPS' conduct was unconscionable in equity and under the Trade Practices Act . (iii) the Deed is unjust under the Contracts Review Act 1980 (NSW). (iv) OAMPS' conduct was misleading or deceptive contrary to s.52 of the Trade Practices Act . 74 The conduct of OAMPS pressed by Porter in aid of these propositions is that at the date of the Deed of Release OAMPS knew, and knew that Porter did not know, that:- (a) ASIC and the DPP intended to prosecute Porter in respect of the Clifford Transaction after the conclusion of the Civil Proceedings. (b) it was likely that criminal charges would be laid against him. (c) it had urged ASIC and the DPP to lay charges against him until at least February 2000. (d) through its solicitor, it had requested ASIC to supply statements and documents pursuant to s.25(1) of the ASIC Act 1989 and had asserted to ASIC that the plaintiff need not be informed of the application as he was not entitled to natural justice. (e) through Sharkey and its solicitors, it had held discussions and negotiations with ASIC about sharing of information relevant to both OAMPS' claim against the plaintiff and ASIC's investigation, and that ASIC had agreed to provide information to OAMPS. f) there was substantial inequality between OAMPS and Porter in relation to the information relevant to OAMPS' allegations against Porter because OAMPS knew ASIC had provided OAMPS with documents it had obtained as part of its enquiries which had not been supplied by ASIC to Porter. OAMPS Defence 75 OAMPS pleads in its Defence in answer to all causes of action that any costs and expenses that Porter incurred were incurred by him as a result of him being charged with the criminal charges; and that his acts and omissions the subject of the criminal charges were undertaken by him:- (a) in breach of his then obligations under the Corporations Law to OAMPS and AIIL; (b) outside the scope of his employment with OAMPS; (c) in breach of the terms of his employment by OAMPS; (d) outside the scope of his lawful authority; (e) in breach of his fiduciary, statutory and other duties to OAMPS; (f) without him, in full and proper discharge of his duties as a director of OAMPS, fully and properly informing OAMPS of the relevant facts and his knowledge concerning: (i) the events the subject of the criminal charges; and (ii) the purchase of the Clifford Shares; (e) in breach of his duty of care to OAMPS he did not exercise any, or any reasonable, skill or care and acted in a manner that was neglectful of OAMPS' interests, and resulted in substantial financial loss and detriment to OAMPS and AIIL. 76 Causation and quantum are in issue. As to the cause of the alleged consequential losses arising from the alleged forced sale of assets at a loss, no claim on OAMPS for indemnification against the costs and expenses of the Criminal Proceedings was made until 26 July 2002 after the DPP had filed a Notice of Discontinuance on 18 July 2002. Issues on Gordian's Cross-Claims 77 Gordian cross-claims against Porter and OAMPS seeking:- (a) an order that the policy be rectified by amending the period of insurance to read "from 4pm on 29 September 1998 to 4pm on 29 September 2001". (b) a declaration that Gordian has no liability to indemnify Porter under the policy in respect of any claim arising out of the Civil or the Criminal Proceedings. 78 OAMPS submits to the order of the Court in relation to (a) and is neutral as to (b). Issues on OAMPS' Cross-Claims Against Porter and Gordian 79 OAMPS cross-claims against Porter for declarations that in bringing these proceedings Porter has breached clauses 8.2, 9.2, 4.3 and 16.2 of the Deed of Release and claims as damages its legal costs and disbursements of defending the proceedings on an indemnity basis. Porter pleads in his defence:- (a) paragraphs 11-36 of his Third Further Amended Summons. (b) that the matters raised by OAMPS in paragraph 10 of its Defence are the subject of releases in the Deed of Release and by raising these matters OAMPS has repudiated the Deed and Porter accepts the repudiation. 80 OAMPS cross-claims against Gordian that if it is liable to Porter, Gordian is liable to indemnify OAMPS under the policy. 81 With this brief summary of the issues I turn to consider the facts. PART III – EARLY DEALINGS Was OAMPS Interested in Investing in Clifford? 82 Porter was appointed Managing Director of OAMPS on 1 May 1996. At that time Adler, through Corcarr Nominees Pty Ltd (a nominee of FAI), controlled a significant proportion (in fact 17%) of the shares in OAMPS ("the FAI parcel"). 83 OAMPS had been adversely affected by an unsuccessful attempt to expand into the United States. Porter, who had by then considerable experience in the insurance industry both in Australia and England, was known to Adler. He was invited at Adler's instigation, to join OAMPS to remedy its problems. Porter was successful in this endeavour and was, rightly, credited with having achieved a considerable success. 84 Porter impressed me as an energetic and resourceful person. Having "rescued" OAMPS from these problems I have no doubt that he was looking for ways to expand OAMPS' business. That business was concentrated significantly on the insurance of motor vehicles. 85 Porter met Loiterton in 1995. Their sons attended the same school. Loiterton was the executive chairman of Clifford Corporation, a public company, involved primarily in the manufacture of buses and fire engines. Another director of Clifford was Mr Ian Hall. Loiterton and Hall were significant shareholders in Clifford and utilised private companies, which they owned together, for this, and other investment purposes. Those companies included Blenheim, Leisuremark and Notretoil Pty Ltd. 86 By about March 1998 Hunter Hall Investment Management Ltd ("Hunter Hall"), an investment company, owned about 17.4% of the issued shares in OAMPS. By May 1998 it had increased its holding to 18.4%, making it the largest single shareholder. Its chairman since 1996 was Mr Peter Hall (no relation to Ian Hall of Clifford). His position involves advising on the investments of various Hunter Hall trusts. Mr Jack Lowenstein has been retained by Hunter Hall since 1997 to provide corporate and investment advice. By 23 April 1998 OAMPS had invested $3 million in a Hunter Hall trust. 87 Porter gave evidence that in 1997 he formulated a plan for OAMPS to enter the bus insurance market and had identified Clifford as a company which may provide that kind of business. If he had such a plan it must have been informal in nature for there was no written evidence of it. 88 Porter gave evidence that in December 1997 OAMPS was appointed as Clifford's insurance broker. He said that in the 12 to 18 months preceding 30 June 1998 he also had a number of conversations with Loiterton about the possibility of some cross shareholding arrangements. He said in his statement made on 30 January 2003: "In about the 12 to 18 months preceding 30 June 1998, I had a number of discussions with Mr Loiterton, who at the time was the executive chairman of Clifford. In one of the early conversations I said to him words to the following effect: Porter: 'I am very interested in what Clifford is doing in the transport area. OAMPS would also be interested in buying an interest in Clifford. We would only initially be interested in buying up to 4.9% as we would not want to trigger the substantial shareholder requirements at this stage. I have already mentioned our interest in buying in to Laurie and Laurie is very positive about China' 89 He went on to add in his statement that there had never been any discussion to the effect that any company with which Loiterton was associated other than Clifford might buy OAMPS' shares. This suggestion is relevant to the events which take place on 30 June 1998. 90 Porter gave evidence that in about March 1998, he had a conversation with Loiterton to the following effect: "Loiterton: 'I can put together a substantial parcel of shares in Clifford for OAMPS if you are still interested in buying a stake. Some of these shares belong to me and others do not. I can influence some others to sell as we would welcome OAMPS on Clifford's share register. Porter: 'I am interested, but it will need to be considered by OAMPS' board. Let me know what the price expectation is for a 4.9% parcel.' " 91 I am satisfied that Porter has exaggerated the nature and extent of these early conversations with Loiterton. Loiterton gave evidence that although there had been some talk of possible investments, including possibly a very cursory discussion in February or March, he said that "up until the 19 (June) everything was casual, social or perfunctory." The matter was never raised at an OAMPS Board meeting until 30 June. I do not accept that there was a conversation in March 1998 in the detail suggested by Porter. 92 Evidence was given that Loiterton wrote to Porter in March 1998 suggesting the development of a closer relationship and possible merger between OAMPS and Clifford. As I understand the situation it was suggested that Clifford might buy into OAMPS. All evidence of the correspondence is now said to have been destroyed by both parties because they came to the view that such a relationship was inappropriate. Whatever the suggestion may have been it came to nothing. 93 Porter also gave evidence that he had discussed the possibility of investing in Clifford with Mr Gordon Siggins, who was the Managing Director of one of the companies in the OAMPS Group. However, Siggins, who Porter submits was a credible witness, denied any conversations to this effect until Porter spoke with him on 29 June 1998. I accept Siggins' account of this matter. 94 Porter gave evidence that he discussed the possibility of OAMPS investing in Clifford in the months preceding 30 June 1998 with Mr Mark Windebank, the Chairman of OAMPS, on numerous occasions and had similar discussions with other senior executives. I do not accept this evidence. As I have indicated, the possibility of investment in Clifford had never reached the stage where it was included in any agenda, board papers or minutes of the investment committee of OAMPS prior to 30 June 1998. 95 Porter gave evidence of one specific occasion prior to June 1998 when he had a conversation about Clifford with Windebank. He said they had a meeting in Singapore, in May 1998, with a Singapore insurance executive, Mr Leow Sak Fah. A statement by Leow which was tendered in evidence referred to the discussion. The parties agreed that the short evidence of Leow, who resides in Singapore, would be received without cross-examination and that no Browne v Dunn point would be taken. Windebank denied having any such discussion and said he had not heard of any intention to invest in Clifford before 30 June 1998. I accept Windebank as a witness of truth. If the conversation did occur it must have been of such limited significance that Windebank no longer remembers it. 96 Peter Hall gave evidence that Porter had spoken to him about the possibility of investing in Clifford on three occasions between March and June 1998. On each occasion Hall advised Porter not to invest. Although Porter raised the matter, Hall believed he had only a passing interest in the possibility of such an investment. 97 Porter testified that in May 1998 he spoke to Mr Duncan Glasgow the Company Secretary of OAMPS, about the possible acquisition of 4.9% of Clifford's shares and asked Glasgow to investigate and find out as much as he could about Clifford. Glasgow's evidence was to the contrary. He testified that the first he knew of Porter's interest in investing in Clifford was when he saw letters, dated 22 June 1998, to Porter from Leisuremark and Blenheim. 98 Glasgow did say that in May 1998 Porter told him that he had spoken to Loiterton who had said there was an opportunity to do something about Clifford's superannuation fund, and asked Glasgow to follow up on it. Subsequently Glasgow prepared a memorandum dated 22 May dealing with that issue. Glasgow's diary entries for this period confirm that he was undertaking tasks relating to Clifford but relevant only to Clifford's superannuation fund. Windebank believes that Glasgow may have told him that Porter had raised the possibility that Porter had spoken of an investment some months before. However, his evidence is not entirely clear on this matter. I accept Glasgow's evidence. 99 Mr Walker, another director of OAMPS gave evidence. When cross-examined he gave evidence that there were informal discussions between members of the board and members of the investment committee well before 30 June, about the acquisition by OAMPS of Clifford shares. When asked to identify the discussions in re-examination he indicated they were: (a) soon after September 1997 but he could not recall what was said. (b) about March 1998 at lunch with Porter and Windebank when Porter said that they should look at an opportunity of getting closer to Clifford. (c) at the April 1998 board meeting, although he gave no details. (d) he suggested that there were probably four discussions up to June and suggested many conversations with Glasgow. 100 None of these specific occasions were put to Windebank, Glasgow or any other OAMPS witness in their earlier cross-examination, nor were they specifically corroborated by Porter. 101 I have indicated below that I do not accept Walker's evidence unless corroborated. Although I accept that Porter had developed an idea that Clifford may be a company that OAMPS should invest in I do not accept that the possibility was discussed with the Board until 30 June. It was submitted by Porter that his motivation for the Clifford transaction was the potential commercial advantage from the synergies which the close alignment of the businesses might create. I do not believe this was the case. Porter only moved to have OAMPS make the share acquisition when other events began to unfold. PART IV – INITIAL MANOEUVRES & PORTER'S JOB Lamont Plans a Takeover 102 As I have related Porter went overseas with Windebank in May 1998. They returned in early June. During his time in London, Porter heard a rumour that there had been a coup at OAMPS and he had been removed. The rumour was not true, but there is no doubt that by this time corporate manoeuvres were being initiated and the security of Porter's future position with OAMPS was soon to become uncertain. 103 Upon his return Porter spoke to Adler who told him that he was considering selling the FAI parcel to Mr Kingsley Lamont or interests which he controlled. Lamont was the Managing Director of Steadfast Insurance Brokers Management Group Ltd. Lamont was not a friend of Porter's. 104 As it happened, Lamont and Adler had been in discussion for some time about the prospective sale of the FAI parcel. They exchanged correspondence in May, and although FAI would be required to provide vendor finance, it appears that by sometime in May an agreement in principle was reached that a transaction would be concluded by 30 June 1998. 105 It will become apparent that if Lamont gained control of OAMPS he intended to sack Porter and install a new managing director. Porter was soon to learn of Lamont's intentions. Discussions between Lowenstein and Lamont 106 It is also clear that Lowenstein of Hunter Hall and Lamont had been in discussion. For a time Porter believed that their discussions may have been about the possible sale of Hunter Hall's OAMPS shares to Lamont. As it happened the topic was the proposed purchase by Lamont of FAI's parcel and not the shares owned by Hunter Hall. Lowenstein made a note of his conversation with Lamont which occurred on 10 June 1998. Relevant parts of his summary of the conversation reads as follows: "Lamont indicated that he has reached an agreement in principle with Rodney Adler to buy FAI's shares. The deal appears to involve paying 'well above market' – and a side agreement for OAMPS to make a subsequent 10% placement back to FAI at a price between today's market and the sell out price. Lamont says Adler is keen to complete the transaction before the end of the financial year. Should the deal proceed Lamont proposes to take full management control, removing the current board including the present MD, Porter, and appointing a new MD, himself as a part time executive director and an 'independent' non-executive chairman. He indicated he would be happy for a HH nominee to join the board. He does not anticipate any changes to investment policy. Lamont wanted to know what our in-principle response to his actions would be. I outline his proposals in slightly greater detail below. In addition I have asked him to prepare a detailed paper for us including: § Outline business plan with projections and taking into account transition costs. § CVs for the three proposed new directors He has promised to prepare these by early in the week beginning June 15th." Clifford Looks for Investors 107 As it happened, by June 1998 the Clifford group was actively looking for new investors. Part of its corporate structure included an entity known as the Signature Group which Loiterton had been endeavouring to sell to assist the financial integrity of the group. The sale was expected to raise $16 million which it was suggested would underpin future dividend payments. There is some disagreement as to when Porter learned of the proposed Signature transaction and, as it happens, the "deal" never materialised. With hindsight it is readily apparent that without the sale of Signature, Clifford was in serious financial trouble. Porter's Early Phone Calls 108 There is evidence that Loiterton rang Porter on 10 June 1998 but the two did not speak. Porter's diary records a meeting with Loiterton at 5 pm on 11 June 1998 and although this is possible the content of any discussion remains unknown. 109 I am satisfied that Porter spoke to Adler on or immediately prior to 12 June 1998. It was in this conversation that Adler confirmed he was considering selling the FAI parcel to Lamont. 110 Subsequently, Porter and Lamont spoke on 12 June 1998. Porter gives this account of the conversation which I accept: "At or about 6.00 pm on 12 June 1998 Mr Lamont telephoned me and to the best of my recollection we had a conversation to the following effect: Lamont: 'I have just purchased FAI's shares in OAMPS from Adler. Steadfast is going to takeover OAMPS. I have the full support of Hunter Hall for me to take control of OAMPS.' Porter: 'Congratulations. How much did you [meaning Steadfast] pay?' Lamont: '$1.10 per share. I am letting you know that I am joining the board and assuming responsibility for the company. You will be out. I have the support of Hunter Hall on this. Adler is no friend of yours. Porter: 'The fact that you have bought the shares does not automatically entitle you to a Board seat. I certainly don't recall discussing it with my colleagues. Seriously Kingsley, to kick me out of the company will be quite expensive because I am contracted. What about your conflicts of interest with Austin, Cowden and Steadfast. You lot are serious competitors of ours. We should be taking over Steadfast and I am hugely supportive of that strategy as it would be a perfect back door listing for Steadfast. Lets get together and talk about it' What's all this aggravation about? What's your problem?' Lamont: 'Now that you have cleaned up the American mess I want to move the business forward.' Porter: 'Kingsley we should also discuss with you and your associates your share buying activities in OAMPS Limited. Having regard to the agreement you say you have reached with FAI, I am concerned that you and your mates are breaching the insider trading laws. Adler is so concerned he is re-thinking the whole deal you say you have concluded. As you have the support of Steadfast, I think we should have a meeting to discuss this.' Lamont: 'I'm not worried about that, but I will meet with you.' " Conversation with Lowenstein – Porter Raises the Possibility of a Share Buy- back 111 After speaking with Lamont, Porter rang Peter Hall, but, as he was not available, he spoke to Lowenstein who made a note of their discussion which was addressed to Peter Hall and reads as follows: "CONVERSATIONS WITH ROB PORTER Porter called me on Friday in high dudgeon! He appears to be a highly voluble and slightly volatile character! For some reason he seemed to believe that we were seeking to sell our stake and that we might be talking to Lamont for this purpose. I explained that the call from Lamont had been initiated by him and that not only had I given no indication that we were a seller, but that I personally took no part in any trading decisions. I also pointed out that we had received no bid from Lamont for our shares. I then explained your basic investment policy of buying shares at a discount to your estimated intrinsic value and holding them for as long as you felt they remained at a discount. I also pointed out that you had a record of being constructively supportive of management of your investee companies and had never sought changes lightly or capriciously. Once all this was sorted out the following points emerged: § Porter claims that he has been told by Rodney Adler that Lamont has offered to buy FAI's stock at $1.10-$1.20 a share § 'Rodney has said that he is quite interested', but there is as yet no firm agreement § Porter believes that Brian Austin (who you may recall is Lamont's OAMPS MD designate) is guilty of insider trading for having bought OAMPS stock on market since Lamont started talks with FAI. Whether this is insider trading is moot – but it does match up with Lamont's claims for parties associated with him already having a holding. § Notwithstanding the above, Porter speaks highly of Austin. By coincidence (?!?) Porter says he had been trying to hire Austin, acquire part of his brokerage and use him to create a structure similar to Austbroking to expand the broking capacity of OAMPS while still leaving individual brokers incentivised. Austin has not been returning calls. § OAMPS is currently preparing to sue one of the Steadfast directors, who is a former executive of OAMPS for improper use of confidential material. A statement of claim for $2m is about to be lodged. § Porter is concerned that Claringbold may be behind Lamont, both in terms of funding and tactical advice. Porter has now arranged to meet Lamont on Tuesday. His aim is to reduce the aggression and see if the two of them could work together. Porter says he is impressed with the Steadfast concept (although I think he has an inflated concept of its intrinsic worth – mainly because he was under the impression that it would earn $4m in fees – which on my reading of the Steadfast prospectus is out by a factor of at least 10x). In any case he has promised to report back to me after the meeting. On Friday, Porter was proposing to withdraw his invitation for HH to make a nomination to the OAMPS board. Today he was more placatory. Clearly he did not get on all that well with John Parker. My advice to you is to bring forward any appointment you plan. Do you have any other candidates in mind? On Friday, he was interested in my views on the company buying part of FAI's stake. I explained to him the concept of selective share buy backs. However price would clearly be an issue." 112 It is plain from this conversation that Porter was concerned that Lamont might get control of OAMPS and was investigating the possibility of stopping this or at least avoiding a hostile acquisition by Lamont. Porter in his evidence sought to explain his suggested share buy-back of FAI's stake in OAMPS as a normal event. However, I am satisfied that on this occasion he saw it as a possible defensive measure against Lamont. 113 Porter also asked Glasgow to investigate the possibility of a share buy-back by OAMPS. Glasgow reported by memorandum dated 15 June 1998: "Have confirmation that it can be done per s.308E of the Corporate Law and Corrs. (Bill Keock) Corrs have also advised as follows: (i) Corporation Law and ASX Listing Rules require an EGM (75% of those there and voting) to approve it. Notice of Meeting for the EGM will have to have an explanatory memorandum with it. (ii) Because of proposal price v current ASX price an independent experts valuation will be needed – Auditors firm could provide this and still be independent. (iii) Need to have the process run by an executive or director who is unrelated to the party being taken out. That would probably eliminate both you and Richard because of both your connections to FAI. Difficulty would be having the Board approve this deal at all because both would have to exclude themselves from the meeting when it was discussed. (iv) Would need to lobby top 20/40 Shareholders. (v) Information memo would need to have our very good reason why it should be approved bearing in mind the 80 90% premium being proposed. P.S. Bill Keock says that just last week he has had 2 Rights issues fall over because underwriters are getting skittish. So if we wanted to raise capital for acquisition would need to do it a la Edex Baillieu Method." 114 It was now apparent to Porter that a share buy-back was not likely to be feasible within the time frame which Adler required for the disposal of the FAI parcel of OAMPS shares. Advice of Peter Hall 115 Porter gave evidence that on 12 June he did manage to speak with Peter Hall and received advice from him about Loiterton. Porter says the conversation was in the following terms: "Porter: 'I am very enthusiastic about the opportunities our Clifford client opens up for us particularly in NSW State Government Transport and their Superannuation Funds Management.' Hall: 'We once invested in Clifford and sold out because I did not like Mr Loiterton and we became disenchanted with the serviced office business. We are unconvinced that he can achieve his wide objectives.' Porter: 'Mr Loiterton seems pretty competent to me and in any case he has confirmed that the Signature Group office rental business has been sold to the Americans. I am told by Mr Loiterton that more than $10 million in free cash will be produced for Clifford to enable them to pay out the Heller Financial Services debt and that will make a huge difference to the balance sheet.' " 116 I accept that Hall gave this advice to Porter. 117 Hall also gave evidence that in the period March to June, on about three occasions, he discussed Clifford with Porter. He told Porter that he had an investment in Clifford in early 1996 but got out quickly because he "did not like the people involved." He also told Porter that the financial position of Clifford was not strong and that Porter should not invest in the company. Each time Porter raised a possible investment in Clifford with him Hall gave the advice "Rob, I urge you not to invest in Clifford. It's bad news." 118 Hall was an impressive witness and has no personal interest in the proceedings. I accept his evidence without reservation. 119 I am satisfied that a prudent person in Porter's position should have listened carefully to Hall's advice. At the very least the Board of OAMPS was entitled to be told of Hall's opinion when considering an investment in Clifford, as happened on 30 June 1998. However, I have no doubt that Porter never told anyone at OAMPS of Hall's views. At his committal Porter said he did not think Hall's view was important. Although not relevant to these proceedings Hall's view was proved to be correct when, within a matter of months, Clifford was in liquidation. Discussions between Porter and Loiterton 120 Porter and Loiterton spoke on about 12 June 1998. At this time Porter told Loiterton that the FAI parcel was on the market. Loiterton gave evidence that by 19 June he knew that Porter would like him to purchase the FAI parcel. 121 Loiterton also confirmed that by this time he was interested in formulating a proposal to put to Porter for OAMPS to invest in Clifford shares and for Blenheim to buy the FAI parcel. He said "there was discussion relating to those matters." 122 One of the difficulties in this case was created by the fact that the documents of the various corporations had, by the time of trial, been utilised by different persons for various purposes. In particular the documents of Clifford, now in the possession of the liquidator, but also obtained by ASIC pursuant to its statutory powers and used for the Commission's purposes, do not appear to be in an entirely orderly arrangement. 123 In answer to a subpoena ASIC produced a document sourced from Clifford which the computer information indicates was created on 12 June 1998. The evidence does not indicate who was responsible for the document. It records an "overall proposal" which provided for OAMPS to purchase Clifford shares and Blenheim to acquire either the FAI parcel or the Hunter Hall parcel of OAMPS shares. The document also stated that "the timing of each transaction is not dependent on the other." 124 Irrespective of the provenance of the document Loiterton confirmed that prior to 19 June 1998 he had a discussion with Porter concerning a proposal along the lines of the 12 June document. That discussion must have occurred on 12 June or close to that day. 125 It was submitted by counsel for OAMPS that the 12 June document is the draft of a letter. The last paragraph is consistent with this proposition. Notwithstanding Porter's assertion to the contrary it strongly suggests that a cross shareholding utilising Blenheim was in contemplation, making it likely that it formed part of the discussion between the parties at this time. Porter and Lamont meet on 16 June 1998 126 On Tuesday 16 June 1998 a meeting was held in Melbourne attended by Glasgow and Porter from OAMPS and Lamont, Mr Colin Cowden and Mr Brian Austin from Steadfast. It was not a friendly meeting. Porter recounts the following essential elements of the conversation: "At about 2.00 pm on Tuesday 16 June 1998 I attended a meeting with Mr Glasgow, Mr Lamont, Mr Colin Cowden and Mr Brian Austin in Melbourne at Mr Austin's office. I had asked Mr Glasgow to come along and take notes of the meeting as he was the OAMPS company secretary. … The tone of the meeting from the other side to me was very antagonistic. I did my best to be placatory toward them. During the meeting we had a conversation to the following effect: Porter: 'Kingsley told me last week that he had purchased shares in OAMPS from FAI. I know that both Colin and Brian have purchased stock recently. I am concerned about the appropriateness of this, as it may be insider trading. You guys know that Steadfast is paying $1.10 per share. That means that you have inside knowledge that is market sensitive. If you are buying shares on the market at a lower price and there is no disclosure it is insider trading and unlawful.' 'I actually doubt that you have bought the FAI shares because last week Adler said that I could have an option over them.' Austin: 'I don't know anything about insider trading and such nonsense. I only bought the shares through my superannuation company.' Porter: 'That's not true. Also, do you know that Kingsley threatened me last week? You had better restrain Kingsley from making threats against me and making nonsense phone calls to me. It is beyond me as to why you do not recognise the value of our corporate broking successes. When we announce this to the market it will move the share price. Look at these corporate references. This is business OAMPS couldn't even dream about, let alone do a year ago until I put in the corporate division together [referring to OAMPS Corporate Risk Ltd].' Lamont: 'You will fail in growing the corporate account that's why I want to be a director of OAMPS.' Cowden: 'We are not interested in your Corporate Division.' Porter: 'We have made significant progress with large corporate clients which will underpin our broking companies earnings very quickly. Look at these testimonials to our success. I am not going to support you becoming a director, under these circumstances. Kingsley, why don't you come to our office tomorrow and we can discuss things and see if we can cooperate, as it is certainly in Steadfast's and OAMPS' interests if we can.' " 127 The statement by Porter that he had an option from Adler was not true. Porter justified his statement to Glasgow after the meeting when I accept that he said: "Porter: 'The discussion about me having an option was to draw Kingsley out so that his associates, Austin and Cowden could see that what he had told them about having concluded a deal with Adler was nonsense. Did you see the look on Cowden's face when he discovered Kingsley had not purchased Rodney's shares? Can you believe Austin has the audacity to say he only bought a few OAMPS shares in his superannuation fund? You should prepare a detailed file note of the discussions because these guys are up to no good and have certainly been insider trading. With what we told them today they will probably be in the market buying OAMPS with their ears pinned back tomorrow. You don't have to be concerned about my comment about having an option. Rodney had merely mentioned ages ago that he would always let me know what he was doing with his shares.'" 128 I generally accept Porter's account of this conversation with Lamont and the others although whether he identified a price of $1.10 for the OAMPS shares is uncertain. Porter made a file note of the meeting in which he identifies a price of $1.00. This was the price which he also spoke about in his initial discussion with an investigating officer of ASIC. $1.00 was also the price initially agreed between Lamont and Adler. 129 However, against this Lowenstein's note of his earlier conversation with Porter records Lamont as having offered "$1.10 to $1.20 a share." All that can be said is that the position remains unclear. However there could be no doubt that Adler would seek the highest possible price for the shares from a purchaser with whom he could reach agreement on other relevant terms. A significant factor in any negotiation would be whether Adler would be required to provide vendor finance. 130 There is no doubt that during the conversation Lamont repeated his threat to gain control of OAMPS and remove Porter as the Managing Director. Porter Telephones Adler 131 On the same day Porter decided to phone Adler. Porter says the following conversation took place: "Porter: 'It appears to me there is something very wrong with what Lamont and his mates Austin and Cowden are up to. I have accused them of insider trading in OAMPS shares. Steadfast buying into OAMPS would be very significant to OAMPS share price because they could divert a large chunk of Steadfast business to Australian International Insurance Ltd, our own Insurance Company. They have been buying shares on the strength of that, and you're selling. You must tell me what is happening because if I get to the bottom of it I'll have to disclose it to the market. We are trading well below NTA [net tangible assets] at present and if Steadfast comes on the OAMPS share register our share price will certainly rise. Adler: 'I have not made any agreement with Lamont or anyone else. The last thing I want is to get caught up in an insider-trading problem. Why don't you make me an offer?' Porter: Are you crazy. I don't have that kind of money. And any way I don't want to be insider trading. What's your purpose in selling?' " 132 Adler was not called to give evidence but there is no reason to doubt that this conversation occurred. The Meeting of 17 June 1998 133 Lamont, Porter and Glasgow met again on 17 June 1998 with the object of seeing whether they could work together. Glasgow gave evidence that at this meeting Porter told Lamont that OAMPS might be interested in buying into Steadfast but, later, confided to Glasgow that his true intention was to destroy Steadfast. The meeting did not have a positive outcome. Porter's Job 134 Glasgow also gave evidence, which I accept, that on at least two occasions between 16 and 30 June 1998 he had conversations with Porter in which Porter said words to the effect: "I don't want Lamont or any of his mates becoming shareholders of OAMPS. I might lose my job as managing director. Lamont hates me and wants my job." 135 Although Porter initially denied making this statement he conceded in cross examination that he had stated the last sentence. I accept Glasgow's evidence. I have no doubt that Porter's actions from early June were motivated by an endeavour to secure his job. 136 On one of the occasions when this discussion occurred probably on 16 June Glasgow says Porter added: "Not that I care. I have plenty of money. I don't need to work. But I'm not giving in because I'm not a quitter." 137 Again, I accept Glasgow's evidence. I have no doubt that Porter was intent upon taking measures designed to avoid Lamont gaining control of OAMPS which, if it occurred, would mean that Porter would lose his job. PART V – COMMERCIAL STRATEGIES The Meeting of 19 June 138 It is obvious that by 19 June commercial strategies were being developed. I am satisfied that Lamont and his associates were seeking to control OAMPS and saw the FAI shares as a means to that end. However Lamont did not have access to the necessary cash and any sale would be dependant upon vendor finance. Adler wanted to sell his parcel of shares and, as would have been plain to all those involved, desired a sale by 30 June 1998 at the highest possible price to assist the FAI accounts for the financial year. 139 Porter and Loiterton met at Porter's offices in the afternoon of 19 June 1998. Porter says he invited Loiterton for a social chat and a beer. No one else was present. Glasgow was excluded from the meeting by Porter who, I accept, said he should not be present "for his own good." 140 In his statement made on 30 January 2003 Porter gave the following account of the meeting: "I did attend a meeting with Mr Loiterton in the afternoon on 19 June 1998. I had invited Mr Loiterton to an impromptu meeting in my office, principally to be sociable and to offer him an informal chat and a beer. I felt this was the right thing to do bearing in mind we were interested in investing in the company of which he was executive chairman. I did not invite Mr Glasgow or anyone else from OAMPS to the meeting because the meeting was supposed to be an informal discussion at the managing director level. No one else attended from Clifford. There was no agenda, but as I recall, we did briefly discuss Mr Loiterton's recent trip to the United States in relation to the sale of Signature Group. During the meeting I had had a conversation with Mr Loiterton to the following effect: Porter: 'Barrie are you assuring me that this Signature sale is a done deal, because we do not want to get involved if you are still in the office rental business.' Loiterton: 'The Signature sale is done. The cash that Clifford gets will be used to remove the Heller borrowing.' Porter: 'That's excellent.' Loiterton: 'When that is done we will re-finance Clifford with HSBC.' Porter; I think we may be able to help with that." 141 Porter said they had one beer each and the meeting ended when they finished their beers. In his statement he did not suggest there was any discussion about the possibility of OAMPS buying shares in Clifford Corporation. 142 He was asked about the meeting in his oral evidence when the following exchange occurred: "HIS HONOUR: Q. Mr Porter, can I just ask you this-- A. Yes, sir. Q -by 19 June, I want to know what your evidence is, had Mr Loiterton been urging you to buy shares, that is OAMPS to buy shares in Clifford? A. Not urging, your Honour. Q. Suggesting? A. It was a suggestion more of me to him that he readily adopt it as a good strategy for us. Q. When did that conversation, or that topic of conversation first arise? A. In relation us buying Clifford Corp shares? Q. Yes? A. Probably as early as the end of 1997. Q. Was it, or did it remain a topic of conversation in 1998? A. Yes. Q. At the meeting on 19 June, was anything to that effect discussed? A. In very loose terms it was understood at that meeting that we were going to consider the purchase of a parcel of shares that Mr Loiterton some time, some month or months earlier, had said he would assemble for us on the basis that the shares were so thinly traded, and that he was able to speak for so many shares, it was the best way to approach it . And in those discussions it was offered by me that it would be better for OAMPS to be offered by way of a capital raising a parcel of shares, new shares created by Clifford. But Mr Loiterton rejected that on the basis that his concern was that there were so many shares on issue, that to issue more shares would be counterproductive from an earnings basis. Q. Were those matters discussed on 19 June ? A. Not particularly, because it was understood by me - well, not at all, your Honour . It was understood that at his calling we would view the offer and consider buying a parcel of shares that would represent no more than 4.9 percent. Q. Had those matters been discussed at the meeting close to but before 19 June? A . Before 19 June, as to how close to I would have to look at my diary and try to reconstruct those thoughts. Q. By 19 June what do you say was the state of the understanding between you and Mr Loiterton in relation to OAMPS' perspective purchase of Clifford shares? A. That he was to advise us of when and the timing and the parcel of shares would become available. It would be offered to us by their brokers Potter Walhberg, and in simple terms that when he got the parcel, we would negotiate the price. By 19 June that hadn't happened, and I was waiting. Q. So then on 19 June was there any discussion about that proposal at all? A. Not to my recollection. There was a part of the discussion, it was really a social chitchat. Q. After 19 June, when was the first occasion, if at all, when that matter was raised again between you and Mr Loiterton? A. On, I believe there was - a letter came to my office on 22 June from Blenheim, and on receiving that letter I consulted Glasgow, I gave him the letter. I said, "I don't know what this is all about ." I rang, I believe I rang Loiterton, I can't recall whether I spoke to him or not. I asked Mr Glasgow to contact either Mr Loiterton or Mr Hall. I believe Mr Hall signed the letter. But the letter in the terms that it was written, I must say, was out of the blue and we didn't agree. I said, "I'm not agreeing to those proposals", and I didn't." 143 Loiterton also gave an account of the meeting. He had previously made a written statement to ASIC about these events but he did not refer to the meeting of 19 June in that statement. He gave evidence in these proceedings having been required by a subpoena to attend. 144 Contrary to the evidence of Porter, Loiterton said in his evidence in chief that at the meeting on 19 June he and Porter shook hands on a potential arrangement in relation to Clifford shares subject to detail. However, he said that he did not remember discussing any aspect of the possible purchase of the FAI parcel on 19 June. In this respect his evidence is not credible. His evidence was at times contradictory. The following exchange occurred: "Q. And you say in that paragraph that "we discussed the principle of those acquisitions on that basis", don't you? A. Correct. Q. And you say in that paragraph also, "We discussed that the purchaser would be Blenheim, ie outside of Clifford", don't you? A. Yes, but that is not the way it was discussed. It was outside of Clifford, yes; but not specifically Blenheim, no. Q. So you did discuss with him that any purchaser of the FAI parcel or the Hunter Hall parcel would be outside of Clifford? A. I believe that's correct. It is very difficult to put it in a timeframe, but over this period of ten days that certainly was intimated. Q. And what you had in your mind at that time at the meeting of 19 June was Blenheim; is that correct? A. I had that in my mind, yes. Q. And it is quite likely, isn't it, that you would have mentioned Blenheim to him at that meeting? A. I don't believe so. Q. Anyway, do you agree also that it is likely, probable, that at the 19 June meeting you discussed with him that any acquisition of the FAI parcel or the Hunter Hall parcel would be based on 50 percent cash and 50 percent Clifford shares? A. I might have intimated that approach. Q. Do you agree that that is likely? A. Well, I think it is probable. Q. And did you, at the 19 June meeting, shake hands on an arrangement in principle for the acquisition by OAMPS of Clifford shares and the acquisition of the FAI or Hunter Hall parcel? A. No. Q. You did, however, shake hands on an investment arrangement, didn't you? A. Correct. Q. And that investment arrangement was for the investment by OAMPS in Clifford shares and the investment by some entity outside of Clifford in shares in OAMPS. Do you agree? A. No, I don't agree. I don't agree we only shook hands on an agreement, on a principle agreement between OAMPS acquiring shares in Clifford. Q. But I think you have told the court that you nevertheless probably discussed with him the purchase by an entity outside of Clifford of the FAI parcel or the Hunter Hall parcel. Correct? A. I intimated our interest. Q. And hadn't you told the court earlier that he had indicated to you, on or before 19 June, that he wished FAI to sell its shares? A. Yes. I said that earlier. 145 At an early stage of these proceedings and before Loiterton gave evidence a document which Loiterton later accepted he created was admitted into evidence. It is headed "FILE NOTE – FRIDAY, 19 JUNE 1998 – DISCUSSION WITH ROB PORTER, MANAGING DIRECTOR, OAMPS." Although prepared by him and titled in this manner, Loiterton denies that the note is an account of his discussion with Porter on 19 June 1998, except in limited respects. However, I am completely satisfied that it is what is what it purports to be – a record of the meeting. The note also recognises that the meeting was the culmination of previous discussions. 146 The full text of the file note is: "FILE NOTE – FRIDAY, 19 JUNE 1998 DISCUSSION WITH ROB PORTER, MANAGING DIRECTOR, OAMPS As a result of on-going discussions over nearly a month in an effort to convince OAMPS to buy into CCN as an investment, he indicated today the following: 1. He would put together an investment committee with a view to an initial approval by (sic) buy 5.5m shares in CCN progressively between now and 30 June 1998. 2. The aim thereafter would be to bring their total purchase of 11.0m shares by an agreed timetable. 3. Blenheim/Leisuremark will give consideration to purchasing up to 20% of OAMPS either by the acquisition of all or part of FAI (3.8m shares) or Hunter Hall Investments (4.0m shares). 4. Upon conclusion of the first 20%, we would then look to a first come first served arrangement up to 25% of OAMPS. We discussed the principal of these acquisitions which would be based on 50% cash and 50% shares in CCN and that the purchaser would be Blenheim, ie outside of Clifford. JBL noted that the directors of CCL had been informed of the potentiality of an OAMPS arrangement and had indicated informally Clifford would not be interested in its own right, clearing any conflict situation which might arise." 147 In his evidence Loiterton said that he either dictated the file note or it may have been prepared from hand written notes which he made. Loiterton initially said that he and Porter discussed item 1. He said that item 2 was his approach rather than what was agreed by Porter. He also said that he could not recollect item 3 being discussed and said that item 4 was not discussed. 148 When cross-examined Loiterton agreed that he discussed with Porter item 1 of the file note. As to item 2, Loiterton said that reflected his aim and that at the 19 June meeting he "certainly" indicated he would like to see an increase in the investment by OAMPS (over the 5.5m shares referred to in item 1 of his note) although he was not sure whether he mentioned "11 million". 149 As to item 3 Loiterton said he "certainly" intimated that any purchase of the FAI parcel or the Hunter Hall parcel would be outside of Clifford. Loiterton agreed that Porter told him at this meeting or earlier that he would like FAI to sell its shares in OAMPS and would like Loiterton or interests associated with Loiterton to buy the FAI parcel. Loiterton also said that he used words which would have left Porter with the impression that he would consider buying the FAI parcel. Later in his evidence, he said that he left Porter with the impression that he "might" give consideration to buying the FAI parcel. 150 Loiterton agreed that prior to 22 June he discussed broadly with Porter the sale of Clifford shares to OAMPS and the purchase of the FAI parcel and Hunter Hall parcel by his interests. He said that at the meeting on 19 June with Porter he spoke about both possible transactions, although he said it was "in a very perfunctory manner". He confirmed that one of the reasons for the meeting on 19 June was to get a feel for OAMPS' operations in order to improve his knowledge of OAMPS before putting forward a proposal for purchasing shares in OAMPS. 151 As to item 4 Loiterton agreed in cross-examination that he intimated to Porter at the 19 June meeting that if his interests acquired up to about 20% from FAI or Hunter Hall, thereafter he might consider going further. 152 In relation to the penultimate paragraph of the file note, Loiterton agreed that he "certainly" indicated to Porter at the 19 June meeting or within ten days thereafter that any purchaser of the FAI parcel or the Hunter Hall parcel would be "outside of Clifford" and that what he had in mind at that time was Blenheim. He also said that it was probable that at the 19 June meeting he discussed with Porter that any acquisition of the FAI parcel or the Hunter Hall parcel would be based on 50% cash and 50% Clifford shares. 153 With respect to the final paragraph of the file note Loiterton agreed that a conflict situation could only arise if there was a possibility that he or his private interests might wish to purchase shares in OAMPS. Upon being shown his draft Clifford letter to OAMPS of 26 June (which I discuss in detail below) which recorded OAMPS being informed of his interests and those of Ian Hall in Blenheim, he agreed OAMPS was advised that no conflict arose as a result of those interests of Blenheim being the proposed purchaser of the OAMPS' shares. His words used in his file note indicate that he informed Porter there was no such conflict problem at the 19 June meeting. He initially denied that he discussed this with Porter but later gave evidence that he did not recall whether he informed Porter of this. I am satisfied that the file note is an accurate account of this matter. Findings about Meeting of 19 June 154 I do not accept either Porter's or Loiterton's account of the meeting of 19 June. Notwithstanding Porter's assertion that it was merely a social occasion, it is obvious that business matters were discussed – Loiterton said as much. There was no legitimate reason to exclude Glasgow. As the events of the following week make plain Glasgow was central to the implementation of a purchase by OAMPS of Clifford shares. 155 Loiterton's initial evidence that items 3 and 4 in the file note were not discussed with Porter is not credible and is effectively contradicted by the evidence he gave when cross examined. The file note is also seriously damaging to Porter's credit. It is clear from the note that Loiterton told Porter at the meeting, if he did not already know, that interests other than Clifford itself were considering purchasing OAMPS shares. Furthermore, as the purchase of Clifford shares by OAMPS was discussed – even Loiterton accepts this – the suggestion by Porter that correspondence which followed the next working day (ie the following Monday), came "out of the blue" cannot be accepted. 156 I have no doubt that Loiterton's file note records Loiterton's account of matters which were discussed between Porter and himself at their meeting on 19 June. Section 205 Problems 157 Loiterton says that, as a result of both prospective acquisition decisions having been made, he decided that he would not talk further to Porter about the possible acquisition of the FAI parcel. He had in mind, and was ultimately formally advised, that the total transaction could be in breach of s 205 of the Corporations Law which prohibited a company from financing the acquisition of its own shares. 158 I am in no doubt that both Loiterton and Porter were conscious of potential Corporations Law problems at their meeting on Friday 19 June. This would explain Glasgow's exclusion from the meeting. I also have no doubt that they both determined to conduct themselves in a manner which would minimise suspicion that an illegal transaction might occur. 159 Although during his evidence in this trial Loiterton denied discussing s 205 with Porter, he said otherwise when he gave evidence at Porter's committal hearing. In this trial the following exchange occurred: "Q. I think you still have the committal transcript in front of you, do you not? The large one? A. Yes, yes, I have. Q. Would you please turn to page 362, towards the very end, the last page? A. (Witness complied). Q. About a third of the way down, you were asked this question, were you not: 'You have been extensively examined on legal advice, inter alia legal advice about section 205 of the Corporations Law. Did you ever tell Mr Porter either that you were taking legal advice or what the subject of the legal advice was?' Your answer was: 'I don't recollect, but I think so. I think at some point we - there were some - there was so much discussion on this matter.' Then you were asked: "Did you mention section 205?" and your answer was: 'I don't know that I mentioned the particular section, but I certainly mentioned the potentiality of these problems. Were those answers accurate? A. So far as I am aware at the time. I have no recollection now of discussions with Mr Porter in respect of section 205." Monday 22 June 1998 160 Loiterton gave evidence that he briefed Ian Hall with a copy of his file note on the morning of Monday 22 June 1998 – the first working day after the meeting with Porter on 19 June. Loiterton says he recalled saying to Hall "Here is the broad brush of the transaction as to where it is today. You take it on with Porter from there." 161 There was a meeting of executives at Clifford on the Monday morning. Relevant decisions were made including a decision to sell Clifford shares to OAMPS the vendors being the private companies Lesuremark and Blenheim. A decision was also made to purchase the FAI parcel of OAMPS shares. Letters of 22 June 1998 162 Following the executive meeting at Clifford, Ian Hall wrote two letters to Porter. The letter from Blenheim was in the following terms: "We refer to discussions which have been held at various times relating to the potential investment by your company in Clifford Corporation Limited (Clifford). You will be aware that this company and its associates are major shareholders of Clifford. We confirm that we have requested Clifford to provide ordinary investor information and we have informed the company of your interest in taking an investment position. We refer to discussions held last week wherein you agreed that subject to the consent of your Investment Committee you would commence a programme to acquire up to 5.5m shares in Clifford. We will provide the following shares on the agreed timetable: 1. On 22 June 1998 we will provide (and we enclose appropriate documentation) 1,010,519 shares to be acquired by OAMPS (or its subsidiary) at a price of $0.45 net ie a sale price of $0.46. 2. On the same date, we will provide you with 1,666,700 shares in Clifford to be acquired at a price of a net $0.49, ie a gross price of $0.51. 3. On the same date, we will provide you with 2,000,000 shares in Clifford to be acquired at a price of a net $0.52, ie a gross price of $0.53. These shares need to be crossed in the market and we suggest that the vendor's broker, Potter Warburg, be used to complete the transaction as this company has a favourable commission arrangement. It will be necessary for you place the necessary orders in writing with Potter Warburg and place that firm in funds. We attach herewith a draft instruction which should be provided on your letterhead and we have briefed Mr Peter Macormick of Potter Warburg in respect of the transactions. He awaits your confirmation . In addition, as part of this arrangement, we confirm that you will buy in the market at market price from time to time, in order to increase the holding to a total of 5.5m or thereabouts." 163 The letter from Leisuremark was different and read as follows: "Attached are copies of the transfer forms, duly executed by the vendors, together with copies of the share certificates relative to each transaction. The original blank transfer, together with the original share certificate has been provided to Peter Macormick at Potter Warburg. The blank transfer is to be filled out by the purchaser and executed under seal, ie OAMPS and forwarded together with the letter of instruction to Potter Warburg, a draft of which is attached. You should have your Company Secretary make whatever other accounting requirements are needed to affect the transaction through Macormick at Potter Warburg, which may include the opening of an account to facilitate the transaction. In order that you might be in the market, we have established a temporary account through D J Carmichael & Co in Perth to enable the first transactions to occur whilst you establish a trading account for future transactions. This, by the way, could be with your brother, as we have absolutely no objection." 164 Both letters were hand delivered. 165 The correspondence is significant in more than one respect. The letter from Blenheim speaks to an agreement by Porter to have OAMPS acquire Clifford shares. The manner of the acquisition would effectively increase the market price. The letter included a draft letter of instruction from OAMPS to Potter Warburg Stockbrokers to make the intended acquisitions. The letters and their inclusions were in effect a complete "package" allowing OAMPS to proceed with the transaction. 166 On the same day Ian Hall wrote to the solicitor of the companies in the Clifford group, indicating that Blenheim had that day issued buying orders for 5,402 ordinary shares in OAMPS Limited and was expecting to purchase substantially more shares. The extra shares were obviously the FAI parcel. The letter reads as follows: "Phillip, we have today issued buying orders for 5,402 Ordinary Shares in OAMPS Limited. We also expect to within the next ten days to finalise a special purchase of a further 3,075,000. Ie a total of 3,080,402 Ordinary Shares in OAMPS. These shares have been acquired for and on behalf of various parties and we wish to hold the shares in trust for those parties in the specific beneficial ownership as listed below. Notretoil Investments Pty Ltd 1,960,256 The Store of Knowledge Pty Ltd 840,110 Prepall Pty Ltd 280,036 3,080,402 Would you please prepare a Deed of Trust, for Blenheim to hold the shares subject to the instructions of each of the parties from time to time in respect of their individual beneficial interests." Porter Receives the Letters 167 Porter says that upon receiving the letters from Hall he took them to Glasgow and said: "Neither the price nor the number of shares is what we have been discussing; we will not go ahead with this deal. They must have misunderstood what I had said. We are only going to buy a 4.9% parcel at this stage which fits our investment criteria. Have you got the superannuation business confirmed." 168 Porter was asked about these events. The following exchange occurred: "Q. After 19 June, when was the first occasion, if at all, when that matter was raised again between you and Mr Loiterton? A. On, I believe there was - a letter came to my office on 22 June from Blenheim, and on receiving that letter I consulted Glasgow, I gave him the letter. I said, "I don't know what this is all about ." I rang, I believe I rang Loiterton, I can't recall whether I spoke to him or not. I asked Mr Glasgow to contact either Mr Loiterton or Mr Hall. I believe Mr Hall signed the letter. But the letter in the terms that it was written, I must say, was out of the blue and we didn't agree. I said, "I'm not agreeing to those proposals", and I didn't. Q. You had a meeting on the 19th ? A. Yes . Q. With Mr Loiterton, and then you say out of the blue the letter on the Monday which follows turned up? A . The 22nd yes . Q. We are talking about a Friday to a Monday? A. Yes, I think so. The 22nd I believe is the letter. It was in terms that I hadn't discussed. I didn't agree, and my response was twofold; one to try and contact Loiterton, I can't remember whether I spoke to him or not . Secondly, I gave it to Glasgow and told him, "This is not what I have discussed with Mr Loiterton, and we're not going to do it." Q. What had you discussed with Mr Loiterton? A. In the lead up to the meeting of the 19th, that they would put on a parcel of shares representing a substantial interest, but it would be no more than 4.9 percent, and in terms of price that was remaining to be negotiated. Q. When did you have those discussions in that detail with Mr Loiterton? A. In that, in those terms? Q. Yes? A. In the period March to say up to 19 June." Glasgow's Evidence 169 Glasgow denies Porter's account of their conversation on 22 June. I do not accept Porter's evidence where it differs from that of Glasgow. 170 In his affidavit prepared for the Civil Proceedings which was tendered in these proceedings Glasgow gave evidence of the events from 19 June 1998 and the days which immediately followed. 171 His evidence was as follows: "On Monday, 22 June 1998, Mr Porter handed me two letters, both addressed to him as managing director of OAMPS, from Leisuremark Pty Limited ('Leisuremark') and Blenheim Holdings Limited ('Blenheim'). Both letters were signed by Ian Hall, a director of both Leisuremark and Blenheim. After handing the letters to me, Mr Porter asked me, in substance, to read them. … Some time after reading the letters from Leisuremark and Blenheim, I telephoned Kym Pont of Hazlett & Co to organise company searches in respect of Blenheim and Notretoil Investments Pty Limited ('Notretoil'). … Between 22 and 24 June 1998 I had a conversation with Mr Porter during which words to the following effect were exchanged: Glasgow: ' I've looked at the letters from Ian Hall. I don't like what they're proposing, because of the ramping up of the price of the shares.' Porter: 'Alright then, we won't worry about it.' Glasgow: 'That's good because it also smacks of section 205 because the price of the Clifford shares and the price of the FAI shares are too similar.' I then left the room as Mr Porter took a telephone call. In referring to section 205 during that conversation: (a) I was referring to section 205 of the Corporations Law; (b) I took into account the experience I had in relation to that section earlier in 1998 in connection with advice I had received from Corrs Chambers Westgarth relating to an investment by OAMPS in the Hunter Hall Value Growth Trust. A section 205 issue had arisen because not long after Hunter Hall acquired a significant shareholding of around 17% in OAMPS, OAMPS made a significant investment in the Hunter Hall Value Growth Trust. (c) I had by this time begun to believe that there was a possibility of interests associated with Mr Loiterton acquiring FAI's shares in OAMPS at around the same time that OAMPS was considering acquiring shares in Clifford Corporation owned by interests associated with Mr Loiterton. I based this belief on a number of factors, including the following: (i) in about March 1998, I had seen a letter addressed to Mr Porter signed by Mr Loiterton which set out, in substance, some arrangement which could result in some sort of merger between OAMPS and Clifford Corporation; (ii) I had heard from Mr Porter, either in the conversation with Mr Adler recounted by him to me, referred to above, or in another conversation not long before the period 22 to 24 June, that Mr Loiterton had expressed an interst in acquiring the FAI shareholding in OAMPS; (iii) I knew from the two letters of 22 June 1998 referred to above that Mr Porter was considering a strategy by which OAMPS would acquire shares in Clifford Corporation; (iv) I knew from the two letters of 22 June 1998 referred to above that the prospective vendors to OAMPS of the shares in Clifford Corporation were Leisuremark and Blenheim; (v) I knew from the results of the company searches carried out on my behalf by Mr Pont that Leisuremark was associated with Mr Loiterton; and (vi) I knew from the calculations that I had carried out that there was a strong similarity between the proposed acquisitions by OAMPS/AIIL of shares in Clifford Corporation at the prices mentioned in on the one hand, and, on the other hand, the value of FAI's shareholding in OAMPS, based on a price of $1.10 per share." 172 He was also cross examined when the following exchange occurred: "Q. On 22 June, letters, one from Leisuremark, one from Blenheim, came into OAMPS containing some kind of proposal or statement of agreement in relation to OAMPS buying Clifford shares? A. That's correct, yes. Q. And both you and Mr Porter were not happy with some of those terms? A. Well, I indicated to Mr Porter that I wasn't happy with the terms, yes. Q. Mr Porter said to you the price was too high and there were too many shares? A. No. He actually said "Okay then, we won't go ahead with it." Q. I suggest to you Mr Porter said "They are going to take me over the 5 per cent and the price is too high"? A. No." 173 A significant attack was launched upon Glasgow's credit. He suggested when giving evidence at Porter's committal hearing that he may have written s 205 on the letter from Blenheim in pencil and later rubbed it out. Scientific analysis suggests that the letter had not been written upon. Glasgow now believes that he may have written s 205 on another document, later erasing it. I have no doubt that Glasgow is truthful when he says that he raised concerns about s 205 with Porter. I am also satisfied that it was Glasgow rather than Porter who raised concerns about the terms of the offers reflected in the letter. Porter's ASIC Interview 174 Porter was interviewed by ASIC during its investigations. The first interview took place on 6 October 1998 and the second one on 20 January 1999. The transcript of each interview is in evidence. In his second interview conducted by Mr Cook, he was asked about the events of 19 June and the subsequent letters. The following exchange occurred. I have emphasised matters of greater significance. "Cook: Did you, the next day on the 18 June 1998 have a meeting with John Barry Loiterton Porter: This… what date was that? Cook: The 18 June 1998? Porter: Don't know but probably. Cook: Did you … can you recall a meeting at OAMPS office with Mr Loiterton? Porter: No I can't but maybe it happened. I know there was a meeting scheduled as to whether it was cancelled or not. I don't actually recall Loiterton being in our offices. He maybe was, I'm not concerned one way or the other. It begs the question, so what? You know, he was a client of ours. My diary notes are quite deficient, my memory is sometimes deficient but in the event he was, so what? Cook: But you don't now have any independent recollection of that meeting? Porter: Not particularly no, and I'm not seeking to be evasive here I'm just pleading facts. I don't remember. Cook: Has … Porter: I would have … indeed if I may interrupt. I would have probably liked him to be there. Cook: Has Ian Hall ever been to the offices of OAMPS? Porter: I think so. I've been to his offices, I think he has. I'll say yes and again I say well I would expect you to expect that. Maybe he hasn't, don't know. Cook: The 19 June 1998 it's a Friday. Did you attend a meeting with Loiterton and Ian Hall? Porter: I'll say yes but I don't … I can't say categorically, I don't have my diary here but I suppose I did. Cook: If you had your diary here would you have written in… ? Porter: Fifty fifty shot. You know when you're on the run … I'm not that methodical a note taker I've become better in recent times. You know I would have arranged a meeting either on the phone if it took place, day before, there's a high element of ad hocory on the run about the way I run my life but I will say yes there probably was a meeting and there was a meeting, so what? Cook: Can you recall discussing, if these meetings took place, whether the Loiterton interests were interested in purchasing the FAI shareholding? Porter: I can't remember a specific conversation but it was … it would be and would have been likely and likely in a response to what had been raised occasionally over the previous eighteen months or two years by Loiterton . Loiterton had a particular interest in the OAMPS company not least because of where it was, what it did and indeed I'd been to meetings at Loiterton's office where he had rendered or tendered documents or information relating to a potential acquisition remembering always we were trading partners we handled the affairs as insurance brokers of Clifford Corp, for which I make no apology. Cook: Can you recall discussing with Loiterton and Ian Hall or either of those two gentlemen the possibility of OAMPS taking a shareholding in Clifford Corporation at that time? Porter: I would say that in the event it was raised I can't … the answer to that question would likely be yes. Cook: I've got a bundle of documents. The top document is marked M00155048. It's on the letterhead of Leisuremarkets dated 22 June 1998 and it's addressed to … Porter: Sorry? The 22 June? Cook: Of June 1998. Porter: Yeah. Cook: The 22 June was a Monday. It's addressed to yourself, Mr Porter, and indicates that it was handed to you. It's signed by Ian Hall and behind it is a document marked M00155049. It's on the letterhead of Blenheim Holdings Limited and that is also addressed to you and again it's signed by Ian Hall. The third document is marked M00155050. It's a draft letter and it's dated 22 June 1998 and it appears to be that this is a letter that they wanted OAMPS to prepare and it's addressed to Potter Warburg and behind these three letters are transfer forms and copies of share certificates they've talked about in these letters. Do you have those documents in front of you? Porter: I have them … yes I do. Cook: Can you recall receiving them on that date? Porter: I … yeah … well yes I do, not that I would have studied them deeply it's a matter that Duncan Glasgow was handling in a administrative sense. I do … yeah I think I recall seeing these. This was a delivery of the stock we'd been negotiating to buy. Cook: Was the proposal contained in these letters discussed during the meetings with Loiterton or Loiterton and Hall in the previous week? Porter: It would have been. We discussed the … you know the nature of the shareholding that we were purchasing. We knew who the vendors were in that I'd had discussions about the prospect of us making … they making an issue of shares to us in relation to our investment and indeed that discussions in that regard were summarised as they didn't want to issue any more shares which I understood, there were a lot of shares on issue and that they could deliver stock, because they spoke for something like 40 million of them, which I accepted as being reasonable. Cook: In the second letter on the Blenheim Holdings Limited letterhead which is M00155049 the third paragraph '… we referred to discussions held last week wherein you agreed that the subject to the consent of your investment committee you would commence a program to acquire up to 5.5 million shares in Clifford … Porter: Hmm, hmm Cook: … we'll provide the following shares on the agreed timetable'. Does that refresh your memory whether you met or had telephone conversations with these gentlemen? Porter: I think it's more likely a telephone conversation if indeed that took place but this is the matter of the delivery of the shares and bearing in mind I'm thinking bigger picture not detail. I've … I've … Duncan Glasgow's writing is down the side of this and indeed Duncan Glasgow was part, if not principally, required to do the background work in relation to the investment and the so-called due diligence. Cook: So you would have given these letters to Glasgow and asked him for his advice? Porter: If indeed they were given to me, it may have been they came by fax or they came by envelope, indeed Glasgow may have even picked them up. Cook: But you've indicated earlier that you do recall seeing them? Porter: I saw them. Cook: Can you recall what advice Glasgow gave you in relation to the contents of these letters? Porter: No. Do you … are you aware of any advice he may have given me. What prompts that question?" 175 The contrast between Porter's responses to the questions from ASIC and his evidence in these proceedings is obvious and considerable. I am satisfied that his evidence about these matters in these proceedings cannot be accepted. It was given after an extensive period had elapsed from the time of the events and when the issues in relation to those events had emerged with clarity. His interview with ASIC confirms that the elements of the ultimate transactions were probably discussed at the meeting of 19 June. I have no doubt that they were. Porter Purchases 400,000 Clifford Shares on 23, 25 and 29 June 1998 176 Porter's written evidence suggested that on 24 June he caused OAMPS to purchase 200,000 Clifford shares. He informed Sharkey and Glasgow of this on 25 June. On 29 June he told Sharkey he was going to buy another 100,000 or 200,000 to further "test the market." On 29 June OAMPS purchased another 200,000. Porter's diary for 22 June 1998 recorded: "Buying 200,000 Clifford shares at up to 46 cents". 177 It emerged that his written evidence as to dates was incorrect when two HSBC buy contract notes recording a purchase by OAMPS of 200,000 Clifford shares on 23 June and 100,000 on 25 June were introduced into evidence, joining an HSBC buy contract note recording a purchase by OAMPS of 100,000 Clifford shares on 29 June. Asked in cross-examination about these documents, Porter said he thought he had ordered 200,000 on 23 June and a further 200,000 on 25 June and that there was a delay in purchasing 100,000 of the latter order. 178 However, given the content of Sharkey's file note and the buy contract dated 29 June for 100,000 shares, it is probable that the last 100,000 tranche was not ordered until 29 June. 179 It appears that the 100,000 Clifford shares purchased by OAMPS on 29 June were purchased from Blenheim. 180 According to Porter the reason for these purchases was to test the market and that the price rose 1 to 2 cents per share. However, the Stock Exchange prices do not support this claim. Adler's Actions 181 Throughout this period, Adler had continued dealing with Lamont. His solicitor Swaab Attorneys were proceeding on the basis that Adler would sell his OAMPS shares to Lamont's interests and documents were being prepared accordingly. The documents drafted by Swaab provided for vendor financing of a transaction which would have Belgate Pty Ltd, a company controlled by Lamont, purchasing the shares. Although Adler did not ultimately sell to Lamont I cannot be certain when he decided to sell to Loiterton. Adler did not give evidence in these proceedings. Porter's Discussions with Peter Hall 182 Peter Hall of Hunter Hall gave evidence, which Porter accepted in cross-examination was correct, about a conversation they had either on 23 or 24 June 1998. 183 In that conversation Hall indicated that: (a) he had received a call from Lamont who indicated he wanted to discuss the future of OAMPS with Adler, Peter Hall and Lamont's colleague Austin and that he was attempting to purchase the FAI shareholding in OAMPS. (b) Peter Hall was meeting with Lamont, Austin and Adler on 25 June. 184 Apparently, Porter said to Hall words to the effect: "Lamont is a shocking piece of work and he is trying to remove me from the company. Any investment by him in OAMPS would be a disaster for the company as it would lead to a collapse in staff morale, poor relations with OAMPS' commercial partners and I would require substantial compensation for unfair dismissal as he will get rid of me immediately". 185 The next day Peter Hall and Porter met at a cafe and Porter repeated that "Lamont is a shocking piece of work and wants nothing more than to remove me from the company". Hall assured him of his full support. 186 From these and other statements made by Porter it is obvious that by this time Porter was very concerned about the prospect of Lamont gaining a controlling interest in OAMPS. OAMPS' Letter of 24 June to Lamont 187 On 24 June 1998 OAMPS sent Lamont a fax signed by Glasgow. It has all the appearances of a "shot across Lamont's bows" and was sent, I have no doubt, in an attempt to deter him from purchasing OAMPS' shares. It read as follows: "We made an inquiry on the ISC recently to establish whether you had made application to them for approval under IATA to take over the FAI stake in OAMPS. The reason we ask is because we previously came up against the Insurance Acquisition and Takeover Act (IATA) when Hunter Hall acquired the GPG stake. Because we approached the ISC they reminded us of the consequences if IATA is breached, namely a prison sentence of 2 years and or $50,000 penalty. As you have not made application to the ISC yet we're currently in breach of IATA because you have made overtures to acquire more than 15% of an insurance company. Another consequence of the failure to make application is that the Treasurer can require the whole deal to be undone. May we suggest that you make application to ISC before proceeding any further and obtain their approval." 188 Although Glasgow was the apparent author of this letter, Porter was party to it. I am satisfied that the letter was authorised by Porter as part of his endeavour to dissuade Lamont from acquiring the FAI parcel. The Events of 25 June 1998 189 There was a board meeting of OAMPS subsidiary NCI Limited in Brisbane on 25 June 1998. Glasgow, Sharkey and Porter were present. Porter says the following conversation occurred: "Porter: 'I have purchased 200,000 Clifford shares to test the market. The Clifford people said that they want to sell the Clifford shares by 30 June. I think this may have something to do with the exercise of options. Clifford doesn't want to do a new share issue. We don't care when it happens do we?' Glasgow: 'No.' Porter: 'If we are going to proceed, we will need a full meeting of the investment committee. We will want the chairman there as well so that it is a full board meeting also, because it's quite an important deal.' 190 Porter says he gave Glasgow a file of papers and said the following: Porter: 'Duncan here is my file on Clifford. I am expecting to hear from Loiterton soon. Can you expedite your due diligence?' 191 Porter said that the file contained, amongst other things, a draft 30 June 1998 Profit and Loss and balance sheet for Clifford with hand written notes on it by Porter. He says that the papers were part of a market information memoranda that Clifford released to the market in early June 1998. 192 Glasgow's evidence is at odds with Porter. In particular he denies that Porter said "Can you expedite your due diligence?" He also says that Porter did not give him his file then or before the meeting of the Board of OAMPS which occurred on 30 June 1998. 193 I accept Glasgow. Having regard to the events of 19 June followed by the correspondence from Hall, Porter's evidence as to their conversation is not credible. I am satisfied that ultimately little if any due diligence was undertaken by OAMPS before agreeing to the Clifford transaction. A Telephone Conversation on 26 June 1998? 194 On 26 June Porter was still in Brisbane when he says he received a phone call from Loiterton. He says he was not expecting the call – he says he was at a car race meeting. He says the following conversation occurred: "Loiterton: 'I am not going to proceed with the purchase of OAMPS' shares. We've talked to Adler about his OAMPS shares. He wants $1.10 for them. We are not interested at that price.' Porter: 'That's fine. OAMPS is still interested in buying shares in Clifford. We are in no hurry, but if you want to sell by 30 June, as you indicated last week, you will have to do something quickly.' Loiterton: 'That's happening. Leave it to me. I am hoping to put it together before the end of June. Can you see if the board will approve?' Porter: 'If the directors agree to meet I will put the offer that we buy the Clifford stake to them.' " 195 The first matter of note about Porter's account of the conversation is that, if accepted, Loiterton had apparently previously, at least, been considering the purchase of the FAI parcel and Porter must have been aware of that fact. Porter's account also makes plain that the understanding was that the purchase by Loiterton of the OAMPS shares was related to OAMPS purchase of Clifford shares. 196 Loiterton gave a statement to ASIC in July 2000 in which he also gave an account of a telephone conversation on 26 June. He said: "On 26 June 1998, I telephoned Porter who was in Brisbane and told him Clifford had decided not to make an offer for the FAI shares. I had intentionally at that time nor ever informed Porter that either my private companies or myself were contemplating the purchase of OAMPS shares from FAI or that I had instructed my stock broker Mr Connolly from Carmichaels [Carmichaels] to commence negotiations with FAI at that time. In that same conversation on 26 June, Porter said in words to the effect 'how are you going with organising the parcel of Clifford shares for us. If you leave it any longer it will not get done by 30 June as I have to put it to the board.' Porter's reference to 30 June was in response to my objective of concluding the sale of Clifford shares to OAMPS by 30 June 1998. I did not tell Porter any reasons why we wanted the Clifford transaction completed on 30 June 1998." 197 Having regard to the apparent conjunction of their evidence it would be reasonable to conclude that the conversation occurred much as Porter relates it. However, there is evidence which suggests otherwise. 198 Loiterton gave evidence at the end of the trial. I was informed that he had been unwell and was indisposed at times when giving evidence. He was suffering from cluster headaches. Notwithstanding that the giving of evidence was an ordeal for him it was given in a forthright and clear manner. 199 When cross-examined Loiterton denied that he had spoken to Porter about the acquisition of the FAI parcel on 26 June or at any time after 22 June 1998. The following exchanges occurred: "BISCOE: Q. When you say you had no further discussions at all with him about it, isn't it your evidence that you did have some discussion with him about it on 26th June? A . In respect of FAI ? Q. Yes? A. No, I did not . Q. Right? A. I did not . Q. Didn't say anything to him about the FAI parcel on 26th June or at any time after 22nd June? A. Not that I recall, no. Q. Right? A. Not that I recall. Q. What was the phonecall that you told the court about, to the race track, about? A. I thought that was the 29th. Q. Did you? A. I am confused now, I thought it was the 29th. Q. Whatever the date was, what was it about? A. I thought it was the 29th, it might have been the 30th. . Q. What was it about, Mr Loiterton? A. I will have to think. Just let me think for a moment. My recollection says that the only phonecall I made to Porter was to tell him that the sale of the Clifford shares had gone through, I can't recollect any other conversation I had with Porter. Q. That is, no other conversation you had with him after 19th June? A. I can't say after the 19th. I think there is a conversation around the 22nd but beyond the 22nd until the transaction was completed, I don't recall having a phonecall with Porter, no. Q. And your phonecall to him at the, sorry, the only other call that you can recall making to him after the22nd was to tell him that the transaction had gone through? A. Yes, I think that is the only phonecall I can recall. Q. May we take it then that the statement in your statement of 12 July 1998, that on 26th June you telephoned Porter who was in Brisbane and told him Clifford had decided not to make an offer for the FAI shares is incorrect? A. No, I just hadn't recalled it. Q. And what were the words you used when you rang him up that day? A. I don't recall. Q. Now, do you in fact have any recollection of ringing Mr Porter in Queensland on or about 26th June or not? A. I have a vague recollection of ringing him but only because I remember it was something to do with a car race or something like that. That is the only thing that comes to mind. Q. When you say you have a vague recollection, do you mean by that that you can't recall what it was that you discussed? A. Well today, today, six years later I am having some difficulties with some of these, of course. Q. Is it the case that you can't recall at the moment what it was that you discussed? A. I thought I had written to him about Clifford. No, I would have to refresh my memory, I can't recall. I am confused now as to when all these phone calls were supposed to be. Q. Can you recall ringing him at all in Queensland in the last half of June 1998? A. I believe I made one phonecall, that is all I can recollect. Q. You can't recall the contents of it now? A. I just recall that it was, I must say I thought it was Melbourne to start with but I think now I recollect it was Sheraton Mirage was where the call was made to and I think, yes, I am sure Porter rang me back. I think I left a message. Q. Can we take it you only had one telephone call with him in Queensland in the second half of June 1998? A. As far as I am aware. Q. And is it your best recollection that that was on 29th June? A. I don't recollect now. I would have to refresh my memory. Q. Well, the Clifford transaction, as we call it, went through on 30th June. Does that assist you to recall that it was on 29th June? A. I must say, I thought it was the day of the transaction going through. If it went through on the 30th, I thought it was the 30th." 200 Later in his evidence, the following exchange occurred: "Q. Nor did you tell Mr Porter at any time, did you, before 30 June, that Clifford, or your interests, was not purchasing the FAI parcel, did you? A. I didn't have any discussions, as we just said, with Mr Porter on this matter." 201 It was suggested that in making the phone call (which Loiterton now does not remember) he was careful to refer to Clifford as not being the purchaser leaving open the possibility that Blenheim and/or Leisuremark may purchase, although the latter was not disclosed to Porter. However, I am satisfied that even if this conversation did occur, Porter was aware of the role of Blenheim and Leisuremark as purchasers of the FAI parcel which was discussed at the meeting of 19 June 1998. So much is plain from Loiterton's file note. 202 There are significant reasons to reject the claim that there was a conversation as suggested by Porter and Loiterton on 26 June. Porter was twice interviewed by ASIC but never referred to the conversation. If the conversation on 26 June had occurred as Porter says it was obviously significant and potentially exculpatory. To say the least it would be surprising if Porter had forgotten about it when he was being asked to justify his actions. In his interview of 20 January 1999 the following exchange occurred: "Cook: Can you recall or does this assist you in refreshing your memory whether the subject of the purchase of the OAMPS shares was discussed at this meeting on the 29 June? Porter: Between me and Loiterton? Cook: Yes? Porter: No it was not. In lo…(sic) the meeting on the twenty ninth we discussed the purchase of the Clifford Corp shares not his purchase of any OAMPS shares. Cook: Were you aware by this date of the twenty ninth that Clifford Corporation was proposing to buy the OAMPS shares? Porter: No I wasn't. Not in these terms. This is a firm bid offer advice. Loiterton had gyrated as I say, for eighteen months about doing something. He was aware the stock was for sale and he may or may not have bought it. I don't know. We're going around in circles here." 203 Porter gave evidence about the alleged conversation at his committal hearing where he said "I don't have a distinct recollection of the conversation." If as he now says he can recall the conversation it is surprising that he did not have a distinct recollection of it in July 2000. 204 There is support for Porter and Loiterton from Porter's telephone records which confirm two telephone calls made by Porter from his mobile phone to Loiterton's phone on 26 June 1998. I accept that they spoke on that day. However, I am not persuaded that a conversation as recounted by Porter took place. Even if it did, Porter placed little credence in it. As will emerge Porter continued to suggest that interests associated with or close to Clifford may purchase the FAI parcel. 205 It cannot be assumed that Porter, Loiterton or Adler entirely trusted each other in their dealings in June 1998 and accordingly it is conceivable that if Loiterton made the call Porter did not accept Loiterton to be telling him the truth. However, Porter never gave this account of his thought process. Loiterton Orders the OAMPS Shares 206 Loiterton instructed Connolly of Carmichaels, brokers in Perth, to bid for 3,075,000 OAMPS shares at $1.10 per share on Friday, 26 June. In the facsimile in which he confirmed that he had placed the order Connolly stated that he had "been advised by Rodney Adler personally that he will accept this transaction subject to it being dealt with on market prior to 30 June 1998." 207 Senior Counsel for Porter emphasised in submissions that the placement of the order at a time when OAMPS' Board had not agreed to buy Clifford shares was evidence that there was no relationship between the two transactions. This submission has little force once it is appreciated that the deal with Adler would fail if the transaction was not completed by 30 June 1998. The evidence does not tell of the precise terms of the original offer but confirms the arrangements in the terms I have recorded. 208 Connolly also told Loiterton that before he would actually buy the FAI parcel he required the necessary funds to be placed in the relevant bank account. Connolly did not want to be on risk for such a large sum if anything went wrong and Loiterton did not pay. Loiterton's Draft Letters of 26 June 1998 209 Two letters, one from Blenheim and the other from Clifford were prepared, dated 26 June, with the intention they be sent to Mr Biber, a solicitor, for advice before being sent to the brokers, Carmichaels. Loiterton drafted the Clifford letter and had some input into the Blenheim draft. The draft Clifford letter was in the following terms: "I refer to discussions which have been held over the last 4-5 weeks regarding the efforts which the company has been making to provide information to the public in a manner which will expose the company correctly to the marketplace. As you are aware we recently concluded our 3 year planning process which resulted in a series of broker and investor presentations. Subsequent to that we have made available certain information, the base of which is public, in order to support the presentations made. In confidence, we enclose herewith a copy of the abridged board report on which the presentations were based. As part of the discussions which have occurred with a number of investors and brokers, a series of meetings has been held with Oamps Limited, a listed public company, broadly, involved in financial services, superannuation fund management and other associated financial services. In addition, Oamps is an insurance broker of some note. Our reason for having discussions with Oamps simply emerged from the fact that they are also the Clifford group insurers, covering all of Clifford and its subsidiaries. They are therefore well versed in the asset structures of Clifford. There have been additional discussions regarding the potential of Oamps taking over the management of the extensive superannuation fund of Clifford and its subsidiaries. This fund is currently managed by Buck Consultants in Brisbane and whilst the company has two representatives on the Board, with two from the workforce, we do not involve ourselves deeply in the management of those funds, which at the moment total approximately $24.0m. Due to the extensive restructuring of the old JRA Limited, which was the core business in the fund, the superannuation fund has become substantially over funded. Actuarial analysis is due to occur this year and we expect that the fund will have a necessity level of the order of $10.0-$12.0m against the total value of the fund at some $24.0m. Whilst we have no intention of distributing those surplus funds, we have come to the conclusion that we should take a deeper involvement in their management and we have taken early steps to influence the mode of investment and the investment returns. In addition, the company has been dissatisfied with the level of fees charged by Buck Consultants and the services received in respect of the fund, having regard to the low return which is being achieved. Other than shares, which are administered by a number of special investment houses, the major asset is the APG Adelaide factory and recently you were successful in convincing the fund to invest in a small number of Clifford preference shares. The discussions naturally moved to Oamps giving consideration to taking a larger and direct stake in Clifford, having regard to their extensive cash position at this time and our insurance association and potential superannuation association. Discussions were held at Chief Executive Officer level between Clifford and Oamps resulting in a discussion completed on 19 June with Mr Robert Porter, Managing Director, Oamps agreeing that he would place before his investment committee an initial request to buy 5.5m shares in Clifford, progressively over the next several weeks. In addition, there would be further discussion with an aim to bringing their total purchase up to 11.0m shares in Clifford over an agreed timetable but over several months. Clifford indicated that these would have to be bought from private shareholdings, as Clifford was not prepared to issue shares given the current share price. As a consequence, Clifford caused discussions to be held between the investment arm of Oamps Limited independent of Clifford, with Blenheim Holdings Limited (Blenheim), who held the major proportion of options in Clifford, which have been recently exercised Blenheim agreed to sell certain shares to Oamps and has provided scrip to Oamps pending resolution of the matters. You will note that there is 2.0m shares in the name of Notretoil Investments Pty Limited which are in the process of being substituted by a 2.0m holding from Blenheim, merely now awaiting a share scrip spilt. During the discussions, Oamps Limited indicated that it was perceiving some difficulties in the marketplace in that FAI was a major shareholder, holding about 3.8m shares or 18% of its capital. Oamps suggested that Clifford might be interested in purchasing that shareholding in order that Oamps be seen in the marketplace as more independent and not an associate of FAI. Clifford directors discussed this matter and decided that its single focus was in the bus industry and as a consequence elected not to proceed with the purchase. Clifford suggested to Blenheim and Leisuremark Pty Limited (through Mr Ian Hall, who is a non-executive director of Clifford) that they may be interested in acquiring up to 20% of Oamps firstly by the acquisition of all or part of the FAI holding and then possibly some other market holdings at a later date. By way of disclosure, I advise that I am a director of Blenheim and my family trusts have a substantial interest in the company – a position which has been disclosed to the Board of Clifford and OAMPS. Mr Ian Hall is an active Director of Blenheim and is not involved in the day-to-day operations of Clifford. Mr Hall is the Chief Executive Officer of Leisuremark Pty Limited, one of the major shareholders of Clifford. OAMPS have been advised that Mr Hall's family trusts have an interest in both Blenheim and Leisuremark Pty Limited. Blenheim has advised that it has made a proposal to D J Carmichael & Co to acquire the FAI holding of 3,075,000 shares in Oamps Limited at $1.10 per share. We have been requested by Blenheim to make available a Letter of Comfort or similar in respect of $790,980, which is owed by Clifford under a note due after 31 July 1998. We have been requested to either assign the note or guarantee that sum to your firm, payable by 31 July 1998. This has been agreed. Please advise if there is further information required." 210 The draft Blenheim letter was in the following terms: "We have had discussions today with Clifford Corporation Limited who has indicated that they will inform you of the background of the abovementioned transaction. The proposal is to acquire 3,075,000 shares in Oamps Limited through Overnight Nominees Pty Limited at $1.10 per share. We will pay a deposit of $209,020 forthwith and have requested Clifford to make available a guarantee in respect of $790,980 which Blenheim is owed by Clifford under a note due after 31 July this year. Clifford has been requested to assign that note or otherwise guarantee payment of the sum to your firm upon demand. Clifford has agreed to provide such a guarantee or assignment in terms it will advise directly. Blenheim has advised Clifford as a matter of courtesy that it intends to conclude an arrangement to sell an initial 4.6m shares in Clifford to Oamps Limited in accordance with the letter attached. The outstanding monies needed to satisfy FAI within 45 days will be provided by the sale of these shares to Oamps, confirmation of which will be sought prior to concluding the formal arrangement with FAI, in order to ensure security. The dates contained in the 22 June letter to Oamps requiring those shares to be transferred over several days will in all likelihood be changed to transferred over several weeks. Although I understand that the first transaction noted in that letter would occur when Oamps is in knowledge that a transaction with FAI is able to be concluded. The transactions have been checked legally as to their integrity and we are satisfied that there are no breaches of the relevant Acts. Oamps are not being informed by Clifford or Blenheim as to any negotiations with FAI, although we are aware that FAI have presumably discussed the matter with Oamps. The initial proposed transfer of shares in Clifford will yield approximately $2.4m, which together with the sum of $790,980 from Clifford and the $209,020 deposit, is intended to cover the total value of the FAI transaction. The FAI transaction is based on a deferred 45 day basis which will give ample time for the transactions to be concluded. I do not intend that D J Carmichael & Co should settle the FAI transaction until Blenheim has received satisfactory evidence that the Oamps/Blenheim transaction will occur and the timetable of that occurrence. It is contemplated that Oamps will increase their shareholding in Clifford by activity on the market for initially a further 800,000 shares approximately and discussions will then be had in an effort to increase the Oamps shareholding in Clifford to 5%, which will involve the sale of approximately 1.5m further shares by Blenheim. In the longer term over several months we will be taking steps to develop our interest in this area and will give consideration to further transactions having regard to the general arrangements which have been discussed. Under the transaction your firm obviously takes primary obligation for settlement in 45 days for the Oamps holdings to be acquired at $1.10 per share. In order that your security be sufficient in every regard, Blenheim has indicated that it will provide a further 5.0m Clifford shares to be held as additional security in the transaction. Therefore making the transaction summary as: Total purchase price of 3,075,000 Oamps shares $3,380,000 Less cash deposit (209,020) Less payment from Clifford – 31 July (790,980) Net outstanding $2,380,000 Proposed to be secured by: (i) 3,075,000 Oamps shares acquired; and (ii) 5.0m Clifford fully paid ordinary shares provided as security Please advise if there is further information required." 211 Although the drafts were provided to Biber it would appear they were not actually sent to Carmichaels. The letters confirm the following critical matters as far as Loiterton was concerned: (a) Negotiations between Clifford and OAMPS were completed on 19 June 1998. (b) The Clifford shares were to be provided from those owned by Loiterton and Hall's private companies. (c) OAMPS had suggested that Clifford buy the FAI parcel but it was ultimately determined that the purchasers should be Blenheim and Leisuremark. (d) The arrangement to buy the FAI parcel was dependent upon the monies becoming available from the sale of the Clifford shares to OAMPS. (e) Porter had been told that Loiterton and his family trust had a substantial interest in Blenheim. (f) OAMPS purchase of Clifford shares was conditional upon OAMPS being informed that Blenheim was able to purchase the FAI parcel. 212 The statement in the Blenheim letter that the transaction has been checked legally does not appear, at least as at 26 June, to be correct. The statement that "OAMPS are not being informed by Clifford or Blenheim as to the negotiations with FAI" is completely at odds with the statement in the immediately preceding paragraph of the Blenheim letter where it is said "that the first transaction noted in that letter would occur when OAMPS is in knowledge that a transaction with FAI is able to be concluded." Advice from Biber 213 Biber wrote advising Ian Hall in a letter dated 29 June 1998. His advice was unequivocal and included the following: "the major impediment in the proposed transaction also relates to section 205 relating to Overnight's acquisition of the FAI holding in OAMPS. (Overnight was the vehicle in contemplation as the corporate purchaser at that time). As the transaction is presently structured there does not seem to be any doubt that OAMPS is giving direct or indirect financial assistance to Overnight and/or Blenheim (whichever becomes the ultimate purchaser) in the acquisition of 20% of its issued share capital." 214 The advice given was that if the transactions were to proceed "the lengthy and tedious procedure governed by section 205(10) of the Corporations law will have to be followed." Porter's Discussion with Adler on 25 or 26 June – Loiterton no longer interested? 215 According to Porter's written evidence, on the evening of Friday 26 June Adler telephoned him on his mobile phone in Brisbane and said that he had three buyers for the FAI shares: "Lamont, Loiterton and a broker for" an unknown party, and asked his "preference". Porter claims that he said inter alia: "Loiterton told me Clifford is no longer interested. He telephoned me today and he told me that. I don't care who you sell them to. Do what you want, just sell your stock to the highest bidder". 216 This evidence conflicts in significant respects with Porter's statements in both his 1998 ASIC interview and 1999 ASIC interview in which he said that he received Adler's call on 25 June at the race track. He also did not say to ASIC that he had told Adler "Loiterton told me Clifford is no longer interested. He telephoned me today and told me that". In fact in his interview in January 1999 the following exchange occurred: "Cook: When you had this conversation on or about the 25 June did Adler tell you that he was prepared to accept an alternative offer to Lamont so long as the sale was done by 30 June 1998 and it was done on market? Porter: Possibly not in those terms but I accepted that as what a conversation would have been had it taken place, parts of which in the conversations that I've told you took place it would have been so I can't be explicit enough to answer that specific … Cook: Did you tell Mr … Porter: …question. Cook: …Adler that you had an interested party prepared to buy at $1.10 on market? Porter: I would have told him that Barry Loiterton had expressed interest and indeed if he wanted to expand upon that interest, talk to Loiterton. I couldn't do it for him . Cook: Can you recall whether Adler told you to get the interested parties stockbroker to ring his stockbroker? Porter: I don't recall, indeed as I consider that question, I am not aware of that. I had no such discussion that I'm aware of, my memory may be failing me but I wasn't that close, I wasn't indeed close at all to Rodney's sale of the stock and indeed I wouldn't expect to be and if you'll recall I've furnished correspondence to you going back to January'98 where indeed Mr Lamont wrote to Adler expressing his desire to purchase the stock and indeed I quote the letter 'please don't tell Rob Porter about this' which he did not. I'm under no misapprehension about Rodney's relationship with me. I'm a friend, secondly, a business associate firstly and the relationship is not as close as some people might think and indeed not as distant as some people might think." 217 In cross-examination Porter said he was mistaken in his statements to ASIC. Porter made a file note on 21 September 1998 which referred to a conversation with Adler. This note also does not contain any reference to Loiterton telling Porter that Clifford was no longer interested in acquiring the FAI parcel. This file note was undoubtedly written to assist Porter in recalling the events if he was questioned about them. It is inconceivable that he would not have included this part of the conversation if it had occurred. I am satisfied that Porter did not say the words which he claims to have said and that his statements to ASIC were accurate. 218 On either version of this conversation Adler plainly told Porter that Loiterton was one of the possible buyers. The Phone Calls of 29 June 1998 219 Porter says the following conversation with Loiterton occurred on 29 June: "At about 11 am on 29 June 1998 as I was checking out from my hotel I recall having a telephone conversation with Mr Loiterton to the following effect: Porter: 'What's happening?' Loiterton: 'I have spoken to Wylie, he is really pleased that you might buy shares in Clifford.' Porter: 'It looks like we will be able to have a board meeting tomorrow which will decide whether OAMPS wishes to pursue the acquisition at this time.' Loiterton: 'That's good.' 220 Porter's evidence was that Mr Bill Wylie controlled an investment company called Wylie Corporation that was the second largest shareholder in Clifford at that time. Conversation with Sharkey 221 Porter also gave evidence, which I accept, that he spoke to Sharkey on the same day as follows: "Porter: 'If we conclude this investment in Clifford we will probably become the number 3 shareholder.' We obviously need board approval to complete the transaction. Can you set up an investment committee meeting for tomorrow? We will also invite the chairman. I have spoken to Duncan [Glasgow], Richard [Walker] and Mark [Windebank] about this. I am going to buy another 100,000 or 200,000 Clifford shares today to further test the market. They are selling at 42 cents. Do we have enough cash to buy $3 million shares? Check with Gordon [Siggins].' Sharkey: 'Not a problem. AIIL has that much cash.' Porter: 'You might be interested to know that I have spoken to Adler last Friday, he now tells me that he will be selling his OAMPS shares to the highest bidder. I don't know who that will be, but I am trying to work it out. As usual its another busy 30 June.' " 222 Sharkey also gave an account of this conversation in respect of which he kept a rough note. It includes the comment by Porter: "Clifford or related parties may buy OAMPS." Sharkey also says, as his note records, Porter said "FAI is looking to sell to the highest bidder." 223 I accept Sharkey's evidence supported as it is by this contemporaneous note. 224 At 12.10 pm on 29 June, Loiterton sent a fax to Porter which referred to their telephone conversation, presumably that morning and said "we look forward to your group's participation in the company." 225 On the same day Glasgow arranged for the 1997 annual report of Clifford to be delivered to Walker, a non executive director of OAMPS. Glasgow gave evidence, which I accept, that he spoke with Walker on the telephone and Walker indicated that he had been looking at Clifford on "the screen" and was aware of the position with respect to share options and other matters. Presumably Walker had been alerted to what might occur by information from Porter. The Role of Siggins 226 Porter gave evidence that Siggins, who had been on holiday, returned from overseas on or about 25 June 1998 and says: "After his return from overseas, and prior to 30 June, we were in regular contact with each other and had a number of discussions in which I brought him up to date with developments in the business and the market place generally. I had also spoken to Mr Siggins on the telephone whilst he was overseas and we were both in London together in May when we lunched with Mr Peter Hall, Mark Windebank, Mrs Windebank and Mrs Siggins. Shortly after he had returned I had a conversation with him to the following effect: Porter: 'Adler tells me he wants to sell his shares in OAMPS. He had asked me while you were away if I had any ideas as to who might be interested, other than Lamont. I asked Adler whether Rene Rivkin or QBE might be potential buyers.' Siggins: 'I am not surprised QBE would be interested.' Porter: 'He (Adler) asked me if I had a preference, that's a laugh, he's been out there stitching me up with Lamont and now he asks me if I have a preference. I told him that I did not care, he will do whatever he wants to do, we will deal with whoever buys the shares and if he sells to Lamont, which he probably will because he wants that Steadfast income, then he is going to get himself in an insider trading mess because Lamont has been out there telling people that he has done the deal and I think he has paid $1.00 or $1.10c and his mates are mopping up small parcels of stock on the market. He'll do whatever he wants. We have found out a lot while you were away.' Siggins: 'Have you spoken to QBE?' Porter: 'No. I am staying right out of it.' " 227 Siggins does not agree with Porter's account of his conversation. He says: "(a) I recall that Mr Porter first informed me of the proposed sale in the few days prior to the Investment Committee Meeting: (b) I arrived back from an overseas holiday on Wednesday, 24 June 1998. While I spoke to Mr Porter when I arrived back my recollection was that it was only to say words to the following effect: 'I'm back in town.' (c) On Thursday, 25 June 1998, Mr Porter and Peter Sharkey, the financial controller of the OAMPS Group ('Mr Sharkey'), were away from the office. They were scheduled to attend a Board meeting of a subsidiary of OAMPS in Brisbane; (d) Mr Porter did not return to Sydney until Monday, 29 June 1998; and (e) I do not recall speaking to Mr Porter in between our brief conversation on Wednesday, 24 June 1998 and Monday, 29 June 1998. 228 Siggins also says that Porter spoke in the following terms on 29 June: "PORTER: As you know, I have been looking to develop a closer relationship with Clifford Corporation for some time and last week we purchased two parcels of shares to test the market. We have the opportunity to purchase a significant parcel of about $3 million and we will have an Investment Committee meeting in Melbourne tomorrow. I need your confirmation that this would be an approved investment for the insurance company and that we have the available funds" 229 I am satisfied that this conversation occurred and that Siggins gave him that confirmation. 230 According to Siggins Porter also said: "PORTER: Rodney Adler is selling FAI's shares in OAMPS. There are three buyers interested. Kingsley Lamont and interests associated with Clifford are two of the buyers. I don't know who the third is. Adler's going to sell by 30 June if possible. He asked me who I would prefer FAI to sell its shares to. I told him that I did not care, that he'd do whatever he wanted to do and that we'll sort out whoever buys the shares afterwards. He's going to make up his mind on who he sells them to" 231 I accept Siggins' account of this conversation. The exchange makes plain that Porter must have been talking to Loiterton about purchasing about $3 million of Clifford shares and knew that "interests associated with Clifford" was one of the potential buyers for the FAI parcel. The Fax of 29 June 232 At 3:54pm on 29 June, a fax was sent by Blenheim (signed by Ian Hall) to Porter in Sydney. Porter showed it to Glasgow. It proposed the acquisition by OAMPS of 7,627,249 shares in Clifford held by Blenheim and Leisuremark at 48 cents per share for a total cost of $3,683,198. It enclosed copies of the scrip plus pro forma blank transfers. 233 The facsimile read as follows: "We refer to the discussions which have been held over the last several weeks and in particular to 22 June 1998 wherein we proposed the acquisition of certain shares. We refer to further discussions in this matter and advise as follows: 1. We prefer one (or two) transaction(s) to occur prior to 30 June 1998. The timing of this matter is important from our point of view. 2. The number of shares proposed to be acquired totals 7,627,249. We propose an average price of $0.4829 for a total cost of $3,683,198. We attach herewith photocopies of the scrip to be provided together with proforma executed blank transfer. Whilst it is suggested that our broker, Potter Warburg, be used to complete the transaction due to a favourable commission arrangement, if it is more convenient to use your brokers, then please advise. The commission at Potters on the transaction is unlikely to exceed $10,000. Incidentally our brokers advise that it would probably be carried out in two transactions due to the two vendors on the scrip, ie Blenheim Holdings Limited for a total of 2,677,249 shares at a cost of $1,304,750 or an average of $0.4874; and the balance of the shares held by Leisuremark Pty Limited totalling 4,950,000 shares at a cost of $2,378,448 or $0.4805 per share on average. This will give an overall average of $0.4829. We await your confirmation." 234 The facsimile evidences that there were several discussions in June up to 22 June and further discussions thereafter. It does not refer to any discussions prior to June. 235 In cross-examination Porter agreed that when he received this fax of 29 June he appreciated: (a) that Loiterton had an association with Blenheim and Leisuremark. (b) that it stated that the timing of the matter was important from Loiterton's point of view. (c) from his earlier discussions with Loiterton he understood it was important for Loiterton that the matter be concluded by 30 June. (d) from his discussions with Adler that he was also keen for any sale of the FAI parcel to occur before the end of 30 June. (e) that Adler had been talking to Loiterton about selling the FAI parcel. 236 Porter understood that Blenheim and Leisuremark were companies associated with Clifford. Porter testified that he had a file which included a copy of Clifford's 30 June 1997 annual report and he had looked at it to identify the main shareholders. He would have known from this report that the largest shareholder was Leisuremark with 29.35% or 37,862,386 of the issued shares in Clifford and that Blenheim and Leisuremark together held 9,559,500 options exercisable by 21 June 1998 being all the issued options. He told ASIC in his 1999 interview that he knew the vendors of the Clifford shares were associated with directors of Clifford and had nearly 40 million shares under their control and that Loiterton and Ian Hall told him they owned approximately 40 million shares in Clifford. 237 Porter testified that having received the facsimile he said to Glasgow "What do you make of all this? We're only going to spend about $3 million at this time and not $3.6 million. Don't forget we have already bought 400,000 shares and we're not going over 5%". Glasgow denied this conversation except for the first question; and I do not accept that it took place. 238 Porter gave a different version in cross-examination saying that he told Glasgow "That's not what has been discussed. We had better go and see these guys and get to the bottom of it". I accept this evidence. 239 Porter was asked to tell the Court the difference between that which he had previously discussed from what was in the 29 June facsimile. He said he did not recall. He then said that he told Glasgow "This is not what I have previously been discussing. I have made no agreement to this transaction". When asked what he had been discussing with Loiterton he first said that he had intended to convey to Loiterton that OAMPS would look at purchasing one block of shares at one price. He then said that he had indicated to Loiterton, after the 22 June letters were received, that he would put before the OAMPS' board the prospective purchase of a substantial parcel not above 4.9% at an agreed price which had not been agreed before the evening of 29 June. The Meeting of 29 June 1998 240 Porter and Glasgow met with Loiterton and Ian Hall in the offices of Clifford in Sydney late in the day on 29 June 1998. Glasgow testified that on the way to the meeting Porter told him that they were going to discuss OAMPS' purchase of shares in Clifford. Glasgow intimated that there could be a problem under s 205 and that the proposed purchase was probably more than 5% which would require a disclosure notice as a substantial shareholder. Porter denied that there was any reference to s205. However, I accept Glasgow's evidence. 241 It was the second time in a week that Glasgow had warned Porter about s205. 242 Glasgow gave an account of the meeting. The first matter of significance is the proffering by Loiterton of a letter. Glasgow says: "At the offices of Clifford Corporation, Mr Porter and I met with Loiterton and Ian Hall in a dining room where a television and a video player were set up. The meeting commenced with only Ian Hall present as Mr Loiterton was, according to Ian Hall, with 'the auditors'. When Mr Loiterton joined the meeting there was discussion in words to the following effect: Loiterton: 'I'll show you the letter we got today. It deals with the FAI shares we are looking to purchase. Everything is fixed up.' Mr Loiterton took what appeared to be a letter out of a manila folder and went to slide it across the table towards Mr Porter and me. In realising that it was a letter relating to the possible purchase by Mr Loiterton and other interests of the FAI shareholding in OAMPS, I said words to the following effect: 'We're not interested in that. We're only here to talk about OAMPS' purchase of your shares in Clifford Corporation.' 243 The second significant matter is Glasgow's account of the negotiation regarding the price which OAMPS was to pay. It was devised by Loiterton stating that OAMPS would have to pay a minimum of $3.15 million. Glasgow's account continued: "During the meeting, Loiterton said words to the following effect: 'The proposal is that OAMPS will purchase shares in Clifford Corporation in the quantities stated in the letter from Blenheim Holdings of 29 June.' The meeting continued and included words to the following effect: Porter: 'OAMPS is a public company and will have to be careful about how much money is spent.' Loiterton: 'Alright then. OAMPS will have to spend a minimum of $3.15 million. It is important that OAMPS' purchase of the Clifford Corporation shares is completed tomorrow.' Porter: 'OK. There is an Investment Committee meeting tomorrow that will consider the purchase.' 244 The meeting then continued to discuss ancillary matters and Loiterton stressed that the funds were required tomorrow ie 30 June. Glasgow's account continues: "Either Ian Hall or Loiterton then said words to the following effect: Ian Hall/Loiterton: 'The purchase of the Clifford Corporation shares is a good deal because it's hard to find opportunities to purchase a parcel of shares of this size and at this price.' Mr Porter and I were shown a video of Clifford Corporation and Mr Loiterton and Ian Hall explained Clifford Corporation's plans for the next three years. Towards the end of the meeting, there was discussion in words to the following effect: Glasgow: 'If this purchase is to happen tomorrow, there will need to be a change to what was supplied today (referring to the letter of 29 June 1998 from Blenheim). Who will be the vendor?' Loiterton: 'You should liaise with Ian Hall about those details.' Ian Hall: 'I will supply you with those details tomorrow.' Loiterton: 'These shares should be crossed on the market. The stockbroker I prefer to use in these sorts of transactions is Carmichaels in Perth. Who will you use?' Porter: 'We could use my brother, Ian, at HSBC …' Loiterton: 'I have no problem with that.' Porter: 'Duncan, can you liaise with my brother, Ian, about that?' Glasgow: 'Yes. (addressing Ian Hall) I'll need to talk to you tomorrow about this.' Loiterton: 'It's important that the funds are received by the broker by close of business on 30 June.' 245 Porter denied that there was any reference at the meeting to Loiterton or Clifford purchasing the FAI parcel. I do not accept his evidence but accept Glasgow's account of the meeting. I infer that the letter of 26 June from Connolly was the letter which Loiterton placed on the table. 246 Critical to the issues in this case is the fact that Loiterton said firstly that "OAMPS will have to spend a minimum of $3.15 million" and secondly said "it is important that OAMPS' purchase of the Clifford Corporation shares is completed tomorrow." I accept Glasgow's evidence that there was no hard bargaining. Porter was determined to buy less than 5% of Clifford's shares which, I am satisfied, was to avoid disclosure of the acquisition. It was the requirement of Loiterton that he receive $3.15 million which dictated the price OAMPS would have to pay for the Clifford shares. 247 Loiterton also gave evidence about the matter: "Q. At the meeting on 29 June, do you agree that you said words to the effect: The proposal is that OAMPS will purchase shares in Clifford in the quantities stated in the letter from Blenheim of 29 June. A. No. I believed it had been settled by that point, in terms, between Mr Hall and Mr Porter. Q. Well, while you were there, there was a discussion, was there not, about how much OAMPS would have to spend on Clifford shares? A. There was some short discussion. I don't recall the exact import of it. It was something to do with the finalisation, the last minute finalisation, of a price. Q. You indicated at the meeting that OAMPS would have to spend a minimum of $3.15 million? A. I don't recollect the amount of money, but there was an amount of money. Q. You indicated a sum of money. Is it the position that you do not recall now whether you said $3.15 million or some other sum? A. Yes, I believe there was a sum of money. I don't recall the exact sum now. Q. The sum of money which you stipulated, whatever it was, was the amount of money which you required as a minimum in order to purchase the FAI parcel? A. I can't say that, but it was an amount of money. I can't say that it was the amount required for FAI because I recall we put a quarter of a million dollars in cash. Q. Yes, you did. That is why I am asking you the question. You still, over and above whatever it was you put in, and you are right - it was roughly in the order of a quarter of a million dollars - you still needed of the order of another $3.15 million, did you not? A. Well, if that's the correct total, yes. Q. Whatever the figure was that you indicated to them was the figure which you regarded as the minimum which you needed to put together with that sum of quarter of a million dollars odd in order to purchase the FAI parcel-- A. It is a presumption I can't make. It was the amount of money I required for the shares. It was a last minute negotiating stance. Q. --it was the amount of money you required to purchase the shares to acquire the FAI parcel? A. No. I say it was the amount required. Whether it was a $230,000 shortfall or $90,000 shortfall I don't think was quite material in relation to the sum. I believe that the only discussion was last minute negotiation in respect of a sum of money. Q. In any event, whatever the sum of money was that you stipulated, it was certainly over $3 million, was it not? A. Again, I have to say "yes". I just don't know. Q. You stipulated, I suggest, a sum of money as a minimum which you would require over $3 million because you felt, in your mind, that you needed at least that sum in order to proceed with the purchase of the FAI parcel, do you agree? A. I don't necessarily agree with that. It was a sum of money for the sale of some shares. Without the benefit of having the amount in front of me, it is very difficult to make further comment . Q. When you say "without having the amount in front of you", do you mean the amount that I put to you before-- A. Asked for. Q. --that was actually utilised to purchaser the FAI parcel? Is that what you are referring to? A. No, the amount of money that I asked for the shares - the shares for - the Clifford shares. Q. You were there. I am asking you is this your position: You did say that OAMPS would have to spend a minimum of some sum of money, but you cannot recall what amount you mentioned? A. I don't know about a minimum amount of money. The only recollection I have of the price was a simple discussion: "The price we want" or "The price we need is this for the Clifford shares." There must have been another amount on the table at that time. There must have been a small difference. As I said, my only recollection is that it is a last minute negotiating stance to save a few dollars/to gain a few dollars. Q. It was not the amount on the table; it was the amount in your letter of 29 June, was it not? A. Mr Hall's letter of 29 June? Q. Yes. A. Mr Hall had made a proposal here, as I see it. Q. You see, about ten lines down, in the paragraph numbered 2, what was being proposed was that a sum of $3,683,109 would be paid. Do you see that? A. Yes, I see that, yes. Q. In fact, what was paid on 30 June was $3,160,420.54, including stamp duty and brokerage. You can take it from me that that sum is correct? A. Yes, I take it that that sum is correct. Q. So, assisted by those figures, do you agree that you would have indicated, on the evening of 29 June, at the meeting, that you needed at least of the order of $3.15 million for the Clifford shares? A. My minimum price was whatever the figure was. Q. It looks like it would have been of that order, would it not, of $3.15 million? A. If that is the correct amount. I just don't have access to it." 248 I am also satisfied that from this meeting Porter understood that the broker to be used by Loiterton would be Carmichaels in Perth and that the shares were to be crossed in the market. Although in cross-examination Porter claimed that he did not know Carmichaels would be used he told ASIC the contrary when he was interviewed. 249 Some of the answers given by Loiterton when he was cross-examined might support a suggestion that he bargained over the share price of Clifford. Other answers make plain that he was seeking an amount of money sufficient to enable him, with other monies, to acquire the FAI parcel. The evidence of Glasgow, which I accept, puts the matter beyond doubt. 250 I have no doubt that by the end of the meeting Porter knew that he had agreed to pay sufficient money to the Loiterton interests to enable them to acquire the FAI parcel. He had been told that Loiterton had arrangements in place to purchase the parcel and that irrespective of the precise number of shares to be purchased OAMPS would have to spend $3.15 million. He may not have trusted Adler and may not have been certain that he would sell to Loiterton, rather than Lamont, but Porter now knew that Loiterton would have the money to pay Adler's price. PART VI – 30 JUNE 1998 The Meeting of 30 June 1998 251 The meeting of the investment committee and Board of OAMPS on 30 June 1998 is the critical event in these proceedings. There are significant conflicts in the evidence of those who were present and differing minutes of the meeting were produced. I shall relate each relevant account separately. 252 The meeting was held at OAMPS offices in Melbourne. Walker and Glasgow were in Sydney, in different locations, but linked to the meeting by telephone. Windebank, joined the meeting after it had already commenced. By this time those present in Melbourne were Porter, Siggins, Sharkey, Harris and Windebank. Porter's Account of the Meeting of 30 June 1998 253 Porter gave the following written account of the meeting: "On 30 June 1998 at about 11.30 am I attended a combined board meeting and investment committee meeting of OAMPS. All directors were present, either in person or in the case of Mr Walker and Mr Glasgow, by telephone. The chairman, Mr Windebank arrived late to the meeting. I have referred to this meeting in my statement dated 15 April 2002. The following matters that occurred at the meeting are also relevant. At the meeting the video presentation that had been put together by Clifford was shown. This was the same video presentation that I had seen the previous day. The latest annual report of Clifford was circulated. I recommended the investment. In proposing the investment from the outset, I understood that it was clear that I was voting to proceed with the investment. Each person in attendance had a power of veto in view of the unanimous vote requirement. At no stage did I say that due diligence investigations had been carried out by me with respect to the proposed investment. At the meeting, someone, I no longer recall who, asked me 'Why does the purchase have to be made today?' I said words to the following effect: Porter: 'It doesn't. Mr Loiterton has advised that the parcel of 6 million shares is only available for purchase on or before 30 June at this stage. The 30 June imperative is Clifford's, not ours. This might be because some options have to be exercised, but I don't really know. It does not matter to us if this goes through by 30 June or later. If you are not happy we can have a crack at it again later in the week. I don't think the opportunity will necessarily be lost. However we should try and make a decision about this investment today. We will only go ahead if everyone here is unanimous in their approval.' At the meeting, there was also a discussion about the fact that the proposed price was more than the current market price. I said words to the following effect: Porter: 'For a parcel representing 5% of a Company's issued capital a premium representing between 10% and 15% is reasonable having regard to the illiquidity of the stock at these levels. You would recall that Lamont indicated at the meeting which Duncan Glasgow and I had with him, Austin and Cowden on 16 June that he would pay more than a 50% premium for shares in OAMPS Limited.' 'In the event we went to the market to buy such a large line of stock [without a prior arrangement with the seller] two things would likely transpire. First, that volume of stock would not be available at anything like 0.48c and the price would likely be pushed immediately to 0.70c or above.' I also said words to the following effect: Porter: 'Loiterton has told me that the Signature Group has been sold. The $10 million cash injection that Clifford will obtain will be sufficient to repay the $9 million Heller financial borrowings that Loiterton is keen to extinguish.' I also said words to the following effect: Porter: 'It is possible that there will be a takeover bid for the company in the short to medium term. I remember Kerry Packer is said to have said 'The only long term investment strategies we have are short term investments gone wrong'. That is not what we are trying to achieve here, we have a long-term strategic objective.' At the meeting, someone, I no longer recall who, but possibly it was Mr Sharkey asked a question of me to the effect: 'What if Lamont purchases the FAI shares in OAMPS?' I responded in a rather light hearted manner with words to the effect: Porter: 'If Lamont gets control of the Board he has publicly stated that he will sack me and the chairman. I've already told the boys the story about Lamont and his mates taking over OAMPS and sacking us. If I get the sack I will be happy to get a nice fat cheque and go.' I addressed the last sentence to Mr Glasgow and Mr Walker." 254 Porter was cross-examined about his recollection of the meeting. In the course of his oral evidence he admitted that he said at the meeting that Adler would sell the FAI parcel on 30 June to the highest bidder. He also agreed that he said "if Kingsley Lamont buys the shares from Adler, he'll get rid of me and the chairman" and that interests associated with Clifford may buy the FAI parcel. 255 He suggested that the reference to "interests associated with Clifford" contemplated the Wylie Corporation which was a significant shareholder in Clifford. However, there had never been a suggestion that Wylie would be the purchaser. If Porter had thought this may be the case the logical statement would have been that Wylie may be the purchaser. Given that Loiterton was the Chairman and Managing Director of Clifford a reference to "interests associated with Clifford" was more appropriately a reference to the private companies of Loiterton and Hall than it was to Wylie. 256 It is also significant to recall Porter's evidence of his conversation with Adler on 26 June. His evidence was that Adler told him there were three buyers – Wylie was not one of them. Porter's Cross-examination 257 Porter was cross-examined about Glasgow's contribution to the meeting. He was asked: "BISCOE: Q. Mr Porter, at the meeting on 30 June 1998, do you agree that you said words to the effect that "If Lamont buys the FAI parcel, he will get rid of me?" A. Roughly to that effect, yes. Q I think you have indicated that you said that, "Lamont and other interests associated with Clifford are two of the buyers." You also said, didn't you, words to the effect that "The purchase of these shares in Clifford will save my job?" A. No. Q. Did Glasgow not say to you at the meeting words to the effect, 'You cannot say that or even think that?" 258 Porter's answer was: "Something like that, but not in response to what you put to me a moment ago." 259 The cross-examination continued: "Q. What was it in response to, can you recall? A. Comment in the discussion, just talking about Lamont and his colleagues, what they would do if they got control of the company, what I expected would be their modus operandi, and I made some comment about killing him, I think, something stupid. Q. And you having said that you would kill him or something stupid, you say Glasgow said, "You cannot say or even think that?" A. It was in the context of Lamont and his cohorts plundering the company and if he came in and started heavying me, I said something; I swore, I think, and Glasgow hauled me up and got me back on the subject. Q. I would just like you to clarify a little further, if you could, what it was that you were saying about Lamont, killing him or anything of that nature, which caused Glasgow apparently to say, "You cannot say or even think that." Can you give us a little more detail? A. I think it was the general digression that I moved into in relation to speculation as to what plans Lamont might have and I was being frivolous and stupid. I think he was pulling me back into some semblance of order. Q. So you were being frivolous or stupid and did you say, "I will kill him" or something like that? A. Sorry, I didn't hear. I was clearing my throat. Q. I was just trying to get a little more clarity as to in what way you were being frivolous or stupid that caused Glasgow to say, "You cannot say or even think that." You mentioned something earlier that you did say something about killing Lamont. Did you say something frivolous or stupid about that? A. Something like that. Q. "If he gets control I will kill him", in a frivolous way? A. It was more to do in the event he succeeded and started muscling me in the way that he said he would, that I would respond in a fashion and I probably said I would kill him or something, rather kill him or, I don't know, something stupid. Q. And Glasgow said at that point, "You cannot say or even think that?" A. I don't recall those precise words being spoken, but there was a point he said, "Come on Rob, just get back to the business" or whatever. Q. Whatever it was he said, did you say, "Don't worry. The boys already know?" A. Something to that effect. I said, "I have already told the boys my views about Mr Lamont" and that same sort of conversation." Q. So what was it, do you say, that you were referring to when you said that you had already told the boys that or the boys already know? A. It was in the general banter. While killing time waiting for the chairman to arrive I started talking to Mr Siggins, Mr Sharkey and Mr Harris about a range of things and in the context of: Well, here's another 30th of June, it seems like everything is happening at once, we have got the major shareholding in the company likely changing hands, we have got that maniac Lamont knocking on the door, threatening to plunder the company or whatever it was, and when the connection was made and Glasgow and Walker were there, I recapped by saying to Glasgow and Walker - we had been at this time sitting a few minutes, chatting around. I was talking about all of the market gossip, scuttlebutt, that Lamont had sold, various other things in the market and I think that spawned Glasgow to make a comment along the lines of what has been said, but not in the context of what you have put to the court as my response in relation to or what I said. I didn't say it in those terms. Q. I think you said that you made a statement to the effect, "I have already told the boys this." Is that right? A. I think that was in the context of what I was saying, we had a discussion of about what was going on in the market and it was me telling the fuller meeting, maybe Mr Windebank was even there, I'm not sure. Sharkey's Account of the Meeting 260 Sharkey gave a complete account of the events at the meeting. Sharkey was at the time the Financial Controller for the OAMPS group. He stated that the meeting went for approximately one hour and twenty minutes and commenced some short time after 11.00 am. When he arrived in the Boardroom in the company of Harris, Porter and Siggins were already there. He was the minute secretary of the Investment Committee. 261 Some 15 minutes or so after he arrived at the meeting, a telephone link up, by speaker phone, was established with Walker and Glasgow. About another 15 minutes or so after that, although he was not a member of the Investment Committee, Windebank arrived. 262 The meeting watched parts of the Clifford video and Porter also passed around a copy of the annual report in respect of Clifford Corporation for the year ending 30 June 1997. 263 During the course of the meeting Sharkey says there was discussion which included the following: Porter: 'We're here to discuss the purchase of approximately, seven million shares in Clifford … This investment would put us in the top 20 shareholders in Clifford. [Mr Porter mentioned a percentage figure of the shares in Clifford Corporation which the proposed acquisition would give. I cannot recall the precise percentage he mentioned, but my recollection is that it was less than 5%].' Clifford has been a client of ours … They're friendly to us … They could be a shareholder of OAMPS.' 'The growth prospects for Clifford are good … Look, they pay dividends … Their Asian strategies are very complimentary to our business, both here and overseas …' 264 At a later stage in the meeting, Sharkey says there was discussion to the following effect: Porter: 'People associated with Clifford may bid for FAI's holdings of shares in OAMPS. Kingsley Lamont is also bidding for FAI's holding in OAMPS. Adler will sell FAI shares to the highest bidder. A decision about this investment has to be made today.' Sharkey: 'Why does the purchase have to be made today?' Porter: 'The purchase must happen today because FAI will sell its OAMPS shares to the highest bidder. If that [expletive deleted] Kingsley Lamont buys FAI's shares, Lamont will get rid of me and the Chairman. This deal will secure my job as Chief Executive.' 265 Sharkey's evidence is that there was also some discussion about the pricing of the Clifford Corporation shares in words to the following effect: Porter: 'OAMPS will pay about 48c per share for the Clifford Corporation shares rather than the market price of 42c per share.' Someone: 'Why are we going to purchase the shares at a premium if the shareholding will not exceed 5% of Clifford Corporation's shares? OAMPS will not be a major shareholder in Clifford Corporation following the purchase.' Porter: 'It's not often that you get an opportunity like this to purchase a large parcel of shares. A large parcel of shares like this attracts a premium.' 266 Sharkey says that after Walker and Glasgow joined the meeting discussion took place to the following effect: Porter: 'The Clifford Corporation shares are being offered at about 48c per share, which is a 6c premium to market. Those shares are being sold today and this is our only opportunity to buy those shares.' Walker: 'The share price represents three times earnings and the dividend yield is 8 ¾%. Clifford Corporation plans to pay a 5.5c dividend. The share price has ranged between 37c and 74c in the last 12 months.' Siggins: 'There is a 61c net asset backing per share. This is a good investment.' Glasgow: 'This investment is a similar risk to Tyndall and Hunter Hall.' Dividends of 3.3c per share will be paid in July for preference shares.' Harris: 'Would we be able to pick up their super fund?' Glasgow: 'Maybe. Their super fund is worth about $24 million.' Porter: 'Clifford is looking to sell its interest in the Signature Group [Mr Porter said something more about the nature of the business involved with the Signature Group, but I cannot recall the details of what he said]. That will deliver $10 million in cash to Clifford. This shareholding in Clifford could be a six to nine months strategy. We may then sell. 267 Sharkey says that during the meeting someone said words to the effect: 'Who is the seller of these Clifford shares?' Porter said words to the effect: 'We don't know … ' 268 Sharkey also says that before Windebank arrived, there was discussion in words to the following effect: Porter: 'This deal will secure my job as Chief Executive.' Glasgow: ' Rob, you can't say that. You can't even think that.' Porter: 'I've already told them.' Glasgow: 'You just can't say that .' 269 Subsequently, Windebank entered the meeting and Porter repeated some of the matters which had already been said by him prior to Windebank's arrival. After that, Windebank asked some questions, the terms of which Sharkey cannot now recall. They resulted in a response from Porter, who provided information about the dividend yield of Clifford Corporation and other matters. After that discussion, Windebank said words to the effect: 'If this deal is so good, then why are these shares for sale?' 270 Sharkey does not remember any response. 271 After that, Windebank asked: 'Have the accountants done the necessary work on this investment?' 272 Sharkey says that Porter quickly said words to the following effect: 'All the necessary work has been done.' After that, Porter said words to the following effect: 'Has anyone got any queries or problems? It is important that a decision in respect of this purchase is unanimous.' 273 Porter ultimately said: "Okay, it's unanimous then. With the Chairman's blessing … ' 274 Sharkey gave evidence that he agreed with the decision to proceed with the acquisition of shares in Clifford Corporation because of a number of factors, including: (a) all of the directors of the main board of OAMPS were present and there was no dissent from the proposal; (b) the dividend yield that had been discussed and the prospects of business for OAMPS Corporate Risk Pty Limited and the OAMPS Group superannuation company; and (c) he accepted what Porter had said at the meeting in substance (as outlined above) that if the deal was to be done it had to be done on that day or the opportunity would be lost. He also accepted what Porter had said at the meeting that the necessary financial analysis had been done, although he was not sure by whom, in respect of the proposed investment. 275 Sharkey also gave evidence, which I accept, that Porter's overall manner at the meeting was overbearing and not conducive to asking questions. Porter appears to have a quick mind and a determination to energetically achieve the outcome which he desires. Having observed him give evidence over a number of days I have no doubt that, especially in circumstances such as a board meeting where he was in control, Porter could be overbearing to the point where it would be most unlikely that any employee would be prepared to contradict him or even raise a question as to his judgment on a matter. Sharkey's Notes 276 Sharkey was the minute secretary of the Investment Committee and accordingly took notes during the meeting. His notes were tendered in evidence. They were typed from handwritten notes which he later destroyed. Because of the events which later occurred Sharkey's notes did not find their way into the minutes which were adopted as the minutes of the meeting. The notes read as follows: "30 June 1998 Investment Committee: To consider investment in Clifford. Porter and Siggins Already present. Then Harris and Sharkey Restarted video and passed around 30 June 97 Annual Report. PS asked why happening today. RP said because Adler will sell OAMPS today to highest bidder and if Kingsley buys he'll get rid of me and the chairman. Interests close to Clifford may buy. Advised will pay 48c rather than 42c because such a large parcel (but less than 5%). RP said that this deal will secure his job as chief executive. Then Walker and Glasgow on speaker from Sydney Discussed valuations, dividend yield, 48c rather than 42c, OCR prospects, super prospects and asset backing. RP said again that this deal secures his job as chief executive. DG said to RP that he can't say that, he can't even think that. RW was heard to mutter his agreement. RP said – I've already told the boys. Then Windebank Video restarted. MW's questions appear naïve: - dividend yield, prospects. Deal agreed – all in favour based on dividend yield and prospects. Sandwiches CH leaves to arrange funding. RP and MW discuss other matters such as Ryan McLeod. Meeting breaks up PS discusses with GS in corridor – that's got to be a breach of the Corporations Law, and GS replies to justify deal based on dividend yield, business prospects etc. CH arranges $3.3m transferred to Sydney. DW gets bank cheques and delivers to vendor. 06.07.98 DW advises PS not to prepare Investment Committee minutes as upgraded to board meeting." 277 Sharkey also said in a statement to ASIC: "As I left the board room I spoke to Gordon Siggins in the corridor outside. I said to Gordon Siggins that the deal had to be a breach of the Corporations Law. Gordon Siggins replied that he justified the deal on the basis of dividend yield and prospects. The breach that I believed occurred was that Robert Porter had not acted in the best interests of the company by structuring a deal that secured his job as Chief Executive in breach of his fiduciary duties." Harris' Account of the Meeting 278 Harris, the financial controller of OAMPS, also gave an account of the meeting to ASIC in a statement made on 22 December 1998 in part of which he said: "Robert Porter told us that the purchase of the CCN shares need to happen that day. Peter Sharkey asked Robert Porter why it needed to happen that day and Robert Porter replied that if it did not, Kingsley Lamont would buy FAI's shares in OAMPS. Robert Porter then said he thought that the first thing Kingsley Lamont would do is get rid of him and the Chairman . Robert Porter did not explain how the purchase of the CCN shares would secure his job. Robert Porter also mentioned that FAI's shares in OAMPS were being sold to the highest bidder and there was three bidders; one was Kingsley Lamont, one was an unknown third party and the other was parties related to CCN. Duncan Glasgow and Richard Walker were then hooked up to the meeting by telephone conference call. Robert Porter again mentioned that the purchase of the CCN shares secures his job as Chief Executive. Duncan Glasgow responded by telling Robert Porter that he could not say that and that he could not even think that. Robert Porter replied to Duncan Glasgow that he did not need to worry because the boys already knew. The reference to the boys probably referred to Gordon Siggins, Peter Sharkey and myself. Richard Walker then said something in agreement with the warning given by Duncan Glasgow. After this Porter did not repeat the comment that the purchase will secure his job although he did repeat the comment that there were three parties bidding to purchase the OAMPS shares from FAI. There was some discussion about why OAMPS would pay a premium for the CCN shares. We were told that if we purchased this quantity of shares on market, the price would be pushed up to 48 per shares anyway." 279 Harris also made an affidavit in the Civil Proceedings. In that affidavit he said that Porter said, amongst other matters: "As far as the time frame for this, the purchase of the Clifford Corporation shares must happen today.' 280 To which Sharkey said: "Sharkey: 'Why does it need to happen today?' Porter: 'FAI's shares in OAMPS will be sold to the highest bidder today and there are three bidders – Kingsley Lamont, parties associated with Clifford Corporation and a merchant bank. If it does not, Kingsley Lamont will buy FAI's shares in OAMPS. If that happens, Lamont has told me that the first thing he will do is get rid of me and the chairman. Also, the vendor will not be selling after today.' 281 He also said that the following exchange occurred: "Porter: 'As I've said to the others before you came on the line. Duncan and Richard, if this deal is going to happen it must happen today, because the vendor is only selling today. The purchase of the Clifford Corporation shares will secure my job as chief executive.' Glasgow: 'You cannot say that and you cannot even think that, Robert … ' Porter: 'You don't need to worry. The boys already know'. Walker: 'I agree with what Duncan has said.' 282 Harris gave evidence that he prepared a note of his recollections of the meeting within a day or two. Harris was challenged in relation to the note and it was suggested that he had concocted it with Sharkey. I am satisfied that the challenge was misplaced and that Harris should be accepted as a truthful witness. I deal with the challenge below. Harris' note was in the following terms: "Clifford Investment Meeting People present when I entered the room were Rob and Gordon We then proceeded to watch a video about Clifford Corporation and look at the 30 June 97 annual report. The video was impressive and talked about future dividend flows and the future of the company. While watching this video Rob said that FAI will be selling its shares to the highest bidder today and that there is 3 bidders and if Kingsley buys the shares he has already told me that the first thing he will do is get rid of me and the chairman. Rob said that one of the possible buyers for FAIs shares would be parties related to the Clifford Corporation. Over the past few days we have already purchased 400,000 shares in Clifford. Rob then got onto the phone Walker and Glasgow Rob then said that we had seen the video and annual report Rob said that we will pay 48c rather than 42 cents because it was such a large parcel of shares and if we were to buy this amount of shares on the market the price would be pushed up higher than 48c. Duncan and Richard agreed and stated that not many shares in large parcels are available in Clifford so this is a great opportunity. We then talked about the dividend yield and the point was made that these dividends were not franked as they had carried forward losses to use. Everybody in the meeting knew that Clifford was a OCR client and they had more business still to come. I mentioned to Duncan did we have a chance to get the super business as they had about $20m under management. Duncan said yes. After talking about a few other financial issues Rob then said that this deals has to happen today as they are only selling today. Rob then repeated his above statement that we need to buy these shares as if we don't Kingsley will buy FAI shares and he will sack me. Rob then stated that this deals secures my job as chief executive. At this point Duncan butted in and said to Rob you cannot say that you cannot even think that. Rob's response was don't worry I have told the guys the guys already know. Duncan then repeated his message and Walker acknowledged it. At that stage of the meeting you could feel that Duncan was uncomfortable with the way things were panning out. Also there had been a meeting in Sydney prior to the investment committee meeting about the investment as people in the room knew a lot more about the investment than what was said in the meeting. Windebank arrived and Rob restarted the video. At this stage people used this opportunity to have a toilet break as we had already seen the video. Windebank asked a few questions like if this is such a good investment why do they want to sell and who is the person selling. Rob then said that the company has x% of the company and wanted to sell down their investment in the company. Windebank said why are we paying 48c if the market is 42c. Rob then gave the same answer as before and Windebank agreed. I was asked to go out and find out how long it would take to get the money together and which accounts the money could come from. I found out that I could get the money in 30 minutes from bankwest in Sydney and Duncan could go and pick up the cheques. We were then asked to vote on the investment and I personally voted on the basis of dividend yield to go with the investment. We then broke for some lunch and Duncan went to get the exact amount of money that I needed to transfer. At lunch Rob crapped on about motorsport etc. Peter and myself then said that there is no longer us staying and we would talk to Duncan about getting the cheques, which we subsequently did. The only delays we had here was who the cheques were payable to and for how much. Peter and myself then discussed the meeting and we both stated that the only reason why that deal happened was to save Porter's job. We both felt that Windebank was either naïve or was putting on an act as his level of information was not as great as the others. I then worked out our loss on the Clifford deal and said that we will have to book it as a loss in our books. Peter said no you could argue that we purchased them on 30/6/98 so that is the price they should be valued at." Siggins' Evidence 283 Siggins gives an account of the meeting of 30 June 1998. It includes the following: "When the Investment Committee Meeting commenced, Mr Sharkey, Mr Harris, Mr Porter and I were in attendance. Mr Porter said words to the following effect …: 'The purpose of this meeting is to decide whether we will invest in about $3 million worth of Clifford shares. The shares, if they are to be purchased, have to be purchased today. Also, any vote on the purchase of the shares must be unanimous.' Mr Sharkey said words to the effect: 'Why the urgency?' Mr Porter said, either in response to that comment, or at some stage during the meeting: 'The shares have to be purchased by 4.00 pm today.' Mr Porter said words to the following effect on at least one other occasion during the meeting, although I do not recall at exactly what point: 'The decision on this investment has to be an unanimous one. If anyone does not agree, it cannot go ahead.' At some stage fairly shortly after the video was shown, I recall that Mr Walker and Mr Glasgow were linked into the discussion by speaker phone. At some point during the meeting, Mr Porter said words to the following effect: 'Rodney Adler is in the process of selling FAI's shares in OAMPS. There are three interested parties – Kingsley Lamont, Clifford and a further party. Rodney Adler has previously indicated that he will be selling FAI's shares by 30 June this year. At this stage I have no idea who Rodney will sell to. We hope it is not Lamont . Lamont has told me, in a meeting in Melbourne in mid June, that his objective is to ultimately get control of OAMPS . He has also told me that one of the first things he would do if he did get control would be to get rid of me and the Board.' I recall that someone, to the best of my recollection Mr Walker, said, either at this point or at some stage during the meeting: 'The shares are held by another arm of FAI and that has something to do with why Adler wants to sell them by 30 June.' Mr Porter said, on at least one other occasion during the Investment Committee Meeting, words to the following effect: 'You never know what Adler might do. We'll just have to wait and see, but I hope he sells to Clifford Corporation interests.' Mr Windebank arrived late to the Investment Committee Meeting and started to watch the video on Clifford Corporation. Mr Porter also briefed Mr Windebank, although I do not recall what he said, whilst general discussions (not necessarily regarding Clifford Corporation) took place in the room. Mr Porter cut short the video presentation for Mr Windebank and said words to the following effect: 'You can see the rest of the video later.' A conversation then took place in words to the following effect: Windebank: 'Are you all happy with the investment?' Everybody: 'Yes.' Windebank: 'On that basis, I am prepared to support the investment.' At some stage during the meeting, although I do not recall when or in what context, Mr Porter said words to the following effect: 'The necessary analysis of Clifford Corporations' financials has been done.' Someone (I do not recall who): 'Why is a premium being paid for the Clifford shares?' Porter or Walker (I do not recall which one): "A bit of a premium above market price is usually required for larger parcels.' Walker: 'The share price we'd be buying at is also towards the lower end of the range for the last 12 months.' Siggins: 'I have done some calculations and the net asset backing per share is 62 or 63 cents.' At some other stage during the meeting, Mr Porter said words to the effect: 'As the full Board is involved in this meeting, this is really a decision of the main Board as well.' At some other stage during the meeting, I recall Mr Glasgow saying words to the effect: 'You can't say that, Rob' (directed to Mr Porter). I do not recall what triggered that comment by Mr Glasgow, but I do recall Mr Porter, responding with words to the effect: "It doesn't matter – the boys already know.' 284 Siggins also gave a statement to ASIC. In it he said: "The decision to purchase the CCN shares was made at about 12.30 pm and the meeting ended shortly afterwards. As I left the boardroom I briefly spoke to Peter Sharkey as we were walking. I am not sure exactly what was said, but Peter Sharkey made a comment to me along the lines that he hoped the decision to purchase the CCN shares did not contravene the law. I responded along the lines that I did not know but our decision was based purely on the investment merit of CCN." 285 Siggins also gave evidence about his knowledge of Porter's intention to expand into Asia. He said: "I do not recall Mr Porter communicating to me at any time any proposed plan by OAMPS to expand its business activities in Asia prior to any commencement by him in the meeting of 30 June to that effect in relation to the comments made in the Clifford video. I do not recall Mr Porter saying that there would be any opportunities for OAMPS in Asia other than by the fact that Clifford Corporation may be able to establish, or expand its, operations in Asia. I was never aware of any plan to expand OAMPS insurance operations into the Asian market." 286 I accept Siggins' evidence. Porter did not submit that I should do otherwise. Glasgow's Account of the Meeting of 30 June 287 Glasgow gave evidence about his participation in the meeting. In his statement to ASIC he said: "From my perspective the meeting started with Richard Walker, who to the best of my memory was at his home in Sydney, and myself being linked to the Melbourne office of OAMPS by a telephone conference call. When Richard Walker and I were connected by the conference call Robert Porter, Gordon Siggins and Peter Sharkey and Craig Harris announced themselves as being present in the offices of OAMPS in Melbourne. The only item which was considered at the meeting was whether OAMPS should purchase the parcel of shares in CCN, even though the draft agenda dealt with a number of other matters. Robert Porter led the whole meeting and during his commentary said that this purchase would secure his job. When Robert Porter made this comment I said that he could not say that and that he could not even think that . I then stated that we could not make a decision on any other basis than whether the purchase of the CCN shares was a strategic investment. I made it quite clear to Robert Porter that we should not be considering any other reasons when deciding whether to purchase the CCN shares. One of the decisions made during the course of the meeting was that a subsidiary of OAMPS called Australian International Insurance Ltd would be the best vehicle to purchase the CCN shares. I got off the phone when the people in the Melbourne office of OAMPS started watching a video which I was told was the video watched by Robert Porter and myself the previous night in the offices of CCN. Mark Windebank, the Chairman of OAMPS, came into the meeting towards the end of the discussion. After Robert Porter asked me for my vote on whether OAMPS should purchase the CCN shares, I voted in favour of the proposal. After I had voted I hung up the telephone. By the time that I hung up the rest of the people participating in the meeting had already voted in favour of the proposal. Mark Windebank asked some questions before casting the vote. I cannot recall whether Mark Windebank voted before I hung up. I do recall Robert Porter saying that he would show the video to Mark Windebank." 288 In his affidavit of 16 July 1999 filed in the Civil Proceedings Glasgow gave a similar account. Walker's Evidence 289 Walker also gave evidence. He was an unsatisfactory witness. I will discuss his credit later. He often embellished his answers with non responsive material giving the impression he was advocating a defence of Porter rather than confining himself to a factual account. 290 When cross-examined the following exchanges occurred: "Q Were you told that the transaction not only had to be entered but also had to be completed, settled, paid in cash that day? A. Yes. Q. Would you agree that it would be unusual, on a stock market transaction, to not only buy the shares but to settle the consideration on the very same day? A. Yes. Q. Did you, on 30 June, say to yourself: Why is this vendor requiring not only a transaction but payment on the same day? A. I think that point was actually in a discussion amongst all the members of the investment committee and the board, as to why that occurred, and there was a general discussion, and from my recollection, your Honour, I don't think any of us actually saw it as being unusual for 30 June. If it was 30 July I think we would have actually seen it as being unusual, but a lot of unusual things happen on 30 June, so, at the time, normal Stock Exchange requirements are what they call two plus three, or two plus two, a couple of days settlement, but we all discussed it as a body. I don't think we all - whilst it may seem unusual, it didn't seem out of the ordinary. Q. Did it occur to you that rather than accede to this unusual demand by the vendor for payment and a transaction on the one day, it would be better to ask to look at the vendor's internal documents to try and verify the assumptions underlying the financial model? A. No. As a unanimous group, we had made the decision to purchase based on the information we had there. I mean, you can sit there and continue for the next six months, and it is fine in hindsight to actually look at it, but the information - we made a decision based on the information we had on hand, and that's what we did. In fact, it was a unanimous decision to purchase the shares based on the information we had on hand. Q. Did Mr Porter say "This deal has to happen today as they're only selling today"? A. I think words to that particular effect, but I don't specifically recall those words. Q. Did he also say "This deal has to happen today and we need to buy these shares, as, if we don't, Kingsley will buy the FAI shares"? A. No. … Q. And you knew, prior to the meeting, that one of the people trying to buy the shares was Kingsley Lamont? A. He was one of the several people looking to buy the shares, yes. Q. Did you learn that he was a potential buyer from Mr Porter prior to the meeting? A. I don't recollect who actually told me. I was aware of about four different people looking to buy the shares and-- Q. I am asking you questions about the source of your information? A. -- I do not recollect who actually told me about the shares being purchased by Kingsley Lamont or Steadfast or whatever. … Q. Did you learn, prior to the meeting, that Mr Lamont had said that if he acquired the FAI shares he would sack Mr Porter ? A. I think Mr Porter said that in the meeting; that he would probably sack the lot of us. I don't really think that had any great effect . Q. My question was: Did you learn, prior to the meeting, that Mr Lamont had made a statement that if he acquired the FAI shares he would sack Mr Porter? A. On or around about the meeting. I don't specifically remember when it was actually - but, yeah, words to that effect. Yes . Q. Who did you learn from that from ? A. I couldn't tell you. It may have been Mr Porter. It might have been Mr Windebank. It might have been Mr Glasgow. Sorry, I don't recollect where I learned that, or got that information from. Q. Is it correct that during the meeting Mr Porter said "If Lamont buys the shares, he'll sack the lot of us"? A. Yes, I think that's in my statement somewhere. Q. Did Mr Porter say that "We need to buy the Clifford shares today because, if we don't, Kingsley will sack" either Mr Porter or, indeed, the lot of you? A. No. No. I don't think the two were connected. No. Q. He certainly made a reference at the meeting that Lamont, if he got the shares, would sack the lot of you. You say that, do you? A. If you just hold on, I think I have actually said it in my statement somewhere. Q. I am asking you about your recollection. Please close your statement. Mr Walker, please close your statement. A. (Witness complied). Q. You say to the Court, do you, that during the meeting Mr Porter said "If Lamont acquires Adler's shares, he'll sack the lot of us"? A. That was one of the comments that was made. Q. Now, did he also say that if OAMPS managed to buy the Clifford shares that would prevent Lamont achieving that goal? A. Sorry, if OAMPS buys the Clifford shares - no, that's got nothing to do with it. Q. Did Mr Porter say that the deal, namely purchasing the Clifford shares, would secure his job as Chief Executive ? A. No. No . Q. Do you recall Mr Glasgow at some stage butting in on the phone and saying to Mr Porter "Rob, you can't say that. You can't even think that "? A. No. I actually don't have recollection of that. It seems everybody has said it, but, no, I don't actually have a recollection of that . Q. Do you have a recollection of Mr Porter making some statement which you considered to be an inappropriate statement in the context of the transaction that you were considering? A. No. Not particularly. No. I mean, give me a specific and I'll answer a specific, but, no, your Honour, I wouldn't. Q. When Mr Porter said to you that "If Lamont buys the FAI shares, he'll sack the lot of us", what, to your mind, did that have to do with the business before the meeting? A. Sorry, when Lamont or if Lamont? Q. I will start again. When Mr Porter says to the meeting "If Lamont buys the FAI shares, he said he'll sack the lot of us"-- A. Hmm. Q. --and you heard that, what to your mind did that have to do with the business before the meeting? A. Nothing. I don't think Mr Porter really gave a hoot - how would you put it? Mr Porter was more interested in making sure the value of OAMPS was there, as were the other directors. Everybody was concerned about maintaining the assets of the company and maintaining the stewardship of the company, to make sure that, whoever was running it, it was kept in safe hands, and the insurance companies, as people have a history of these things – that it was not plundered and wasn't actually spent unwisely. He was concerned that if someone of Mr Lamont's calibre got in, he would do things to the company which were not in the best interests of all shareholders, and I think from that-- OBJECTION (BISCOE). NOT RESPONSIVE. Sorry. HIS HONOUR: We will leave it on the transcript, but counsel's remarks have been noted. GLEESON: Q. I am asking about your state of mind, not your speculations on Mr Porter's state of mind, or anyone else. My question is: When Mr Porter makes this statement at the meeting "If Lamont gets the FAI shares, he'll sack the lot of us", what, to your mind, did that have to do with the business actually before the meeting? A. Well, nothing. As a non executive director, I was there to serve the shareholders. If the shareholders don't want me, they have that perfect opportunity, as they did at the annual general meeting when my election came up for re-election, to actually vote me out. If the shareholders want me there, they can vote. If they didn't want me there, they can vote. I was there as a non executive director to carry out those duties. I can't be concerned about what an individual, or a group of shareholders, thinks, or what's going to be done. I must do the right thing as a non executive director and carry the stewardship of the company. Q. Did it not occur to you that what was being put before you was a proposal to buy Clifford in part for the reason that this would defeat Lamont buying the FAI shares? A. No. Q. Had you also learned, prior to the meeting, that another person seeking to acquire the FAI parcel was Mr Loiterton, or interests associated with him? A. Yes, and I also learned, before the meeting, that he actually had said that the price that was quoted was too expensive. Q. Mr Walker, would you please confine yourself to the questions. The question I have asked you is simply-- A. Uh-huh. Q. --did you learn, prior to the meeting, that another person, in addition to Lamont or Steadfast-- A. Hmm. Q. --who was seeking to buy the FAI parcel, was Mr Loiterton, or interests associated with him? A. Yes. Q. Now, when did you learn that fact? A. I think he had shown some general interest in or through his two companies, Leisure Mark and Blenheim - sorry, I would go back. Your Honour, I'm a bit jetlagged. I'm a bit confused as to the actual thing. It was Leisure Mark and Blenheim - this is the confusing point. Leisure Mark and Blenheim were the vendors of the Clifford Corporation shares. It was Clifford Corporation who was actually interested in purchasing, and I apologise if I have made the wrong statement there. HIS HONOUR: Q. Sorry, what was the wrong statement? A. Clifford Corporation was actually looking to purchase the OAMPS' shares. It was - the vendors of the Clifford Corporation shares were Leisure Mark and Blenheim. If you could re-ask the question, I would like to reanswer it. Q. I was wondering what was the wrong statement, though? A. I think I said it was interests associated with Loiterton. It was actually Clifford Corporation. I apologise. The two are different. GLEESON: Q. The question I asked you, if you would attend to it, was simpler: When did you learn that Loiterton, or interests associated with him, were seeking to buy the FAI parcel? When? A. It was Clifford Corporation, not Loiterton, and it was probably some time mid June. I can't recall the dates. Q. Who did you learn that fact from? A. I couldn't tell you - I can't, with actual clarity, tell you who I learned it from. It could have even been Mr Adler. I don't know. I couldn't tell you that. Q. Were you in discussions with Mr Adler during June about who might buy his shares? A. I had cursory, sort of quick, discussions with Mr Adler, yes. Q. Were you in discussions with Mr Porter during June-- A. Yeah. Q. --as to who might buy the FAI parcel? A. Yeah. We had had numerous discussions, but no-one knew. Q. Did you learn, during June and prior to the meeting, from Mr Porter-- A. Uh-huh. Q. --that Mr Loiterton, or interests associated with him, had made a bid for the FAI parcel? A. It wasn't Mr Loiterton. It was Clifford Corporation. But I can't recall the specific - I knew that they were interested, but that was wholly in the hands of Mr Adler. Q. What did Mr Porter say to you, as precisely as you can, prior to the meeting, about Loiterton purchasing the Adler parcel? A. Again, it was Clifford Corporation, not Loiterton and - I'm not quite sure I specifically understand the question. We just had a general discussion about it. I think - from my recollection, there were, I believe, four potential buyers, and it was up to Mr Adler to decide whatever he wanted to do. He always played those things pretty close to his chest. Q. My question, and I would ask you to answer it if you could, is: What is your best recollection of what Mr Porter said to you - what were the words he used – about Loiterton seeking to buy the FAI parcel? A. Again, he talked about Clifford Corporation. I couldn't specifically recall. I think he probably made reference to - well, they could be one. I think QBE was another. He didn't have any specifics, because no-one knew. Q. Now, could you explain to the Court why you are so confident that he said it was Clifford, not Loiterton, when you seem to have difficulty recalling any other parts of this conversation with precision? A. It is a matter of fact. It was Clifford Corporation who was the purchaser, and it was Blenheim and Leisure Mark, as on my statement, that were the vendors. 291 Where Porter or Walker's evidence differs from Harris, Sharkey, Glasgow or Windebank I reject it. The evidence makes plain that Porter and Walker were allies within OAMPS and both were known to Adler. Windebank's Evidence 292 Windebank gave evidence that he was telephoned on the morning of 30 June and asked to attend an investment committee meeting which would be combined with a Board Meeting. He was not a member of the investment committee. 293 He arrived at OAMPS after the meeting had started. He said that he had no knowledge of any negotiations by OAMPS for the purchase of shares in Clifford. He had not heard of Clifford, except possibly in passing. 294 Windebank said that when he entered the Boardroom the persons present were watching a video. The video was rewound and those present at the meeting then watched the video for about five or six minutes. The video was a promotional video in respect of Clifford Corporation, and contained detail of what the company had done and its plans for the future. It detailed Clifford Corporation's three year business plan. 295 Windebank said that the overall impression he gained from the video was that Clifford Corporation's business was being streamlined for better results and that Clifford Corporation had a bright future. 296 On the Boardroom table was one copy of the annual report in respect of Clifford Corporation for the financial year ending 30 June 1997. At Porter's direction, the report was passed around the room. Windebank reviewed the annual report for approximately four or five minutes. The matters he noted from the annual report during the Investment Committee meeting included the profit and loss figures recorded on page 17 of the annual report, which showed a healthy increase in profit between 1996 and 1997; and that there had been a significant improvement in shareholders equity recorded on the balance sheet between 1996 and 1997. 297 Windebank asked a number of questions about the proposed investment to which Porter responded and indicated that he was in favour of the investment. 298 At one stage in the meeting Windebank said the following exchange occurred: "Porter: 'This deal must go ahead today, or it is not on.' Windebank: 'Rob, why does this have to go ahead today? Why the rush?' Porter: 'It's the end of the financial year today. The deal will only go through from Clifford Corporation's perspective if we purchase today.' 299 Windebank also asked whether due diligence had been undertaken and recalls that during the meeting Porter said words to the following effect on three or four occasions: "The voting in respect of this proposal has to be unanimous and it has to be dealt with today." 300 When it came to the vote Windebank raised his hand in favour of the resolution. However, he said that he voted last because he wished to see whether the others were satisfied that the proposal should go ahead. In particular, he wished to see how Glasgow, Walker and Sharkey voted, since they were the ones within OAMPS whom he perceived to be primarily responsible for financial matters. Advice from Hunter Hall 301 I have previously related the adverse advice which Peter Hall and Lowenstein had given to Porter regarding Clifford Corporation and Loiterton. Having regard to the nature of the advice and the expertise of Hunter Hall, if Porter was acting in the bests interests of OAMPS, he should have related the advice to the investment committee and the Board. If the advice had been passed on it is doubtful, having regard to the evidence, that the decision to acquire the Clifford shares would have been made. 302 Porter denied that he had received advice from Hunter Hall but I reject his denial. I can only conclude that he deliberately chose to ignore the advice and deliberately failed to pass it on to the meeting. Minutes of the Meeting of 30 June 303 Draft minutes of the "Board Meeting" on Tuesday 30 June were made by Glasgow and typed by Ms Maria Vibovic, Porter's personal assistant, in early July. They recorded:- "After advice from the Chief Executive and viewing the video supplied by Clifford Corporation Ltd and following discussion involving all those present. It was resolved that Australian International Insurance Ltd purchase 6,527,249 shares in Clifford Corporation Ltd from Blenheim Holdings Ltd and Leisuremaster [sic] Pty Ltd for $3,150,000 at the average price of $0.4825. This purchase to be effected on 30 June 1998" 304 The draft as typed by Vibovic was included in the board papers for the 7 July 1998 board meeting during which Porter amended it by hand and it was re-typed by Vibovic. As amended they were re-entitled "Minutes of Special Meeting of the Investment Committee and Directors of OAMPS Ltd". 305 The amended minutes stated as follows:- "The meeting was convened specifically to look at the annual report, three year plan and other relevant information in the Clifford Corporation Company (CCN). The Chairman was involved by invitation in view of the substantial nature of the proposed investment. Background Robert Porter and Barry Loiterton have been discussing the CCN Company for some years. Loiterton's proposals for the company had over a period of some two years had largely been fulfilled to expectation. . CCN is dominant in a transport manufacturing industry sector compatible with OAMPS client base. OAMPS has been targeting the bus industry for some time. CCN has been a client of OAMPS Corporate Risk for some 18 months. . CCN has offered OAMPS Financial Services the opportunity to assume the superannuation funds management from Buck Consulting which would add approximately 30% to our funds under management and doubling our management fees in OFS which would give an increased capital value of OFS at 6 x pre tax multiple equivalent to our proposed investment in CCN of $3M. CCN estimated dividend yield year end 30 June 1998 8% on share price of 0.48c. . OAMPS to become a significant shareholder by the provision of a block of approximately 6.5 million share traded off market (crossed at a preferential brokerage of 0.2% by HSBC Securities). Vote by the members and chairman to be unanimous or investment to be postponed and further researched. After advice from the Chief Executive and viewing the 3 year plan video supplied by Clifford Corporation Ltd and following discussion involving all those present. It was resolved that Australian International Insurance Ltd purchase 6,527,249 shares in Clifford Corporation Ltd from Blenheim Holdings Ltd and Leisuremaster Pty Ltd for $3,150,000 at the average price of $0.4825. This purchase to be effected prior to year end 30 June 1998. DATE OF NEXT BOARD MEETING 7th July 1998 in Melbourne CLOSURE There being no further business the meeting then closed." 306 Windebank, Glasgow, Sharkey and Harris all disputed the contents of the amended minutes in a number of respects. The most significant change in the amended minutes which they all disputed was the words emphasised in the following sentence "Vote by the members and chairman to be unanimous or investment to be postponed and further researched". 307 Walker gave evidence that the amended minutes were a correct record. 308 I do not believe that the amended minutes are accurate. I am satisfied that Porter told the meeting that the Clifford shares could only be purchased that day. Porter submits that the Board at its meeting of 7 July confirmed his version of the minutes of the meeting of 30 June 1998. This is disputed; however I do not believe that it is necessary to resolve that dispute. Matters of Credit 309 As the High Court has recently indicated in Fox v Percy (2003) 197 ALR 201 there may be difficulties in relying on demeanour as the touchstone for the assessment of credit in contested litigation. However, my observation of Porter did not dissuade me from the adverse conclusion I formed of the reliability of his evidence from the material tendered, together with Porter's oral evidence in this trial and the interviews he gave to ASIC. From my observations I concluded that Porter, when in difficulties, would deliberately provide a complex answer in an attempt to obfuscate the difficulties and on some occasions told deliberate falsehoods. 310 I have, after careful consideration of the multitude of matters which I have discussed in these reasons, come to the view that Porter's evidence was not reliable and could not be accepted when disputed, unless corroborated from other evidence. I have no doubt that Porter has created elaborate explanations for many events which are quite simply not true. 311 It was submitted by senior counsel for Porter that because Porter was cross-examined by two counsel it was unfair to him and "so frequent were questions improperly asked of the plaintiff by senior counsel for the defendants that the court should not base its assessment as to his credit from his cross-examination." 312 It is true that Porter was cross-examined by counsel for both defendants for a period extending over nine days in total. However, an appreciation of the issues in the trial, the complex facts which required consideration and the differing interests of the defendants made lengthy cross-examination by each inevitable. For most of his cross-examination senior counsel for Porter was not present in court. On the sixth day of the cross-examination I was informed by junior counsel that Porter was unwell and had been to see a psychiatrist. Notwithstanding Porter's difficulties his counsel indicated that he wished the proceedings to continue. I indicated that if thereafter Porter was experiencing difficulties he could raise them and the appropriate course would be considered. The matter was not raised again during his evidence. 313 On two occasions counsel for Porter raised concern in respect of the cross-examination of Porter by senior counsel for Gordian submitting that it was repetitive of matters raised in cross-examination by senior counsel for OAMPS. On both occasions I did not stop the questioning, having indicated that I was not of the opinion that it was appropriate for the court to intervene at that point. However, I indicated I would consider the matter further if at a later stage objection was taken. No further objection was made. 314 It was submitted that the questioning of Porter was "oppressive; they are big companies, properly resourced running multiple points seemingly without discretion." One hundred and eleven questions were identified in a schedule and particular submissions were directed to them. I have had careful regard to those matters before arriving at the conclusion which I have expressed in these reasons. 315 On many occasions Porter was confronted with admissions in his ASIC interviews, or inconsistencies between the interviews and his evidence. He said that the ASIC interviews contained a "cacophony of mistakes". Porter conceded he had made damaging admissions and said he had to play catch up to rectify the situation: "I have admitted, as I have in so many of the things that are relevant to this proceeding — I have admitted to things that weren't true, that I didn't know weren't true, that I didn't want to admit to, but I did. I have found I have had to constantly play catch up to try to impart to your Honour so many things that I ought to have known." 316 When Porter went to ASIC he was aware that his evidence could be used against him. He may not have had legal advice before the first interview but he had it before the second. I do not accept his explanation of the inconsistency between his present evidence and his statements to ASIC. Credit of Walker 317 Walker gave evidence which generally supported Porter. He was a most unsatisfactory witness. Making due allowance for his overseas travel before giving his evidence and the stress which giving evidence imposes, his evidence was often evasive and, in my opinion, was deliberately intended to obfuscate matters. On many occasions he gave the impression that he was deliberately giving evidence to advantage Porter rather than answer the cross examiner's questions. I came to the view that I could not accept his evidence on any contentious issue unless corroborated by other evidence which could be accepted. Credit of Gordian and OAMPS' witnesses 318 Very significant attacks were made on the credit of many of the witnesses called by Gordian and OAMPS. The attacks made were strident and alleged grave impropriety. A conspiracy to give false evidence was alleged against Windebank, Glasgow, Harris and Sharkey. The following statements are typical of the submissions made: "OAMPs has embarked on a program of harming the plaintiff by … (b) indemnifying the witnesses and encouraging them to get together to present a consistent 'story' …" and '(m) continuing to put forward false evidence through its witness statements in the proceeding.' … [This litigation is fuelled by] A number of witnesses, like Vibovic, witnesses who have been put under great pressure to give statements on behalf of OAMPS against Porter. If you didn't wear a 'I hate Porter t-shirt' you were not kept on at OAMPS. So there was plainly a conspiracy between at least Messrs Windebank, Sharkey and Glasgow to injure Mr Porter by making all the new allegations which they knew to be false or made with reckless disregard to the truth and did so, in the case of Mr Windebank, as a result of his hubris and plain old revenge." 319 By contrast, senior counsel for the plaintiff submitted that the court should accept the evidence of Siggins. 320 The submission that the defendants' witnesses have conspired together to give false evidence against Porter is rejected. Although precise recollections have understandably diminished with time, I could discern nothing which would lead me to conclude that they were not endeavouring to give a truthful account of a complex series of events which, for all of them, involved considerable difficulties and stress. The period was one of great turbulence within OAMPS and, without doubt, the "boardroom struggle" created difficulties for all concerned. Those involved were unsure about the future control of the company and their own continuing employment prospects. 321 In these circumstances it is understandable that at the time some may have acted and spoken cautiously, only providing a complete account of the events they heard and observed when they felt secure in doing so. 322 Windebank gave evidence of his concern in relation to the manner in which Porter dealt with staff: "Q When Mr Porter became managing director he immediately set out wholesale changes to the way OAMPS did business? A. Very much so. Q. He changed over a lot of staff? A. Very much so. Q. He tried to improve what he said were bad work practices? A. I think so, that is right. Q. He said that he regarded OAMPS as being very slack in its attention to corporate governance and other matters? A. He may have said that, yes. Q. He insisted on a very high standard of ethics? A. I think he tried to do that, yes. Q. He insisted on a very high level of accountability? A. I would agree, I think, on that. Q. He was a very hard task master, both of himself and the people around him? A. Very hard. Q. He suffered fools very badly? A . Very badly. Q. He was impatient and quick and could be very difficult to deal with? A. Oh, he was abusive to staff." 323 I accept Windebank's evidence. Porter's behaviour would explain the reluctance of any employee to speak out. Porter is a volatile and determined individual. I formed the view that he would not have looked kindly on anyone who challenged his authority. 324 Windebank impressed me as a strong, forthright and principled person. It was inevitable that his approach to his task as Chairman and a director of OAMPS would inevitably come into conflict with Porter as in fact happened. I have no doubt he became genuinely concerned that Porter was not an appropriate person to be in charge of OAMPS and sought advice within the company to assist him in resolving the problem. 325 The events of 30 June 1998 may not have been the original reason for his concern but they increasingly came into focus as he came to understand more of the detail surrounding the matter. His concerns were such that he was prepared to, and did, resign both as chairman and ultimately as a director of OAMPS. Credit of Harris and Sharkey 326 A significant challenge was made to the credit of both Harris and Sharkey. As I have related, Sharkey's handwritten notes recording some of the events of the meeting of 30 June survive. He says he made further "scrappy" notes because of his concerns about the propriety of Porter's statements. It was replaced with the typed private note. 327 Sharkey's note has the printout date 27 October 1998 whereas Harris' note is undated. Sharkey was first interviewed by ASIC on 28 October 1998. It was suggested that they had colluded in the preparation of their notes but I do not believe this was the case. It is true that Sharkey has given inconsistent evidence as to when the note was prepared but I am satisfied that it was prepared before the difficulties with the transaction had become a major issue and accordingly is reliable. 328 Harris said he typed his note on or around 2 July 1998. The plaintiff called a computer expert, Dr Thorne, who had investigated Harris' computer. Dr Thorne found that Harris' computer recorded a document identical to the document in evidence as having been created on 2 July 1998 and then deleted and transferred to another file. 329 Dr Thorne also found another version of the document (the difference between the two is insignificant) which was apparently created on 26 October 1998. The computer recorded this document as having been revised six times yet it appeared to have only one revision (a punctuation change) from the 2 July version. 330 It is possible that Harris did not create the document until October and either by error in the clock in his computer or deliberate manipulation a version was created carrying a July date. Porter submitted that this is what had happened and Harris' document was only created immediately before he went to ASIC for the purpose of damaging Porter. Although Dr Thorne thought this may be possible he accepted that it was also possible that on 2 July: (a) the document was created; (b) the document was modified a number of times with a total editing time of 53 minutes; (c) a copy was then created and moved to a new file in October. 331 Dr Thorne commented that the ways in which documents can be moved around in a computer are almost endless and that one is, in a sense, "trying to reconstruct the dinosaur from a few bones, so far as deleted files are concerned." When asked for his opinion whether the document was created on 2 July, he concluded that "it comes down really, to a question of how likely it was that the clock was in error, advertently or inadvertently altered, on 2 July, and I cannot answer that." 332 I accept Harris when he says he first created the document in July. It is completely inconsistent with a suggested act of fraud for him to leave the 26 October document with six revisions extant in the computer while fraudulently creating a 2 July date for a virtually identical version of the same document and then deleting it. Except for Dr Thorne's forensic investigation the July document would not even have been found. Harris could not have known that his computer would be forensically examined about two years after the note was made to ascertain the date that the note was created, and or that the date of creation of the note was relevant. 333 The plaintiff submitted that the two dots which appear above the "i" in the word "naïve" which appears in each of the notes of Sharkey and Harris was unusual and that this lends weight to the conclusion that one was copied from the other. I reject this submission. Many computer programs will automatically insert the dots, as does the computer on which these reasons have been prepared. Credit of Siggins 334 Senior counsel for the plaintiff submitted that Siggins should be accepted as a witness of truth. I have no difficulty in accepting this submission. On some critical aspects in particular the warning given by Glasgow to Porter, Siggins' evidence corroborates Harris, Sharkey and Glasgow. Confirmation of that aspect of the meeting is significant in resolving the conflicting evidence in the dispute. General Matters 335 Senior counsel for the plaintiff made repeated personal attacks upon counsel for the defendants. Those attacks were unnecessary. They could have diverted the trial from its proper course. I have consciously put them to one side in considering the evidence and submissions in the case and the conclusions which, in my opinion, are appropriate. 336 There can be no doubt that the issues in this matter are complicated and the outcome of fundamental significance to Porter and his lawyers. However, it is unfortunate and unnecessary when the intensity of the contest manifests itself in personal attacks upon counsel. The administration of justice is not assisted by such events. Telephone Calls 30 June 1998 337 Porter's telephone records for 30 June 1998 were tendered in evidence. They show that Porter telephoned Loiterton on seven occasions during the day. The first call was made at 9.51 am and lasted for four minutes and twenty-three seconds. The next call was made at 12.48 pm, the OAMPS Board meeting having finished at about 12.30 pm. That call lasted one minute and one second. There was a further call at 1.23 pm which lasted one minute and forty-six seconds. He phoned Loiterton again at 2.47 pm, 3.11 pm, 4.15 pm and at his home at 7.17 pm that night. 338 Porter also phoned Adler six times on 30 June 1998. All of the morning calls were brief. He phoned Adler at 12.49 immediately after talking with Loiterton but the call is recorded at twenty-six seconds and may not have been successful. He spoke with Adler at 3.23 pm and at greater length at 7.18 pm that evening. 339 It would be wrong to assume that Porter was the party who exclusively initiated telephone contact with Loiterton and Adler on that day. 340 Porter also spoke with Adler at about 4.30 pm. It would appear that Adler telephoned Porter. In his statement made on 30 January 2003 Porter gave this account of the conversation: "On the afternoon of 30 June 1998 I became aware that a large parcel of OAMPS shares had changed hands. I discovered this when I had a telephone conversation with Mr Adler at about 4.30 pm. I had a conversation with Mr Adler to the following effect: Adler: I have sold my OAMPS shares. Porter: Who to? Adler: I don't know, but it was not Lamont. I have sold the shares through Carmichaels stock brokers in Perth." The Evidence of Ms Vibovic – Phone Calls and Porter's Reaction 341 Ms Maria Vibovic is employed by OAMPS as an Executive Assistant. Between September 1995 and 27 November 1998 she was employed in the Melbourne offices of OAMPS as the personal assistant to Porter. 342 She swore an affidavit in the Civil Proceedings on 7 December 1998. In that affidavit she gave evidence that after Porter left the Investment Committee Meeting he said words to the following effect: "I've just saved my job but I may go to gaol for it." 343 It would appear that Vibovic was under the mistaken impression that the Committee meeting had ended late in the afternoon rather than at about 12.30 pm. 344 In her affidavit in the Civil Proceedings sworn on 20 July 1999 Vibovic gives a more elaborate account of this event and the events in which she participated on 30 June 1998. It is as follows: "I was not present for any part of the Investment Committee Meeting. At approximately 4.30 pm on 30 June 1998, I answered a telephone call on behalf of Mr Porter. I had a conversation with the caller in words to the following effect: Loiterton: Hello, I was wondering if I could speak to Rob Porter? Vibovic: No, sorry, he's not available at the moment. Can I take a message? Loiterton: Yes, my name is Barrie Loiterton. Could you please give Rob the message that it has all gone through. I wrote Mr Porter a message in relation to the telephone conversation I had with the person who identified himself as Barrie Loiterton. I gave Mr Porter that message. Shortly after taking the message from Mr Loiterton, I believe that, in accordance with my usual practice, I took the original message slip into Mr Porter's office and placed it on his desk. My usual practice was that, if Mr Porter was in the Melbourne office at the time I took a message on his behalf, I took the relevant message slip into his office and placed in on his desk. A short time after I placed the original message slip on Mr Porter's desk, he returned to his office from where he had been (which, to the best of my recollection, was in the boardroom). A short time after that, Mr Porter came out of his office and stood just outside his office. At around the same time, Kevin Tehan ('Mr Tehan'), an account executive, was walking in the corridor near where I sit . Mr Porter said words to the effect: 'I've just saved my job, but I may go to gaol for it." 345 Vibovic also gave a statement to ASIC. In that statement she said: "At one stage during the afternoon of 30 June 1998 Robert Porter came out of his office and said out loud that he had just saved his job, but he may go to jail for it. Kevin Tehan, another employee of OAMPS was also present when Robert Porter made this comment. I smiled at Porter and said really." 346 In her ASIC statement Vibovic was not speaking in the first person. She was cross examined about the matter and denied that the remarks were said in jest. 347 It was also put to her that "what Mr Porter said was words to the effect that someone other than him would be possibly going to jail over their dealings with OAMPS' shares so that when Porter spoke about jail, he was referring to someone else and used the words 'he'll still go to jail for it.' " Vibovic denied senior counsel's proposition. 348 Vibovic was also cross-examined about a conversation she had with Burdis in December 1998. By this time Lamont had gained control of OAMPS. Burdis was called by Porter and gave evidence in his statement in March 2003 in which he said: "In about December 1998 Mr Porter telephoned me and we had a conversation to the following effect: Porter: Vibovic has sworn an affidavit saying that I had made a statement about me going to jail. This is untrue. She is lying. Burdis I will give her a call and find out what is going on. I then telephoned Ms Vibovic and she said to me words to the following effect: 'I did swear an affidavit. I did not want to do it. Kingsley Lamont pressured me into it. I really like my job so I have to do what he says. I don't want to get sacked. I bet Rob's pissed off.' " 349 The evidence she gave under cross-examination was as follows: "Q. Did you say to him words to this effect; "I did swear an affidavit. I did not want do it. Lamont pressured me into it. I really like my job so I have to do what he says. I don't want to get sacked. I bet Rob's pissed off"? A. No. Q. Did you say anything to that effect? A. No. Q. Let's take it one at a time. Did you say to Mr Burdis, "yes I did swear an affidavit"? A. Yes I did. Q. Did you say to Mr Burdis that you had not wanted to do so? A. No I didn't. Q. Did you say anything to Mr Burdis about Mr Lamont? A. No. Q. Did you say anything to Mr Burdis about your job? A. No, not that I recall, no. Q. Did you say anything about Mr Porter being angry? A. I recall saying that I think Rob's very upset with me. Q. Did you say anything about not wanting to get sacked? A. No. Q. So it's not a question of you being unsure whether you had such a conversation, you are absolutely adamant that such a conversation did not take place? A. Some of that conversation did not take place. Q. Namely, the statement that "I didn't want to do it", you say didn't take place? A. That's correct. Q. That "Mr Lamont pressured me into it", that didn't take place? A. That's correct. Q. "I really like my job so I have to do what he says", that didn't take place? A. That's correct. Q. "I don't want to be sacked", that didn't take place? A. That's correct. Q. And I put to you directly, that you made those statements to Mr Burdis at that time? A. No I didn't. Q. And I also put to you directly that those matters that you say you didn't say to Mr Burdis, are exactly correct? A. That's not correct. That's not my recollection." 350 Vibovic was a convincing witness and I accept her evidence. Furthermore, the account which Burdis gives of his conversation with Vibovic does not suggest that her evidence was false or fabricated. Even if she was reluctant to give evidence against Porter this would be understandable having regard to the atmosphere within OAMPS at the time. Evidence of Kevin Tehan 351 Mr Kevin Tehan was employed in the Melbourne office of OAMPS on 30 June 1998. During the afternoon of that day Tehan was on the ground floor of OAMPS offices visiting his immediate superior, Mr Stillman. He gave the following evidence: "I recall that as I was leaving Mr Stillman's office and walking down the corridor, I saw Mr Porter standing in the vicinity of the door to his office and near Ms Vibovic's desk and I heard him say words to the effect: 'We have sold to the good guys, but I will probably go to gaol for it.' I do not recall whether I heard Mr Porter say any other words, apart from the ones I have mentioned. I noticed that Ms Vibovic was in reasonably close vicinity to Mr Porter at the time he said the words to which I have referred. However, if Ms Vibovic said anything at that time I cannot now recall it. I did not know what transaction or set of events Mr Porter was referring to in making his comments. I did not make any comment of my own and I continued walking. 352 Tehan also made a statement to ASIC dated 15 January 1999 in which he said: "Sometime after about 3.00 pm on 30 June 1998 I was walking past Maria Vibovic's desk which is located on the ground floor of OAMPS' head office outside what was then Robert Porter's office. Robert Porter was at that time the Chief Executive of OAMPS. Robert Porter was standing outside his office near Maria Vibovic's desk talking to someone, possibly Maria Vibovic. I heard Robert Porter say out loud that we had sold to the good guys and that he would probably go to jail for it. I was only a few metres from Robert Porter when he made these comments. At that time I did not know what Robert Porter was referring to. I did not make any comment and continued walking. I did not have any conversations or other contract with Robert Porter on that day after hearing these comments." 353 Tehan was cross-examined by senior counsel for Porter. Notwithstanding that Tehan may have an imperfect recollection of the precise layout of the office premises his evidence was otherwise completely convincing. I have no hesitation in accepting his evidence with respect to the statement made by Porter in the general office area on the afternoon of 30 June 1998. Porter's Evidence about Jail 354 Porter made a further statement on 22 April 2003 after some of the defendant's evidence had been filed and long after these proceedings had been commenced. In that statement he gives further evidence about his action and words immediately following his conversation with Adler on the afternoon of 30 June 1998. 355 He said: "After 30 June 1998 at about 4.30 pm, after I had spoken to Mr Adler (I refer to this conversation in paragraph 84 of my 30 January 2003 statement), I said immediately as I walked from my office, in a jovial throw away comment way, words to the following effect: Porter: Ha, ha, can you believe it – Adler says he has not sold to Lamont. I guess that's just saved my job, but he'll still go to jail for it." 356 Porter went onto explain his statement and the person who he said he was referring to: "My reference to 'he' was a reference to Mr Lamont. I referred to him going to jail because I discovered in about June 1998 that he had been involved in insider trading with Messrs Cowden, Austin and Adler. Prior to hearing from Mr Adler and making the comment I thought Mr Lamont would be the purchaser of the OAMPS shares because FAI badly needed the substantial Steadfast premium flow (about $700 million per annum). I was moving outside the office that I shared with Mr Glasgow to go up stairs and tell Mr Siggins the news because I knew he would be interested. My office was near Ms Vibovic's desk. I did not occupy the small office on the other side of the corridor next to Mr Stillman until about the later part of September 1998 when Mr Glasgow left OAMPS. It was only on very rare occasions that I used the small office before September. I only used it if I needed a meeting room when all others were occupied." 357 I do not accept this explanation. The meaning which Porter gives to his alleged words is not logical. "It" must be a reference to the transaction (ie the sale by Adler) to which Lamont was not a party. 358 Porter has taken inconsistent positions in relation to this matter and gives confused evidence. 359 He told ASIC in his January 1999 interview that if he said the words attributed to him by Vibovic, which he could not recall, it was likely to have been in response to a facetious comment by Sharkey; and he thought he might have said: "If I wanted to worry about my job I'd kill him" (meaning Lamont). 360 In his affidavit of 10 February 1999 in the Civil Proceedings he denied saying the words attributed to him by Vibovic. However, he did not say in that statement that he said: "He'll still go to jail for it." 361 He was cross-examined about the matter: "BISCOE: Q. You swore an affidavit on 10 February 1999 in civil proceedings, in which you applied to paragraph 5 that affidavit of Miss Vibovic. I am going to put this in front of you. Would you agree that it says, I refer to paragraph 5 of Miss Vibovic's affidavit, "I deny that I said I have just saved my job but I may go to gaol for it." Just for the transcript, do you agree that is what you swore to? A. I swore to that. I still swear to that. Q. What you didn't say was that in fact what I said was that I have just saved my job, but he'll still go to gaol for it? A. I didn't. Q. It was consent to that that you invented that? A. No. Q. Surely if it was present to your mind when you swore the affidavit in February 1999 that you said, as you now say in these proceedings, in your statement of 22 April 2003, "I've just saved my job but he'll still go to gaol for it" meaning Lamont, you would have said that, wouldn't .you, in your February 1999 affidavit in the civil proceedings? A. No. Q. You further would have said it, wouldn't you, when you were being interviewed by ASIC shortly before that? A. No. Well, I didn't. The answer is no, and in my – I was making clear concise responses to what had been put to me and what I was subjected to were two people allegedly hearing the same words that were wholly different. But I do admit that I did make a comment that was, that should be interpreted as being, well, Lamont has just been shafted by Mr Adler; he won't get to sack me and as far as I am concerned, he'd still go to gaol for insider trading because that had taken place, and as far as I am aware, I don't think that insider issue has been resolved for Mr Lamont." 362 I have no doubt that the account of the conversation given by Ms Vibovic is correct. Other Important Conversations 363 Harris also gave evidence that during the afternoon, Porter, talking in the presence of Harris, spoke about the sale of the FAI parcel. Harris says that Porter said: "I have some good news. Some people from Clifford Corporation have purchased FAI's shareholding in OAMPS." 364 Porter denied making this statement. Harris said that Vibovic and Tehan were present when this occurred. However, neither of those persons remember Harris being present when Porter spoke about the information he had in relation to the FAI parcel. I am satisfied that Harris did overhear Porter speaking about these matters. The fact that Vibovic and Tehan do not remember Harris being present when Porter spoke to them does not persuade me that Harris is not giving a truthful account. 365 At about 6 pm Porter spoke with Lowenstein who indicated that he had heard a rumour that Clifford had bought the FAI parcel. Lowenstein went on to repeat to Porter the adverse knowledge he had of Loiterton. Later that evening he faxed various newspaper articles to Porter which were highly critical of Loiterton. I have found that Porter had been told of the adverse view which Hunter Hall had of Loiterton before 30 June. I have no doubt that Porter should have informed the OAMPS board of Hall's opinions when the board was considering the Clifford transaction. 366 Porter also spoke to Loiterton at about the same time. Porter says Loiterton was evasive and did not tell him he had bought the FAI parcel. I doubt that Porter is telling the truth. Summary of Findings in Relation to Events Before and Including 30 June 1998. 367 It is useful to provide a summary of my findings in relation to the events up to and including 30 June. They inform many of the issues considered below. 1. Although Porter had developed an idea that Clifford may be a company that OAMPS should invest in that possibility was not discussed with the Board of OAMPS until 30 June 1998. 2. Porter only initiated steps to have OAMPS make the Clifford transaction when it appeared that Lamont may acquire the FAI parcel. 3. It was apparent to Porter by early June that if Lamont gained control of OAMPS he intended to sack Porter and install a new managing director. 4. Porter was aware by 12 June that Adler was intending to sell the FAI parcel and that Lamont was a possible purchaser. 5. Porter was advised by both Lowenstein and Peter Hall of Hunter Hall before 30 June that he should not invest in Clifford. 6. Porter did not tell the OAMPS Board of the advice from Hunter Hall. 7. Porter and Loiterton had discussed a proposal for OAMPS to purchase Clifford shares and Blenheim to acquire OAMPS shares on or about 12 June 1998. 8. From at least 16 June 1998 Porter was taking active steps to try to stop Lamont gaining control of OAMPS. 9. Porter and Loiterton met on 19 June 1998 and discussed the form of the transactions which occurred on 30 June 1998. Loiterton's "file note" is an accurate account of matters discussed at the meeting. 10. Glasgow raised with Porter the problem of s 205 of the Corporations Law on at least two occasions. 11. The alleged telephone conversation between Loiterton and Porter on 26 June 1998 may not have occurred. If however it did occur Porter did not accept that Loiterton would not pursue his intention to purchase the FAI parcel. 12. At the meeting of 29 June 1998 the price agreed by Porter and Loiterton for the purchase of Clifford shares by OAMPS was determined by the monies Loiterton required to purchase the FAI parcel, rather than by bargaining a fair market price for them. 13. The evidence of Harris, Sharkey, Glasgow and Windebank as to the events of 30 June 1998 should be preferred to that of Porter and Walker. 14. At the meeting of 30 June 1998 Porter said: · "the purchase must happen today because FAI will sell its OAMPS shares to the highest bidder. If that (expletive deleted) Kingsley Lamont buys FAI's shares, Lamont will get rid of me and the Chairman." · "this deal will secure my job as Chief Executive." 15. Porter said in the presence of Vibovic and Tehan in the afternoon: "I've just saved my job, but I may go to gaol for it." 16. Porter's substantial motivation in promoting the Clifford transaction was to put Loiterton in funds so that he would be able to buy the FAI parcel. Although he may have believed Clifford was a reasonable investment, Porter was driven by a desire to protect his position at OAMPS believing that if Lamont gained control he would give him the sack. 17. Porter represented to the meeting of 30 June 1998 that due diligence had been carried out. Little, if any, due diligence was carried out on Clifford. 18. Porter's representation that the Clifford shares had to be purchased urgently that day, 30 June, was made for the reason that Loiterton would only be able to acquire the FAI parcel if he had the money to pay for it that day. PART VII – COMMUNICATION WITH THE ASX AND PORTER'S REMUNERATION 1 July 1998 368 The telephone records show that Porter spoke with Loiterton at 9.24 am on 1 July. The call lasted 14.27 minutes. Porter said that they did not discuss the acquisition of the OAMPS parcel. His account of the conversation is not credible. 369 On the same day Glasgow prepared a letter to Loiterton enclosing an application under the Insurance Acquisition and Takeovers Act, which stated amongst other matters that "we understand that interests associated with you may have purchased Corrcar Nominees shares in OAMPS". He said in cross-examination this was "an educated guess" and to ASIC that it was based on a "very strong understanding." It is plain that Glasgow knew what had happened. It is inconceivable that Porter's knowledge was less than Glasgow's. Correspondence with the Stock Exchange 370 At 10.45 am on 1 July 1998 the Australian Stock Exchange faxed a letter to Glasgow at OAMPS. It said: "Australian Stock Exchange Limited ('ASX') has noted that the price of Oamps Limited's ordinary shares has today risen by $0.08 to $0.85. This compares with the closing price of $0.65 on 12 June 1998. We regard timely disclosure of relevant information as of prime importance in the operation of an efficient market. Listing rule 3.1 is a particularly important listing rule. It is part of ASX's continuous disclosure regime and is based on the following principle: Timely disclosure must be made of information which may affect security values or influence investment decisions, and information in which security holders, investors and ASX have a legitimate interest. In the absence of any information which explains the price change referred to above, we wish to make the following enquiries: 1. Are any matters of importance concerning the Company about to be announced to securityholders and/or the market? If so, can an announcement be made immediately? 2. Is the Company aware of any information concerning it which, had it been available to the market, might reasonably be regarded as an explanation for recent trading in the securities of the Company? 3. Does the Company have any reason to believe that there will be a change in the operating profit or loss before abnormal items and income tax such that the figure for the current financial year would vary from the previous corresponding year by more than 15 percent? 4. Does the Company have reason to believe that it will record any material abnormal or extraordinary profits or losses for the current year (or half year)? 5. Is the Company able to offer any other explanation for the price in the securities of the Company? 6. Can the Company confirm to ASX that it is in compliance with the listing rules and, in particular, listing rule 3.1? The queries set out above cover matters of current specific interest to us. However, we cannot be aware of all the information which would be required to ensure that the market is properly informed in accordance with listing rule 3.1. Accordingly, we would emphasise that your responsibility under that listing rule is not confined to, or necessarily satisfied by, answering the specific requests set out in this letter. If the information requested is information required to be released pursuant to listing rule 3.1 your obligation is to disclose the information immediately. Otherwise, your co-operation in lodging a reply in a format suitable for release to the market is required as soon as possible and, in any event, not later than half an hour prior to the commencement of trading (ie prior to 9.30 a.m. E.S.T.) on Thursday 2 July 1998. Your response should be sent directly to me on facsimile number (03) 9614 0303. It should not be sent to the Company Announcements Office. If you are unable to respond by that time you may wish to request a trading halt in the Company's securities. Please refer to listing rule 17.1 and the 'Trading Halts' Guidance Note for further details about the relevant procedures. If you have any queries regarding any of the above, please do not hesitate to contact me on (03) 9617 8711." 371 Glasgow drafted a reply. He included in his draft a reference to the sale of the FAI parcel to Loiterton although a careful reading of the letter from the ASX may not have required a reference to this transaction. 372 Glasgow's initial draft reply took the following form: "We noted your letter of 1 July 1998 and were as surprised as you by the sudden activity in OAMPS Ltd stock. We know of no reason why the price may have escalated. You have referred us to Listing Rule 3.1 and reminded us of our obligation in this regard. Please note that the Board is fully aware of its obligation under Rule 3.1 and does disclose matters of which it is aware that may affect security values. The Board and Company acts in compliance with the Listing Rules, in particular Listing Rule 3.1. The board has a policy not comment on rumours. We understand that the shareholding held by Corcarr Nominees (which holds shares on behalf of, amongst others, FAI) has been sold to interests associated with Mr B. Loiterton but cannot comment further as we have not received a substantial shareholder notice. " 373 Glasgow prepared his draft after discussions with OAMPS solicitor. There is some debate as to when Porter received a copy of the draft. However, he certainly knew of its contents when he was travelling to Melbourne airport in the late afternoon of 1 July. The draft was forwarded with a facsimile which read: "Dear Rob Proposed response to ASX. Have discussed with Bill Koeck at Corrs. A copy should go to Richard [Walker] and Mark [Windebank] and I will send a copy to [ obliterated on the copy in evidence ] Maria should fax it to Nicholas McGovern tomorrow as he has requested on (03) 9614 0303 and not to the announcement's fax no." 374 The obliterated word was "Loiterton." 375 After discussion with Walker, Glasgow sent a copy of the draft to Ian Hall at Clifford. Hall suggested that the reference to Loiterton should be removed from the draft. 376 When cross-examined Walker said that when he received the fax, and before he spoke to Glasgow, he was furious at Glasgow for mentioning Loiterton. Glasgow received a phone call from Porter at about 5.30 pm. Porter was also furious. When told by Glasgow that he had removed the reference to Loiterton on the advice of Hall, Porter thought he meant Peter Hall of Hunter Hall, but calmed down when he understood he was referring to Ian Hall, Loiterton's business associate. 377 It is submitted by the defendants that the evidence strongly suggests that the reason for Porter's fury was that – as he momentarily thought – Peter Hall had been told Loiterton was the purchaser. He knew that Peter Hall and his associate Lowenstein had expressed serious criticisms about Loiterton and Clifford prior to 30 June and that Peter Hall would feel deceived and angry if he found out what had happened – as he was when he eventually found out at the end of July. 378 This reason was put to Porter in cross-examination and he denied it. I am satisfied that his denial cannot be accepted. 379 In his 1998 ASIC interview, Porter said that he understood that Glasgow had sent the draft to Loiterton without Porter's knowledge, and that when he learned of its contents he "just flipped out" and "abused" Glasgow for being so "stupid" in proposing to "misrepresent" the situation to the Stock Exchange and for sending a copy to Loiterton. Porter said that the "misrepresentation" which made him furious was the statement that OAMPS was surprised at the activity in its stock and did not know why the share price may have escalated. Porter said he had been expecting such activity. 380 However, Porter was also angry with Glasgow for mentioning Loiterton. Porter wrote a file note of a meeting with Glasgow at a coffee shop on 5 September, which records: "I had explained how furious I was when he (DG) had drafted arrant lies in response to the stock exchange in relations to the request for confirmation of the identity of the purchaser. RP wrote the accurate factual reply which was sent the next day to the ASX notwithstanding that we believed BL was somehow involved. " 381 It is clear that one reason for Porter's anger was Glasgow's mention of interests associated with Loiterton as the purchaser, despite the fact that, on Porter's own version, he had a "pretty fair idea or suspicion that it could have been Loiterton." As happened so many times the contradictions in Porter's evidence lead inevitably to the conclusion that his evidence is unreliable and cannot be accepted. 382 In oral evidence Porter conceded that, as he said to ASIC in his 1998 interview, he understood that a copy of the fax had been sent to Ian Hall, Loiterton's business associate. Apparently, Loiterton confirmed to Porter that he had received it and said to Porter: "Who's this screw loose character you have got working for you?" to which Porter responded: "I'm not entirely sure he's not screw loose." This exchange is significant. 383 When asked whether Loiterton would have made this comment, Porter said Glasgow's response to the stock exchange was "most unusual" and that although OAMPS had a "pretty fair idea" that the purchaser was Loiterton, there was "no clarity as to who the purchasers were." In my opinion, in making the comment that he did Loiterton could only have been referring to Glasgow's identification of the purchaser of the FAI parcel. 384 Porter's mobile phone records show that he rang Loiterton's number at 5:47pm on 1 July and that the call lasted 1:48 minutes. In oral evidence Porter agreed that it was at least possible that Loiterton had Glasgow's first draft by then. He agreed that the conversation in which Loiterton confirmed he had received it and said to Porter "Who's this screw loose character you've got working for you", possibly occurred during this 5:47pm call. 385 I am satisfied that the explanation for the anger of Porter and Loiterton, is that they were concerned that the draft disclosed that the FAI parcel had been sold to Loiterton. Glasgow's Second Draft Reply 386 As a result of his telephone discussion with Porter, Glasgow prepared a second draft dated 1 July 1998 of a letter to the ASX which, at 18:16, he faxed to Porter's Sydney home. The most significant change was the deletion of any reference to Loiterton. His covering note stated that he had amended the draft "as discussed. Look forward to your comments" and "I have spoken with ASX and they almost put the words in my mouth that we didn't know. Admittedly that was first thing this morning". He also attached a copy of the ASX letter. The second draft read as follows: "We noted your letter of 1 July 1998 and were as surprised as you by the sudden activity in OAMPS Limited's stock. We can only speculate about the reason why there has been an increase. Perhaps the reason is that the shareholding held by Corcarr Nominees (which holds shares on behalf of, amongst others, FAI), we understand, has been sold. You have referred us to Listing Rule 3.1 and reminded us of our obligation in this regard. Please note that the Board is fully aware of its obligation under Rule 3.1 and does disclose matters of which it is aware that may affect security values. The Board and Company acts in compliance with the Listing Rules, in particular Listing Rule 3.1. However, the Board has a policy not to comment on rumours." 387 Porter was still not happy and prepared a further draft at home that night. It did not become the ultimate version. That version was prepared by Glasgow using Porter's draft but was approved by Porter. It read as follows: "In response to your letter 1/7/98 we comment as follows: You have referred us to listing rule 3.1 and we confirm the board of OAMPS is fully aware of its obligations thereto. In relation to specific enquiries raised we reply as to: 1. We are aware of general investor interest in the company from time to time and general business opportunities are brought to us in the normal course of our business activities. We have become aware of the sale of a block of approximately 17% of our issued shares from one shareholder related to FAI Insurance Ltd to an undisclosed party or parties within the past 24 hours. The company had no influence in the transaction and we are currently unaware as to the identity of the purchaser and at the time of writing, have not received a substantial shareholder notice. The company has a policy of not commenting on market rumours concerning the company that come to us from time to time. 2. The board is unaware of any information concerning the company which might reasonably be regarded as an explanation . 3. No. 4. The board has no reason to believe that it will record any material abnormal or extraordinary profits or losses for the unreported current second half year ending 30 June 1998. 5. The board is unable to offer any explanation. 6. The board confirms it is in compliance with the Listing Rules and, in particular, Listing Rule 3.1 at all times". 388 I am satisfied that by this time Porter did know that Loiterton's interests had purchased the FAI parcel. He may not have known which companies under Loiterton's control were to become the owners but the "identity of the purchaser" was known to Porter. The suggestion that OAMPS "had no influence in the transaction" is false. The events which culminated in the transaction of 30 June make plain that without OAMPS participation there would have been no transaction. 389 Porter's file note of 5 September records "RP wrote the accurate factual reply which was sent the following day to the ASX notwithstanding we believed BL was somehow involved." This note confirms that at least part of the reply to the ASX was false. Article in "The Age" 2 July 1998 390 An article appeared in "The Age" newspaper on 2 July 1998 entitled "Mystery buyer as FAI quits OAMPS." It stated inter alia: "Perth-based stockbrokers Carmichaels handled the sale, specialling 3,075,000 OAMPS shares after the close of trading on 30 June. What has raised a few eyebrows around the joint was the price at which the close to 18% line of stock was booked. OAMPS had sold during the day at 75 cents and Carmichaels proceeded to extract $1.10 from the buyer, who has yet to unveil himself. One unconfirmed suggestion doing the rounds yesterday was that interests associated with one Garrie [sic] Loiterton, the managing director and large equity holder in the listed bus and coach builder, Clifford Corporation, had bought the stake ... OAMPS' managing director Robert Porter said yesterday he had 'some suspicions' who had bought the stock but that it was inappropriate to name them. The Stock Exchange has queried the company and at this stage of the game there is not much to say until the buyer unveils himself today. Booked at a near 47% premium on the market, the stake does not confer control on the buyer, who will join a boutique funds management concern run by Peter Hall on the register. Hall has about 17% of the capital ..." Who Was to be the Owner? 391 Loiterton and Hall were initially unsure which of their companies should become the owner or owners of the FAI parcel. Pressure was applied by the ASX for appropriate disclosure and ultimately it was determined that the FAI parcel should be registered in the name of Blenheim. Porter's Salary – the Board Meeting of 7 July 1998 392 On 7 July 1998 an OAMPS' board meeting was held. In attendance were Windebank, Porter and Walker, as well as Glasgow and Siggins. At the end of the meeting Siggins was appointed a director. Porter's salary was discussed at the meeting but there is a dispute as to whether it was resolved to increase his salary. 393 It is alleged by Porter and Walker that the meeting agreed to increase Porter's salary by $50,000 to a minimum of $250,000 with effect from 1 July 1998. Windebank and Glasgow testified that the meeting did not agree to the increase. 394 Siggins gave evidence of his involvement. He was not present at the meeting when Porter's salary was discussed and he had to rely on what he was told by Porter. He said that in late July 1998 Porter told him when discussing a staff salary review that it had been agreed at the 7 July Board meeting that Porter's salary would, in future, not be less than $250,000 per annum with effect from 1 July. This represented a $50,000 increase for Porter which Siggins included in a memorandum he wrote to Sharkey authorising salary increases for various personnel. I am satisfied that Porter's statement to Siggins was not correct. 395 On 27 August 1998 Glasgow prepared draft minutes of 7 July Board meeting. They recorded the following:- "Chief Executive's Contract The Chief Executive and Mr Gordon Siggins left the room whilst these discussions were held. It was resolved to grant a further contract of three years to the Chief Executive with a commencement of 1 July 1998 subject to:- Agreement between the Chairman and the Chief Executive of the new salary; A variation to the terms of the existing contract such that if the existing Chief Executive were to leave due to disagreement with the Board then the Company would pay the Chief Executive 12 months' salary; If there was a takeover then the Chief Executive's contract would be paid out in full if the Chief Executive was forced to resign as a result of the takeover; It was further resolved that the Company Secretary obtain advice on salaries from independent executive search firm and submit these to the Chairman so the Chairman may settle the salary with the Chief Executive. The Chief Executive returned to the meeting as did Mr Gordon Siggins. It was resolved that Gordon Robert Siggins be appointed to the board with effect from close of the meeting subject to execution of a consent to act and that a new contract of three years be entered into with Mr Siggins at an initial salary package of $250,000 commencing from 1 July 1998." 396 Porter later told Siggins that the minutes prepared by Glasgow of the 7 July meeting were wrong and that Glasgow had included things "off his own bat". Porter asked Siggins to get Vibovic to prepare amended minutes and get them circulated. 397 Siggins handed Vibovic a copy of Glasgow's draft minutes with Siggins' handwritten amendments and asked her to make the changes and send them to Porter. Subsequently, Siggins asked Walker whether Porter's advice as to what was agreed at the 7 July board meeting was correct and Walker said that it was. In consequence of what he had been told, Siggins signed the amended minutes relating to the 7 July board meeting on 25 September. Porter also signed them on that day and Walker signed them on 29 September. 398 The amended minutes of the 7 July board meeting included the following: "It was resolved to renew the Chief Executive's current contract for a further 3 years effective 1 July 1998 subject to: - Agreement between the Chairman and the Chief Executive of a new salary which would not be less than $250,000; and - It was further resolved that the Company Secretary obtain advice on salaries from independent executive search firm and submit these to the Chairman so the Chairman may settle a salary with the Chief Executive. The Chief Executive returned to the meeting." 399 Windebank gave evidence about the 7 July meeting. I accept his evidence. He said that Porter said he should have a new 3 year contract to deter unwanted purchasers under which he would be paid out in full if dismissed. Windebank opposed this. Windebank also says that there was a discussion about Siggins' salary and agreement that he would be paid $250,000. He says Porter's salary was discussed and Windebank expressed the view that it should be $250,000 to $300,000. Walker suggested $350,000. Windebank said that no figure was agreed and that the original minutes are correct. 400 Walker gave evidence which differed from Windebank's evidence. He says that there was agreement that Porter's salary should be at least $250,000. 401 I reject Walker's account and accept that of Windebank. Although there was discussion from which it may have been anticipated that Porter's salary would be at least $250,000 the actual figure was dependant on the receipt of market information and a future resolution of the Board. I do not accept that it was resolve at the meeting that Porter's salary would be at least $250,000. 402 A circular resolution of the board of OAMPS relating to Porter's salary increase was signed by Siggins on 23 September 1998 and by Walker on 2 November 1998. It stated:- "It is resolved that: Taking cognizance of salary to be recommended by the then chairman, Mr M Windebank as advised on Tuesday 1 September 1998 following his further review, it is resolved that the Chief Executive's salary be increased to $300,000 plus superannuation entitlements effective 1 July 1998. In addition there will be a performance based bonus to be determined at the discretion of the board" 403 On 16 October 1998 a document described as a deed was executed, although it was not under seal, between OAMPS and Porter. It was signed on behalf of OAMPS by Walker. It amended Porter's service agreement of 27 November 1996 by changing the period of employment from 3 years to 30 June 2001 and by increasing his remuneration from $185,000 to $300,000. The document recited:- "A. At a meeting of the Board of Directors on 8 July 1998, it was agreed to extend the Managing Director's contract for the Employment Period with Remuneration increased to an amount of not less than two hundred and fifty thousand dollars ($250,000) subject to the Board of Directors ratifying the actual increase over $250,000 at a subsequent Board Meeting, but retrospective to 1 July 1998. B. The Board of Directors subsequently agreed that the actual increase would be up to an amount of three hundred thousand dollars ($300,000)." 404 As I have indicated Recital A is not correct. 405 In late July 1998 Windebank received from Glasgow a report from the independent executive search firm referred to in the draft minutes. On 1 September Windebank told Porter he would not approve a remuneration increase. PART VIII – THE SCANNED SIGNATURE INCIDENT The Events of 21 August 1998 406 On 21 August 1998 events occurred in the Melbourne office of OAMPS which have become known as the "scanned signature incident." They are not of direct relevance to the present controversy but provide significant background. They are of relevance to credit issues and certainly expose the animosity within the OAMPS organisation. The incident also reveals Porter's capacity to act in a manner which alienated his staff. Although Porter's actions have given those affected significant reason to dislike him and be concerned, at the time, about their future, I do not believe it has operated to cause those affected to give an untruthful account of events. 407 Vibovic, Sharkey and Harris were all involved. Vibovic's account of the events, which I accept, was as follows: "(a) A bit after 2:00pm on Friday 21 August 1998 Craig Harris ('Mr Harris') (OAMPS' Management Accountant) came to me and said in substance that he needed a transfer to be signed urgently by an authorised signatory so that moneys could be paid to an underwriter in order that OAMPS could avail itself of a discount of around $13,800, which would only be available if payment was made on that day. Mr Harris said in substance that he could not locate Messrs Lee and Cuthbert, the other authorised signatories, and therefore needed to obtain Mr Porter's signature; (b) I immediately rang the Sydney office in an effort to speak or to locate Mr Porter. I spoke to his Sydney secretary, Sara Gee. She said words to the effect: 'Rob is not in the office at the moment. I am not sure what time he will be back'; (c) I then rang Mr Porter's mobile, but was not successful in getting through to him; (d) The Financial Controller, Peter Sharkey ('Mr Sharkey'), suggested to me in substance that we may be able to use Mr Porter's scanned signature to effect the transfer; (e) The scanned signature is an image of the signature of Mr Porter (and other directors) contained on computer disk, which had been frequently used by OAMPS for the signing of shareholder letters, memoranda, accounts, annual reports and other reports and documents; (f) I do not recall a scanned signature specifically being used for a funds transfer form. On the other hand, to my knowledge, there had been no direction by Mr Porter, or anyone else, to the contrary; (g) Whenever I had in the past wished to make use of Mr Porter's scanned signature I had asked him first for his permission to do so. Without exception, he approved such use and said words to the effect: 'Go ahead, no problem'; (h) In circumstances in which: (i) I was unable to locate Mr Porter; (ii) the situation seemed to be urgent; (iii) the substantial sum of money, which I understood to be around $13,800, was at stake; (iv) the officer immediately in charge of the transaction, Mr Harris, was the one who wanted the transfer effected and, accordingly, had authorised it; (v) the Financial Controller of OAMPS, Mr Sharkey, was the one who had suggested using the scanned signature and, accordingly, authorised it; and (vi) I understood from Mr Harris in substance that there was only a need for Mr Porter's signature because the signature of David Wyner had been rejected by BankWest on the basis that he was not an authorised signatory, whereas his signature had previously frequently been put forward and accepted by BankWest as a signature of an authorised signatory (and subsequently this was rectified so that he formally did become an authorised signatory), I regarded it as appropriate to use Mr Porter's scanned signature on the transfer form, which Mr Harris had with him. Accordingly, I arranged for that signature to be scanned and used for that purpose." 408 Sharkey and Harris gave evidence to similar effect. Harris asserted that, in the circumstances, he did not believe his actions were inappropriate. 409 On finding out about this event Porter reacted with great anger. He demanded apologies and says that he told Windebank either that he was going to dismiss Sharkey, and possibly Vibovic , or that he was minded to dismiss Sharkey and Harris. Windebank forbade him from doing so. 410 I am satisfied that all of Sharkey, Harris and Vibovic acted honestly, and as they saw it, in the best interests of OAMPS. The incident was highlighted by Porter's counsel in an attempt to damage the credit of the major participants. That attack fails. Porter's reaction to the situation underlines the climate which existed at that time within OAMPS and is consistent with Windebank's view of Porter's management of OAMPS personnel. Problems with Disclosure to Hunter Hall 411 I have already identified the fact that Lowenstein and Peter Hall had an adverse view of Clifford and Loiterton. Peter Hall had a discussion with Porter on 3 July 1998 when Hall indicated that he was concerned about Loiterton's presence on the share register of OAMPS and would be looking to have a Hunter Hall representative on the Board. 412 Notwithstanding their discussions and the significant interest which Hunter Hall had in OAMPS, Porter did not tell Hall or Lowenstein about the purchase of Clifford shares until 31 July 1998. When he found out, Hall said to Porter: "You have deceived me. I am astounded. It is such a bad investment. You will lose the whole investment." 413 Hall's judgment proved to be correct. On 31 July Hall decided to dispose of Hunter Hall's interest in OAMPS because he had "lost confidence in Porter's competence and honesty." 414 Porter did not immediately disclose the purchase of the Clifford shares to the ASX. In fact he only made disclosure in September 1998. Although OAMPS submitted that Porter deliberately concealed the purchase it is unnecessary to make a finding about that aspect of the matter. PART IX – DIFFICULTIES EMERGE: CIVIL PROCEEDINGS AND THE CRIMINAL TRIAL The Chairman's List 415 It is apparent that by June 1998 Windebank had reservations about Porter's management of OAMPS. However, it was the scanned signature incident of 21 August which appears to have been the catalyst for some action by Windebank. 416 As I have already related, following the use of Porter's electronic signature, Porter moved to sack Harris and Sharkey. Windebank took exception to this course. Glasgow was also concerned and raised other issues with respect to Porter's management with Windebank. Glasgow prepared a list of his concerns which included ten matters. Windebank added a further item relating to Porter's salary increase. The full list, referred to as the "Chairman's List" during the course of the trial, is as follows: "1. Sacking of an employee merely because he was a bit smart and on the basis of association. The association was the link to an activity of the company back some 4 years ago and now because he was in the accounts department when the use of RAP's scanned signature was used. 2. Sacking of the Financial Controller because he suggested the use of the scanned signature. However, it was the means by which this was done. The general abuse metered out, saying the person committed a forgery and fraud. 'Shredding' of Gordon Siggins because he should have separated P Sharkey and C Harris. 3. Sacking of the Company Secretary saying that the Board were behind him and that the recent board resolution was rescinded, whereby the Company Secretary was to be the Managing Director of the Super area. Then some short time later re-appointing that person. Use of spurious grounds to effect the sacking, eg should have obtained approval from director before exchanging contracts, not a team player, approval of legal expenses all of which were later considered to have been appropriately incurred and approved. 4. Shredding of D Wyner in front of D Burdis, then 2 days later repeating the dose all because a file was handed to the PI insurers solicitor when that person asked for it and DW was advised that the PI insurer would look favourably upon this action and there was nothing in the file and generally for being co-operative with the PI insurer. 5. Inappropriate use of his position · Sacked Rod Geer, the Parramatta manager and then reemploy him on the basis that he would provide a workers comp resource for OCR a related Corp where the MD had a shareholding. The costs to be borne by OAMPS not OCR, yet the income would flow to OCR. · B Kelly and S Gee both used by OCR but where the cost is either fully borne by OAMPS or partly borne by OAMPS. · Issuing a memo that the FI simulator was to be a profit center and no expenses for it were to be noted in the Motor Sport budget. 6. Issues associated with the recent acquisition of the shares in Clifford Corp particularly the issues raised by Peter Hall about the true profit of that group. The complete disregard of the Auditors comments about the method of solving the 'mark to market' of the shares brought by AIIL (formerly OIIL), a requirement of accounting standards for general insurers. 7. Motor Racing – The budget suggested for this year was $500,000. That was said to be ridiculous by RAP. Yet a recent calculation of what was spent in 97/98 was $370,000 and then that did not have in it the cost of the Demo Car ($43,000 because it was an asset) or the Pontac ($8000, because it was also an Asset and it did not have any airfares or accommodation costs included. The most likely figure is much closer to $500,000 than $250,000. NB Board only approved $150,000. Auditors are aware of this and may raise it. When presented with the expenditure of $370,000 RAP then removed the fees paid to Peter McLeod (Ryan McLeod's father) and Peter Jansen as these were consultant's fees and the launch was re-classified as a conference. 8. Sale of the JNA shares only a matter of days before the price went up and they were taken over, at a loss of the potential profit of $80,000, which P Hall had said would be there and which P Hall received, in fact he made $5 million. 9. Actions concerning the possible acquisition of investor Group, eg Arrangement about whom was to be the MD. Has the board been informed about the fees that will be payable to Johnson Taylor if the bid is successful, namely $150,000. 10. Although not mentioned, John Jones (who was described as a fool after the meeting with he and L McHugh) offered to send both David Wyner and Gordon Siggins to NIBA conference with their wives at expense of Marc. RAP said not coldn't go that the funds for that would go to sponsorship of motor vehicle and D Wyner was to ensure it happened. Not fair especially as both David and Gordon had already informed wives. At the lunch meeting when David and Gordon were offered the trips, Gordon canvassed John Jones as a possible director. He said only if he was Chairman. RAP has said to John Jones that can be arranged (this is only known by Maria, Gordon and David Wyner). 11. The granting of a $50,000 increase in salary to himself (RAP) without any authorisation from Windebank or Board." The Meeting of 1 September 1998 417 Porter and Windebank met on 1 September 1998. Relations were not good. Windebank read the list to Porter. There was disagreement about whether Porter's salary increase had been approved. Windebank maintained that he had not approved it and, as I have indicated, I accept his evidence. They also disagree as to the detail of their conversation on this occasion. I accept Windebank's account of it. 418 On 2 September Windebank sought to convene a meeting of directors to discuss Porter's performance. He sent a fax to Porter informing him that he would be excluded. Porter then sent Windebank a facsimile in the following terms: "I am in receipt of your fax dated 2 September 1998. It is with considerable regret that we reached such an impasse yesterday in regard to the propriety of the unauthorised use of my facsimile signature on the recent funds transfer documents. I have stated, to both you and the auditors, that I do not want to be compromised on this issue. It is an essential part of good corporate governance that the authorities for cheque signing and trust account payments have to be written in stone. Any breaches of procedures have to be dealt with severely and quickly. You must have forgotten that shortly after taking the CEO's responsibilities at OAMPS, I discovered a well entrenched practice of the Accounts Department was to transfer brokerage from the Insurance Broking Account without regard to our legal entitlement – a clear actionable breach of the Insurance Brokers and Agents Act which had been taking place for some years and while you were a Director of the Company. As you will recall, I swiftly resolved the matter and visited the Deputy Insurance Commissioner in Canberra to seek his approval to the remedial measures that were taken and offer my assurances that it would never happen again while I was in charge. Your persistence in condoning the unauthorised use of my signature is a matter that has possible grave consequences for the company, particularly at this time of great uncertainty in the investment markets. I query why the Chairman has unilaterally decided to become actively involved in management issues. Calling for a special meeting of Directors to propose a vote of no confidence in me will, if made public, and particularly in the light of the central issue, have a seriously destabilising effect on the share price. This, particularly so close to a regularly scheduled board meeting where issues of dividend and investment policy are to be discussed, will make matters unnecessarily worse. I have suggested you call off the special meeting and raise your concerns in relation to my stewardship of OAMPS on Tuesday with Directors. You must give me the opportunity to respond to the allegations you are making against me. You have already declined to agree with the above suggestion, but nevertheless I restate the request in the hope you will reconsider. You have advised me you had sought the advice of Senior Council (sic) as to the aforementioned matters. From this, I can only draw the conclusion that there may be some other underlying motive in you taking such an extraordinarily firm stand in a matter that I would normally have expected you to have supported me on. The list of 'matters of concern' you read from that will form the basis of your presentations appears to be quite comprehensive and the result of some well prepared representations made to you by the two Accountants through the intermediary of the Senior Audit partner of Ernst & Young. I have spoken to Geoff Linton and advised I take great exception to his mischievous involvement. Geoff Linton has advised me not to speak to the Bank about the fact that the transfer was effected without correct signing. I will, if need be, report this matter to BankWest for their comments. The advice given me by Summerton de Vere, a copy of which I have sent you, is the advice I expected and indeed the advice I wish to proceed on. With the initial concurrence of the Auditors on Friday 28 August 1998 and again Monday 31 August 1998, I still maintain the performance of the two Accountants, Sharkey and Harris is such as to seek their resignation from the company for breach of financial guidelines and other serious matters. If need be, we should take our chances in court if they sue for wrongful dismissal. They will probably leave in time anyway. That you are happier to field a wrongful dismissal suit from the CEO is, I believe, a wilful disregard for the well being of the company and shareholders and I urge you to reconsider your position. I think it would be far more helpful for you to draw up a list of the good things I have done for the company over the past few years and reflect on my achievements. I feel very strongly about the way you have thrown the fortunes of the company into the never never land of potential litigation. You have not afforded me the courtesy of proper discussion. I am very happy to sit and discuss this further, but equally I will pursue the matter vigorously in court if need be. It's your call. Our former and disgruntled staff will love you for this. I expect shareholders will call for an EGM for the purpose of expressing their view on the matter. I already have considerable support from senior shareholders who are extremely unhappy with the way you are handling this. Please note your allegations of my impropriety are denied and I will brief Counsel in an effort to protect the company from your improper support of two subordinate staff who report to me, or should I say, did report to me . In view you have effectively suspended me from office, I too have a comprehensive file that I will table – good luck. Mark, I take even greater offence that you are touting that you have 'something big' on Porter and you are maliciously publicising same to consultants, colleagues and staff . Would you please refrain from these actions as it is very destabilising to the staff, injurious to me and not in the best interest of the shareholders. In the meantime, with best regards," 419 It was obvious that matters had now taken a serious turn and major conflicts had emerged. 420 Porter's counsel submitted that as the Chairman's List did not include direct allegations of a breach of s 205 by Porter on 30 June it should be concluded that the allegation was trumped up and that problems with the Clifford transaction did not occur to Harris and Sharkey, as they allege on 30 June and immediately thereafter. The acquisition is referred to in item 6 of the List but there is no reference to s 205. 421 The submission needs to be considered in light of the fact that the genesis of the List was not Harris or Sharkey but Windebank and Glasgow. I accept that Glasgow gave Porter advice on 30 June, that he could not allow the protection of his own position to motivate his actions. However, it is plain from Porter's "something big" comment in his facsimile and the actions which immediately followed that the concerns of Harris and Sharkey were now being ventilated. 422 I accept that until events began to unfold Harris and Sharkey were not sure where Windebank may have stood in relation to Porter or the Clifford transaction. However, once Windebank made it apparent that he did not approve of many of Porter's actions they felt able to communicate their concerns. Having regard to the force of Porter's personality and the actions which he did take, any reticence by Harris and Sharkey in raising their concerns is entirely understandable. The submission that their evidence was fabricated to damage Porter has no substance. Movements on OAMPS' Share Register 423 On 1 September 1998 FAI purchased Hunter Hall's shareholding in OAMPS at 70 cents per share. On 10 September FAI re-sold a portion to Lamont's company Belgate Pty Ltd. On 15 September 1998 OAMPS redeemed its units in the Hunter Hall trust (following Hunter Hall's sale of its investment in OAMPS to FAI and Lamont interests). Windebank's Unsuccessful Attempt to Convene a Board Meeting 424 On 2 September 1998 Windebank gave notice to the directors of a board meeting to be held on 4 September 1998 to review Porter's performance as managing director. At the same time he sent a fax to Porter indicating that he was to be excluded from the meeting. 425 On 3 September 1998 Siggins provided Windebank with an opinion from Anderson Rice, lawyers for OAMPS, stating their opinion that the meeting which Windebank had called was invalid. Siggins told Windebank that he had been advised not to attend the meeting. Porter Suspends Sharkey and Harris 426 On 3 September 1998 Porter suspended Sharkey and then Harris until further notice, stating that he would review the matter in ten days. It was colloquially referred to as being given "garden leave". Sharkey remained suspended until 21 September 1998, when he tendered his resignation with effect from 24 December. He was reinstated as financial controller effective from 30 November 1998 after control of OAMPS had passed to Lamont interests. Harris remained suspended until 22 September. Advice 427 On 3 September 1998 Windebank obtained advice from Mr P Willee QC as to the validity of the proposed board meeting and provided copies to the other directors. Willee QC advised that Anderson Rice's advice was incorrect. It also stated that "the fraud squad may also need to be brought in", a reference, as I understand it, to the problem with respect to Porter's salary. On 7 September 1998 Windebank and (at Windebank's request) Sharkey, met in the chambers of Willee QC. Windebank Resigns as Chairman 428 The meeting scheduled for 4 September 1998 was not held, but on that date Porter, Walker and Siggins sent a fax to Windebank stating that they as directors had lost confidence in him as chairman and as a director and intended to have the matter listed at the next board meeting on 8 September 1998 when they would vote for his removal as chairman. The fax stated that the major shareholders had indicated that they would support management and the other directors. Windebank's resignation was requested prior to the next board meeting on 8 September. 429 On 4 September 1998 Windebank sent a fax to the Australian Stock Exchange. He enclosed a letter to OAMPS, in which he resigned as chairman. He indicated in the letter that he was taking this action because of "grave concerns" relating to "the way in which management is being conducted, of which you are well aware as a result of our prior discussions. The possibility exists that the situation may be retrieved at the board meeting scheduled for next Tuesday ... I intend to remain as a director until the meeting takes place. I propose to release a copy of this statement to the ASX." Suspension of Trading in OAMPS' Shares 430 A letter dated 4 September 1998 from OAMPS (Glasgow) to the Australian Stock Exchange stated that, following resignation of the chairman, OAMPS requested suspension of the company from the official list until the board meeting on 8 September 1998, to clarify corporate governance issues. Porter's Proposed Action against Windebank and Others 431 A facsimile dated 4 September 1998 from OAMPS' insurance brokers Swire Blanch to Porter refers, inter alia, to "the company's proposed actions against Windebank, Glasgow and your corporate lawyer Koeck from Corrs Chambers Westgarth." The fax goes on to say: "We have reviewed your Directors & Officers Insurance Policy wording and are of the view that costs incurred by Messrs Windebank and Glasgow are not recoverable by them under the Directors & Officers policy due to the specific exclusion for actions of Insured v Insured. We will of course speak with your insurers to obtain specific clarification of this point". 432 The proceedings referred to were at this time proposed by Porter and to be taken by OAMPS against the named persons. In cross-examination Porter denied that he asked Swire Blanch for this advice. However, he said that he asked them whether in the event that he were to take action, against Windebank, Glasgow and Koeck, would this affect the insurance arrangement. 433 I am satisfied, as Burdis indicated, that Porter did seek this advice and had indicated that he was proposing to sue Windebank, Glasgow and Koeck. An Anonymous Letter to ASIC 434 On 7 September 1998 the following anonymous letter was sent to ASIC:- "Following shares being suspended on Friday 4 September, 1998, in OAMPS Ltd the following matters need further clarification. 1. On or about 15 June, 1998, OAMPS Ltd Executive Director R.A. Porter commenced negotiations with B Loiterton to acquire FAI shareholding in OAMPS - approximately 17%. 2. On 30 June, 1998, at or about 4:10pm market sale occurred where FAI sold its shareholding in OAMPS Ltd to Companies associated with B Loiterton. This transaction was 3,025,000 shares in OAMPS at $1.10 per share where previous on market trading was at 85c. 3. On 30 June, 1998, Australian International Insurance Ltd (wholly owned by OAMPS Ltd) and where R.A. Porter and D Glasgow are both Director and Company Secretary of both entities purchased on market 6,527,249 shares in Clifford Corporation Ltd in which B Loiterton is a Director and Shareholder. This transaction represents 4.99% of Clifford Corporation Ltd issued capital. The purchase price was approximately $2,806,717. The seller of the Clifford Corporation Ltd shares was JCA Nominees Pty Ltd which was ultimately the source of funding for the purchase of Loiterton Companies in OAMPS Ltd. Concerns Are:- 1. Denials in press and response to ASX queries by R.A. Porter and D. Glasgow are blatantly false as these persons were involved in purchase of Clifford Corporation shares using Australian International Insurance Ltd. 2. R.A. Porter, Director of OAMPS sold shares in OAMPS Ltd in April/May, 1998, yet only disclosed sale to ASX on 20 July, 1998. 3. Now the Chairman of OAMPS has resigned due to corporate governance issues. This probably comes in light of the fact that he has found out about transactions that R.A. Porter had undertaken without reference." 435 After this letter the problems were no longer a matter only for OAMPS. ASIC was about to become involved. Windebank Seeks Legal Advice: The Mallesons letter 436 On 8 September 1998 Windebank obtained a letter of advice from Mallesons Stephen Jaques in relation to the Clifford Transaction and other matters of corporate governance including the recent treatment of Sharkey and Harris. It has become known in these proceedings as "the Mallesons letter." The letter stated as follows: "We refer to our conference this morning. You have asked us to advise you urgently as to your rights and duties as a Director and Shareholder of the Company in the light of specific events concerning the Company which have occurred under the instruction of the Company's Managing Director, Mr Robert Porter. Those events are summarised in the Schedule attached to this letter. (effectively "the Chairman's List") You have instructed us as to the relevant background as follows: 1. You are a director of the Company. 2. Until 4 September 1998 you were the Chairman of the Board of the Company. 3. You have a 0.75% shareholding (approximately) in the Company. 4. The other directors of the Company are Mr Robert Porter (Managing Director), Mr Richard Walker (Non-Executive Director) and Mr Gordon Siggins and Mr Duncan Glasgow is the Company Secretary. 5. Over recent weeks you have become aware of numerous events in the corporate governance of the Company which have concerned you. In particular, you have referred us to: (a) the unfair dismissal, reinstatement and then suspension of Mr Peter Sharkey, the Financial Controller, and Mr Craig Harris, accountant, of the Company; (b) Mr Sharkey's replacement by a former financial controller of the Company who was dismissed for deceiving the Board; (c) the following events which transpired on 30 June 1998: (i) an urgent meeting of the directors of the Company was called concurrently with a meeting of the investment committee in relation to a proposed investment of $3 million in the shares of a vehicle manufacturer, Clifford Corporation Limited ('Clifford'); (ii) the acquisition was pursuant to an arrangement between Mr Porter and Mr Loiterton of Clifford for, principally, the private interests and gain of Mr Porter ('the Arrangement') in the following circumstances: (A) FAI had received an offer from the Steadfast Consortium to purchase its interest in OAMPS for $1.00 per share at a time when the Company's shares were trading on the stock exchange at 0.82c. (B) Mr Rodney Adler, of FAI, was asked by Mr Porter not to sell his shareholding in the Company to Steadfast, but arranged for an increased offer of $1.10 to be made to FAI by Clifford. (C) To induce Clifford to make the increased offer to FAI, Mr Porter agreed to purchase shares in Clifford at a premium (being 0.48c per share at a time when the Clifford shares were trading at 0.42c) in sufficient volume to, in effect, provide Clifford with sufficient funds to purchase Company's shares which would otherwise have gone to Steadfast. (D) Prior to your attendance at the meeting, and unbeknown to you at the time, Mr Porter advised the meeting that the purchase was to 'secure his position as CEO of OAMPS'. (E) When you attended the meeting, you were unaware of the Arrangement but were informed by Mr Porter: (a) that the purchase had to be effected that day; (b) that it was appropriate to purchase the shares of Clifford at a premium because of the volume of shares being purchased (even though the parcel of shares being purchased was less than 5% of the insured share capital of Clifford); and (c) that Clifford had good asset backing. (d) Although you have only learned of the details of the Arrangement in the last day or so, you have already raised the other matters set out in the Schedule with Mr Porter but he has given you unsatisfactory explanations of them. (e) You have sought to raise the Arrangement and the other matters set out in the Schedule with other directors. However, you believe that they have been influenced by Mr Porter and are not prepared to independently assess the actions of the Company. Advice You have sought our urgent advice on the legal implications for the Company of its actions and of your rights and duties as a director and shareholder of the Company. Our advice follows. Director's Duties Are you are aware, as a director of the Company and a fiduciary, you have the following positive duties: (a) to act in good faith for the benefit of the Company as a whole; (b) to give adequate consideration to matters for decision; (c) to exercise powers only for proper corporate purposes; (d) to act honestly; and (e) to avoid any conflicts of interest. In these circumstances, you have a duty to bring to the attention of the Board, the matters set out in the Schedule as soon a possible. Should your notification be ignored, you may elect to either resign immediately as a director and/or notify the ASIC of some or all of the corporate governance issues affecting the Company. You also have rights as a shareholder as set out below. On our instructions, Mr Porter's actions and motivations as set out in paragraph 5(c)(ii)(D) above may constitute a breach of section 232(6) of the Corporations Law which prohibits improper use of his position for personal gain. Section 205 of the Corporations Law - Financial assistance by a company in acquiring shares in the company Section 205 of the Corporations Law (prior to recent amendments to that law), as it applies to the transaction referred to in paragraph 5(c) above, relevantly provides that a company may not, directly or indirectly, financially assist the acquisition of its own shares. Based on your instructions, we believe there is a serious risk that the Company has contravened that section. Moreover, from your instructions, the following matters support the view that the purchase of the Clifford shares was not in the best interests of the Company or its shareholders as a whole: (a) the shares were brought at a premium not warranted by the size of the parcel of shares; (b) the investment in Clifford represented an unusual investment risk and this has been evidenced by the already significant drop in share price; (c) the most compelling reason for the purchase was to satisfy the private interests of Mr Porter and, particularly, the retention of his position as CEO. The company is therefore exposed to the potential illegality of that transaction. Section 260 of the Corporations Law - Members rights and remedies for oppressive conduct of directors From your instructions and the Schedule, there appear to be a number of matters reflecting that the affairs of the Company are being conducted in a manner that is oppressive, against a member or members, or are being conducted in a manner that is contrary to the interests of the members as a whole. In particular, the exposure of the Company to potential illegality under section 205 of the Corporations Law is a serious concern. In these circumstances, a shareholder may apply to the Court under Section 260 of the Corporations Law (as recently amended) for orders including: (a) an order for regulating the conduct of affairs of the Company in the future; (b) an order restraining a person from engaging in specified conduct or from doing a specified act or thing; or (c) an order requiring a person to do a specified act or thing. These powers of the Court would be wide enough to, for example, suspend a person or persons from continuing in the management of the Company. Accordingly, we recommend that you bring each of the matters set out in the Schedule to the attention of the directors and, failing an appropriate response, we advise that your options for relief include an application to the Court under this section." 437 Both Porter and Walker emphasised in their evidence that the Mallesons letter contained errors. This is true in some respects. In particular, the name of the companies which were the parties to the transactions were not known to Windebank or Mallesons at that time and are wrong. However the essential elements of the problem were identified. The issues raised were serious. 438 Although no doubt the letter was sought by Windebank to reinforce his concerns about Porter's management and in an endeavour to persuade the Board to address relevant issues, it reflected deliberate and considered advice about matters going to the core of the corporate governance of OAMPS. 439 It must be remembered that OAMPS was and remains a public company. The Board owed duties to the shareholders to ensure that their interests were protected and that the assets of the company were not utilised for the personal benefit of one or more directors. Faced with the advice from Mallesons, even if that advice reflected only the concerns of the Chairman, the Board was duty-bound to investigate and determine all issues which it raised. Audit Committee and Board Meeting of 8 September 1998 440 On 8 September 1998 at 10:00am a meeting of the audit committee of OAMPS was held. Those in attendance were Porter, Walker, Windebank, Siggins, and Linton and Chapman of Ernst & Young. The draft minutes noted that the secretary, Glasgow, was absent. Paragraph 4.2 of the draft minutes recorded, inter alia, that Windebank discussed the disclosure of the loss on the Clifford investment. According to the minutes Porter did not think that the amount should be disclosed, particularly in light of gains on the Hunter Hall investment post-30 June 1998 which he believed would offset the Clifford position. The meeting closed at 11:04am. 441 The audit committee meeting was followed by a meeting of the board of directors attended by Walker (who was elected chairman of the meeting), Porter, Siggins and Windebank. The board minutes record the following. Glasgow tendered his resignation as company secretary at the previous meeting. Walker suggested that the approval of the minutes of the previous meeting (i.e. of 7 July 1998) be deferred. Windebank objected, but a resolution to that effect proposed by Porter and recorded by Siggins, with Windebank voting against, was carried. Paragraph 4.2 dealt with the Clifford transaction. It reads as follows: "Mark Windebank alleged impropriety in the Clifford Transaction by Porter. He alleged that Porter stated that this transaction would secure his job as a Chief Executive Officer. Porter denied making that statement . It is noted that Mark Windebank was not present at the time when Robert Porter allegedly made that comment and that he had heard about it from three people presumably Sharkey, Harris and Glasgow... Mark Windebank tendered a document prepared by Mallesons Stephen Jaques on his behalf … in regard to Mark Windebank's allegations against Porter which Porter denied as untrue and malicious". At 1:30pm Windebank requested an adjournment for half an hour in order to see his lawyers. When the meeting re-opened at 2:20pm:- "Mark Windebank suggested that an independent person be appointed to investigate his allegations and that he wanted to get the shares back on the market tomorrow. He also stated that the other option is that he resign today in which case it will become very public. (Porter interjected because he would make it so for reasons best known to himself). The Chairman referred the matter to Robert Porter as the allegations were directed to him. Porter responded that this was an unwanted and improper personal vendetta that was damaging to the company at a critical point of its rebuilding. Robert Porter voted that the director resign from office as already requested by the directors of the company as originally invited to do so by the board" 442 After further discussion, the minutes record, that Windebank stated that if he resigned from the board that day he would be compelled to go to the regulatory authorities. He asked the board to consider the best interests of the company. Porter stated that the company "was held at ransom" by Windebank and the company would, if need be, take legal action to have him restrained. After further adjournments that afternoon, Windebank did not return to the meeting which finished at 4:50pm. The minutes record that at 4:51pm Windebank tendered his resignation. Communications with ASX September 1998 443 On 8 September 1998 OAMPS Walker wrote to the Australian Stock Exchange requesting that the suspension of OAMPS shares be lifted. The letter stated inter alia: "The previous non-executive chairman, Mr M Windebank, resigned as Chairman on 4th September, releasing a statement to the ASX alleging problems with corporate governance ... Mr Windebank has, due to irreconcilable differences of opinion with the Board, elected to resign with immediate effect". 444 On 9 September 1998 Windebank wrote to the Australian Stock Exchange and ASIC advising of his resignation as a director of OAMPS on 8 September as follows: "My resignation is the result of irreconcilable differences with other directors on corporate governance issues and , in particular, my concerns in relation to a transaction on 30 June 1998 which involved the purchase by OIIL [sic] Limited of shares in Clifford Corporation Limited. Other directors rejected my proposal for the investigation of the transaction by an independent person who would report to the Board. I do not believe that I can continue as a director in those circumstances". 445 On 9 September 1998 Walker sent a letter to the ASX which stated: "I am satisfied there is no breach of corporate governance which requires further investigation" 446 Walker claimed in cross-examination that Glasgow had drafted this letter, but I do not believe that to be the case. Glasgow had resigned as secretary before the board meeting of 8 September and it was never suggested to him in cross-examination that he had drafted it. Throughout these proceedings both Walker and Porter were keen to deflect criticism of themselves to Glasgow. 447 On 9 September 1998 Porter sent the ASX a fax which stated that, in response to the issues of corporate governance, the company attached for release letters from its auditors, Ernst & Young, and its independent director. In fact the Ernst & Young letter did not deal with the Clifford Transaction or the s.205 issue. Porter's fax also stated that "the contents of all releases by the company since 30 June 1998 remain unaltered". 448 On 9 September 1998 Porter met with Crosby and Kidson of the ASX. Also in attendance were Winchester (OAMPS' solicitor), Linton of Ernst & Young and Siggins. They discussed the issues raised by Windebank. According to Porter, Crosby said that OAMPS' shares would be re-listed the following day. On this occasion Porter disclosed to the ASX for the first time, OAMPS' purchase of the Clifford shares on 30 June 1998. 449 On the same day the ASX lifted its suspension of trading in OAMPS' shares. 450 On 10 September 1998 Porter sent a letter to shareholders which stated that "due to a breach of internal controls we found it necessary to suspend trading in our shares for three days. We regret any consternation this may have caused however you will no doubt appreciate the necessity to ensure due process pending satisfactory resolution which has now taken place." 451 On 17 September 1998 Porter made the first written disclosure to the ASX of the purchase of the Clifford shares on 30 June 1998. The letter stated:- "In accordance with your request regarding Listing Rule 3.1 (Continuous Disclosure) we are advising you about the investment policy of OAMPS Ltd and subsidiary companies. This response is concurrent with acknowledgment given previously by the ASX that it is responding to rumour and gossip. Our reply encompasses only a response in fact. OAMPS' Board and its investment committee have a policy of splitting its investment (excluding those managed by its superannuation funds) into three areas:- . Equity investments directly or through managed funds. ? yielding property investments. ? cash deposits. The investment objectives are to maximise returns within a reasonable risk profile. We confirm that, consistent with the above strategy, OAMPS has purchased approximately 6 million ordinary shares in the capital of Clifford Corporation Limited in the market through a line of stock offered by a broker . The purchase price was funded from the group's cash resources. Recently, the group made a similar investment of approximately $3 million in a fund managed by Hunter Hall. We have recently sold this investment and realised a return in excess of 30% on an annualised basis. ... As you are aware, we are of the view that we have already complied with our continuous disclosure responsibilities in not making a prior specific announcement of our acquisition of Clifford Corporation Limited shares" 452 The letter was not accurate in two respects. 453 It wrongly stated that the Clifford share purchase was "in the market through a line of stock offered by a broker" whereas, in fact, it was agreed between Porter and Loiterton at their meeting on 29 June. The role of brokers was merely a formality. The impression that the shares were bought on the market was false. 454 With respect to the statement that the purchase of the Clifford shares was consistent with the "policy" stated, Windebank, Sharkey, Harris and Glasgow gave evidence that they had never heard of such a strategy. I accept their evidence. I am satisfied that the "policy" was "invented" by Porter in September 1998 in an attempt to rationalise the Clifford purchase. ASIC Takes an Interest 455 An ASIC internal memorandum dated 9 September 1998 refers to an anonymous complaint to ASIC of 8 September 1998 and to an article in "The Age" newspaper of 8 September 1998, where Adler of FAI was quoted as having suggested that OAMPS' auditors should review the situation surrounding the resignation of the chairman of OAMPS and should release their findings publicly. The memorandum recorded that preliminary enquiries into this complaint had begun, in order to determine whether the transactions alleged in the complaint had actually occurred and, if so, why. It noted that if the statements made in the complaint and in articles appearing in "The Age" on 2 July and 8 September 1998 were true, there was a possibility that OAMPS had been trading in its own shares in contravention of s.205 of the Corporations Law. 456 ASIC issued notices requiring the production of books to the ASX on 11 September, Linton, of Ernst & Young on 14 September and National Registry Services Pty Ltd on 17 September . 457 On 17 September Cook and Speed of ASIC met with Linton, Johnson and Davies of Ernst & Young. Linton stated that he had inquired about the investment by OAMPS in Clifford but it was only his role to look at where OAMPS had invested its money, not to enquire about transactions by third parties. ASIC file note says: "Porter had not spoken to him about whether or not he was involved in the sale of FAI's shares in OAMPS - and that this was a question for us to ask Porter. Glasgow was told to resign by Porter because he was not performing his job properly; that he thought Glasgow was also a bit close to Windebank". 458 On 17 September 1998 ASIC produced an "Initial Action Plan" in relation to OAMPS. It identified the "persons of interest" as Porter, Glasgow, Loiterton and Adler. It stated inter alia: "On 8 September 1998 ASIC received an anonymous complaint concerning [OAMPS] which made allegations about the conduct of a two officers of OAMPS, namely Robert Porter and Duncan Glasgow. The complainant alleges that Porter and Glasgow have made false statements to the ASX and the media. The complainant also infers through a series of assertions, that OAMPS has been providing financial assistance for another party to deal in its own shares. It appears that the following has occurred ...". 459 The plan then sets out what appears to be the result of ASIC inquiries to date. The document states that "At the preliminary stage, initial enquiries will be made to determine: (a) whether the transactions alleged by the complainant occurred, especially whether the ultimate seller of the Clifford shares was in any way connected to Loiterton; and (b) if evidence exists to show the alleged transactions occurred, whether the combined effect of the transactions: (i) amounted to a contravention of the Corporations Law, and (ii) caused any harm to OAMPS or the shareholders of OAMPS". 460 On 22 September ASIC officers interviewed Windebank in the presence of his solicitors. ASIC received a draft statement from Windebank that evening. 461 On 24 September Cook of ASIC formally determined that he had reason to suspect there may have been contraventions of the Corporations Law and expressed the view that ASIC should investigate the dealings in OAMPS' shares. This occurred. Article in "The Age" 10 September 1998 462 An article in the "The Age" of 10 September 1998 circulated by Porter to all OAMPS staff, quoted Porter as saying that Windebank's concerns, including in relation to the acquisition of shares in Clifford, a company associated with Loiterton, on 30 June "have been deeply investigated by those that need to investigate ... nothing happened that should concern anyone". This statement was not true. Porter Instructs Lawyers to Accuse Windebank of Breach of Duty 463 On 17 September 1998 Anderson Rice, lawyers for OAMPS, on Porter's instructions, sent a fax to Windebank accusing him of gross dereliction of duty and threatening litigation. The fax stated: "Due to differences with the Board of Directors of the Company, these resulted in first your resignation as chairman of the board of directors and then your resigning as a director at the meeting of the directors held on 8 September 1998. You elected to send, despite being requested not to do so, an ill-considered letter to the Australian Stock Exchange following your resignation as chairman, as a result of which the Company, at the suggestion of the ASX, requested the suspension of trading of the Company's shares. This letter came on top of the very ill-advised letter from P Willee QC (who invited circulation of it which suggestion you followed) notwithstanding that it is riddled with inaccuracies and unfounded allegations of which you must have been aware. Furthermore, whilst in office you interfered in the day to day management issues outside the scope of your authority as non-executive chairman of the board of directors. You considered that it was acceptable for staff to use a facsimile of the managing director's signature to authorise a dispatch of moneys without the managing director's prior approval and knowledge. Additionally, during the meeting of the board of directors held on 8 September 1998, it became apparent from documents tabled at the meeting that a number of documents had been signed by you purporting to act on behalf of the Company in relation to transactions when those transactions had yet to meet with the approval of the board of directors or the executive responsible for the matter in question ... Our client wishes to notify you that your action in appending your signature to documentation in this manner was a gross dereliction of your duties as a director and, should the Company suffer any loss as a result of your actions, the Company will take the appropriate action to recover that loss from you personally. In the meantime, all the Company's rights in this regard are reserved. Furthermore, it has come to the attention of the Company that you have, in a manner calculated to bring the Company into disrepute, been making unwarranted and unsubstantiated allegations about the Company, its investments and its performance, or about the Company's executives and their performance. Your conduct in making allegations about mismanagement in the Company may adversely affect the profitability of the OAMPS Group. The Company's rights in this regard are reserved. In addition, the Company wishes to remind you of your obligations toward it in regard to these matters and particularly that all information which came into your possession whilst a director of the Company remains confidential as inside information and must not, in any way, be put to improper use. The Company wishes to remind you that your ill-advised actions all occurred in breach of your director's duties" 464 Mallesons replied to this letter on 24 September 1998, defending Windebank. Pierpont Article 465 On 18 September 1998 a "Pierpont" article appeared in The Australian Financial Review which referred to the Clifford Transaction in some detail and raised the question of whether OAMPS had indirectly financed the purchase of its own shares. It is relevant to non-disclosure issues which I discuss below. The article stated: "Then, sometime after dark on June 30, FAI sold its 17.8% of OAMPS at $1.10 a share - a magnificent price considering the stock had last traded an hour or so before at 77c. Whatever profit was recorded on this transaction must have been FAI's very last for the financial year, because the crossing occurred well after the market closed. The buyer was Blenheim Investments Pty Ltd of New Zealand and a group of associated companies, which paid some $3.3 million for the stake. This aroused no small mystification in Pierpont because one of the directors of Blenheim was Barrie Loiterton and Barrie is not a chap who made his fortune by buying stock 40% above market. While looking at the June 30 quotations and thinking of Barrie, Pierpont's attention drifted to one of Barrie's companies called Clifford Corporation which is in the coach leasing game. On June 30, Clifford Corporation enjoyed its largest share turnover for the year. A total of 6.7 million shares were traded at around 42c - or about $2.8 million worth. The word around the Croesus Club is that the buyer of the Clifford stock was OAMPS. Dimly here, Pierpont at first thought he saw a circle shaping, with Blenheim buying a stock of OAMPS' stock while OAMPS was buying a stock of Clifford stock. But that can't be possible because otherwise OAMPS would have indirectly been financing the purchase of its own shares. So maybe it was all just a coincidence. Maybe Barrie entered the lists as a white knight to man the OAMPS' barricades in a takeover defence. If so, it will be an interesting test of Barrie's whiteness, because white knights have been known to turn greyish in these circumstances. Whoever bought the Clifford shares must be sorry by now because in the past 10 weeks Clifford shares have lost one-third of their value and are trading around 28c ... On September 1, Hunter Hall sold its block. 10% of it was snapped up by FAI, which means Rodney has sold at $1.10 and bought back at 70c. Some of the rest of the Hunter Hall block is reported to have gone to Kingsley [Lamont] ..." Porter Instructs Lawyers to Sue Windebank 466 On 18 September 1998 Porter wrote to Winchester of Anderson Rice, lawyers (with copies to his other lawyers, de Vere & Sutherland) stating as follows: "Please find attached copy of Mallesons' allegations against me on behalf of Windebank. You will note of the three points mentioned, in relation to Directors responsibilities, I believe Windebank has failed on all counts. In view of this I would like to formally request on behalf of the company that the following action be initiated against Windebank. § that he be brought to account for the inconvenience and cost of this business through his actions. § that a written apology be provided to the company for circulation to shareholders and clients for his inappropriate actions. § that the company will provide an indemnity against damages litigation in the event Windebank agrees to pay our costs in relation to legal advice and the additional administration required to restore the company's fortune to that which prevailed prior to his inappropriate advice to the Stock Exchange and others. The company is now enduring further scrutiny/investigation from ASIC in relation to normal activities that the company undertakes during its normal trading. All allegations made in relation to my impropriety and in particular the Clifford Corporation share purchase by the company are vehemently denied by me and the company. I think events have now overtaken matters covered in your letter received yesterday and a revised suitable draft is attached for your comments" Pressure on Sharkey 467 As a result of the scanned signature incident, Sharkey was placed on suspension between 4 and 21 September 1998. On 21 September he tendered his resignation with effect from 24 December 1998. On 28 November, when control of the board changed, he was reinstated as financial controller with effect from 30 November. 468 In the meantime, on 20 September 1998, Siggins sent a fax to Porter concerning a telephone conversation he had had with Sharkey. Sharkey apparently told Siggins he believed he was most likely to be dismissed. However, Sharkey's legal advice was that the scanned signature incident was not in itself a dismissible offence. Sharkey's main concern was that if he was dismissed he would find it difficult to secure another position as a financial controller and that he would have no alternative but to defend himself to maintain his professional standing. 469 The fax also records that Sharkey said that he realised that he had no future in OAMPS and did not want to be a thorn in anybody's side. Sharkey suggested that he resign and give three months' notice which would have "less of an ongoing cloud over his professionalism." Sharkey was aware of the enquiry by ASIC, having been informed second hand from within OAMPS and Ernst & Young. He had been informed by OAMPS that ASIC had a list of people to interview including himself. Sharkey indicated that if he was sacked the only course open to him might be an action for wrongful dismissal, which he did not want to take. He told Siggins that if it would assist he would prepare a further and more detailed apology to Porter for scanning his signature. Siggins set out two options as follows:- "(i) I believe Peter will do anything to protect his perceived professional status and this can work to our advantage in his both spilling the beans on activities of Windebank and Glasgow and conducting himself in a proper and sensible manner. If we follow this course our plan of action could be: (a) reach an amicable basis for departure, eg: - 3 months too long and suggest effective 31/10/98. - set out a clearly defined set of responsibilities during notice period; - hand over to nominated person. - tidy up all year end issues. - sort out new banking arrangements. - other duties to be decided. (b) prior to any agreement an interview with Ronnie [Winchester] to ascertain as much information re Peter's involvement in issues raised by Windebank, etc. (ii) insist on resignation effective immediately or terminate in which case he will no doubt be antagonistic and look to seek some redress in an action that may have some chance of succeeding. Having said this I do not think that he has the will to carry through with all out litigation - however we can never tell. From a pragmatic approach I believe we would be better served by helping Sharkey preserve his reputation and by getting him on side. At the end of the day it is your decision and I am happy to act accordingly." 470 Porter wrote on this letter "Confirmed. We proceed as per GS. RW discussion and recommendations/advice." Porter's File Note 471 On 21 September 1998, Porter made the following file note which appears to be his first written account of the Clifford Transaction. It is plain that he was now feeling under considerable pressure and was taking steps to protect his position into the future. The note reads: "Kingsley Lamont Steadfast One of the issues that has not emerged during the protracted discourse in the press in relation to allegations of XYZ - whatever that might be - is that Kingsley Lamont and his cohorts, Brian Austin and Colin Cowden may have been acting on inside information by buying shares in OAMPS on advice of Kingsley Lamont that he had arranged and concluded a deal with Rodney Adler to purchase shares in OAMPS at between $1 and $1.10. Messrs Austin, Cowden and Lamont are Directors of Belgate Ltd - wholly owned by Lamont. The purchase of the shares by Brian Austin and Cowden took place a few months ago at prices ranging in the vicinity of 80c. On my visit to Melbourne 16/6/98 for a meeting with Lamont, Cowden and Austin, I reminded them of their responsibilities under the Insider Trading Regulations and that on advice from Lawyers, (Corrs) they likely failed on the three counts. I communicated this to Rodney Adler in the event that a purchase did take place of his block of shares, it would involve him in Insider Trading allegations. Not that I was concerned about him selling his shares to Steadfast, but that Lamont had phoned me and made bizarre statements as to how he would run the company and I was out etc. Adler's earlier question of me as to whom he would prefer his shares to go to, if a choice became available, and that choice were to include Barrie Loiterton or Kingsley Lamont (he did not reveal the identity of the other bidder, but did say it was through a broker and that he felt it was some sort of institutional buyer), my response to that question was 'Rodney, you sell the shares to the highest bidder and I will deal with whom ever is the winner'. As it transpired, Adler put his shares publicly on the market @ 30 June 1998 on a 'must sell basis' to the highest bidder - for reasons that he was never actually explicit about. I had enquired what was the urgency and the relativity to 30 June 1998, which he had not alluded to, but we did understand from newspaper gossip that the shares were held in a company that was associated with other shares FAI held with Joseph Gutnick, which was a name something like Collander - a foreign de-registered company owned by FAI." 472 The note was prepared at a time when Porter knew that ASIC was looking into the matter and that there had been adverse comment in the media. It has minimal evidentiary value. It is particularly significant that it does not mention the conversation which he was later to allege that he had with Loiterton on 26 June 1998 in which Loiterton allegedly said that Clifford was not interested in buying the FAI parcel at $1.10 per share. I have already recorded my significant doubts about whether the conversation as alleged occurred. Porter's Attack on Windebank, Lamont and Linton during ASIC Interviews 473 On 29 September 1998, Porter had his first conversation with an ASIC officer in relation to the Clifford Transaction. He attacked the integrity of Windebank, Lamont and OAMPS' auditor Linton of Ernst & Young. The file note of Cook of ASIC concerning this conversation records inter alia Porter saying that "these allegations came about because of pissed off chairman"; "Kingsley [Lamont] hates me as OAMPS purchased a business 18 months ago that Kingsley Lamont was the under bidder. A year prior to that he asked me for a job. I've got an application from Kingsley Lamont and two others to be directors. Thought he had done a deal with FAI for $1. Was out buying shares." Porter's Attack on Windebank and Glasgow 474 A meeting of OAMPS Australia Ltd (another company in the OAMPS group) was held on 27 October 1998. The minutes recorded Porter's attacks on the competence of Windebank and the integrity of Glasgow. The minutes stated that Windebank's action in making unfounded allegations against Porter was essentially brought about by his inability to understand the business; that Glasgow had assisted Windebank by providing fallacious information to him, designed to question the reputation of Porter and secure Glasgow a more senior position in the company; and the company had no case to answer regarding the Clifford/OAMPS share Transaction, although the ASIC investigation was a process that had to be gone through. The Annual General Meeting of OAMPS 475 The Annual General Meeting of OAMPS was held on 27 November 1998. By this time Lamont's interests had acquired a significant shareholding. Lamont, Austin and Cowden were elected to the board. Siggins and Wilkie were not elected. Walker was not re-elected. At a subsequent board meeting Porter resigned as chairman. The board then terminated his services with immediate effect. Lamont was appointed chairman of the board and Mr Hans Sprangers was appointed acting chief executive officer. Civil Proceedings Commence 476 On 9 December 1998 OAMPS commenced proceedings against Porter in the Equity Division of the Court. The summons claimed an order that he deliver to OAMPS all property identified in the schedule to the summons; damages for conversion; a declaration that he was not the managing director, secretary or a director of the plaintiff and injunctions to restrain him from holding himself out as such and damages for breach of director's duties. A statement of claim subsequently filed in the proceedings by OAMPS pleaded misconduct by him in relation to the Clifford Transaction. Porter filed a cross-claim against OAMPS in early 1999. In August 1999 he added as cross-defendants Siggins, Sharkey, Harris, Windebank and Glasgow. 477 Porter's amended cross-claim against OAMPS filed on 15 September 1999 pleaded an indemnity under Article 35.1(a) of his costs of defending the Civil Proceedings and of the ASIC investigation :- "33. The Articles of Association of OAMPS provide that OAMPS will indemnify every person who is or has been an officer of OAMPS or of a subsidiary of OAMPS against any liability for costs and expenses reasonably incurred by that person in defending any proceedings in which judgment is given in that person's favour or in connection with an application in relation to any proceedings in which the Court grants relief to that person under the Corporations Law (Article 35.1(a)). 34. The Cross-Claimant has reasonably incurred and will in the future reasonably incur costs and expenses in defending these proceedings and has reasonably incurred expenses in relation to the investigation by ASIC into the affairs of OAMPS. 35. If judgment is given in the Cross-Claimant's favour in these proceedings, then the Cross-Claimant is entitled to be indemnified by OAMPS for the costs and expenses reasonably incurred by him in defending those proceedings." The prayers for relief included:- "(mm) An order that OAMPS indemnify the cross-claimant for all costs and expenses reasonably incurred by him in defending these proceedings, and in relation to the ASIC investigation into the affairs of OAMPS" 478 On 20 January 1999 Porter had his second interview with ASIC. 479 On 29 January 1999 ASIC referred the matter of the Clifford transaction to the DPP for advice as to whether charges should be laid against Porter. 480 On 4 February 1999 GIO informed Porter that his request for indemnity under the policy in relation to the costs of the Civil Proceedings was declined. 481 On 1 April 1999 an extraordinary general meeting of OAMPS removed Porter as a director. 482 On 17 February 2000 a Deed of Release was entered into by which the proceedings between OAMPS and Porter were settled. I will consider the terms of the Deed in some detail. 483 On 28 March 2000 Porter was charged with three counts of breaches of the Corporations Law. 484 From at least 2 June 2000 Porter wrote a number of letters to GIO or its solicitors seeking indemnification and costs assistance with the defence of the criminal charges - but none to OAMPS or its solicitors until 26 July 2002. 485 In July 2000 a committal hearing took place. Porter was committed for trial. 486 On 26 October 2000 a general meeting of OAMPS adopted a new constitution as a result of legislative changes, including the replacement of Article 35. 487 On 23 May 2001 Porter commenced these proceedings against the GIO seeking indemnity under the GIO policy. 488 On 9 August 2001 the Commonwealth Director of Public Prosecutions filed an indictment against Porter charging him with three counts of breaches of the Corporations Law. 489 On 3 June 2002 Porter's criminal trial commenced. The hearing was vacated on 19 June 2002 due to the Judge's illness and a new trial ordered. The Department of Justice paid him $62,592 on account of his legal costs and disbursements thrown away to that time. 490 In July 2002 Porter's further trial commenced. On 18 July 2002 the DPP filed a "Notice of Discontinuance". It stated that the DPP "declines to proceed further" in the prosecution of Porter in relation to the three counts in respect of which an indictment was filed on 9 August 2001. 491 On 26 July 2002 Porter made, for the first time, a claim on OAMPS for the payment of his costs of the Criminal Proceedings. PART X – PERIOD OF INSURANCE History of the Directors' and Officers' Insurance 492 There is a significant issue as to the date upon which the Directors' and Officers' insurance with GIO became effective. Porter submits that the policy commenced on 15 September 1998 but Gordian submits that cover did not commence until 29 September 1998. An understanding of the relevant events is necessary to resolve the problem. 493 Until 15 September 1998 OAMPS had a Directors and Officers Policy (D & O) with HIH Insurance Limited, a Trustee's Liability policy with HIH and a Professional Indemnity (PI) policy with GIO. Porter was concerned, as it happened correctly, about the future solvency of HIH and decided to seek new D & O and Trustee liability insurance from GIO. OAMPS engaged a broker, Mr Burdis, from Swire Blanch Limited to negotiate on its behalf with Fletcher from GIO. Porter knew Burdis and Fletcher well. Burdis had previously worked at OAMPS. 494 Negotiations progressed and by letter dated 19 August 1998, Swire Blanch summarised a number of matters which still needed to be resolved including the potential premium. 495 On 20 August 1998 GIO wrote to OAMPS, care of Swire Blanch, inviting a proposal form for the renewal of the PI policy. On the following day Swire Blanch produced a placement slip. 496 The Placement slip took the following form: "PLACEMENT SLIP SLIP NO S76658 TYPE: INSURANCE BROKERS ERRORS & OMISSIONS, DIRECTORS & OFFICERS LIABLITY AND TRUSTEE LIABILITY INSURANCE FORM: Section 1: GIO wording as expiring amended to add conditions 9 and 10 below. Section 2: GIO wording to be agreed . Section 3: GIO wording to be agreed. ASSURED: OAMPS Ltd and/or OAMPS Australia Ltd and/or OAMPS (UK) Ltd and/or OAMPS Corporate Risk and/or OAMPS Risk Consulting and/or OAMPS Financial Services Ltd and/or National Commercial Insurance Agents Pty Ltd (OAMPS NCI Pty Ltd) and/or Car Rental Information Systems Pt Ltd (OAMPS CRIS Pty Ltd) and/or any subsidiaries and/or associated companies including those acquired or created during the period, to be agreed by the Underwriter. PERIOD: From 15th September 1998 at 4.00pm Local Standard Time to 15th September 1999 at 4.00pm Local Standard Time INTEREST: As per Forms LIMIT OF SECTION 1: ERRORS AND OMISSIONS INDEMNITY: AUD 1,300,000 each and every claim and in the annual aggregate excess of AUD 50,000 each and every claim and in the annual aggregate SECTION 2: DIRECTORS & OFFICERS AUD 1,300,000 any one claim and in the annual aggregate excess of Nil each Director Nil in respect of Company Reimbursement SECTION 3: TRUSTEES LIABILITY AUD 1,300,000 any one claim but AUD 3,900,000 in the aggregate Excess of Nil. CONDITIONS:APPLICABLE TO ALL SECTIONS: 1. Retroactive Date Unlimited excluding known claims and/or circumstances 2. Long Term Agreement. APPLICABLE TO SECTION 1 ONLY: 1. Excluding any civil liability arising from the operation of the business known as OAMPS International Insurance Limited 2. Excluding liability arising from the following entities other than for civil liability arising from acts errors or omissions prior to the date shown against each entity: Vana Financial Services Pty Ltd 30/6/95 Newspack Insurance Broking Services Pty Ltd 01/6/95 Camba Financial Services Pty ltd 02/7/94 3. Excluding civil liability arising out of business placed with insurance companies (including captive insurance companies) which are owned or managed by the Insured and including any civil liability arising from a denial of indemnity by such companies or arising from a breach of fiduciary duty to an insurance consumer in placing business which such companies. 4. Excluding any civil liability arising from: (i) any alleged or actual refusal to renew or any alleged or actual cancellation of any contract of insurance, assurance, reinsurance or bond or self-insurance programme; or (ii) (ii) any alleged or actual lack of good faith or lack of fair dealing or any failure to make payment, or refusal or delay in payment, of any claim. 5. Excluding civil liability arising out of business placed with any underwriting facility owned or operated by the Insured and which arises from a denial of indemnity or breach of fiduciary to an insurance consumer in placing such business with such facility. 6. Variable Excess Endorsement as attached as expiring. 7. Run-off liability in respect of sale of Merimbula branch's insurance portfolio (excluding certain Oilmen's and earthmovers clients). 8. Endorsement 3.0 (..business placed with owned or managed insurance company ..) does not apply to business placed with Australian International Insurance Limited or with National Commercial Insurance Agents Pty Limited (OAMPS NCI Pty Ltd). 9. Business of Assured to include acting as Trustee of the OAMPS Master Fund and the OAMPS Industry Fund. 10. Endorsement 3.0 (..business placed with owned or managed insurance companies..) does not apply to business placed with OAMPS Underwriting Agencies Pty Limited, including their division trading as Association Underwriting Services. CONDITIONS:APPLICABLE TO SECTION 2 ONLY 1. Professional capacity exclusion to be broadened to exclude any professional liability arising out of insurance broking and/or underwriting operations. ANNUAL PREMIUM: BROKERAGE: 22.5% plus tax per NMA as application INFORMATION Copy of 1996 proposal form dated 10 September 1996 SEEN BY Copy of 1997 proposal form dated 2nd September 1997 UNDERWRITERS 1. pro-forma Professional Indemnity Proposal Form plus attachments 2. copy of current GIO Professional Indemnity Wording 3. Summary of Professional Indemnity Claims at 10 August 1998. 4. Copy of Professional Indemnity Notification Form dated 6 August 19978 5. Pro-forma Directors and Officers Proposal Form 6. Pro-forma Trustee Liability Proposal Form 7. Group Structure Diagram as at 15 May 1998 8. OAMPS Half Yearly Report at 31 December 1997 9. OAMPS 1997 annual Report 10. OAMPS Master Fund 1997 Annual Report 11. OAMPS Industry Fund 1997 Annual Report." 497 On 25 August Fletcher from GIO sent an amended copy of the Placement Slip back to Swire Blanch. The amended document contained four matters of significance for present purposes. It indicated: (a) that the wording to be applicable to the D & O and Trustee Liability policies (in the item headed "Form" ) as the GIO Mark II wording; (b) it quoted two alternative options for the premium – a one year and a three year option; (c) it recorded that the premium allocation to each section of the policy was "TBA" (to be advised); and (d) that it was "subject to satisfactory Y2K questionnaire and signed and dated proposals" . 498 Although Porter submits otherwise, the document is clearly an offer or quotation. It is also clear from subsequent correspondence that it was treated as such by Swire Blanch, OAMPS and GIO. A Contract on 25 August 1998? 499 Porter asserts that the contract of insurance was made on 25 August 1998. In his statement in these proceedings made on 15 April 2002 Porter gave an account of a conversation he had with Fletcher on that day. He said the following: "I recollect that at about 10.00 am on 25 August 1998 I went to the offices of GIO to discuss the progress of the renewal . In the previous week or so I had had a disagreement with Mr Windebank over an incident in which Ms Vibovic of OAMPS had provided Mr Sharkey, the Financial Controller at OAMPS, with the computer disk which held my signature to enable Mr Sharkey to facilitate a funds transfer of approximately $650,000.00 to London without the correct approval process being followed. Bank protocol was a matter I was particularly careful to enforce. Vibovic and Sharkey's actions with the scanned signature were contrary to my express instructions that scanned signatures were only to be used with my specific approval. On 21 August 1988 (sic) I had received an apology from Mr Sharkey and Ms Vibovic. I had had a telephone conversation with Mr Windebank on 21 August when I informed him in words to the effect 'I am going to dismiss Sharkey, and possibly Vibovic, on Monday.' Mr Windebank responded in words to the effect 'I forbid you to dismiss anybody.' To the best of my recollection during my meeting with Mr Fletcher on 25 August 1998 I said words to the following effect: Porter: I am having a stoush with the Chairman, Windebank, who tends to nurture the Melbourne Head Office staff and sees himself somewhat as a father figure having been in the Company for about 20 years, since day one. He is right out of his depth and I have been critical of him. He is very upset that the Clifford share price has dropped. For some reason he now thinks it's my fault, for reasons best known only to himself. Fletcher: I wouldn't be too concerned, these things between Chairman and Managing Director are quite common. Can you envisage this turning into a claim? Porter: No, but I think this one is going to end in tears. I don't quite understand it. Last month he gave me a good pay rise and he did not have any problem then. Do you think this Chairman thing will pose a problem for you on the price as it is obviously required to be covered. Fletcher: I see no problem. I will of course follow it with interest." 500 There is no suggestion in this account of their conversation that a contract had been concluded. 501 In his statement made on 22 April 2003, Porter added to his conversation with Fletcher. By this time the issues in the proceedings and the problems which Porter may encounter, were much clearer. His account in this statement is as follows: "On 25 August 1998, I met with Mr Fletcher in his office. I have referred to the conversation at this meeting in paragraph 8 of my 15 April 2002 statement. In addition to the matters referred to therein we had a conversation to the following effect: Porter: The problem with some staff at OAMPS using my scanned signature on a bank transfer without my authority has intensified. I have had to discipline the staff, the Chairman is very unhappy with the way I've handled it. The Chairman and I are now in total conflict as to the seriousness of the cheque signing incident with the accountants. I think we have got to an impasse and he has forbidden me to sack the accountants. It is now clearly a 'him or me situation' and one of us will have to go because I cannot work with him under these circumstances. Will this compromise the premium and renewal? I am in a position to give you a firm order today as per the terms we have discussed including the three year deal. Will you sign the Placement Slip as confirmation of the premium quote and three year arrangement? Fletcher: Yes. I'm not concerned about your fight with the Chairman. This is not uncommon. Just keep me informed as to the progress. I am happy to charge the same premium that was charged for the PI Policy last year. I will do the three year deal on the basis of the long-term agreement with a discount. I will follow London's discount arrangements. I will sign the Placement Slip today. Porter: Very well Fletch [short for Fletcher], you have a firm order for a three year deal. In stating the words 'firm order' I was referring to the common insurance and reinsurance expression which is confirmation that the client confirms acceptance of previously discussed terms quotes and conditions of the insurance placement which are now complete." 502 Fletcher gave evidence about his negotiations with Porter. He was firm that although headed "Placement Slip", the amended document which he dated 25 August 1998 was merely a quotation. Fletcher was cross-examined in March this year, but the form of the conversation alleged in Porter's statement of 22 April was not put to him. 503 His cross-examination did contain the following exchange: "Q. And you accept, do you not, that as at 25 August it was common ground, ie agreed between you and OAMPS, through Mr Burdis, that there would be a three year option for GIO at the same annual premium as you had had for the PI policy for the year before at 270 per cent for a three year deal, correct? A. That's what was agreed at the time I signed the slip, yes. Q. So, by the time you signed the placement slip, those matters had been agreed, hadn't they? Yes? A. Well, no. Well, they may have been, but I don't' recall. Certainly the slip contained a figure which Mr Burdis' recollection would seem to support." 504 Porter was cross-examined in relation to his evidence. He had difficulty recalling the precise conversations he had with Fletcher between 17 August and 25 August. He asserted that there could be a concluded agreement before he had submitted a proposal. He accepted that by 27 August no signed proposal had been given to GIO. As Gordian points out, he could not explain why he would be seeking to bind GIO to cover three weeks before the due date, and when in addition, he had not offered a signed proposal, a Y2K questionnaire or availed himself of an opportunity to consider the policy wording. He ultimately suggested that irrespective of what may be included in the proposal form, GIO had already agreed to provide cover and had to accept the risk: "Q. Can I come back to the question? Let's make it clear. You are saying to the court on 25 August you believe you bound a contract with Fletcher, even though you hadn't given him a signed and dated proposal? A. Yes. Q. Irrespective of what you said in the proposal, he was already bound to cover you? A. Yes." 505 It is also significant that, notwithstanding his evidence of the conversation with Fletcher, when he received the letter from Swire Blanch of 27 August, Porter did not take up the matter with Burdis and tell him of a concluded agreement. Porter has agreed that he did not give formal instructions to Swire Blanch to bind the cover until 23 September. 506 Porter could not satisfactorily explain why his original statement did not include reference to the placement of a firm order. He suggested that it may have been edited by lawyers, but this is hardly likely. At this time he was acting for himself and the relevant matters were in issue. 507 Ultimately Porter said that he did not leave the meeting on 25 August with a bound agreement. Rather, he says he had conveyed to GIO that, whatever GIO did, it would receive Porter's agreement. Porter said that the risk would not be bound until Fletcher signed the slip later in the day. 508 However, although this was Porter's evidence, it is not the way in which Swire Blanch behaved. Burdis received the signed placement slip prior to 27 August. He wrote to OAMPS in a manner which indicated that he regarded it as a quotation, which would not become a contract until he received binding instructions from OAMPS and then communicated them to GIO. 509 Porter's ultimate position is reflected in the following transcript: "Porter: No, but I will temper that answer I just gave a moment ago. As to whether I knew he was otherwise in touch with or spoken to Wyner or spoken to the broker, I don't know what the position of the transition of the information by others to him was, remembering there is myself, the broker and Mr Wyner directly in touch - I think Wyner was directly in touch, but in terms of the issues I was dealing with, the big picture issues, I was making continuous disclosures of the issues up to that point and for you to assert that I left that meeting on the 25th, which I think was a morning meeting, with a bound agreement, the answer is I didn't think that at all. What I left with is his understanding that whatever he did, he would get my agreement. My agreement. He had my agreement to bind the cover on, within reason, whatever terms he wanted, to raise whatever issues. So he was in no doubt that I was a willing participant and had given my authority but he had not, while I was there with him, bound himself to the risk. One part of it was done. The other part happened when he signed the slip later in the day. Signed the placement slip, if I may." 510 I have discussed elsewhere my general conclusions with respect to the reliability of Porter's evidence. His ultimate assertion that he left the matter with Fletcher on the basis that he would accept whatever Fletcher agreed to when the Placement Slip was executed is contrary to his written evidence and to the actions of Fletcher, Burdis and ultimately his own further dealings in the matter through Burdis. I am satisfied that the conversation in the terms suggested by Porter in his April 2003 statement did not occur. 511 It was submitted by senior counsel for Porter that sufficient elements of the insurance had been agreed by 25 August for there to be a binding contract on that day. (See MacGillivray on Insurance (10th ed) Para 2.1 ff). Reliance was placed on the evidence of Fletcher, referred to above, which suggested that by 25 August agreement on a three year term for an agreed premium had been reached. Whatever be the correct position on that matter, and Fletcher's evidence was not entirely clear, the simple fact is that the offer made in writing was subject to a number of conditions including the receipt of a proposal form. This was not a case where temporary insurance was sought or a cover note issued. The ordinary principles of contract must be applied with the consequence that the conditions imposed by Fletcher had to be fulfilled before there could be an agreement. A binding contract was not made on 25 August. Negotiations Continue 512 On 27 August Burdis sought Porter's instructions to bind cover, requested confirmation of the term of the cover and sought a completed proposal form. Burdis' letter of that date is consistent with the Placement Slip returned by Fletcher. Instructions were not given by Porter to Burdis to effect the cover until a letter, sent by facsimile, which was dated 23 September 1998. 513 It is significant for the later consideration of issues relating to non-disclosure that on 4 September 1998, Swire Blanch advised Porter that he should immediately notify "the current events with respect to the Chairman" to the D & O insurer, HIH, and that the matter may jeopardise the premium savings on the renewal. Attached was a facsimile from MMI stating that they had withdrawn their offer of participation in the OAMPS insurance programme. 514 On 8 September 1998, Swire Blanch requested GIO to extend the existing PI policy until 29 September 1998. This did not include any Directors and Officers insurance which was, of course, with HIH. GIO agreed to this request. A similar request to extend the existing policy period on the excess PI layers was agreed to on 9 September 1998. 515 Likewise, HIH agreed to extend the existing D & O Policy until 29 September 1998. This is a significant fact in assessing when any new D & O policy from GIO or the London excess insurance commenced. 516 Burdis accepted in evidence that he obtained an extension of two weeks from 15 September to 29 September for the $20 million D & O cover with HIH. He also accepted that his fax of 8 September to Fletcher was a request to extend the existing Professional Indemnity insurance by GIO for a further two weeks to 29 September and did not relate to D & O insurance. 517 This evidence from Burdis reflects the contents of the documents and is consistent with Fletcher's evidence that the hold cover from GIO for the two week period related only to the PI policy. Porter gave similar evidence in his statement. He did attempt to resile from this position in cross-examination but in that respect his evidence was unconvincing. 518 On 21-22 September 1998, Swire Blanch forwarded to GIO the completed proposal forms and requested confirmation that the renewal terms as per the slip of 25 August 1998 still stood. Although the letter enclosing the proposal forms is dated 18 September 1998 (a Friday), it is Burdis' evidence that it was not in fact delivered to GIO until 21 or 22 September. 519 There was debate as to the precise documents which Burdis sent to GIO. Fletcher's evidence was that a number of potentially relevant documents were not present on GIO underwriting file and were not provided to him. 520 On 23 September 1998, Porter gave written instructions to Swire Blanch to bind cover with GIO, and selected the three year long term agreement basis. Fletcher Binds Cover 521 On 28 September 1998, Fletcher confirmed, on behalf of GIO, that cover would be bound with effect from 30 September 1998, on the understanding that the allegation contained in the "Pierpont" column of 18 September 1998, that OAMPS had financed the purchase of its own shares, was untrue. 522 It was pressed upon Fletcher that the date 30 September was a mistake and ought to have read 15 September. I accept Fletcher's evidence that what was conveyed by his document was that the new policy with its three sections would take effect from 30 September. The position was to be that up until the end of 29 September 1998 OAMPS would have the protection of the hold cover which extended the previous PI policy. As to the D & O policy, OAMPS would not have any cover from GIO prior to the date of the new combined policy, i.e. 30 September 1998. That cover came from HIH. 523 It may be for convenience that the precise starting point of the new policy would be taken back to 4.00 p.m. on 29 September 1998 as opposed to midnight on that day but nothing turns on this. 524 On 28 September 1998, Swire Blanch UK confirmed cover on the excess layers of the PI and D & O policies with the insurance commencing on 4.00pm 29 September 1998. There was some apparent confusion, because the certificates of currency attached to these documents wrongly recorded the insurance period as commencing at 4.00pm on 15 September 1998. 525 On 2 October 1998, Swire Blanch was still resolving a number of outstanding matters with GIO. By fax of that day, Swire Blanch confirmed the conversation of the previous day that OAMPS wished to bind cover for three years, not just one year. That fax indicated that the premium split and the inclusion of coverage for Vigil, a subsidiary of OAMPS, was still to be resolved. 526 The facsimile was in the following terms: "Further to our conversation yesterday, we confirm OAMPS Ltd wished to bind cover under the long term agreement, i.e. three years subject to break clauses per the long term agreement clause. Payment of the premium to be 30 days from inception. We will revert to you shortly with the suggested premium split and information to enable stamp duty calculation. In term of the endorsement for Vigil, can you confirm unlimited retro dated inception excluding known circumstances." 527 On 7 October 1998, Swire Blanch wrote to GIO suggesting a premium split of 80:20 between PI and D&O/Trustee Liability, and stating: "Assuming you are happy with this split on the primary layer we will complete our closings on this basis." 528 GIO agreed with this proposal on 12 October 1998. The Certificate of Currency for the PI Policy and London Placement. 529 On 7 October 1998, GIO provided a certificate of currency recording the policy period as "from 4.00 pm on the 15th September 1998 to 4pm on the 15th September 2001". 530 The Certificate of Currency relates only to the PI insurance and not to the D & O insurance. There is a statutory requirement for an insurance broker that it have and verify PI insurance: Insurance Agents and Brokers Act 1984 sections 9B and 19(1)(b) and regulations 2 and 3. There is no such requirement in respect to D & O insurance. It is apparent from the content of the document itself that it is referring to the PI policy and both Burdis and Fletcher were clear that this certificate of currency did not relate to the D & O policy. 531 In one sense the certificate is correct in that there was PI cover from 15 September 1998. However, that cover was strictly under the agreed two week extension to the old policy and not under the new policy. The Certificate of Currency was ultimately corrected. 532 On 15 October 1998, GIO confirmed its 15% on the first excess layer of the D & O Policy. The balance of the risk was placed in London. The date of 29 September 1998 on the document evidencing the placement has been amended by hand to 15 September 1998. This amendment was made by Burdis, but had to be accepted by Swire Blanch UK before D & O insurance cover would exist from that date. Swire Blanch UK would not agree to "backdate" the insurance. 533 On 19 October 1998, a fax from Swire Blanch UK referred to the request by Swire Blanch Australia to backdate cover. The fax says: "We have a problem backdating coverage. As you know last year we only placed the PI policy into London, the D& O was placed with HIH. The policy was extended because of the debacle between Rob Porter and the company chairman. Whilst this might not result in a claim it is a potential circumstance and underwriters are not prepared to back date coverage if there is any possibility that by doing so they will pick up this circumstance. . . . In any case underwriters will only agree to back date the policy period if they can exclude any claim arising out of this incident." 534 Burdis argued with London, apparently to no avail, and on 27 October 1998, wrote to Fletcher in the following terms: "You will recall around the renewal time (i.e. the 15th of September) OAMPS was having difficulties with their then Chairman and due to this we requested "held cover" until the 29th September, which you agreed. As mentioned this morning our London office did not "hold cover" but in fact extended the excess layers for two week [sic] to 29th September 1998 for additional pro-rata premium. We therefore now have the situation where the primary layer is covered 15th September 1998 to 15th September 2001 and the excess layers (including your 15% share on the 1st excess layer) are all for the period 29th September 1998 to 29th September 2001. Whilst the differing renewal dates are not a major problem in the interests of simplicity we would like to have common renewal dates for all the layers. We would therefore like to: 1. extend the just expiring policy to the 29th September 1998; and 2. have the new professional indemnity, D&O and Trustee Liability policy incept from the 29th September. Can you please let us know if you are agreeable to this so we can prepare the necessary paperwork." 535 In so far as Burdis was asserting that there was a primary layer of cover for D & O from 15 September he was not correct. Fletcher confirmed agreement with this proposal on 27 October 1998. 536 I am satisfied, as Gordian submits that GIO and Swire Blanch then "closed" the policy, and OAMPS paid the premium, on the basis that: (a) the period of the primary layer for PI, D&O and Trustee Liability was 29 September 1998 to 29 September 2001; (b) the period of the first excess layer for PI, D&O and Trustee Liability was 29 September 1998 to 29 September 2001; (c) there would be an extension of the existing PI policy only from 15 September 1998 to 29 September 1998; (d) likewise, there would be an extension of GIO's share of the excess on the existing PI policy only from 15 September 1998 to 29 September 1998. 537 GIO then issued a new certificate of currency in relation to the PI policy recording the period of insurance as from 4pm on 29 September 1998 to 4pm on 29 September 2001. 538 The broker never drew up a closing or paid a premium for a D & O cover from GIO for the two week period between 15 and 29 September 1998. Burdis accepted ultimately that there was no payment of any premium for a D & O policy from GIO for that two week period; and that there was no document or conversation whereby GIO agreed to give a free D & O cover for that two week period. 539 It is important that on 28 October 1998, Porter notified HIH of relevant circumstances and noted that the HIH D & O policy had been extended to expire on 29 September: "Please note we believe the request for information [of 10 September 1998] and our response thereto [of 14 September 1998] constitutes proper and prompt notification of circumstances that may give rise to a claim under our Directors' and Officers' insurance policy with you expiring on 29 September 1998 (i.e. after extension from 15 September 1998)." 540 On 30 October 1998 Porter wrote to Anderson Rice suggesting aggressive action against Windebank, but also indicated his understanding that the new D & O policy did not cover the events with Windebank: "Ronnie, I obviously do not need to tell you that the Mallesons account is a perfect opportunity for us to 'ram it right to Windebank' and my colleagues and I urge you to take the firmest, most stringent legal action, punitive if need be, and advise that you are instructed to prepare writs and supporting information in relation to recovery of damages on behalf of the company soonest. It might also be appropriate to advise Windebank that as the timing for his malicious act coincided with the renewal and expiry of our Directors & Officers Liability insurance programme, there is now some doubt as to the ability of Directors to seek recovery under said policy. Indeed on renewal of the policy, it is specifically excluded for the incident we are now unravelling. (Congratulations Windebank we are all totally exposed without the benefit of our Directors & Officers Liability insurance). 541 On 24 December 1998 an underwriter at GIO signed the schedule for the Directors and Officers policy recording a period of insurance as 4.00pm on 15 September 1998 to 4.00pm on 15 September 2001. Submissions 542 Gordian submits that whatever either party thought was the period of insurance prior to 27 October 1998, it was agreed on that date that the period of insurance was to run from 4.00pm on 29 September 1998 to 4.00pm on 29 September 2001. That remained the mutual intention of the parties at all times up until the final policy was executed on 24 December 1998: Bush v National Australia Bank Limited (1992) 35 NSWLR 390 at 405-6. To the extent to which the policy as issued provides that the period of insurance is 4.00pm on 15 September 1998 to 4.00pm on 15 September 2001, it should be rectified to reflect the agreement of the parties. 543 Porter submits that the decision made on 27 October 1998 to the effect that the period of insurance for the new combined policy would commence on 29 September 1998, was made for administrative reasons only and was not intended to affect substantive rights. Accordingly, rectification should be denied if it would have the effect of altering substantive rights to the prejudice of the plaintiff. Findings 544 It will be apparent from the conclusion I have expressed that I am satisfied that there was no contract of D & O insurance made on 25 August 1998 to take effect from 15 September 1998. Furthermore, the interim contract, holding cover to 29 September 1998, effected on 8 September 1998 with GIO did not extend to the D & O policy. It was limited to PI cover. Thus GIO was never on risk for a D & O cover prior to 29 September 1998. 545 In my opinion the rectification sought by Gordian conforms to the substantive rights which were in fact in existence between 15 and 29 September 1998. If a claim arose between 15 and 29 September 1998, OAMPS could look to GIO, if it was a PI claim, under the policy extended to 29 September 1998; and look to HIH if it was a D & O claim. If a claim arose after 29 September 1998 GIO would be on risk under the new combined policy, whether the claim was a PI claim or a D & O claim. 546 Gordian is entitled to appropriate relief. 547 Although the policy took effect from 29 September 1998 the contract was not concluded until 2 October when final agreement as to the direction of the policy was reached. Other terms had been agreed but with respect to a policy of insurance the duration of the cover is a material term which "must be agreed before acceptance is effective in law." See MacGillivray on Insurance Law 10th ed 2003 at 2-2. 548 The effect of the agreement on 28 September was that there was an interim arrangement effective 29 September but the ultimate contract was not made until 2 October. The consequence is that Porter's obligation of disclosure pursuant to s 21 of the Insurance Contracts Act 1984 (Cth) continued until 2 October 1998. PART XI – CAN PORTER SUE GORDIAN? Understanding the Insurance Policy 549 The GIO policy contains two insuring clauses. Insuring Clause A - Directors and Officers Liability, and Insuring Clause B – Company Reimbursement. The complete policy is in the annexed to these reasons. However, it is appropriate to restate some of the provisions. 550 The Directors and Officers clause, Insuring Clause A was as follows: "GIO will pay on behalf of the Insured, all Loss arising from any Claim first made against an Insured during the Period of Insurance and notified to GIO during the Period of Insurance by reason of any Wrongful Act PROVIDED THAT the Organisation is not required or permitted to indemnify the Insured for such Loss." 551 The Company Reimbursement clause, Insuring Clause B, was in the following terms: "GIO will pay on behalf of the Organisation, all Loss arising from any Claim first made against an Insured during the Period of Insurance and notified to GIO during the Period of Insurance by reason of any Wrongful Act PROVIDED THAT the Organisation is required or permitted to indemnify the Insured for such Loss." Provision was made in relation to matters of excess: "2.0 EXCESS 2.1 The Insured shall bear the amount of the Excess shown under Item 6.0 of the Schedule in respect of each Claim under Insuring Clause A, and GIO shall only be liable to pay in excess of that amount. 2.2 The Organisation shall bear the amount of the Excess shown under Item 6.0 of the Schedule in respect of each Claim under Insuring Clause B, and GIO shall only be liable to pay in excess of that amount. 552 With respect to defending and settling claims the Policy provides: "3.3 GIO may make any investigations it deems expedient and may, with the consent of the Organisation (under Insuring Clause B) or the Insured (under Insuring Clause A), make any settlement of a Claim it deems expedient with the Limit of Liability . If the Insured or the Organisation refuse to consent to any such settlement recommended by GIO and act to contest or continue any actions or proceedings in connection with such Claim , then (subject to the Limit of Liability ) GIO's liability for that Claim shall not exceed such recommended settlement amount, plus Defence Costs incurred with GIO's consent up to the date of such refusal. 553 The policy is a claims made policy: "3. PRESERVATION OF RIGHT TO INDEMNITY GIO will pay on behalf of the Insured all Loss arising from any Claim first made against the Insured during the Period of Insurance and notified to GIO during the Period of Insurance by reason of any Wrongful Act for which the Organisation is required or permitted to indemnify the Insured , but is unable to do so because at the time such Claim was first made against the Insured , the Organisation was in liquidation (other than voluntary liquidation) and did not have sufficient funds to fully indemnify the Insured PROVIDED THAT: (i) GIO shall only be liable to pay such amounts which represent the extent to which the Organisation is unable to fully indemnity the Insured ; and (ii) all claims under this extension will be subject to the Excess applicable to Insuring Clause B." 554 "Insured" is defined in the policy as "any past present or future director, secretary, executive officer of employee of the organisation." 555 "Claim" is defined and includes "any writ, summons . . . or other original legal . . . proceedings . . . issued against or served upon the Insured and alleging a Wrongful Act" and any "criminal proceeding commenced by a . . . charge against the Insured alleging a Wrongful Act". Gordian concedes that both the civil and criminal proceeding are "Claims". 556 "Loss" is defined as: "the total amount which the Insured and/or the Organisation becomes legally obligated to pay as a result of a Claim made against the Insured for a Wrongful Act. Loss includes: damages, judgment, settlement, costs and Defence Costs." 557 The policy also contained a number of exclusion clauses which require individual consideration. They are considered later in these reasons. 558 The term "Inquiry" is defined to mean "any official investigation, examination, inquiry or other proceedings ordered or commissioned by any official body or institution empowered to investigate the affairs of the Organisation". Insuring Clauses A and B 559 Gordian submits that Porter cannot sustain a claim against it pursuant to Insuring Clause A. It conceded that Porter was an "Insured" and that both the Civil and Criminal Proceedings fall within the definition of "Claims". 560 However, Gordian emphasised that Insuring Clause A only responds if the Organisation is "not required or permitted" to indemnify Porter for such loss. Porter maintains a claim against OAMPS, and, if this claim succeeds, the proviso in Insuring Clause A is not satisfied and Gordian is not obliged to indemnify Porter directly in respect of the criminal defence costs. 561 Furthermore, as Porter admitted, OAMPS was permitted to indemnify Porter (see s 199A(3) of the Corporations Act 2001). Accordingly, it is submitted that Porter's criminal and civil defence costs do not fall within Insuring Clause A. 562 Gordian also submitted that Porter's claim against it does not fall within Insuring Clause B. The structure of the Insuring Clauses is as follows: Insuring Clause A deals with payments made "on behalf of the Insured" when OAMPS is not required or permitted to indemnify Porter. It confers on directors a direct right of action against Gordian where the company is not required or permitted to indemnify. The ordinary case, where OAMPS is required or permitted to indemnify, is dealt with by Insuring Clause B, which provides that in this situation Gordian will pay "on behalf of the Organisation". The use of "on behalf of" simply reflects the ordinary circumstance that an insurer will be meeting expenses directly. Insuring Clause B does not confer on Porter any direct right of action against Gordian. Such action must be brought by OAMPS if it has a liability to Porter. 563 Gordian submitted that this understanding of the Insuring Clause is reflected in the provisions for excess. The excess applicable to an insurance claim by a director may differ from that applicable to a claim by the company (see item 6 of the Schedule and Condition 2). It is submitted that Conditions 2.1 and 2.2 only have sensible operation in accordance with the operation of the Insuring Clauses as set out above. Likewise, Condition 3.3 indicates that the Organisation is the party entitled to insurance under Insuring Clause B and the Insured is the party entitled to insurance under Insuring Clause A. To similar effect is Automatic Extension 3. The definition of loss itself distinguishes between amounts the Insured is legally obligated to pay and amounts the organisation is legally obligated to pay. 564 Gordian submitted that in these circumstances Porter cannot maintain his claim against Gordian and the primary issue becomes whether the claim by Porter against OAMPS can succeed. 565 Porter made the following submissions in response to Gordian: (a) "Insured" is a term used in the Insurance Contracts Act , such as in s 16. The Insured is a person with an interest in the subject matter of the contract. Sometimes a person who is not defined as an Insured can claim the benefit of a policy (s 48). By s 48 a person who is not a party to the contract of insurance may in some circumstances have the same rights and obligations as the insured. "Insured" in an exclusion clause has been defined as the person making the claim under the relevant policy; see Rankin v North Waterloo Farmers Mutual Insurance Co (1979) 25 OR (2d) 102, Weatherston, JA at 107. (b) As the plaintiff is an Insured he can claim under the policy under Insuring Clauses A and B, but OAMPS cannot claim unless it can show that it was intended to be a party to the Contract of Insurance. (c) The expression "the Organisation is not required or permitted to indemnify the Insured for such Loss" in Insuring Clause A and the equivalent expression excluding "not" in Insuring Clause B mean that at the time the claim comes to be determined the company either does (Clause A) or does not (B) have a legal obligation to indemnify the plaintiff. Such an interpretation gives effect to the words and the apparent intention of the parties. (d) An insurer may await final determination of litigation before deciding whether the company is obliged to indemnify the Insured. The Policy did not intend that the insurer could keep all its options open, pending determination by the court; and not indemnify the Insured in the meantime. (e) Insuring Clause B exists for the benefit of OAMPS, in that Gordian is obliged to pay the legal costs incurred by the individual Insured so as to take that burden off the company. The apparent intention of the D&O Policy was that the plaintiff should seek to recover from OAMPS, and failing that Gordian; and that if OAMPS was obliged to indemnify the plaintiff, the plaintiff could avail himself of that indemnity. (f) In any event Gordian is estopped from resiling from indemnifying the plaintiff, subject to certain stated exclusions. It was submitted that Gordian must maintain the course of conduct in which it accepted the plaintiff's claim and dealt with it without distinguishing between Insuring Clauses A and B. (g) Finally, Porter submitted that where an Insurer has knowledge of circumstances entitling it to avoid the policy, but still accepts premiums on that policy, the Insurer is estopped from avoiding a claim on the basis of those circumstances of which it had knowledge: Goodwin v State Government Insurance Office (Queensland) (1991) 6 ANZ Ins Cas 77,163. Conclusions in Relation to Insuring Clauses A and Insuring Clause B 566 In my opinion the construction proposed by Gordian is correct. Porter may only sue to recover under Insuring Clause A in the event that the relevant circumstances have occurred. It is plain that in the present case the proviso to Insuring Clause A operates. With respect to Insuring Clause B, although a liability must first exist in the Insured, the policy responds to the liability of the Organisation – being OAMPS. If not apparent from the words of Insuring Clause B itself, the proper construction of the clause is informed by Condition 2.1 and 2.2 and confirmed by the words of Condition 3.3 and Extension 3. 567 Condition 3.3 would not make sense if the approach to the construction of the Insuring Clause advanced by Porter was accepted. OAMPS was plainly a party to the insurance and secured indemnity for its obligations under Insuring Clause B. So much is confirmed by the heading to the clause "Company Reimbursement." Estoppel 568 I do not believe there is any occasion for an estoppel. GIO has always denied liability for Porter's claim without debating the construction of the insuring clauses. The proper construction of the terms of the policy is relevant only to the obligation to meet the claim. There is no suggestion that this issue would have entitled GIO to avoid the policy. The decision in Goodwin is not relevant to this aspect of the matter. The Consequences 569 For these reasons the claim by Porter against Gordian fails. However, many other bases were advanced by Gordian to reject Porter's claim. But, first, I will consider whether Porter can succeed against OAMPS. PART XII – CAN PORTER SUE OAMPS – THE DEED OF RELEASE The Deed to Settle and Release 17 February 2000 570 On 17 February 2000 the Deed to Settle and Release was executed by OAMPS, AIIL, Porter, Siggins, Harris, Glasgow, Sharkey and Windebank. OAMPS and Gordian rely upon provisions of the Deed as defences to Porter's claims in these proceedings. OAMPS also cross-claimed alleging that Porter is in breach of the Deed by bringing the proceedings against it. 571 Porter alleged that the Deed does not bar his claims, but bars OAMPS from raising as a defence anything to do with the Clifford transaction. Alternatively, he contended that he has avoided the Deed, or that it should be avoided or set aside, or in the alternative OAMPS is estopped from relying on it. 572 A full copy of the Deed is annexed to these reasons. Relevant Provisions 573 The more relevant provisions are as follows: "RECITALS A On or about 31 January 1995 Porter was appointed by the Board of OAMPS as a director of OAMPS. B On or about 27 November 1996 Porter and OAMPS entered into the Service Agreement pursuant to which OAMPS employed Porter as its managing director and as managing director of its Related Bodies Corporate, including AIIL. On or about the same date Porter and OAMPS entered into the Options Deed. C On or about 30 June 1998 the Clifford Transaction occurred. D Porter claims that in or about July and October 1998 Porter's salary was increased resulting in a salary of $300,000 per annum effective from 1 July 1998. E On or about 16 October 1998 the Deed of Variation was executed. F On 6 November 1998 OAMPS' Annual General Meeting was changed from 9 November 1998 to 27 November 1998. G On 27 November 1998 the Board of OAMPS resolved that Porter should cease to be the managing director of OAMPS and terminated his employment. OAMPS confirmed this in writing to Porter on 2 December 1998. H On or about 8 December 1998 OAMPS commenced the Proceedings against Porter by filing a summons and has since amended the summons. I On or about 9 December 1998 an administrator was appointed to Clifford Corporation Limited. The shares purchased by AIIL in the Clifford Transaction had no value from that date. J On or about 14 April 1999 OAMPS and AIIL filed a statement of claim against Porter in the proceedings. The statement of claim has since been amended. K Porter has filed a defence in the Proceedings and has also filed the First Cross claim and the Second to Sixth Cross Claims, all of which have been amended. L Porter claims to be entitled to exercise the Options. M On or about 17 January 2000 OAMPS Insurance Brokers Limited and AIIL commenced the Other Proceedings against Porter. N In addition to the matters raised in pleadings in the Proceedings and the Other Proceedings, Porter has, in the Correspondence, raised other potential claims and issues. O The parties have agreed to resolve all disputes which may exist between them in accordance with this document.'" OPERATIVE PROVISIONS Payment 574 Clause 3.1 of the Deed: "3.1 On Exchange AIIL will pay to Porter the amount of $400,000 inclusive of costs and Porter directs AIIL to apply $300,000 of this amount to the exercise of the Options'" Acknowledgments and Covenants 575 Clause 4.3 of the Deed: "4.3 Porter acknowledges that he is not entitled to make any claim under OAMPS' Director's and Officer's Liability insurance policy or any indemnity in OAMPS' Articles of Association, or elsewhere, in respect of the Proceedings. Porter represents and covenants that he will not make such claims and waives his rights to make such claims." 576 Clause 4.4 of the Deed: "4.4 Porter covenants that, apart from giving statements or assistance to prosecuting authorities in matters which they are actually or considering conducting, he will not enter into discussion with, communicate with, correspond with, complaint to or harass OAMPS, AIIL, the shareholders or customers of OIAMPS or AIIL, the press, or any statutory bodies or third parties in relation to matters concerning the management of OAMPS or AIIL (including, without limitation, the management of the Proceedings and the contents of OAMPS annual reports) or alleged beaches by OAMPS or AIIL of the law, unless required to do so by law." 577 Clause 4.5 of the Deed: "4.5 Porter covenants that, apart from giving statements or assistance to prosecuting authorities in matters which they are actually or considering conducting, he will not enter into discussion with, communicate with, correspond with, complaint to or harass OAMPS, AIIL, the shareholders or customers of OIAMPS or AIIL, the press, or any statutory bodies or third parties in relation to matters concerning Kingsley Lamont ( "Lamont" ), alleged commissions received by Lamont in relation to Belgate or Steadfast, the alleged involvement of Lamont and Henry Davis York in misleading and deceptive conduct to shareholders and the ASX, or alleged breaches of the law by Lamont or Henry Davis York, unless required to do so by law." 578 Clause 4.6 of the Deed: "4.6 OAMPS and AIIL covenant that, apart from giving statements or assistance to prosecuting authorities in matters which they are actually or considering conducting, they will not enter into discussion with, communicate with, correspond with, complain to or harass porter, the press or any statutory bodies or third parties in relation to the conduct of Porter as an officer of those companies." Employment Agreements 579 Clause 5 of the Deed: "5 Subject to this document OAMPS and Porter agree that they have no further rights or obligations pursuant to the Service Agreement, the Service Agreement as amended by the Deed of Variation, the Options Deed, Porter's employment or contract of employment" Releases 580 Clause 8.1 of the Deed: "8.1 OAMPS and AIIL (to the extent permitted by section 241 of the Corporations Law), and the Cross Defendants by this document release and forever discharge Porter from all actions, suits, obligations, sums of money, causes of action, proceedings, accounts, costs, charges, expenses, claims and demands both at law or in equity and/or arising under any statute which they now have or could, would or might but for this release have or have had against Porter by reason of or arising out of or in any way related directly or indirectly to: (i) the Service Agreement: (ii) the Options Deed; (iii) the Clifford Transaction; (iv) the Service Agreement as Amended by the Deed of Variation; (v) the Proceedings; (vi) the Other Proceedings; (vii) the Cross Claims; (viii) the Correspondence or the matters referred to in the Correspondence; (ix) Porter's employment; (x) Porter's contract of employment; (xi) the termination of Porter's employment or contract of employment; (xii) the facts and circumstances described in the Recitals; (xiii) the Melbourne Lloyds Table & Chairs; or (xiv) The Sydney Lloyds Table & Chairs." 581 Clause 8.2 of the Deed: "8.2 Porter by this document releases and forever discharges each of OAMPS, AIIL and the Cross Defendants any actions, suits, obligations, sums of money, causes of action, proceedings, accounts, costs, charges, expenses, claims and demands both at law or in equity and/or arising under any statute which he now has or could, would or might but for this release have or have had against any of OAMPS, AIIL and the Cross Defendants by reason of or arising out of or in any way related directly or indirectly to: (i) the Service Agreement: (ii) the Options Deed; (iii) the Clifford Transaction; (iv) the Service Agreement as Amended by the Deed of Variation; (v) the Proceedings; (vi) the Other Proceedings; (vii) the Cross Claims; (viii) the Correspondence or the matters referred to in the Correspondence; (ix) Porter's employment; (x) Porter's contract of employment; (xi) the termination of Porter's employment or contract of employment; (xii) the facts and circumstances described in the Recitals; (xiii) the Melbourne Lloyds Table & Chairs; or (xiv) The Sydney Lloyds Table & Chairs." Covenants Not to Sue 582 Clause 9.1 of the Deed: "9.1 OAMPS, AIIL, (to the extent permitted by section 241 of the Corporations Law) and the Cross Defendants by this document covenant that they will not take any further steps whatsoever to enforce against Porter any actions, suits, obligations, sums of money, causes of action, proceedings, accounts, costs, charges, expenses, claims and demands both at law or in equity and/or arising under any statute which they now have or could, would or might but for this release have or have had against Porter by reason of or arising out of or in any way related directly or indirectly to: (i) the Service Agreement: (ii) the Options Deed; (iii) the Clifford Transaction; (iv) the Service Agreement as Amended by the Deed of Variation; (v) the Proceedings; (vi) the Other Proceedings; (vii) the Cross Claims; (viii) the Correspondence or the matters referred to in the Correspondence; (ix) Porter's employment; (x) Porter's contract of employment; (xi) the termination of Porter's employment or contract of employment; (xii) the facts and circumstances described in the Recitals; (xiii) the Melbourne Lloyds Table & Chairs; or (xiv) The Sydney Lloyds Table & Chairs." 583 Clause 9.2 of the Deed: "9.2 Porter by this document covenants that he will not take any further steps whatsoever to enforce against any of OAMPS, AIIL and the Cross Defendants any actions, suits, obligations, sums of money, causes of action, proceedings, accounts, costs, charges, expenses, claims and demands both at law or in equity and/or arising under any statute which he now has or could, would or might but for this release have or have had against any of OAMPS, AIIL and the Cross Defendants by reason of or arising out of or in any way related directly or indirectly to: (i) the Service Agreement: (ii) the Options Deed; (iii) the Clifford Transaction; (iv) the Service Agreement as Amended by the Deed of Variation; (v) the Proceedings; (vi) the Other Proceedings; (vii) the Cross Claims; (viii) the Correspondence or the matters referred to in the Correspondence; (ix) Porter's employment; (x) Porter's contract of employment; (xi) the termination of Porter's employment or contract of employment; (xii) the facts and circumstances described in the Recitals; (xiii) the Melbourne Lloyds Table & Chairs; or (xiv) The Sydney Lloyds Table & Chairs." Bar to Proceedings 584 Clause 10.1 of the Deed: "10.1 This document may be pleaded as a bar to any action commenced or to be commenced by OAMPS or AIIL (to the extent permitted by section 241 of the Corporations Law), or the Cross Defendants against Porter concerning or arising out of or in any way related directly or indirectly to: (i) the Service Agreement: (ii) the Options Deed; (iii) the Clifford Transaction; (iv) the Service Agreement as Amended by the Deed of Variation; (v) the Proceedings; (vi) the Other Proceedings; (vii) the Cross Claims; (viii) the Correspondence or the matters referred to in the Correspondence; (ix) Porter's employment; (x) Porter's contract of employment; (xi) the termination of Porter's employment or contract of employment; (xii) the facts and circumstances described in the Recitals; (xiii) the Melbourne Lloyds Table & Chairs; or (xiv) The Sydney Lloyds Table & Chairs." 585 Clause 10.2 of the Deed: "10.2 This document may be pleaded as a bar to any action commenced or to be commenced by Porter against any of OAMPS, AIIL and the Cross Defendants concerning or arising out of or in any way related directly or indirectly to: (i) the Service Agreement: (ii) the Options Deed; (iii) the Clifford Transaction; (iv) the Service Agreement as Amended by the Deed of Variation; (v) the Proceedings; (vi) the Other Proceedings; (vii) the Cross Claims; (viii) the Correspondence or the matters referred to in the Correspondence; (ix) Porter's employment; (x) Porter's contract of employment; (xi) the termination of Porter's employment or contract of employment; (xii) the facts and circumstances described in the Recitals; (xiii) the Melbourne Lloyds Table & Chairs; or (xiv) The Sydney Lloyds Table & Chairs." Indemnities 586 Clause 11.1 of the Deed: "11.1 Except in relation to the costs of the Cross Defendants incurred to date in the Proceedings, Porter will indemnify and will keep OAMPS, AIIL and the Cross Defendants indemnified in respect of all actions, suits, obligations, sums of money, causes of action, proceedings, accounts, costs, charges, expenses, claims and demands both at law or in equity and/or arising under any statue arising out of or in any way related directly or indirectly to the release provided by Porter in clause 8.2 or the covenant provided by Porter in clause 9.2. Breaches of Covenants or Obligations 587 Clause 16.1 and 16.2 of the Deed "16.1 In the event that a party breaches a covenant and/or warranty referred to in this document, whichever of OAMPS, AIIL, Porter and the Cross Defendants would otherwise have obtained the benefit of that covenant or warranty, is entitled to bring proceedings to obtain damages from the breaching party and/or an injunction to prevent further breach. 16.2 In the event that a party breaches a covenant or warranty referred to in this document, that party will indemnify and keep indemnified whichever of OAMPS, AIIL, Porter and the Cross Defendants would otherwise have obtained the benefit of that covenant or warranty, in respect of any damages, loss or costs incurred by those benefited parties as a result of the breach." Entire Agreement 588 Clause 19 of the Deed "This document: 19.1 records the entire agreement between the parties in relation to the subject matter, and 19.2 supersedes all previous negotiations, understandings or agreements whether written, oral, express or implied, in relation to the subject matter." Events Preceding Execution of the Deed 589 At the date of entry into the Deed Porter had not been charged with any criminal offences. On 29 January 1999 ASIC sent a brief to the DPP seeking advice as to whether Porter should be charged. On 20 March 2000, approximately one month after the parties entered the Deed, the DPP advised that charges should be laid. On 28 March Porter was charged with the three counts of breaches of the Corporations Law to which I have already referred. 590 From September 1998 to January 1999 several employees of OAMPS gave statements to ASIC. The plaintiff asserted that Porter entered the Deed "in ignorance…of the statements". 591 Although Porter may not have been aware of the content of the statements, I am satisfied that he knew that some OAMPS employees had made statements to ASIC. A fax from Siggins to Porter dated 20 September 1998 refers to a conversation in which Sharkey told Siggins "He (Sharkey) has been informed that ASIC has a list of people to interview and he is included as the 'Principal Accounting Officer'." Windebank also gave evidence that in about late 1999 or early 2000 Porter told him that he understood Windebank had given a statement to ASIC and that he (Porter) believed others had also made statements to ASIC. 592 On 24 February 1999, OAMPS' solicitors, Henry Davis York, applied to ASIC under section 25 of the Australian Securities and Investments Commission Act 1989 (Cth) for copies of records of examination relating to the Clifford Transaction. The letter states "[a]s Porter is a defendant/cross claimant, we do not consider that there is a need to afford Porter natural justice in respect of our request for information". 593 On 9 April 1999, Bryson J vacated the hearing of the Civil Proceedings fixed for May 1999. In his detailed reasons his Honour stated that endeavours to prepare the case: "have not been successful because of the scale and range of facts which are relevant and because there is much information held by ASIC including records and business documents produced to ASIC by others and records of ASIC's own interviews. It is apparent to me that it would not be prudent for the plaintiff's legal advisers to settle affidavits or otherwise go to trial without taking endeavours to get information held by ASIC as far as they can be taken." 594 His Honour's reasons make plain that OAMPS was seeking information from ASIC. This would have been apparent to Porter. 595 On 4 May 1999, ASIC produced documents in response to a subpoena issued by OAMPS in the Civil Proceedings. On 26 May 1999 ASIC responded to OAMPS' s25 application by authorising the disclosure of written records of examination of Siggins, Harris and Sharkey. 596 On 10 June 1999 Florian Greene of ASIC made a file note of a conversation he had with Porter. The file note records that Porter asked what information had been released to OAMPS and that Greene refused to tell him. He said: "Porter complained that he had not had the same access as everyone else to materials – an 'uneven playing field' and a denial of 'natural justice'. I stressed that he had been given exactly the same opportunity as HDY to frame a s25(1) request to ASIC and that I had guided his solicitor on two occasions as to how best frame that request to minimise time." 597 There was no evidence that Porter, or anyone on his behalf, ever made a s25(1) request to ASIC. 598 On 10 August 1999, Henry Davis York wrote to Porter's solicitors, Withnell Hetherington, informing them that in February 1999 Henry Davis York had applied to ASIC for the release of further information and that in response ASIC had released the transcripts of Siggins, Harris and Sharkey. This was clearly a reference to the s25 application. Those transcripts were provided to Porter's solicitors. 599 On 16 June 1999, a board meeting of OAMPS was attended by its four directors: Lamont, Austin, Cowden and Cootes, with Sharkey as company secretary. The minutes record that "Kingsley Lamont confirmed that the litigation against R Porter is continuing … It is not expected that ASIC and the DPP will commence their action beforehand." Austin and Cowden gave evidence that at the meeting it was not known whether ASIC would in fact commence an action. Sharkey gave evidence that by June 1999, he had an 'expectation' that Porter was going to be prosecuted and that the discussion at the meeting had occurred on the basis of such an 'expectation'. 600 Sharkey gave evidence that on a number of occasions from mid-1999 he spoke with ASIC and asked why it had not prosecuted Porter. On the morning of 30 August 1999 Sharkey telephoned Mr Glen Cook of ASIC. He asked Cook whether criminal charges were going to be brought against Porter and sought that ASIC expedite the laying of charges. Cook told him in effect that "the matter is being considered by the DPP (Ken Wiltshire). It's no use talking to me about this, get your solicitor to talk to the DPP". Later that day, Sharkey sent a fax to Cook containing information about the Clifford Transaction and concluding: "The civil case by OAMPS against Porter proceeds on 18 October 1999. … Can I please seek your continued support and assistance and progress the criminal case against Porter. OAMPS and OAMPS' staff and officers are bearing the brunt of the time and cost and distraction that the civil case entails." 601 On the same day, Sharkey sent Lamont a memorandum which stated: "I thought it best that I document some issues today: 1. Attached is the fax to Glen Cook as you had discussed last week. 2. Glen Cook and I discussed that the criminal case should proceed [ sic. precede] the civil case. He agreed and intimated that when the DPP gets the info in my fax they may be ready to press charges. I challenged Glen regarding the info I know he has that has not been made available to HDY e.g. $400,000 'top up' money; phonecall dates, times, parties, duration and location. He volunteered that Chris Frawley of HDY should ring the DPP and ask for Ken Wiltshire to follow up these issues. Suggest this happens ASAP." 602 In cross-examination Cook denied that he 'intimated' that the DPP might lay charges on receipt of certain information. I accept Cook's evidence. I am satisfied that Cook told Sharkey that only the DPP could advise him whether charges were to be laid. 603 On 31 August, Sharkey had a conversation with Keren Davies, a solicitor at Henry Davis York, who were acting for OAMPS in the Civil Proceedings. This conversation was to the following effect: Sharkey: "Glen Cooke [sic] from ASIC spoke to me yesterday. ASIC volunteered information to me but have consented to me releasing it to Henry Davis York. The suggestion is that there was a $200,000 top up contribution by Porter and Porter-related parties. Glen Cooke suggested that you call Ken Wiltshire of the DPP, I'll send you the details." Davies: "I would be surprised if the DPP would release evidence. However, I will contact them tomorrow after I have spoken with Tony Woods" [her supervising partner] 604 On 13 September 1999 Davies had a conversation with Kenneth Wiltshire of the DPP in which she requested certain documents and asked, in accordance with a request from Sharkey, when the DPP intended filing a summons. 605 Ms Davies said that Wiltshire sounded annoyed at the question and her file note of the conversation records his reply as follows: "I don't know you from a bar of soap and I wouldn't tell you when a summons might be filed anyway." In respect of the documents, he told her that he would not respond unless the request was in writing, and that at any rate ASIC was the appropriate body to provide the documents. Although Davies asked "when" charges would be laid, she gave evidence, which I accept, that no one from OAMPS indicated to her that they had any knowledge as to when, or if, charges would be laid and that she herself had no such knowledge. 606 On 13 September 1999 Davies telephoned Cook who told her about records of phone calls between Porter and Loiterton. He said that Porter had apparently called Loiterton at a hotel and that OAMPS might want to subpoena the hotel, and also mentioned the 'top-up monies' which he had told Sharkey about on 31 August. Davies' file note records: "[Glen Cook] said that HDY can send a letter requesting what HDY needs regarding gaps and phone calls and within the terms of the original subpoena and that they would look at it. [Cook] would send it on to Florian Greene and apart from that, we could issue a subpoena." 607 Apparently ASIC gave the records to Henry Davis York. 608 Wiltshire of the DPP gave evidence of two conversations with Sharkey. The first was on 28 September 1999 when Sharkey inquired "when DPP was likely to determine whether any Criminal Proceedings ought to be taken against Porter". Wiltshire's response, as recorded in his affidavit, was "I told him I could not possibly tell him that." The second conversation occurred on 12 October 1999 when Sharkey "inquired again about the progress by the DPP in determining whether any Criminal Proceedings ought to be had against Porter". Wiltshire said "I fobbed him off." Wiltshire gave evidence that this contact with Sharkey was highly unusual and unwelcome. 609 On 2 February 2000, Sharkey spoke to Jamie Orchard, the director of enforcement at ASIC. An email from Orchard to Cook and Greene records: "I spoke to Peter Sharkey today. He believes that the lack of a decision by DPP will have an adverse impact on their litigation in that they cannot provide their case without out [sic] statements, transcripts etc. I explained that the mere fact of charges will not assist their case but he pointed out, correctly, that once charges have been laid and the investigation finalised, he will be able to release the material." Evidence of Porter's Awareness of the Possibility of Prosecution 610 Porter's evidence as to his state of mind on entering the Deed was that: "At the time I entered into the Deed I was unaware: that ASIC and the DPP intended to prosecute me in respect of the charges that arose from the events that were the subject of the civil proceedings, that there was any basis for ASIC/DPP taking any such action, and that OAMPS were in contact with ASIC and was aware of ASIC's intentions once the civil action settled." 611 He also said that in reliance on the advice of his solicitor, Mr Tony Hartnell, he thought there was no risk he would be charged. Hartnell gave no evidence of having given any such advice. 612 Porter gave evidence that he entered the Deed on the understanding that the settlement sum was "put to me to consider on the basis that it was a discount to my employment entitlements under the contract and it was simply a matter of working out whether I was prepared to accept that discount and walk away." 613 Notwithstanding these matters I am satisfied that when Porter entered the Deed he was aware that he may be prosecuted. He was obviously aware of the ASIC investigation and the involvement of the DPP. So far as he was aware no decision had been made that he would not be prosecuted. The following matters are also relevant. 614 In response to a subpoena issued by OAMPS, in December 1999, ASIC applied for orders refusing access to the documents on the ground of public interest immunity. The application was upheld by Bryson J on 9 December 1999. In his reasons for judgment Bryson J said: "4. … ASIC commenced and is still undertaking an investigation into share transactions which occurred on or about 30 June 1998 involving the parties to this litigation and that the investigation was "based on a suspicion that certain conduct by certain persons, including the defendant, in connection with those transactions involved offences under the Corporations Law". The events under investigation plainly include events out of which the issues in the litigation arises. The investigation is not complete. It has reached the point where the Commonwealth Director of Public Prosecutions was briefed to advise early in 1999, the DPP has provided some advice on the basis of the material briefed, but has not provided final advice . No prosecution has been commenced." … 18. Overall, the circumstance that the investigation is incomplete and has not reached the point where a decision has been taken as to whether there is to be a prosecution or not is a powerful consideration favouring immunity." 615 Porter gave evidence that he read the judgment, was present when it was handed down and paid close attention throughout. The following exchange occurred when he was cross-examined: "Q. His Honour found that the investigation was incomplete and has not reached the point where a decision has been taken as to whether there is to be a prosecution or not. You read that, didn't you, at the time? A. I believe so. Q. When you came to sign the deed some two months later it was still your understanding, wasn't it, that the investigation was incomplete and had not reached the point where a decision had been taken as to whether there was to be a prosecution or not? A. I don't recall thinking in those terms at the time of the deed. I don't recall thinking about this judgment at the time of the deed. Q. Nothing had happened between the time of this judgment in December of `99 and the time of the deed to affect the proposition which is propounded in paragraph 18 of the judgment that the investigation was incomplete and has not reached the point where a decision has been taken as to whether there is to be a prosecution. Do you agree? A. Yes. Q. You knew when you entered into the deed that there might or might not be a prosecution? A. When I entered into the deed I had taken advice. It was the furthest thing from my mind. Q. You knew when you entered into the deed that there might or might not be a prosecution, didn't you? A. I had been advised the prospect of a prosecution was so remote that I shouldn't even think in those terms." 616 Windebank gave evidence that, in the first few months of 2000, both before and after the Deed was executed, Porter on several occasions said to him: "I think I am going to be prosecuted". When cross-examined there was some suggestion that the statement was made earlier in time. However, I am satisfied that Porter spoke in those terms. Principles Relevant to the Construction of the Deed 617 When construing the Deed, the court must endeavour to give effect to the true intention of the parties. The Deed must be read as a whole, giving the words their natural and ordinary meaning in the context in which the Deed was made, the parties' relationship and the relevant facts surrounding the transaction which were known by the parties: Bank Credit & Commerce International SA (in liquidation) v Ali [2001] 1 All ER 961 at 965 per Lord Bingham of Cornhill. 618 In determining the facts 'known by the parties', an objective approach is required, see BCCI v Ali per Lord Hoffman at 974: "Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract" [emphasis added] 619 The subjective intentions of the parties are not relevant (Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352; see also Royal Botanic Gardens Trust v South Sydney Council (2002) 186 ALR 289; Heydon JA in Brambles Holdings v Bathurst City Council (2001) 53 NSWLR 153 at 164). Once the intention of the parties has been ascertained, the court must attempt to give effect to that intention. A Deed of Release will not extend to cover matters which were wholly outside the contemplation of the parties at the time the Deed was entered: BCCI v Ali. 620 This approach has been recently applied by Bergin J in Amaca Pty Limited formerly known as James Hardie & Coy Pty Limited v CSR Limited [2001] NSWSC 324 and Santow J in Karam v ANZ Banking Group Limited [2001] NSWSC 709. Can Porter's Alleged Understanding be Taken into Account? 621 Senior counsel for the plaintiff submitted that I should take into account Porter's evidence that he calculated the amount he was to receive under the settlement solely by reference to a discount on his contractual entitlement and not by consideration of an estimate of likely future legal costs in defending criminal charges. He says it is 'obvious that the legal costs of defending criminal charges would make the settlement sum payable to Porter wholly inadequate'. Counsel for the plaintiff also submits that I should take into account Porter's evidence that, in reliance on Hartnell's advice, he was confident he would not be charged. 622 OAMPS submitted that subjective matters such as Porter's alleged reliance on the alleged advice from his solicitor, cannot be taken into account. It is necessary to construe the Deed in light of the background knowledge which was reasonably available to the parties. 623 Further, OAMPS submitted that, even if Porter did rely on the advice of his solicitor, OAMPS was not aware of the advice, and accordingly it must be disregarded. (Mason J in Codelfa at 352). 624 I am satisfied that OAMPS' submission should be accepted. The authorities make plain that Porter's subjective intention is irrelevant when construing the terms of the Deed. 625 However, even if it was permissible to have regard to Porter's alleged reliance on Hartnell's advice, it would not assist his case. All that the evidence would establish is that, on advice, Porter thought he was safe in entering the deed because it was unlikely he would be prosecuted. This does not mean that he did not intend the deed to bar such a claim; only that he considered the risk of such a claim to be negligible. 626 I shall separately consider the four issues which have been identified. Issues for Decision 627 The following issues are raised by the parties in relation to the Deed: 1. Whether, on a proper construction of the Deed, its terms operate to bar Porter's claim relating to OAMPS for the costs of his defence in the Criminal Proceedings. 2. Whether, if the Deed does cover Porter's claim, OAMPS is entitled to rely upon it. 3. Whether the Deed prevents OAMPS from raising in its defence allegations in relation to the Clifford transaction. 4. Whether Porter's claim against GIO is barred by clause 4.3 of the Deed. Issue 1 - Does the Deed Bar Porter's Claim Aainst OAMPS? Submissions of OAMPS and Gordian 628 OAMPS submitted that the Deed bars Porter's claim for his criminal defence costs. Gordian joined in this submission. 629 The defendants submitted that the release in clause 8.2 of the Deed is anchored to a list of 14 particular matters including the Clifford Transaction, the Civil Proceedings, the cross claims and Porter's employment. The release extends not just to actions in progress but also to any he "could, would or might but for this release have or have had". The release is not restricted to known or identifiable claims. Attention is drawn to the fact that the relationship with the listed subject matters is described as widely as it could be: "by reason of or arising out of or in any way related directly or indirectly to". The release is so comprehensively worded as to cover a claim for indemnity which Porter might make relating directly or indirectly to his conduct in respect of the Clifford Transaction. Such a claim is made by him against OAMPS in these proceedings. 630 It was further submitted that clauses 4.4 and 4.6 provide that OAMPS and Porter would be free to give statements to prosecuting authorities in matters which they were actually conducting or considering conducting, which must include in relation to the Clifford transaction. Hence it is submitted that the Deed contemplated that Porter might be prosecuted. 631 The defendants submitted that clause 5 of the Deed put an end to OAMPS' and Porter's rights and obligations pursuant to his service agreement, his service agreement as amended, his employment and his contract of employment. These were the source of any rights Porter had to make a claim against OAMPS for the cost of defending the Criminal Proceedings. 632 Finally, it was submitted that clause 4.3 bars Porter from making any claim for indemnity under OAMPS' Articles, or elsewhere in respect of the proceedings, which are defined to include Porter's cross claims in the Civil Proceedings. His cross-claims included an Article 35.1 claim for the costs he incurred in relation to the ASIC investigation. Clause 4.3 therefore bars him from claiming indemnity for costs which might be incurred as a result of the ASIC investigation including the costs of the Criminal Proceedings. Porter's Submissions 633 Senior counsel for the plaintiff submitted that the parties by their language have shown an intention to permanently bar all claims and disputation then known or contemplated in respect of, inter alia, the Clifford transaction. That did not include a claim for criminal defence expenses. Porter had not been charged at the time of the Deed and the Deed does not refer to criminal charges. 634 Senior counsel pointed to the definition of 'Correspondence', one of the listed subject matters in respect of which claims are released, which does not include any correspondence which mentions criminal charges against Porter. 635 It was submitted that clauses 4.4, 4.5 and 4.6 of the Deed are simply clauses whereby the parties agree not to make complaints or claims to certain parties or authorities, and do not relate to potential criminal charges. Counsel could not provide a satisfactory context for the reference to giving statements to prosecuting authorities although Porter, in evidence, said that it referred to the impending prosecution of Lamont. 636 It was submitted that on the evidence of both the plaintiff and the witnesses for the second defendant, criminal defence costs were not in contemplation when the Deed was entered into. Counsel for the plaintiff further submits that 'something specific and serious like potential criminal charges will not normally come within general words of a release'. 637 Porter relied on the decision of the High Court in Grant v John Grant & Sons (1954) 91 CLR 112, where the appellant invoked the principle stated by Lord Westbury in London & South Western Railway Co v Blackmore (1870) 4 HL 610. His Lordship said (at 623): "The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given." 638 The joint judgment in Grant cited the following principle (at 129-130): "[A] releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor." See also the decision in Bank of Credit and Commerce International SA (in liquidation) v Ali and others [2001] 1 All ER 961. 639 In BCCI v Ali, a bank employee who was made redundant in 1990 signed a release which recorded that he agreed to the full and final settlement of: "all or any claims whether under statute, Common Law or in Equity of whatsoever nature that may exist and, in particular, all or any claims rights or application of whatsoever nature that [the employee] has or may have or has made or could make, in or to the Industrial Tribunal." 640 It subsequently became known that the bank had conducted its business in a dishonest and corrupt fashion. Several former employees claimed damages from the bank, arguing that the stigma of having been employed there impeded their efforts to gain other employment. The bank's liquidators argued that the release barred the plaintiff from bringing a claim for stigma damages, even though claims for stigma damages were not recognised in law until several years after he had signed the release. 641 In the House of Lords, Lord Bingham of Cornhill held that a party may agree, for valuable consideration, to release claims or rights of which he was not, and could not, be aware. However he referred to the 'cautionary principle' - that courts will be very slow to infer the release of such rights in the absence of clear language. It was held that the release did not prevent the employee from bringing a claim for stigma damages because neither the bank nor the employee, at the time of executing the release 'could realistically have supposed that such a claim lay within the realm of practical possibility' and it could not be concluded that the parties 'intended to provide for the release of rights and the surrender of claims which they could never have had in contemplation at all'. 642 Porter says that the principle in BCCI vAli should be applied in this case. It is submitted that Porter's claim for criminal defence costs had not yet emerged when he entered into the Deed, and he was not aware of such a claim. 643 However, OAMPS says a proper understanding of BCCI v Ali operates to defeat Porter's claim because here 'the parties could and should have realistically supposed that Criminal Proceedings and a claim for indemnity against defending them lay within the realm of practical possibility'. Decision 644 In the present case notwithstanding the alleged advice from Hartnell, Porter clearly knew that ASIC and the DPP were considering the matter and no decision that he would not be prosecuted had been communicated or even suggested. Anyone in his position must have known that until the DPP had made a decision, Criminal Proceedings were at least possible. 645 Clause 8.2 of the deed contains a list of the matters which Porter released. They include the Civil Proceedings and significantly "claims arising by reason of, or arising out of, or in any way related, directly, or indirectly, to the Clifford transaction." The plain meaning of these words would extend to any prospective liability for criminal defence costs. The references in clauses 4.4 to 4.6 to the freedom of the parties to give statements to the prosecuting authorities makes plain that the parties, when entering the Deed, were aware that the authorities may continue enquiries and prosecution may result. I do not accept Porter's assertion that this may have been a reference to the possible prosecution of Lamont. There was simply no need to refer to that matter in this Deed. All parties were aware of the inquiries being made and knew that they related to possible breaches of the law arising from the Clifford transaction. 646 Having regard only to the objective matters known to all parties, in my opinion the release operates to deny Porter both civil and criminal costs. Issue 2 - OAMPS' Entitlement to Rely on the Deed 647 Porter submitted that even if the Deed is construed to bar the claim for criminal defence costs, OAMPS should not be permitted to rely on it. Counsel for the plaintiff referred to 'equitable fraud' by OAMPS which he submits disentitles it to rely on the Deed. His argument is essentially that it would be unconscionable for OAMPS to rely on the deed in light of the inequality of information which existed between OAMPS and Porter. 648 For the purpose of this argument, it was submitted that at the time the Deed was executed OAMPS knew that it was likely that criminal charges would be laid against the plaintiff and that OAMPS knew, or ought to have known, that the plaintiff did not know of OAMPS' request for statements from ASIC or of the discussions between OAMPS and ASIC about information sharing. 649 It was submitted that OAMPS knew that there was a substantial inequality arising from the fact that ASIC had provided OAMPS with statements and documents not supplied to the plaintiff. Counsel for the plaintiff submitted that Porter did not know that OAMPS had urged ASIC and the DPP to lay charges against him, that OAMPS had requested statements from ASIC and had requested that the plaintiff not be informed of that request, and that OAMPS and ASIC had had discussions about information sharing. 650 Porter submitted that he entered the Deed in ignorance of the knowledge that ASIC and the DPP intended to prosecute him, and in ignorance of the statements given by OAMPS witnesses to ASIC. He submits that OAMPS was aware of his ignorance and that 'OAMPS knowingly stood by and allowed the Plaintiff to enter into the deed intending thereby to rely upon the Deed as a release of the Plaintiff's claim to be indemnified in respect of the costs and expenses'. 651 In these circumstances, it was submitted, it is unconscionable in equity and under s 41AC of the Trade Practices Act (Cth) for OAMPS to rely on the Deed. Alternatively, Porter submits that the Deed is voidable at the option of the plaintiff, that the release is unjust under the Contracts Review Act 1980 (NSW) and that OAMPS' conduct was misleading and deceptive under s 52 of the Trade Practices Act. Inequality of Information or Knowledge? 652 I have already found that both parties contemplated the possibility of Criminal Proceedings against Porter. However, I do not accept that OAMPS knew, or knew it was likely, that ASIC and the DPP would bring proceedings. The decision to prosecute Porter was not made until late March 2000. The evidence of events before that date confirms that OAMPS was encouraging prosecution but had not been told whether it was likely to occur. 653 There is no evidence that at the time the Deed was executed, ASIC or the DPP had told anyone from OAMPS that charges would be laid. At the time the Deed was executed, OAMPS officers and directors and their solicitors did not know what the intention of ASIC, or, more importantly, the DPP was in relation to charging Porter. 654 There is no evidence that OAMPS or ASIC did anything improper with respect to the sharing of information. OAMPS received documents from ASIC under subpoena, in accordance with written requests, and pursuant to a s25 request. Even if relevant, which I doubt, unless it went to the likelihood of prosecution, there is no evidence that any information was released or obtained in a manner contrary to ASIC policy. 655 Porter knew from the judgment of Bryson J on 9 April 1999 that OAMPS was attempting to obtain relevant information from ASIC. Bryson J recognised that OAMPS' attempts to gain information from ASIC were entirely appropriate. Porter spoke to Greene in June 1999 and asked what information had been released to OAMPS. He knew that OAMPS had received documents from ASIC under subpoena. He, or his legal advisers, knew of an application in early February under which the ASIC transcripts of Siggins, Harris and Sharkey were released to OAMPS, copies of which were given to his solicitor. 656 In submitting that OAMPS dealt unfairly with Porter senior counsel relied particularly on Henry Davis York's view expressed in Davies' letter of 24 February 1999 that Porter need not be afforded natural justice in relation to OAMPS' s25 application. OAMPS submitted that reliance on that letter was misplaced. 657 At the end of the relevant paragraph of the letter there is a reference to ASIC's "Policy Statement 103: Confidentiality and Release of Information". That policy details how requests for the release of information should be formulated. The relevant clause states that applications should: "indicate, if known, that identity of any person whose interest may be affected by the release of the information to the applicant and, if relevant, any submission as to why these persons should not be contacted as part of the ASIC's obligation to provide procedural fairness." 658 It would appear that Davies' statement that Porter need not be afforded natural justice was made in light of this policy. Application of the Principles of Unconscionability 659 In Commercial Bank of Australia Ltd v Amadio (1983) 151CLR 447 Deane J said (at 462) that to establish unconscionability the innocent party must have a special disadvantage: "which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party . " (See also Amadio at 459, 466, 479-480; Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 197 ALR 153; Krambousanos v Jedda Investments Pty Ltd (1996) 64 FCR 348; Akins v National Australia Bank (1994) 34 NSWLR 155) 660 In the present case there is no evidence that OAMPS had any reason to believe, or even suspect, that Porter thought he would not be prosecuted. OAMPS was under no duty to enquire as to his state of belief havingno reason to believe that Porter could not appropriately assess his own situation. Further Matters 661 The plaintiff pleaded that OAMPS' reliance on the Deed was prevented by reason of ss 41AC and 52 of the Trade Practices Act and the Contracts Review Act 1980 (NSW). Porter also pleaded that OAMPS was estopped from relying on it, and that the Deed was void or voidable at his option. However neither written nor oral submissions were made to support these propositions. Issue 3 - Does the Deed Bar OAMPS from Raising in its Defence Allegations in Relation to the Clifford Transaction? 662 Although having regard to my earlier findings this matter does not arise, it was argued and should be considered. The plaintiff submitted that the Deed precludes OAMPS from raising in its defence any matter relating to the Clifford transaction. Clause 8.1 contains a release by OAMPS of "all actions, suits, obligations, … causes of action, proceedings, … claims and demands both at law or in equity" in relation to the Clifford transaction. OAMPS submitted that the Deed cannot reasonably be interpreted to permit the plaintiff to sue OAMPS while barring OAMPS from raising as defences lack of good faith and other issues arising from his conduct in relation to the Clifford transaction. 663 There are many difficulties with the plaintiff's submissions. However I am not persuaded that clause 8.1 would preclude OAMPS from defending a claim. The essential element in the clause is the demand or assertion of a legal right or a request of the court to provide relief. OAMPS does not demand or assert a right to relief from the court in its pleaded defence. Raising allegations in a defence is not relevantly a claim, demand, or cause of action. Even if ambiguous, the Deed could not be construed so that Porter was entitled to prosecute a claim, but OAMPS was denied the opportunity to defend the claim, alleging bad faith or a breach of the law by Porter. Issue 4 – Does Clause 4.3 Bar Porter's Claim Against Gordian? 664 Gordian relied in its defence on clause of 4.3 of the Deed by which Porter acknowledged "that he is not entitled to make any claim under OAMPS' Director's and Officer's Liability insurance policy or any indemnity in OAMPS' Articles of Association, or elsewhere, in respect of the Proceedings." "The proceedings" is defined in the Deed as being the Civil Proceedings, including the cross-claims brought by Porter. Those cross claims included a claim under Article 35 for the costs incurred in the civil action and in respect of the ASIC investigation. Accordingly it was submitted that clause 4.3 contains a promise by Porter that he would not claim against GIO for the costs of the civil action, and also for costs which might be incurred as a result of the ASIC investigation. 665 Gordian submitted that the promise given by Porter under clause 4.3 was also intended to be given for the benefit of Gordian and can be enforced by it under the principle that protects a beneficiary of the trust of a promise: Trident General Insurance Co Limited v McNiece Bros Pty Ltd (1988) 165 CLR 107. Porter submits that Gordian cannot rely on the release as it was not a party to it; and further, that his understanding was that by the release he was giving a promise to OAMPS and not Gordian, and that the promise contended for by Gordian was not represented to Gordian, communicated to it, or relied upon by it. 666 A trust will exist when it appears, from the language of the parties, in light of the surrounding circumstances, that the parties intended to create it. The language of clause 4.3 is an acknowledgment by Porter that he is not entitled to make any claim under the policy in respect of the proceedings. However, the intention of the parties in executing the Deed was to settle the dispute between themselves rather than to confer any benefit on Gordian. There is no evidence to suggest that any benefit which Gordian might enjoy was other than incidental. I do not believe that it was the intention "to create or protect an interest in a third party": in Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 618-619. 667 It must be remembered that OAMPS was concerned to minimise the impact of the Clifford transaction on its capacity to obtain and the terms on which it might secure D&O insurance in the future. I am satisfied that clause 4.3 was inserted for OAMPS' benefit and not with the intention of conferring a benefit on Gordian. OAMPS' Cross Claim on the Deed 668 OAMPS cross claimed against Porter alleging that by bringing a claim for criminal costs in these proceedings Porter has breached clauses 8.2, 9.2, 4.3 and 16.2 of the Deed. Having regard to my findings this claim must succeed and OAMPS is entitled to a verdict on its cross claim against Porter. PART XIII – PORTER CLAIMS DIRECTORS' INDEMNITY Porter's Claim Against OAMPS - Article 35.1 and Directors' Common Law Right of Indemnity 669 Porter claims an indemnity from OAMPS under Article 35.1 of the Articles of Association of OAMPS (as in force at 30 June 1998) or alternatively under a common law right of indemnity. 670 Article 35.1 was in force until 26 October 2000. It provided as follows:- "35.1 Indemnities To the extent permitted by law: (a) the Company indemnifies every person who is or has been an Officer of the Company or of a subsidiary of the Company against any liability for costs and expenses reasonably incurred by that person in defending any Proceedings in which judgment is given in that person's favour, or in which the person is acquitted , or in connection with an application in relation to any Proceedings in which the Court grants relief to the person under the Corporations Law; and (b) the Company indemnifies every person who is or has been an Officer of the Company or of a subsidiary of the Company against any liability incurred by the person, as an Officer of the Company or a Subsidiary of the Company, to another person (other than the Company or related body corporate of the Company) unless the liability arises out of conduct involving a lack of good faith." 671 To meet the requirements of sub-clause (a) Porter relies upon the DPP's Notice of Discontinuance dated 18 July 2002. In submissions he also relied on the transcript of the hearing in the County Court on 1 August 2002 when his counsel said: "Mr Porter is concerned to have a judge tell him that he no longer has any bail requirements because …". The judge replied: "I'll tell Mr Porter now that he is discharged". It is submitted that accordingly Porter obtained an acquittal or judgment in his favour within the meaning of Article 35.1(a). 672 A number of other issues were debated with respect to Article 35.1 which, having regard to my findings in relation to the relevant events, it is not necessary to resolve. The words of qualification "to the extent permitted by law" were the subject of submission by OAMPS. Relying on Studdert v Grosvenor (1886) 33 Ch D 528 and Tomlinson v Liquidators of Scottish Amalgamated Silks Limited (1935) SLT 297 it was submitted that the law would not allow indemnity, there being no relevant act done by Porter in discharge of his duties. 673 There was also consideration given to the effect of the changes made to the law by the Corporate Law Reform Act 1994 (Cth) which introduced a number of changes. It was submitted by OAMPS that the legislation covered the field and that the form of cl 35.1(b) reflected s 241(2) and restricted an indemnity to liabilities incurred by the person "as an officer of the company". Porter joins issue on these matters. Article 35.1(a) – Was There an Acquittal? 674 It was submitted by OAMPS that the costs incurred by Porter in respect of the discontinued Criminal Proceedings do not fall within the scope of article 35.1(a) because he was not "acquitted" nor did he obtain a judgment in his favour. OAMPS draws attention to the statement in relation to s.241(3)(a) in Ford's Principles of Corporations Law (9th ed, 1999) para 8.410: "Disposal of the proceedings short of acquittal would not attract liability under the indemnity". 675 Porter's submission is that the entry of the Notice of Discontinuance dated 18 July 2002 and his consequential discharge from bail meant that he was "acquitted" or obtained a "judgment in his favour" within the meaning of Article 35.1(a). 676 The Notice of Discontinuance dated 18 July 2003 filed in the Criminal Proceedings is the written memorandum of the Commonwealth DPP indicating that he is declining to proceed with the Criminal Proceedings. It formally notifies the nolle prosequi. 677 In Emanuel Management Pty Ltd (in liq) v Emanuele (2002) 83 SASR 501 at 517 Wicks J held that a permanent stay of Criminal Proceedings is not an acquittal or a judgment within the meaning of an article equivalent to Article 35.1(a). The article is only partly set out in the judgment at 517 but OAMPS obtained a complete copy: "118. Every director managing director agent auditor secretary and other officer for the time being of the Company shall be indemnified out of the assets of the Company against any liability incurred by him in defending any proceedings whether civil or criminal in which judgment is given in his favour or in which he is acquitted or in connection with any application under the Code in which relief is granted to him by the Court in respect of any negligence default breach of duty or breach of trust." 678 Wicks J held at 517:- "It must be stressed that indemnity out of the assets may be afforded to a director only where judgment is given in his favour. The order ... was that the proceedings on the information be permanently stayed. There was no acquittal; nor was there a committal for a re-hearing. For these reasons, I am of the opinion that Article 118 of the plaintiff company's Articles of Association has no application in this matter" 679 It was submitted by OAMPS that at common law there is a well-known distinction between a judgment and an order. A judgment is "a decision obtained in an action, and every other decision is an order": Onslow v Commissioners of Inland Revenue (1890) 25 QBD 465 at 466. An essential feature of a judgment is that it establishes rights: Ex parte Moore; in re Faithfull (1885) 14 QBD 627 at 635. "Judgment in his favour" is a concept applicable to Civil Proceedings. That Article 35.1(a) requires "judgment in his favour" to be construed in this way derives further support from the distinction which the Article draws between the Civil Proceedings concept of "judgment in his favour" and the Criminal Proceedings concept of "acquitted". 680 Porter's submissions relied on two malicious prosecution cases to support the argument that there was an acquittal: Commonwealth Life Assurance Ltd v Smith (1938) 59 CLR 527 and Noye v Robbins [2000] WASC 81 (a Master). In my opinion these cases do not assist in bringing a Notice of Discontinuance within the terms of article 35.1(a). The issue in Smith was whether the guilt or innocence of the plaintiff is an issue going to the cause of action. 681 In Davis v Gell (1924) 35 CLR 275 at 287 Isaacs ACJ citing Chitty's Criminal Law said: "The effect of a nolle prosequi when obtained … does not operate at all as an acquittal." 682 The issue in both Noye and Davis was whether a nolle prosequi was "sufficient termination of the Criminal Proceedings as required to ground an action for malicious prosecution" (at 534). Conclusion 683 I am satisfied that the discharge of Porter from bail after the entry of a notice of discontinuance could not amount to a judgment or an order establishing rights for the purpose of Article 35.1. A nolle prosequi only operates to deprive the court of a power to proceed any further upon the relevant indictment: R v GKA (1998) 99 A Crim R 491. There was no judgment in Porter's favour. 684 In Question of Law Reserved on Acquittal (3 of 1995) Michael Charles Baenisch (1996) 88 A Crim R 1, the Court of Criminal Appeal of South Australia per Debelle J at 7 (with whom Mullighan J at 22 substantially agreed and Nyland J at 24 agreed) held that a nolle prosequi is not an acquittal, but merely a termination of the proceedings without an adjudication:- "The entry of a nolle prosequi is no more than a statement that the prosecution is unwilling then to proceed with the prosecution. It is not in law or in fact an official act by the executive amounting to a promise or representation that the accused will not be presented again on the same charge: R v Swingler . It is not tantamount to an acquittal : Davis v Gell (1924) 35 CLR 275 at 287. It is a termination of the proceedings without an adjudication and it neither creates a bar to a subsequent suit nor will it support a plea of autrefois acquit: see Broome v Chenoweth (1946) 73 CLR 583 per Dixon J at 599; Poole [1961] AC 223. See also R v Ridpath (1712) 88 ER 670 at 671 where it was held that entry of a nolle prosequi did not bar a fresh indictment charging the same offence. Thus, it is possible to bring a fresh information and for the Attorney-General or Director of Public Prosecutions to proceed ex officio on a fresh information: Mitchell (1848) 3 Cox CC 93. To like effect see Gilchrist v Gardner " 685 There is a real distinction between an acquittal and a nolle prosequi. As Porter was not acquitted, he cannot recover under clause 35.1(a). Article 35.1(b) – Lack of Good Faith 686 OAMPS submits that Porter may not recover pursuant to cl 35.1(b) because either the conduct of Porter involved "a lack of good faith" or because the costs and expenses were not incurred by him "as an officer of the company". 687 In my opinion the liability which Porter incurred arose "from conduct involving a lack of good faith." 688 I have found that Porter was the promoter of the Clifford transaction and had had private discussions with Loiterton and Adler about it. He was hoping to gain from the transaction which he believed may secure his job. 689 OAMPS submitted that a director of a company is bound to exercise his or her powers in good faith for the benefit of the company as a whole. This obligation requires a director to make proper and adequate disclosures. Where a director recommends or advises the board to exercise its powers in a particular way, the director is required to make a full and fair disclosure of all matters within his or her knowledge which would enable the board to make a properly informed judgment on the matters in question. See Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94, McLelland J at 96-7. Although this case involved a meeting of members, the principles apply equally in the case of disclosures by an individual director to the board. McLelland J also pointed out that breach of a director's good faith obligation of full and fair disclosure does not have to be dishonest nor involve moral turpitude. 690 In United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 6 Gibbs CJ referred with approval to the principle, that "those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterise their published statements." See Directors etc of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 at 113. 691 It is plain that a director's obligation of good faith requires him not to use his power for an improper purpose: "Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. It is only one application of the general doctrine expressed by Lord Northington in Aleyn v Belchier (1758) 28 ER 634 at 637: "No point is better established than that, a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void": Mills v Mills (1938) 60 CLR 150 at 185 per Dixon J. 692 It was submitted that it would be a breach of good faith for Porter to use his power to promote the purchase of the Clifford shares for the purpose of saving his job. It is sufficient if the impermissible purpose was, as I have in Porter's case found, the substantial or moving purpose: Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 294. 693 Senior counsel for Porter submitted that, if the court accepts that Porter disclosed to the meeting that the Clifford transaction might assist his employment, he had acted honestly. Because the transaction had been approved by the Board, knowing of Porter's personal motivation, it was submitted that the defendants had not demonstrated that Porter had acted for an improper purpose or dishonestly; see Karger v Paul [1984] VR 161 at 164, 176. Porter submitted that he believed that the transaction was in the best commercial interests of OAMPS. In any event, he submitted, OAMPS is prohibited by the Deed from raising an allegation of bad faith. Furthermore, because other officers of OAMPS were involved in approving the transaction, and they have been provided with indemnities by the company, it is submitted that OAMPS may not allege bad faith by Porter. 694 OAMPS drew attention to the decision of the Full Federal Court in Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCR 290 at 299-301, where the Court noted various meanings of "good faith" in different contexts:- (a) "'Good faith' in some contexts identifies an actual state of mind, irrespective of the quality or character of its inducing causes; something will be done or omitted in good faith if the party was honest albeit careless". (b) On the other hand, "good faith" may require that exercise of caution and diligence to be expected of an honest person of ordinary prudence. (c) "Abstinence from inquiry involving a wilful shutting of the eyes may be a circumstance from which dishonesty [and therefore a lack of good faith] may be inferred." (d) "[A] criterion of 'good faith' may go beyond personal honesty and the absence of malice and may require some other quality of the state of mind or knowledge of the relevant actor." (e) "In the context of an administrative decision an improper exercise of power need not involve mala fides, for example Wednesbury unreasonableness." 695 The reasoning in Mid Density Developments was applied by Perry J in State of South Australia v Clark (1996) 66 SASR 199, a case concerned inter alia with a statutory immunity claimed by an executive director of the State Bank under s 29 of the State Bank of South Australia Act. The South Australian government had brought a claim against Clark, an executive director of the Bank, for damages in negligence and/or for breach of fiduciary duty. Clark claimed an immunity under s 29 which provided:- "29(1) No liability attaches to a Director or other officer of the Bank for an act or omission done or made, in good faith, and in carrying out, or purporting to carry out, the duties of his office. 29(2) Any liability that would, but for subsection (1) attach to a Director or other officer of the Bank shall attach instead to the Bank." 696 The conduct in question related to Clark's failure as chief executive officer to: (a) ensure that an independent valuation of a company the State Bank proposed to purchase was obtained; and (b) disclose to the Board both his interest as a director of another company in the purchase going ahead and the personal benefit he would obtain. Perry J accepted that the statutory duties imposed on directors under the State Bank of South Australia Act were similar in nature to Corporations Law duties and equitable principles were pertinent to determining the scope of the legislative provision (at 232-233). 697 Perry J held (at 233-234) that a lack of "good faith" in the context of directors' statutory duties did not require dishonesty. Perry J adverted to the fact that in the context of directors' duties there may be a breach of duty without any relevant dishonesty; for example where a power has been exercised for an improper purpose. He also held that a director will not act in "good faith" where:- (a) there has been no genuine attempt to answer the standard of care required of the director in order to discharge his duties; or (b) the director is in breach of his duty of disclosure or his duty to avoid a conflict of interest. 698 OAMPS point to the fact that Porter was not only a director - and therefore a fiduciary - but was also the managing director, the promoter of the proposal to purchase the Clifford shares and had a participated in private communications with Loiterton and Adler. It submits that in these circumstances Porters standard of behaviour should have been "the punctilio of an honour the most sensitive" in a realistic sense. See Cardozo CJ in Meinhard v Salmon 249 NY 458 1928. At the least, he had heightened obligations at the 30 June meeting to ensure that nothing was misstated, that full disclosure was made of everything material to the board's decision, that an adequate due diligence had been conducted, and that he did not use his power for an improper purpose. Finding 699 I do not accept that the disclosure, which I am satisfied Porter made to the meeting, precludes the finding that he failed to act in good faith. The disclosure may have been honest, perhaps foolhardy, but it confirms that he was improperly motivated. The fact that others voted for the proposal and indicate that they did so for proper commercial reasons, does not have the consequence that Porter acted in good faith. He plainly did not. Even if he told some at the meeting of his true purpose his actions were dishonest. The dishonesty is apparent in his motivation for improperly dealing with OAMPS' assets. The Deed of Release does not have the consequence urged by Porter. I consider its provisions elsewhere in these reasons. The fact that others who were present at the meeting may have received an indemnity does not, in my opinion, have the consequence that OAMPS cannot defend Porter's claim. 700 I am satisfied that Porter failed to act in good faith on 30 June 1998 having regard to the following matters: (a) he failed to disclose that he was in possession of advice from Peter Hall and Lowenstein adverse to his proposal to acquire the Clifford shares. (b) he intended to financially assist interests associated with Loiterton to acquire the FAI parcel, substantially motivated by a concern to save his job. (c) he falsely represented to the 30 June meeting that due diligence had been carried out. 701 Accordingly, Porter's claim pursuant to clause 35(1)(b) fails. The Common Law Claim 702 As I have already indicated Porter maintains a common law right of indemnity. OAMPS submit that that claim must fail because either the statute covers the field; or when Porter incurred liability he was not acting on the company's behalf; or he acted unlawfully or in breach of duty. 703 My findings with respect to Porter's conduct have the consequence that he breached his duty as a director to OAMPS. This is sufficient to deny him recovery at common law assuming that a claim under the common law is otherwise available. Bowstead & Reynolds on Agency (17th ed, 2001) Articles 64 and 65, provide the principles pursuant to which an agent may be reimbursed. Not surprisingly recovery is denied when the agent has acted in breach of duty or unlawfully. This principle will operate to defeat a Director's claim. Operation of Article 35.1 after 26 October 2000 704 Extensive changes to the Corporations Law were made with effect from 13 March 2000 by the Corporate Law Economic Reform Act 1999 which led to OAMPS' constitution, including Article 35.1, being replaced on 26 October 2000. In OAMPS' submission Article 35.1 could not apply to any liabilities incurred thereafter even if it applied previously. 705 Section 241 of the Corporations Law was substituted by s.199A which provided as follows: "199A(1) Exemptions not allowed A company or a related body corporate must not exempt a person (whether directly or through an interposed entity) from a liability to the company incurred as an officer or auditor of the company. 199A(2) When indemnity for liability (other than for legal costs) not allowed A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities incurred as an officer or auditor of the company: (a) a liability owed to the company or a related body corporate; (b) a liability for a pecuniary penalty order under section 1317G or a compensation order under section 1317H; (c) a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith. This subsection does not apply to a liability for legal costs. 199A(3) When indemnity for legal costs not allowed A company or related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against legal costs incurred in defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred: (a) in defending or resisting proceedings in which the person is found to have a liability for which they could not be indemnified under subsection (2); or (b) in defending or resisting criminal proceedings in which the person is found guilty; or (c) in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established; or (d) in connection with proceedings for relief to the person under this Act in which the Court denies the relief. Paragraph (c) does not apply to costs incurred in responding to actions taken by ASIC or a liquidator as part of an investigation before commencing proceedings for the court order. 199A(4) Outcome of proceedings For the purposes of subsection (3), the outcome of proceedings is the outcome of the proceedings and any appeal in relation to the proceedings." (emphasis added) 706 Section 199A has continued in the same form in s.199A of the Corporations Act 2001. 707 On 26 October 2000 OAMPS, following the legislative changes introduced in March 2000, adopted a new constitution. Article 35 was replaced by rule 127:- "127.1 To the extent permitted by law and without limiting the powers of the Company, the Company or a related body corporate may indemnify or exempt any person being or having been an Officer of the Company against any liability which results directly or indirectly from facts or circumstances relating to the person serving or having served in that capacity: (a) incurred by any person (other than the Company or a related body corporate), which does not arise out of conduct involving a lack of good faith and does not involve a breach or breaches of any of the civil penalty provisions of the Law or a compensation order made under s1317H of the Law. (b) for costs and expenses incurred by the person in: (i) defending or resisting proceedings in which the Officer is found to have a liability for which they could not be indemnified under (a) above; or (ii) in defending or resisting criminal proceedings in which the Officer is found guilty ; or (iii) in defending or resisting proceedings brought by the ASIC or a liquidator for a court order if the grounds for making the order are found to have been established; or (iv) in connection with proceedings for relief to the persons under the Law in which the court denies relief. 127.2 To the extent permitted by law and without limiting the powers of the Company, the Directors may authorise the Company to, and the Company may enter into any: (a) documentary indemnity in favour of; or (b) insurance policy for the benefit of, a person who is, or has been, an Officer of the Company or of a subsidiary of the Company, which indemnity or insurance policy may be in such terms as the Directors approve and, in particular, may apply to acts or omissions prior to or after the time of entering into the indemnity or policy. 127.3 The benefits of each indemnity given in paragraph 127.1 continues, even after its terms or the terms of this Clause are modified or deleted, in respect f a liability arising out of acts or omissions occurring prior to the modifications or deletion. 127.4 In this Clause 'Officer' shall have the same meaning in section 9 of the Law." (emphasis added) 708 The finding that the relevant actions of Porter were lacking good faith and a breach of the duty he owed to OAMPS operates to defeat this claim. It is not otherwise necessary to deal with the submission. PART XIV – NON-DISCLOSURE Non-Disclosure 709 Gordian submits that a number of relevant matters were not disclosed to GIO, contrary to OAMPS' and Porter's duty of disclosure prior to entering into the insurance policy. It is also submitted that the proposal form for the policy contained incorrect and misleading statements. Section 21 of the Act provides: "The insured's duty of disclosure (1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: (a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or (b) a reasonable person in the circumstances could be expected to know to be a matter so relevant. (2) The duty of disclosure does not require the disclosure of a matter: (a) that diminishes the risk; (b) that is of common knowledge; (c) that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know; or (d) as to which compliance with the duty of disclosure is waived by the insurer. (3) Where a person: (a) failed to answer; or (b) gave an obviously incomplete or irrelevant answer to; a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter. " 710 It is submitted that the following matters were not disclosed: (a) That the Chairman of OAMPS had obtained, and served on the company and its directors, written advice from a reputable law firm that stated that there was a serious risk that OAMPS, through the actions of Porter on or about 30 June 1998, had breached section 205 of Corporations Law and engaged in oppressive conduct, which letter would constitute a claim or at the very least a circumstance within the meaning of the GIO policy. (b) That the Chairman of OAMPS had obtained written advice from a Queens Counsel about issues of a " grave nature " raised by the Chairman including allegations of theft or obtaining a pecuniary advantage by deception and fraud. (c) That in excess of $3 million had been paid by AIIL, a subsidiary of OAMPS, to companies associated with Loiterton on 30 June 1998, and that those companies had used that money to buy shares in OAMPS from companies associated with Adler (i.e. that the money had travelled in a circle, as alleged in the Australian Financial Review on 18 September 1998). (d) That at a board meeting on 8 September 1998: (i) Windebank alleged impropriety in relation to the Clifford transaction; (ii) Windebank alleged that Porter had stated that the Clifford transaction would secure his job as a CEO; (iii) it was stated that Windebank had received his information from three other officers of the company who were present on 30 June 1998; and (iv) Windebank resigned as a director, and indicated that he intended to go to the authorities (ASIC and ASX). (e) That first MMI and later HIH declined to participate in the insurance which OAMPS was also seeking to place with GIO. (f) That, to the knowledge of OAMPS and Porter, ASIC was investigating the Clifford transaction. Facts Relevant to the Allegation of Non-Disclosure 711 I have already related many of the relevant events. However, it is appropriate to provide a complete account of the events which I accept occurred and which are relevant to Gordian's submissions. 712 On 2 September 1998, Windebank sought to convene a meeting of directors to discuss the performance of Porter, to be held on 4 September. 713 On that day, Porter sent a letter to Windebank which referred to the following matters: (a) that Windebank proposed to call a special meeting of directors to propose a vote of no confidence in Porter; (b) that Windebank had sought advice from Senior Counsel; (c) that Porter had advised the auditor, Linton, that Porter took " great exception to his mischievous involvement"; (d) that any dismissal of Porter could lead to a wrongful dismissal suit; (e) that Windebank was throwing the fortunes of the company into the "never never land" of potential litigation; and (f) that Porter took great offence that Windebank was touting that he had " something big " on Porter. Porter did not disclose these matters to GIO. 714 On 3 September 1998, Windebank received the advice from Willee QC which was given to Porter. It stated, among other things, "the fraud squad may need to be brought in". The advice was not disclosed to the GIO. 715 Porter and the other directors refused to allow the meeting to be convened as requested by Windebank, and wrote to Windebank stating that they had lost confidence in him as Chairman of the Board. On 4 September 1998, Windebank announced his resignation as Chairman. He remained as a director. This announcement was forwarded to the ASX. The announcement stated that his resignation was occasioned by the way in which the management of the company was being conducted. 716 On the same day, OAMPS requested that its shares be suspended, which occurred. 717 Also on 4 September 1998, Ms Priest from Swire Blanch sent a letter to Porter. It relevantly stated: "As advised to you previously, the current events with respect to the Chairman, should be notified to your Directors and Officers insurers, HIH Insurance immediately. Additionally, this matter will need to be included in your insurance renewal information and advised to underwriters who may wish to participate on your program. In terms of the insurance renewal we feel the nature of this matter may jeopardise the renewal, on the basis presented to you on Tuesday 1 September 1998, i.e. the substantial premium savings may now be threatened. To this end we attach a copy of a fax received today from MMI for your information." 718 The letter also referred to a proposed action by OAMPS against Windebank, Glasgow and Koeck. 719 On 8 September 1998, Mallesons Stephen Jaques wrote a letter of advice to Windebank advising, inter alia, of a serious risk that OAMPS had contravened s 205. While the instructions on which the letter was based contained errors, I have already expressed my satisfaction that the essential elements of the problem were identified. 720 Also on 8 September 1998, there was a meeting of the board of OAMPS. During the course of that meeting, Windebank alleged impropriety by Porter in relation to the Clifford Transaction and also alleged that Porter had stated that this transaction would secure his job as Chief Executive Officer. Porter denied making this statement. Windebank tendered the letter from Mallesons. Porter saw the letter and later sent a copy to lawyers for OAMPS. Porter alleged in the course of the meeting that OAMPS may take legal action against Windebank, who stated that if he resigned he would be compelled to go to the regulatory authorities. 721 On 8 and 9 September 1998, Porter had discussions with representatives of the ASX. During the course of those discussions, and in a letter from OAMPS to Crosby of the ASX, which was signed by Walker it was stated that: (a) the allegations made by Windebank were just a result of a personal vendetta; (b) the auditors of OAMPS had completed a preliminary audit report of the company and were unperturbed; (c) the rumours in the marketplace that OAMPS, in purchasing shares in Clifford, had funded the purchase of its own shares, were without foundation; and (d) the problems with "corporate governance" which had been identified in letters to the Australian Stock Exchange, including letters from Windebank, related to the unauthorised use of Porter's electronic signature by employed accountants of OAMPS. 722 On 9 September 1998, the plaintiff sent a letter to the ASX stating that Windebank had resigned alleging problems with corporate governance; that in respect to the issue of corporate governance letters were attached from the auditors Ernst & Young and the independent director; and that the content of all releases by the company since 30 June 1998 remained unaltered. The letter from Ernst & Young referred to the breach of internal control relating to the unauthorised use of the plaintiff's electronic signature. It otherwise stated Ernst & Young were in agreement with the company's Form 4B Preliminary Final Report. The letter from the independent director, Walker, stated "as an independent director and chairman at yesterday's board meeting I am satisfied there is no breach of corporate governance which requires further investigation". 723 On 9 September 1998, Windebank distributed a letter of resignation to the ASX and to ASIC which relevantly stated: "My resignation is the result of irreconcilable differences with other directors on corporate governance issues and, in particular, my concerns in relation to a transaction on 30 June 1998 which involved the purchase by OIIL Limited [sic] of shares in Clifford Corporation Limited. Other directors rejected my proposal for the investigation of the transaction by an independent person who would report to the Board. I do not believe that I can continue as a director in those circumstances." 724 Porter saw the letter. 725 On 14 September 1998, ASIC issued a notice to Geoffrey Linton, the auditor of OAMPS. The notice was stated to be for the purpose of "ensuring compliance with a national scheme law . . . namely sections 205, 999, and 1309 of the Corporations Law, arising out of, or in connection with dealings and proposed dealings, and the circumstances that gave rise to such dealings and proposed dealings, in or in relation to ordinary shares in OAMPS Ltd . . . between 1 June 1998 and the date of this notice". The notice was forwarded to Gordon Siggins at OAMPS. 726 Porter learnt about the ASIC notice at approximately this time from Siggins. It was the subject of advice to Porter from Michael de Vere of Summerton de Vere solicitors of 17 September 1998. The advice concerned whether the Mallesons letter of 8 September 1998 was caught by the notice. A memo from Michael de Vere of Summerton de Vere to Porter dated 17 September 1998 relevantly provided: "Rob Obviously Windebank or Willee have agitated this Notice. The Schedule A requires a copy of the Audit Committee minutes. They seem to be after: 1. The put/call drafts 2. The Mallesons letter Possibly the Mallesons letter only arose after the audit committee meeting . . . Gordon Siggins is liaising with Ronnie Winchester on this." 727 In the plaintiff's original Reply, he admitted that he became aware on or about 18 September that Ernst & Young had received a notice from ASIC requiring them to produce documents. In his statement of 22 April 2003 Porter seeks to assert that this admission was made by mistake; and he did not know that any documents that Ernst & Young had been called to provide to ASIC were other than a routine request arising out of the suspension of shares on 4 September 1998. 728 I am satisfied that the admission was correctly made. The evidence of Siggins and the file note of de Vere make clear that ASIC was looking at the Clifford transactions. 729 On 17 September 1998, OAMPS' solicitors sent a letter to Windebank threatening him with proceedings for breach of his director's duties should OAMPS suffer any loss as a result of his actions. 730 On 18 September 1998, Porter sent a letter to OAMPS' solicitor (Winchester) attaching a copy of the letter from Mallesons Stephen Jaques to Windebank of 8 September 1998; and requesting that legal action be commenced against Windebank to recover losses suffered by OAMPS as a result of his actions. 731 The letter then relevantly provided: "The company is now enduring further scrutiny/investigation from ASIC in relation to normal activities that the company undertakes during its normal trading. All allegations made in relation to my impropriety and in particular the Clifford Corporation share purchase by the company are vehemently denied by me and the company." 732 Porter asserts he was unsure of what ASIC was doing, and only thought that it was likely that OAMPS would come under the scrutiny of ASIC after its shares were suspended because of allegations of bad corporate governance. I do not accept this evidence. The extract from the letter to Winchester set out above makes clear that Porter was mindful that at least one of the matters ASIC was looking into, was whether Porter had contravened the law in relation to the Clifford transaction. The same conclusion should be drawn from the 20 September 1998 fax from Siggins referred to immediately below. 733 On 20 September 1998, Porter received a fax from Siggins concerning proposals of how to manage Sharkey. The fax included the following passage: "[Sharkey] is aware of the inquiry by ASIC – quoted as being informed 'second hand' from within OAMPS and Ernst & Young. He did not specify from whom but did state not Geoff Linton and my best guess would be Duncan. He has been informed that ASIC has a list of people to interview and he is included as the 'Principal Accounting Officer'" 734 Porter and Siggins agreed a strategy to keep Sharkey and Harris on if they would "spill the beans" on the activities of Windebank and Glasgow. Walker concurred in the strategy. They hoped that Sharkey would be "an inside line" to the ASIC Inquiry. 735 On 21 September 1998, the then directors and officers liability insurer of OAMPS, HIH, sent a facsimile to Swire Blanch about the D & O policy, relevantly stating: "I regret to advise that this risk is now outside our underwriting guidelines and as such we are unable to provide renewal terms in this instance. I do confirm that there is a hold cover in place which will expire on the 29th September 1998." 736 Porter was aware by this time that HIH had refused to renew the policy. Porter points out that he had earlier instructed Burdis that HIH was not to be invited to be the insurer. However HIH was not aware of this when it declined future cover. 737 Fletcher saw the Pierpont article in the Australian Financial Review of 19 September 1998 and raised it with Porter. Fletcher said that subsequently Porter gave him some documents on 22 September 1998 including the Pierpont article and, Fletcher thought, OAMPS' letters to the ASX and the shareholders of OAMPS. Fletcher relied on GIO files for this information and did not have an independent recollection of what Porter had given him. 738 He also recalled that Porter invited him to speak to the auditors. Porter assured Fletcher that there was no truth to the allegations contained in the Pierpont article. Fletcher accepted these assurances. On this basis he decided not to go to OAMPS' auditors. 739 On 25 September 1998, Mallesons responded on behalf of Windebank to the Anderson Rice letter of 17 September 1998, rejecting the proposition that there had been any breach of director's duties by Windebank. 740 On 29 September 1998, Porter approached ASIC stating that he believed ASIC were making enquiries about OAMPS. Porter had four conversations with ASIC on that day. The first three were before 1.00pm. The fourth was after 4.00pm. When he spoke to Cook and Speed of ASIC he said that he denied the allegations and wanted to speak to ASIC. 741 On 29 September 1998, Porter was sent a letter by ASIC inviting him to participate in an interview on 6 October 1998 in relation to the share transactions. The letter refers to the telephone conversations of the same day and then relevantly provides: "You have indicated in these conversations that you wish to give to ASIC your explanations of the allegations that appeared in the print media that through the purchase of Clifford Corporation Limited shares by a subsidiary of OAMPS Ltd, OAMPS Ltd indirectly financed a purchase of its own shares. ASIC appreciates your concerns that these allegations are effecting [sic] the business of OAMPS Ltd and your own reputation. In light of your concerns ASIC is prepared to offer you a tape recorded record of interview at which you will have the opportunity … to explain the purchase of the Clifford Corporation Limited shares … I draw to your attention that anything you say during the interview may be used in evidence against you in any criminal proceedings." 742 This letter arrived after 4 pm. It is therefore relevant to matters of non-disclosure, but not relevant to clause 10(v) discussed below. What did Porter Disclose? 743 The evidence indicates that various matters were disclosed to GIO. However, it was confined to the following correspondence: (a) the letter to the ASX of 17 September 1998 which provided no relevant information. (b) a letter from HIH requesting disclosure. (c) a letter to HIH attaching documents, consisting of a similar disclosure as was made to GIO. (d) Windebank's letter of resignation as Chairman dated 4 September 1998, which alleges problems with management. However, Windebank's letter of resignation as a director of 9 September 1998 was not disclosed. That letter refers to corporate governance issues and a concern in relation to the Clifford transaction. (e) OAMPS' letter of 8 September 1998 to the ASX, which merely refers to the resignation of Windebank and states that at the annual audit review the annual accounts " and relevant issues were dealt with in the normal course". (f) OAMPS' letter of 9 September 1998 to the ASX, which contains no further disclosure, but contains the statement "In response to the issue of corporate governance, the company attaches for release letters from its auditors, Ernst & Young, and its independent director." [Walker] The only issue of corporate governance referred to in the letter from Ernst & Young is the use of Porter's electronic signature. Walker's letter expresses his satisfaction that there was no breach of corporate governance requiring further investigation. (g) A letter from OAMPS (Porter) to its shareholders, which refers to Windebank's resignation to a "breach of internal controls", stating that a satisfactory resolution had been achieved. (h) A confirmation from the ASX dated 10 September 1998 of the receipt and release of an announcement regarding "Reinstatement to Official Quotation/Preliminary Final Report". 744 These documents were not all that could have been disclosed. The following further matters should have been provided. All are relevant to the duty of disclosure before the agreement was made on 2 October, most are relevant to Exclusion clause 10(v): (a) that Porter had written to Windebank on 2 September 1998 suggesting that legal action was possible and that Windebank was making allegations of impropriety against Porter; (b) that Windebank had received advice from Willee QC and from Mallesons Stephen Jaques, and that the letter from Mallesons Stephen Jaques of 8 September 1998 contained serious allegations; (c) that on 4 September 1998 Porter was planning legal proceedings against Windebank and Glasgow; (d) that at the meeting of 8 September 1998, Windebank had alleged that Porter had improperly facilitated the Clifford transaction to secure his position as chief executive officer of OAMPS, and stated that if he resigned from the board he would be compelled to go to the regulatory authorities; (e) that Porter had stated at the 8 September 1998 meeting that OAMPS would, if necessary, take legal action against Windebank, and had subsequently instructed his lawyers on 18 September 1998 to commence proceedings; (f) that on 17 September 1998, OAMPS solicitors had sent a letter to Windebank raising a number of issues about his conduct before and after his resignation alleging breach of director's duties, and threatening litigation; (g) that Porter and OAMPS were aware of an inquiry by ASIC into the Clifford transaction, and were receiving advice as to whether the 8 September 1998 letter from Mallesons had to be disclosed to ASIC; and (h) that Porter had spoken to a number of officers of ASIC on 29 September 1998. (i) the fact that by letter dated 29 September Porter had been invited by ASIC to attend an interview. 745 Up until 22 April 2003, the trial was fought on the basis that the disclosures made by the plaintiff to the GIO did not include the matters set out in the previous paragraph. Porter's defence was that such matters were either so wrong or inaccurate or immaterial that he was not obliged to disclose them to the insurer. This was said especially of the Malleson's letter and the Willee advice. 746 However, by his statement of 22 April 2003, after six weeks of the hearing, Porter changed his evidence. He now asserted that on 16 September he had a detailed conversation with Fletcher in which he made a series of disclosures as set out below. The conversation had not previously been suggested although Porter now asserted that he had recently discovered a page in an old diary which had caused him to recall the meeting and reflect on the matters discussed. Those matters were: § no doubt ASIC had looked into the suspension of the shares; § Windebank had tried to tender documents from his lawyers at the 8 September board meeting; § the plaintiff had a corporate governance file containing documents relating to his dispute with Windebank and other papers concerning the ASX; § the plaintiff had a letter from Willee QC to Windebank; and § Windebank and Willee had put Mallesons up to writing an advice to support his story of a section 205 financing breach. 747 Porter went on to say that in the face of these disclosures Fletcher said he was not interested and importantly did not ask to see the documents that Porter had with him which included the Mallesons and Willee advices. 748 I do not accept this evidence from Porter. I am satisfied that if the evidence was true, it was so obviously material that would have made its way into Porter's lengthy statement of 15 April 2002. 749 If in truth Porter had disclosed all of these matters to Fletcher on 16 September he could not have but remembered them in 2001 and 2002. His proposition that they suddenly returned to his mind in full and complete detail in April 2003 after he rediscovered a diary entry for 16 September or after he read the amended GIO defence is not credible. 750 I am satisfied that the true explanation is that Porter had observed the evidence given at the trial; came to the realisation that his failure to disclose matters such as the Mallesons letter or the ASIC inquiry left him in a difficult position; and made new allegations of disclosure to Fletcher. 751 As I have indicated the evidence given by statement of 22 April 2003 is inconsistent with the approach to the Mallesons' letter which Porter displayed in cross-examination. His evidence in this context was that the Mallesons letter was irrelevant because it was so erroneous. This was consistent with his original evidence in the proceedings. This was also Walker's evidence. Porter agreed that he did not disclose it to the London underwriters. He could not remember whether he mentioned the name Mallesons to Fletcher. He did not give the letter to the ASX, ASIC, HIH or London underwriters. 752 Fletcher's evidence was not consistent with any of the disclosures which Porter now says were made to him. 753 Fletcher was not cross-examined about a 16 September conversation. Although Porter's counsel did ask some questions of Fletcher about possible disclosures on 22 September. Those questions did not address the ambit of the disclosures which Porter alleges in his 22 April 2003 statement. It was not put to Fletcher that he learnt of the ASIC enquiry prior to 29 September; it was not put that he had been offered a corporate governance file and it was not put that he was told of the existence of a letter by Mallesons. Fletcher's Response 754 Fletcher gives evidence that, if he had known of the various matters to which I have referred, particularly the letters from Willee QC and Mallesons, he would not have been prepared to offer D & O cover to OAMPS on any terms. This was so whether or not the allegations were true. Not only would these matters have suggested to him that a claim was likely, and that expenses had already been incurred and would be continuing, but they would have suggested to him that the problem with the share transaction was a symptom of a larger underlying problem within OAMPS. As Gordian submits this evidence satisfies s 28(1) of the Act. 755 Fletcher gave evidence that when considering a proposal for liability insurance, he would consider the likelihood of claims, irrespective of whether the allegations raised are true. 756 He said that if he had been provided with the proper information, then he would have considered that a claim was most likely. He would have concluded that the matter was far more serious than Porter had led him to believe. In addition, it would have been clear to him that legal fees were already being incurred. 757 Fletcher also gave evidence to the effect that he would not have written the risk on any terms had he been told by the plaintiff in September 1998 that: (a) in excess of $3 million had been paid by OAMPS or its subsidiary to companies associated with Loiterton; (b) those companies had used that money to buy shares in OAMPS from companies associated with Adler; and (c) that the relevant dispute was whether (as was being alleged by a number of people) Porter knew about (a) and (b) at or before the time it occurred, or whether, as Porter alleged, he did not learn of the link until afterwards. 758 Fletcher adhered to his evidence in cross-examination and rejected the suggestion that he was prepared to take a risk on there being a claim on the basis that he could recover additional premium later. Conclusion 759 I accept Fletcher. The matters not disclosed were material and I am satisfied the insurance would not have been provided if Fletcher had been aware of them. Porter did not fulfil his obligations under s 21 of the Act. Estoppel 760 Porter submits that Gordian is precluded from relying on the non-disclosure by reason of a letter written by its solicitors, Minter Ellison, on 10 May 2001. As I understand the submission the relevant part of the letter is as follows: "We agree that Mr Fletcher was aware of the Clifford Corporation transaction when the contract was entered into on 12 October 1998, however, our point is that by that date, neither OAMPS nor Mr Porter had disclosed that ASIC had commenced its investigation. Although Mr Fletcher may have appreciated that claims might arise from the Clifford Corporation transaction, it would have been an entirely different matter had he known that a claim would certainly be made, as ASIC's investigation had already begun. For present purposes, GIO relies on the non-disclosure of that information to justify declining Mr Porter's claim for indemnity." 761 Porter relies on the fact that the only non disclosure referred to in the letter is of the ASIC Inquiry. 762 Gordian accepts that the matters now pleaded against Porter were not raised in the letter. However, it is submitted that the letter was written prior to the full investigation and consideration of all issues which occurred when pleadings came to be filed. In the letter, Minter Ellison took the limited position that the contract of insurance was not formed until 12 October and asserted a non-disclosure case based on the failure to disclose the first ASIC interview. Gordian submitted that the position taken in the letter was the simplest and easiest non-disclosure case and that it did not preclude Gordian from making a more complete non-disclosure case in these proceedings. 763 In my opinion this submission should be accepted. The full facts in relation to an allegation of non-disclosure will, of necessity, frequently not be available to an insurer at an early stage of the consideration of a claim. 764 In relation to the question of when the period of insurance commenced, that issue, and the possibility of rectification, was apparently only identified when there was a full consideration of the documents in the context of these proceedings. This is understandable. Having regard to the complexity of the matter, I am satisfied that the claim was introduced into Gordian's pleadings at an appropriate time. Deliberate Concealment 765 Beyond the submission that OAMPS through Porter failed to disclose relevant matters, Gordian alleges that there was an active campaign of concealment by Porter, with the assistance of Walker. 766 It is submitted that the failure to disclose the Mallesons letter and other relevant matters to GIO is consistent with the actions of Porter and Walker in September 1998 to reassure the ASX, shareholders, the public, GIO and HIH that there was nothing of concern in OAMPS' affairs. It is submitted that this campaign of concealment is not only relevant to disclosure and misrepresentation issues, but evidences a consciousness of guilt in the plaintiff. It is submitted to be relevant to the issue of whether, if Fletcher had taken up Porter's invitation to speak to the auditors, he would have learnt anything useful. 767 It is submitted that "the first person who Porter had to reassure was the ASX." The ASX had suspended trading in the shares of OAMPS, and Porter was concerned to ensure that they were re-listed. In the course of discussions with the ASX on 8 and 9 September 1998, Porter stated that the problems with "corporate governance" which had been identified in letters to the Australian Stock Exchange, including letters from Windebank, related to the unauthorised use of Porter's electronic signature by employed accountants of OAMPS. This statement was designed to reassure the ASX that there was nothing further to worry about. To similar effect was the letter from Porter to the ASX of 9 September 1998, which attached an innocuous letter from the auditors about the electronic signature and the letter from Walker. The ASX file note takes the matter no further. 768 Gordian identifies the fact that Porter circulated a press article dated 10 September 1998 to staff reporting that Windebank's concerns had been "deeply investigated by those that need to investigate". It is submitted that it was clear from Walker's evidence that even if the auditors were investigating the allegations of Windebank concerning the Clifford transaction, (which they were not) they had not reported by this date. 769 It is submitted that Porter subsequently gave reassuring letters to HIH and GIO and that the letters failed to disclose numerous relevant matters and were apt to create the impression that there had been minor management issues raised by the Chairman who had since resigned. 770 It is further submitted that Porter and Walker represented to the ASX that the auditors had investigated the issues raised and found no problems. These representations were made in: (a) the letter to the ASX of 8 September 1998, which stated that "relevant issues" had been dealt with at the annual review with the company's auditors; (b) Porter's statements to the ASX on 8 and 9 September 1998 that the auditors were "unperturbed"; (c) Porter's letter to the ASX of 9 September 1998, which attached the 9 September 1998 letter from Ernst & Young and stated that this was "in response to the issue of corporate governance". 771 These representations were repeated in the letter to HIH of 14 September 1998, which in turn was provided to GIO. 772 It is submitted that having falsely reassured the ASX and the insurers, Porter was concerned to ensure that ASIC did not obtain the Mallesons letter and was agreeable to a strategy to keep Sharkey on-side. 773 Walker gave evidence that the Mallesons letter was disclosed to the auditors Ernst & Young who were asked to: "fully investigate the contents of the letter and to use whatever resources were available to them to investigate the contents of that letter." 774 Walker also gave evidence that the board appointed an independent person, being the auditors, to investigate the Windebank allegations. However, he accepted that the auditors had not completed their investigations by 9 September 1998. It was submitted, and I accept, that he was unable to give any satisfactory explanation as to how his letter to the ASX of 9 September 1998 could be reconciled with the fact that the Windebank allegations needed to be investigated and this had not occurred by then. He suggested that the reference in the letter to "corporate governance" was only a reference to the signature scanning incident. However, by the date of the letter he had received the letter of resignation from Windebank which provided as a particular of the issue of corporate governance his concern over the Clifford transaction. 775 Walker suggested that the Mallesons letter was given to ASIC. The correspondence does not support this claim. Walker accepted he could not say ASX had the Mallesons letter. 776 It was submitted, and I accept, that the evidence of Walker as to the investigations by the auditors is inconsistent with the documentary evidence. On 4 September 1998, the auditors noted that issues of "corporate governance" were being dealt with by the company. On 8 September 1998, the auditors issued their Preliminary Final Audit report. This report contains a section dealing with the Clifford transaction. It commences "The documentation surrounding the purchase by AIIL of 6,527,249 shares at $0.4825 a share in the Clifford Corporation… has been reviewed in detail". The report then goes on to discuss the transaction in terms relevant only to the issue of whether the value of the investment needed to be written down in the accounts. Whether or not there were problems with the transaction which extended to the acquisition of the FAI parcel was not investigated. 777 On 9 September 1998, the auditors sent a letter to Porter noting their agreement with the Preliminary Final Report. No qualification was sought to be made to the section dealing with the Clifford Transaction, which referred only to the issue of write-downs. On 17 September 1998, Linton from Ernst & Young informed ASIC that: (a) "he could not comment on Clifford Corp buying OAMPS shares – only on the OAMPS purchase of the CCN shares"; (b) Porter had not spoken to him about whether or not he was involved in the sale of FAI's share in OAMPS – and that was a question for ASIC to ask Porter; (c) as recorded in an ASIC file note, from an Ernst & Young point of view they "audited the flow of funds out of OAMPS to acquire the shares, but that's it. There was no round robin of funds in OAMPS itself. What happened with the cash paid for the Clifford shares is not OAMPS' concern." 778 It is submitted that it is clear from these documents that all that was ever investigated by the auditors was the carrying value of the Clifford investment and whether the loss had to be recorded in the accounts. For this reason, the representations to the ASX, to HIH and to GIO that the auditors were unperturbed and had investigated the issues of corporate governance were not correct. 779 I am satisfied that this submission should be accepted. The auditors were never tasked to investigate the legality of the entire Clifford transaction. The real concern was how the price paid for the Clifford shares should be dealt with in the accounts given that the price was significantly above market. 780 Gordian draws attention to the fact that in final addresses, senior counsel for Porter said: "Yet, probably conservatively, four days of Court time have been taken with the total nonsense that the Mallesons letter was a fundamental fraud. A fraud that was perpetrated by Mr Porter, that was perpetrated by deception of the ASX, of ASIC and of Mr Fletcher and from what I can tell a matter about which there is not a scintilla of evidence to base it on. Because we know that each of those people got the Mallesons letter." 781 I accept Gordian's submission that this submission by senior counsel is inconsistent with Porter's evidence that he did not give the Mallesons letter to Swire Blanch, HIH, London underwriters, ASX or ASIC. There is also nothing which suggests that it was given to the auditors. 782 I can only conclude that Porter did not want the Malleson's letter to go to the GIO. If it had gone, it would have been obvious to both Porter and Walker that the proposed insurance would be in jeopardy. 783 I do not believe that the attitude of Porter and Walker can be defended as merely avoiding swamping the insurer with irrelevant material as was suggested in the plaintiff's submissions. See Dwyer v Long (1992) 7 ANZ Ins Cas 61 – 120. 784 The plaintiff relied upon the decision of the High Court in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) [2003] HCA 25. Although that decision provides limits to the matters which must be disclosed I do not understand it to be providing any statement which limits the obligation of an insured to disclose matters which could affect the risk. Matters going to commercial relationships outside of the risk are quite different to matters known to the insured which are relevant to whether the insurer will accept the risk and the relevant terms. Misrepresentations 785 It is submitted that a number of the representations made by Porter and OAMPS were false. Gordian submits that as a consequence it is entitled to relief under s 28 of the Insurance Contracts Act. That section provides as follows: "General Insurance (1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into: (a) failed to comply with the duty of disclosure; or (b) made a misrepresentation to the insurer before the contract was entered into; but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into. (2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract. (3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made." 786 The proposal form was completed in the days leading up to 18 September 1998 and was not in fact provided by Burdis to GIO until 21 or 22 September 1998. It is plain that Porter had a duty to disclose any matter learnt, and thus correct any incorrect misstatement, prior to entry into the insurance policy: Prime Forme Cutting Pty Limited v Baltica General Insurance Co Limited (1991) 6 ANZ Ins Cas 61-028. 787 The proposal form included the following statements made by OAMPS: "We, the undersigned state that we have actually enquired of every Officer and Manager under our supervision who have declared that to the best of his knowledge the statements set forth herein are true and correct and it is agreed that this form shall be the basis of the contract should a Policy issue." 788 In the proposal form for the D & O Policy, signed by Porter, the following questions are answered "No": "15. Has any Director or Officer ever been subject to disciplinary action, been fined or penalised or been subject to an inquiry in their capacity as a Director or Officer of this company or any other company? 16. Does any Director or Officer, after specific enquiry of management and staff, have knowledge or information of any incident, act, error or omission which may give rise to a claim of the type as would be covered by the proposed policy? 18. Has any proposal for similar insurance made on behalf of the company and/or its Directors and Officers ever been declined or has any such insurance ever been cancelled or renewal refused?" 789 Question 14 was answered "Yes." It states: "14. Has there been or is there now pending any claim against any Director or Officer in their capacity as either Director or Officer of the above company, or any other company? 790 Although the answer given is "yes" but this is detailed only as a withdrawn 1997 Equal Opportunity Commission claim. 791 It is submitted by Gordian that each of these answers was incorrect, as follows: (a) Question 14 The letter from Mallesons to Windebank of 8 September 1998, given to Porter tendered at the board meeting on that day, alleged a wrongful act by Porter and was thus a Claim within the meaning of the GIO policy. Question 14 should have been answered "Yes". (b) Question 15 Porter and Siggins, at least, were aware by at the latest 17 September 1998 that ASIC was inquiring into the Clifford transaction. Porter received advice about the inquiry from Michael de Vere on 18 September 1998, it is referred to in the letter from Porter to Anderson Rice of 18 September 1998, and the ASIC inquiry is further discussed in the memo from Siggins to Porter of 20 September 1998. Siggins and Porter were therefore aware that ASIC was conducting an inquiry into the Clifford transaction, being a transaction proposed by Porter. Walker was similarly aware. Question 15 should have been answered " Yes " , or the answer at least qualified in some way. (c) Question 16 It was apparent at latest at the board meeting of 8 September 1998 that four officers of OAMPS were making allegations that Porter had engaged in an improper transaction on 30 June 1998, and it cannot have been said that after proper inquiry of staff there was no knowledge or information of any incident, act, error or omission which may give rise to a claim of the type as would be covered by the proposed policy. In addition, there were the legal actions Porter had instructed Anderson Rice to bring against Windebank, and had proposed against Glasgow and Bill Koeck. Further, by the time the policy proposal was lodged, Porter knew that ASIC was investigating the Clifford share transaction. Question 16 should have been answered "Yes". (d) Question 18 On 7 September 1998, MMI had withdrawn its offer of participation in a combined programme of PI, D & O and Trustees Liability "following the announcement that OAMPS has requested a suspension of trading in its shares " . On 21 September 1998, HIH declined to proceed with the renewal of the D & O policy. Question 18 should have been answered " Yes " . 792 I am satisfied that at least the answers given to questions 16 and 18 were wrong. Whether or not a "claim" was pending – the issue in question 14 - there was undoubtedly relevant information which "may give rise to a claim." The answer to question 15 may depend upon whether the inquiry referred to contemplates an Inquiry with the formality necessary for the purposes of exclusion clause 10(iv). If it was, the answer given may not have been inaccurate. 793 It is submitted that the statements made by Porter to Fletcher were also misleading. The allegations in the Pierpont article were as follows: "Then some time after dark on June 30, FAI sold its 17.8 per cent of OAMPS at $1.10 a share – a magnificent price considering the stock had last traded an hour or so before at 77c . . . The buyer was Blenheim Investments Pty Limited . . . This aroused no small mystification in Pierpont because one of the directors of Blenheim was Barrie Loiterton and Barrie is not a chap who made his fortune by buying stock 40 per cent above market. [Then there is a reference to the sale of shares in Clifford] The word around the Croesus Club is that the buyer of the Clifford stock was OAMPS. Dimly here, Pierpont at first thought he saw a circle shaping, with Blenheim buying a block of OAMPS stock while OAMPS was buying a block of Clifford stock. But that can't be possible because otherwise OAMPS would have indirectly been financing the purchase of its own shares. So maybe it was all just a coincidence. Maybe Barrie entered the lists as a white knight to man the OAMPS barricades in a takeover defence." 794 On 22 September 1998, Fletcher wrote to Burdis. The letter relevantly provided: ". . .I confirm that the terms previously agreed stand subject to confirmation that the serious allegations made in the "Pierpoint" article in the last Friday's Financial Review about OAMPS (indirectly) financing the purchase on [sic] its own shares have no basis in truth." 795 Porter provided the confirmation on the same day when he wrote: "Further to our recent telephone conversation and discussions regarding unwanted press reports over the last few weeks, I confirm any comments made in relation to an alleged round-robin share purchase viz OAMPS/Clifford are categorically denied by me." 796 Fletcher's evidence is that Porter further confirmed this by telephone call on 22 September 1998 with words to the following effect: "David Burdis asked me to call you about the Fin Review article. It's all just absolute nonsense. I would say that they are getting their information from Mark Windebank, who has resigned from the company. This all started because I wanted to sack an employee for misusing my electronic signature. Windebank didn't want me to and then started raising all this nonsense about the share transaction. The board of OAMPS resolved to make an investment in Clifford Corporation. We didn't have anything to do with a separate transaction where a company related to Clifford purchased shares in OAMPS from Rodney Adler. Windebank has just completely lost it. He didn't have the support of the rest of the board and that is why he resigned. I don't think we will have any further problems now that he is gone. As a result of all this, our auditors, Ernst & Young, have been right through the company and have told us there is no problem. I said: I would like you to put that in writing to me. Porter: I will." 797 It is submitted that there were three misleading aspects to Porter's conversation with Fletcher on 22 September 1998, as: (a) the allegations were not " just absolute nonsense " , in that the circle existed, and Lamont had been kept at bay; (b) whilst Windebank had resigned, to Porter's knowledge Windebank had said that if he resigned he would be taking his complaints to the authorities, and thus it was misleading to suggest that his resignation removed the problem; and (c) the auditors had not investigated the allegations made in the Australian Financial Review article. 798 Fletcher then wrote to Burdis on 28 September 1998: "I refer to our fax of 22/9/98, Rob Porter's response of the same date, and our discussions today and confirm that cover will be bound on the above with effect from 30/9/98 on the understanding that Rob's response is an affirmation that the allegation contained in the "Pierpont" column of 18/9/98 that OAMPS has (directly or indirectly) financed the purchase of its own shares is untrue". 799 Porter's letter of 22 September 1998 and his conversation with Fletcher of the same day did not disclose that OAMPS had financed the purchase of its own shares, and that to this extent the allegations in the Pierpont article were true. On any view of the matter Porter was aware of the true position by September 1998. I am satisfied that the statement by Porter that the comments are "categorically denied by me" failed to disclose relevant matters to GIO. 800 Fletcher has given evidence that if he had known the true position he would not have written the risk on any terms as: (a) those facts would have suggested that there was a very substantial degree of truth in the Pierpont newspaper article; and (b) he would have been concerned not just about potential claims against Porter for wrongdoing but also about claims against other directors or officers of OAMPS. 801 The following exchange occurred when Fletcher was cross examined: "Q. Was it your thinking that, should it turn out that contrary to what Mr Porter had assured you there was nothing of substance in the allegation, that is they were untrue, you would be able to adjust the premium at the annual anniversary of the policy? A. No. It was a condition of writing the policy. Q. That the allegations were true? A. Allegations were untrue. Q. So, we have gone beyond an issue of disclosure in your mind; you had a condition of the policy that Mr Porter would have to turn out to be right that the allegations were untrue? A. Well, I relied on what he told me as a precondition . Q. But rather than yourself make any further inquiries, speak to the auditors or ask any other question about the matter, you decided to accept Mr Porter's assurance, but made it clear to him that you would hold him to that assurance should it turn out to be untrue? A. I had no need to make further inquiries because he was telling me it was untrue. Should I have not listened to him or believed him? Q. In your mind, should it turn out that it was untrue, you would have regarded yourself as having a contractual right to sue Mr Porter for making that promise? A. I hadn't considered that. It was a critical issue so far as I was concerned whether we would write the business or not. Q. You decided not to ask the auditors, who presumably would have had any information that you wanted, is that correct? A. I would have-- Q. Is that correct? OBJECTION TO QUESTION. QUESTION REJECTED. Q. You made a conscious decision not to contact the auditors, didn't you ? A. Yes, I decided not to. I decided it was not necessary. Q. You made a conscious decision not to ask a single further question, didn't you? A. The question had been answered. No further questions arose. Why should I? Q. You did so in return for stating that Mr Porter would be bound, in your mind, by his answer as part of a condition of the contract. That's how you saw it, wasn't it? A. Well, it was a condition of writing the cover. Q. That Mr Porter had to turn out to be right that the allegations that he had knowingly participated in this funding of the purchase of shares in OAMPS was untrue? A. Yes. 802 Fletcher's evidence is that he entered into the policy because he was being told that there was no substance to the allegations at all. 803 The plaintiff submitted that Fletcher's request for a confirmation that the "allegations … have no basis in truth" was not asking for confirmation of whether a "round robin" had occurred but only whether an offence had been committed – whether there was an illegality. Porter gave evidence to this effect. 804 This is not the way in which the plaintiff put the matter in his early statement in these proceedings. However, in his statement dated 22 April 2003, Porter says the following exchange occurred: "Fletcher: No, provided you confirm to me that you have not done anything wrong or illegal, I am still there, everything is on track. Thanks for keeping me informed. Porter: I have done nothing illegal … " 805 I am satisfied that this is a recent invention by Porter. It did not appear in any previous statement by him and was not put to Fletcher. 806 In his statement of 22 April 2003 Porter alleges that he said to Fletcher "…even if I end up suing Windebank with the three year deal you can re-rate it on the first anniversary . . ." This is the first time that the plaintiff alleges that he made a disclosure to Fletcher that he intended or at least contemplated the possibility of bringing an action against the former director, Windebank, which presumably might be covered by the policy, implying that Fletcher was prepared to accept that risk as well. I reject this evidence. 807 In relation to the position of the auditors, Porter alleged to various people that the auditors had investigated the company, including the share transactions on 30 June 1998, and were unconcerned. This representation was made to both Fletcher and the ASX. 808 However, the auditors had not investigated the propriety of the Clifford transaction, and whether there had been any breach of section 205 of the Corporations Law. 809 I am satisfied that Porter's responses to Fletcher were misleading. Burdis' Evidence 810 Burdis was asked about his understanding of the obligation of disclosure to GIO having regard to the known facts. He gave evidence that had he known of the following matters, he would have disclosed them: (a) the Malleson's letter to Windebank of 8 September 1998. (b) the Willee QC advice. (c) the minutes of the Board of OAMPS of 8 September 1998 which contained reference to Windebank alleging impropriety in the Clifford transaction, the tender of the Mallesons letter to the Board and the competing assertions about the propriety of Porter's conduct. (d) the fact that ASIC had issued a notice to the auditor of OAMPS on 14 September 1998. (e) the fact that Porter had instructed solicitors to commence legal action against Windebank. (f) the fact that OAMPS was the subject of further scrutiny by ASIC and that there were a number of persons, including officers of the company to be interviewed. 811 Burdis was asked about the answer made to Question 15 of the application form where GIO was told that no director or officer had ever been subject to an inquiry. Being now aware of the true position Burdis accepted that this answer was false and should have been qualified. 812 In relation to Question 16, Burdis gave evidence that if he had been informed of the relevant matters he would have referred this question internally within Swire Blanch, and thought the company would have made further enquiries and possibly suggested some sort of qualification. 813 In relation to Question 18, Burdis accepted that: (a) if the letter from HIH of 21 September 1998 declining coverage had come in before the proposal forms had been provided to GIO, it should have been referred to in the proposal; and (b) if the letter from HIH had arrived after the proposal forms had been provided, what he ought to have done is rung up Fletcher and said: "Question 18 now needs a qualification. HIH has declined terms." 814 There is no evidence to suggest that Burdis was in any way responsible for the failure to provide these matters to GIO for he himself was not informed in relation to them. Plainly these matters were material to the risk which GIO was being invited to accept and should have been disclosed. Hoffman's evidence 815 The plaintiff called Mr Frank Hoffman, a general insurance consultant, to give evidence. He had considerable experience in the insurance industry. 816 The plaintiff's purpose in calling Hoffman was to prove the practice of underwriters and the consequences in relation to sections 21 and 28 of the Act. However, as his oral evidence makes plain the relevant questions must be considered and answered having regard to the facts of this case rather than by consideration of any suggested practice of underwriters. 817 He was asked: "Q. And the managing director has in his possession a letter from a law firm which alleges that on the instructions of the chairman the company was aware of the round robin and may have breached the law. Is it your proposition that the managing director, acting in good faith towards the underwriter, says: I will keep that letter in my bottom drawer? A. I take the point that if it is the chairman of the company who has said that, it is a matter of disclosure." 818 He further agreed, in effect, that if Porter had learned that ASIC was conducting an investigation that was a matter which should be disclosed to the insurer. His answer was "If you know that is happening you would say it before the thing is bound, surely." The Parties' Submissions 819 Gordian submits that if all of the relevant matters known to Porter by the end of September 1998 had been disclosed to GIO, GIO would not have entered into the D & O policy. 820 Fletcher had been told of the dispute between Porter and the Chairman. However, it is submitted that the following matters were kept from Fletcher: (a) there was a circular transaction on 30 June 1998; (Gordian's description of the transaction as "circular" is not entirely apposite. It should be understood as a reference to the fact that OAMPS paid money to Loiterton's companies which enabled them to acquire the FAI parcel of OAMPS shares); (b) ASIC was investigating the transaction; (c) the chairman and other officers of the company were making serious allegations in relation to the transaction.; (d) legal advice had been provided by Mallesons to Windebank that the transaction may involve a breach of s 205 of the Corporations law; and (e) Porter was instructing lawyers to commence legal proceedings against Windebank. 821 Accordingly, having regard to Fletcher's evidence to which I have referred it is submitted that the liability of Gordian should be reduced to nil under s 28(3) of the Insurance Contracts Act. Although for this purpose fraud need not be established, it is further submitted that the non-disclosure and misrepresentation was fraudulent within the meaning of s 28(2) which contemplates deliberate or reckless conduct. It is submitted that Porter deliberately concealed information he knew to be relevant to whether GIO accepted the risk. 822 It is further submitted that it is clear, from a comparison of what was disclosed with a comparison of what was withheld, that Porter was picking and choosing the information which would be disclosed to GIO so as to select information which was innocuous, whilst holding back information which would have likely led to GIO declining the risk or excluding claims arising from the circumstances, and that this was deliberate and thus fraudulent. Porter was an experienced insurance broker. Gordian submits that it is clear that he turned his mind to what should be disclosed and chose to keep certain information from GIO. 823 Further, Gordian submits that Porter would have understood the importance of the proposal form. Certainly by the time he gave written instructions to bind cover on 23 September 1998, he would have known that: (a) Windebank had made serious allegations against him that would amount to a claim within the policy; (b) ASIC was making inquiries into the Clifford transaction; and (c) various officers and employees of OAMPS had made the same serious allegations, and thus a number of people would have a belief that there was the prospect of a claim against Porter; and (d) MIM and HIH had refused to participate in D & O cover. 824 It is further submitted that Porter was therefore aware that Questions 14, 15, 16 and 18 of the proposal needed to be answered "Yes", or at least the answers qualified in some way. He knew that this was so regardless of his opinion as to the substance of the allegations. Therefore, Gordian submitted Porter deliberately allowed a false proposal to be made to GIO, or was at the very least reckless as to the truth of the answers in the proposal form. 825 In response Porter submits the following: (a) that the inquiry by Fletcher was confined to whether or not there had been an illegal act and was not a more general request in relation to the events which had occurred; (b) that Fletcher acknowledged in cross-examination that his concern was whether there had been any illegality ie matters likely to lead to a claim and that although offered the opportunity Gordian did not recall Fletcher to clarify the matter; (c) Gordian had the onus of proving that Fletcher relied upon Porter's answer as a statement that there had been no round robin regardless of any question of illegality and that this had been material to any decision to insure (d) the mere fact of a round robin would not be relevant – only Porter's or OAMPS knowledge of the whole transaction would be relevant. Without the mental element there could be no illegality. (e) Porter's answer that there had been no breach of section 205 was correct. The relevant mind of OAMPS for the Clifford share transaction were the seven members of the combined investment committee and board on 30 June 1998. Under OAMPS constitution it was a board decision. Under the rules of the Investment Committee, it was a matter requiring investment committee approval. Rather than there being anything strange about Porter referring the matter to the investment committee and board, the company's constitution required it. No director or investment committee member present on 30 June 1998 thought that there was any illegality involved in the transaction. The plaintiff knew only that Loiterton, who had previously said to him that Clifford Corporation might be a purchaser of the OAMPS stake had told him on 26 June 1998 that it would not be a purchaser. Although Porter does not refer to this conversation in either ASIC interview, a short time later he set out his recollection in a detailed letter to Cook and in his 18 September 1999 Civil proceeding. Walker's evidence was that on or about that time Porter told him about this conversation. (f) Only if the plaintiff knew that he or the board of OAMPS had knowingly participated in the purchase of OAMPS shares could Gordian properly rely upon Porter's answer to Fletcher to avoid or reduce liability. (g) In summary, the plaintiff says that relevantly full disclosure was made, that he acted honestly and in good faith and that Fletcher disavowed following up asking up questions of OAMPS and the Auditors, presumably because GIO badly wanted the business and because under the policy GIO had the right to increase the premium at the first anniversary if a substantial claim was made. (h) Knowing of the newspaper allegation Fletcher asked "the principal accused to assure him there was no foundation whilst declining the open invitation to speak to OAMPS auditors." (i) Fletcher had in effect waived further disclosure in exchange for the plaintiff's written assurance. In those circumstances the Mallesons letter, the Willie QC letter, the ASIC enquiries, the contents of the proposal and other like matters need not have been disclosed. See MacGillivray on Insurance Law, 10th ed (London: Sweet and Maxwell 2003) at 17-33, Devine v Sun Alliance Australia Ltd (unreported, NSWSC, 18 June 1992, Giles J). The plaintiff relied upon s 21(2)(d) of the Act. Conclusion 826 There are two critical matters – firstly, the nature of the request made by Fletcher, Porter's response to it and secondly, whether there was a waiver. 827 I am satisfied that Porter failed to disclose relevant information to Fletcher. Porter's reference to "any comments made in relation to an alleged round robin" was clearly a reference to the "Financial Review" article. To categorically deny the truth of such comments was not only a failure to disclose known facts but was a statement which I am completely satisfied Porter knew was not true. I am also completely satisfied that Porter knew that the monies OAMPS paid for the Clifford shares were used to pay, in part, for the FAI parcel. On the morning of 30 June he may not have been certain that the FAI transaction would occur but there can be no doubt that by September he knew what had happened. I do not understand the request made by Fletcher to be narrowly confined or limited to whether or not Porter knew that a breach of the law had occurred. No doubt Fletcher was concerned to know whether the law had been observed but was fundamentally concerned to know whether the factual matters in the Pierpont article were true. So much is plain from the letter Fletcher wrote to Burdis on 22 September 1998. 828 I reject the suggestion that Fletcher waived the entitlement of GIO to rely upon Porter's answers by choosing not to take up the offer to approach the auditors. He was entitled to rely upon Porter to give him truthful answers to his questions. At any rate, the auditors, confined as they were to examining OAMPS part of the transaction, were hardly in a better position than Fletcher. 829 I am satisfied that Porter in his response to Fletcher chose to deliberately conceal the true position. His actions were fraudulent. (see: Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 577 and the cases cited therein) Gordian is entitled to relief pursuant to s 28(2). Section 31 of the Insurance Contracts Act 1984 830 Section 31 of the Act provides that the court may, notwithstanding a fraudulent failure to comply with a duty of disclosure, provide relief for an insured. However, relief is only available if the insurer has not been prejudiced. 831 The fraudulent non-disclosure by Porter in the present case was fundamental. GIO would never have accepted the risk if it had known of the true position. For this reason, Porter may not obtain any relief pursuant to s 31. Further Premiums 832 It was submitted on behalf of Porter that by accepting a further premium in September 1999 GIO accepted a renewal of the policy and elected to confirm it and is now estopped from denying that the plaintiff had not made proper disclosure. However, the policy was a three year policy with an annual premium the acceptance of which could not found an estoppel. Furthermore, GIO could not have made an election in circumstances where it was not aware of the true facts. See Plasteel Windows Australia Pty Limited v C E Heath Underwriting Agencies Pty Limited (1989) 5 ANZ Ins Cas 60-926 at 75,956. Non-Disclosure/Misrepresentation by OAMPS 833 Gordian pleads against both Porter and OAMPS that not only was there non-disclosure/misrepresentation by Porter but also by OAMPS as an entity. So far as the plea is made against OAMPS, reliance is placed on all of the submissions in respect of Porter but also on submissions in respect of Siggins and Walker. 834 With respect to Siggins, it is submitted that Siggins signed the Directors and Officers proposal on 10 September 1998. 835 By that time he knew: (a) that Windebank had alleged at the 8 September board meeting that Porter had engaged in wrongdoing in relation to the Clifford transaction; (b) that Windebank's sources of information were Glasgow, Sharkey and Harris; (c) that Windebank had produced the Mallesons letter which was to similar effect; (d) that Porter was proposing legal action against Windebank if he continued making the allegations about Clifford. 836 Siggins took no steps to ensure that these matters were notified to GIO. He said he did not turn his mind to the question as he was not involved in the renewal process. 837 Gordian submitted that had he turned his mind to it he would readily have appreciated that these were matters material to the insurer. Further, they were matters which required a qualification to the answer given to Question 16 in the proposal, whether or not the Mallesons letter also should have been disclosed as a claim in answer to paragraph. 838 Gordian submitted that Siggins could not have read the proposal and the suggested answers in it with any degree of care; otherwise, given his evidence, he would have recognized the inaccuracies in it and required fuller answers. It is submitted that he simply adopted what Wyner had proposed and forwarded to Porter, although without having any conversations with Porter as to how the form would be completed. He did not satisfy himself of the steps which would be taken within OAMPS to determine whether these matters should be reported to the insurer. While he would not admit that he signed it without caring whether there was a full disclosure, he did acknowledge that he signed it without fully considering all the aspects as closely as he should have. 839 He was aware that the proposal would operate as a continuing representation to the date the policy incepted. 840 By 20 September Siggins was aware that ASIC was conducting an enquiry into the Clifford transaction, by reason of receipt of the notice issued to Ernst & Young and the information he obtained from Sharkey. He informed Porter of the inquiry and proposed a strategy whereby Sharkey would be allowed back to work provided he gave information to Winchester, Siggins and ultimately Porter as to exactly what was going on with the ASIC enquiry. Sharkey was to be an inside line into what was being discussed with ASIC about the Clifford transaction. A meeting was held with Sharkey, Harris and Winchester on 21 September where these matters were discussed and information was relayed back to Porter. 841 Siggins recognized that had he turned his mind to it, the negative answer to Question 15 of the proposal required correction after that meeting but said he did not turn his mind to it. He accepted in hindsight that it was a flawed manner in which to place a full presentation before the insurer. Siggins gave similar answers with regards to the proposed action that Porter was contemplating against Windebank and to the information that HIH had declined terms on the ground that the matter was now outside its underwriting guidelines. 842 It is not submitted, and I do not find, that Siggins acted dishonestly. However I am satisfied that he signed the form without adequately applying his mind to whether the answers he was giving were accurate, and without putting in place any express procedure to ensure that proper disclosure was made, or whether the insurer was being given all relevant information. 843 With respect to Walker it is submitted that he presented quite different evidence to Siggins. Although in places he sought to blame others for the failure to make further disclosures in the proposal form, the thrust of his evidence was that he was fully aware of the Mallesons letter and the ASIC enquiry but he deliberately chose not to tell the insurers. 844 It is submitted, and I accept that his suggested justification that he was persuaded that the Mallesons letter was wholly wrong should not be accepted. 845 Walker gave evidence that the Mallesons letter had been referred to the auditors for them to carry out an independent investigation but he was unable to say whether any report had been received from the auditors even by the end of September 1998. He believed that ASIC was also looking at the matter. He accepted that most of the relevant facts in the Pierpont article were true, although he refuted that he knew that OAMPS had been indirectly financing the purchase of its own shares. 846 I am satisfied that Walker knew that the allegations of a breach of the Corporations Law were under investigation, that those investigations had not been concluded, and that he should have revealed the matter to the insurers. PART XV – EXCLUSION CLAUSE 10(v) 847 Exclusion clause 10(v) excludes liability for loss arising out of claims "arising from circumstances of which any Insured had become aware prior to the Period of Insurance and which the Insured knew (or ought reasonably to have known) to be circumstances which may give rise to a Claim". 848 The relevant matters are matters prior to 4.00pm on 29 September 1998. 849 It is submitted by Gordian that at that time Porter was aware: (a) That the Chairman of OAMPS had obtained written advice from a reputable law firm that stated that there was a serious risk that OAMPS, through the actions of Porter on or about 30 June 1998, had breached s 205 of the Corporations Law . (b) That the Chairman of OAMPS had obtained written advice from a Queens Counsel about issues of a " grave nature " raised by the Chairman including allegations of theft or obtaining a pecuniary advantage by deception, and suggesting that the fraud squad may need to be brought in. (c) That in excess of $3 million had been paid by AIIL, a subsidiary of OAMPS, to companies associated with Loiterton on 30 June 1998, and that a company associated with Loiterton had used that money on the same day to buy shares in OAMPS from companies associated with Adler. (d) That, at a board meeting on 8 September 1998: (i) Windebank alleged impropriety in relation to the Clifford transaction; (ii) Windebank alleged that Porter had stated that the Clifford transaction would secure his job as a CEO; (iii) Porter asserted that Windebank must have received his information from three other officers of the company who were present on 30 June 1998; and (iv) Windebank resigned as a director, and indicated that he intended to take his complaints to regulatory authorities. (e) That ASIC was conducting an inquiry into the Clifford transaction, and: (1) it had a list of people to interview, including Sharkey; (2) it had sought documents from the auditors; (3) OAMPS's lawyers were trying to prevent ASIC from seeing the Mallesons letter of 8 September 1998; and (4) Porter was seeking to explain his conduct to ASIC. (f) That Porter had instructed the company's lawyers on 18 September 1998 to commence proceedings against Windebank for breach of director's duties. 850 I accept Gordian's submission. 851 I am satisfied Porter was well aware that these matters may give rise to a claim against him for breach of s 205 or other provisions of the Corporations Law, whatever view Porter held as to the reasonableness of the allegations. Porter must have known that, if nothing else, OAMPS was likely to incur costs arising out of the conduct of the ASIC inquiry. 852 In addition, Porter must have been aware that the litigation against Windebank may give rise to a claim under the policy by Windebank. It may not have been possible to predict how the policy would respond to such a claim but Porter must have understood a claim may have been forthcoming. 853 I am satisfied that Exclusion clause 10(v) operates to exclude indemnity for claims arising from both the civil and Criminal Proceedings. 854 Porter submitted that the only remedy for non-disclosure is provided by s 33, Part 4 Division 3 of the Act. However, Exclusion 10(v) operates to exclude the nominated matters from the risk insured. Accordingly, s 33, which only relates to remedies in relation to matters within the policy, is not relevant to the present circumstances. PART VI– EXCLUSION CLAUSE 10(iv) Exclusion Clause 10(iv) 855 Exclusion 10(iv) provides: "This policy does not insure Loss arising out of any claim: … 10(iv) arising from any litigation or Inquiry that was either in progress or pending prior to the Period of Insurance ; or" " Inquiry means any: official investigation, examination, inquiry or other proceedings ordered or commissioned by any official body or institution empowered to investigate the affairs of the Organisation…" 856 Senior counsel for Porter initially admitted that the criminal charges arose from the ASIC inquiry. This admission was later withdrawn and it is now submitted that at least for the purpose of the operation of Exclusion 10(iv) the Inquiry and any costs incurred in relation to it are separate from the costs incurred in defending any criminal charges. It is said that only the costs incurred in attending an Inquiry are excluded by clause 10(iv). 857 Gordian joins issue with this submission. However, if it is correct Gordian submits that because the policy is a "claims made policy" no relevant claim was made before 1 November 1999 when the policy was cancelled. 858 The admission which Porter originally made was no doubt withdrawn to avoid the consequence that the Inquiry may have commenced before the policy came into force. 859 To determine the date upon which the Inquiry commenced it is necessary to examine ASIC's processes. 860 There is, as Porter submits, a distinction between an Inquiry and the making of enquiries. Enquiries may be made in pursuance of an Inquiry but it may be otherwise. In my opinion the use of the word "Inquiry" and its definition in the policy require a process which has been commenced pursuant to some formal decision of the relevant body before the exclusion will operate. The undertaking of preliminary enquiries will not trigger the exclusion. 861 The initial complaint was received by ASIC on 8 September 1998. Enquiries were commenced but these were merely preliminary and would not constitute a relevant Inquiry. For administrative purposes an Initial Action Plan was formulated by Mr Glen Cook, a senior investigator employed by ASIC. The investigation process within ASIC, including preliminary enquiries, is supervised within ASIC by a body known as the Technical Committee. The Committee was required to approve both Initial Action Plans and Final Action Plans. At its meeting on 17 September 1998 the Committee noted the Initial Action Plan and determined that "the matter is to return to the Technical Committee on 8 October with either a full IP or an NFA report." 862 The statutory step which was required before a formal investigation was initiated was a decision under s 13(1) of the Australian Securities Commission Act 1989. That section relevantly provides: "13(1) The Commission may make such investigation as it thinks expedient for the due administration of a national scheme law where it has reason to suspect that there may have been committed: (a) a contravention of a national scheme law; or (b) a contravention of a law of the Commonwealth or of a State or Territory, being a contravention that: (i) concerns the management or affairs of a body corporate; or (ii) involves fraud or dishonesty and relates to a body corporate, securities or futures contracts." 863 Cook had the power to take this step as a delegate of ASIC. He did not need to seek the permission of the Technical Committee. 864 On 24 September 1998, having considered relevant matters, he determined under s 13 that "it is expedient for the due administration of the law that ASIC investigate" the Clifford transaction. In my opinion this constituted the commencement of an Inquiry for the purpose of Exclusion 10(iv). It marked the beginning of an "official investigation" by an "official body" within the definition of "Inquiry" contained in the Policy. 865 Although the Technical Committee did not approve the Action Plan until its meeting on 8 October, and no doubt had input into the management of the inquiry process, the process which initiated the relevant Inquiry was that undertaken by Cook on 24 September. 866 The plaintiff filed an Amended Reply in which his current position in relation to Exclusion 10(iv) is pleaded. It provides as follows: "69A Subject to paragraph 69B below the Plaintiff admits that the costs referred to in paragraph 5 of his Second Further Amended Summons were incurred by him in defending charges which resulted from an Inquiry as that term was used in exclusion clause 10(iv) of the policy. 69B Further to paragraph 69A above and in further answer to paragraphs 96 and 97 of the Defence the Plaintiff says as follows:- (a) his claim in respect of his costs and expenses of defending the criminal charges was not a loss arising directly from any Litigation or Inquiry within exclusion clause 10(iv) of the Policy; (b) on the proper construction of exclusion clause 10(iv): (i) it only applies to the direct costs to the Plaintiff of any Litigation or Inquiry and (ii) it does not extend to the costs of criminal charges which resulted from such Inquiry." 867 As I understand the pleading, although it is conceded that the Criminal Proceedings arose from the Inquiry, because the costs of defending them are not costs of the Inquiry itself, the Exclusion does not operate. 868 I do not accept the argument. Exclusion 10(iv) operates to exclude "Loss arising out of any Claim …arising from any … Inquiry." The Criminal Proceedings followed the ASIC investigation and arose from it. This conclusion is reinforced by consideration of Automatic Extension 6 in the policy which is in the following terms: "ATTENDANCE AT INQUIRIES GIO will pay on behalf of the Insured all legal costs incurred in connection with any legally compellable attendance by the Insured at any Inquiry (whether or not a Wrongful Act is alleged) PROVIDED THAT: (i) the Inquiry is ordered or commissioned during the Period of Insurance; and (ii) the written consent of GIO is obtained prior to the Insured incurring such costs (such consent not to be unreasonably withheld); and (iii) the Insured notifies GIO during the Period of Insurance that the Insured is required to attend the Inquiry; and (iv) GIO shall be entitled (if it so desires) to nominate the barrister and/or solicitor to represent the Insured; and (v) the Inquiry is not being held in the USA or Canada; and (vi) the Insured's attendance at the Inquiry arises by reason of the Insured serving (or having served) the Organisation." 869 This clause expressly requires the relevant Inquiry to be "ordered or commissioned" during the period of insurance in which event indemnity will be provided. Extension 6 would have provided indemnity, if otherwise appropriate, to Porter in respect of his costs of the ASIC inquiry. Accordingly, if Exclusion clause 10(iv) was confined as submitted by Porter, Extension 6 would be redundant. 870 As a construction which gives the exclusion work to do is clearly available, it should be preferred. I am satisfied that it operates to deny indemnity to Porter for the costs incurred in the Criminal Proceedings. The Cancellation of the Policy 871 The policy was a "claims made policy" and accordingly any claim must have been notified prior to cancellation of the policy effective 1 November 1999. Gordian says no relevant claim was made. This is denied by Porter. 872 The Loss, which can be recovered must arise from a "Claim", defined in the policy as: " Claim means any: (i) written communication to the Insured or to the Organisation , which alleges a Wrongful Act by the Insured ; or (ii) writ, summons, application or other original legal or arbitral proceedings, cross claim, or counter claim: issued against or served upon the Insured and alleging a Wrongful Act ; or (iii) criminal proceeding commenced by a summons or charge against the Insured alleging a Wrongful Act." 873 The Criminal Proceedings were commenced by the charges in March 2000 and would be a Claim within the Definition. However such a claim could not meet the remaining requirements of Insuring Clause A or B because it was not first made against the plaintiff during the period of insurance; nor was it notified to GIO during such period of insurance. 874 Porter's pleadings do not identify any claim made against the plaintiff prior to 1 November 1999 out of which the defence costs of the Criminal Proceedings are said to arise. Neither the OAMPS civil action nor the ASIC inquiry are alleged to be a claim for this purpose. 875 However, Porter seeks to invoke s 40(3) of the Act which states: "40 This section applies in relation to a contract of liability insurance the effect of which is that the insurer's liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract. (2) The insurer shall, before the contract is entered into: (a) clearly inform the insured in writing of the effect of subsection (3); and (b) if the contract does not provide insurance cover in relation to events that occurred before the contract was entered into, clearly inform the insured in writing that the contract does not provide such cover. Penalty: 300 penalty units. (3) Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract." 876 Porter says that in January 1999 he gave notice of circumstances that might give rise to a claim within the meaning of the policy. 877 The relevant factual circumstances are as follows. On 11 January 1999, Swire Blanch forwarded a letter to GIO from Porter. In this letter, Porter advised he wished to make a claim under the OAMPS Directors and Officers Policy/ies "in relation to the defence of the matters listed in the OAMPS summons and particularly Claim 8, damages in respect of, I believe, loss on the Clifford Corporation Investment for which neither the directors or, more particularly me, are responsible". 878 Also on 11 January 1999 Swire Blanch, apparently on behalf of Porter forwarded to GIO a copy of the OAMPS summons and the supporting affidavit of Lamont of 8 December 1998. In his affidavit Lamont alleged that Porter was motivated by self-interest in arranging for the Clifford transaction to take place rather than in the best interests of OAMPS. The affidavit also stated: "7. As a result of my discussions with officers of the Australian Securities and Investment Commission I understand that there is a suggestion that the funds used by AIIL to purchase shares in Clifford were then used by Blenheim Holdings Ltd to fund the purchase of OAMPS shares by FAI. 8. I am aware that the dealings in shares in OAMPS that took place on or about 30 June 1998 are currently being investigated by ASIC under section 13(1) of the ASIC Act into suspected contraventions of sections 205(1)(a), 232(2) and 1309(1) of the Corporations Law . I have provided a statement to ASIC in relation to the Clifford Corporation transaction." 879 Gordian's initial submission is that section 40(3) can have no application in the circumstances. By reason of section 40(1), section 40(3) can only apply in respect to a claim "in respect of a loss suffered by some other person". The claim in question, it submits, being the criminal charges and proceedings, are not in respect of a loss suffered by some other person. Rather, it is an assertion of a wrongful act which leads to relevant loss only in the sense of the plaintiff's own loss, i.e. his costs of defending the proceedings. 880 I am satisfied that this argument is correct and s 40(3) can be disregarded. Gordian submits that this is sufficient to dispose of the matter because notification of circumstances will not suffice; notification of a claim is necessary and this had not been done. 881 The circumstances notified to GIO before cancellation of the policy were the civil claim by OAMPS, the allegations therein, and the ASIC Inquiry. However, Gordian submitted that the plaintiff has not sought to establish that the criminal charges arose out of the original civil claim by OAMPS. The decision by the DPP to bring the Criminal Proceedings was based upon the brief of evidence prepared by ASIC as a result of its own investigation. ASIC conducted its own interviews and examinations and did not simply adopt evidence collected by OAMPS in the civil action. 882 As Gordian submitted that only leaves the possibility that when notifying circumstances in January 1999, the plaintiff was notifying GIO of the ASIC Inquiry itself. If this is Porter's argument then I have found that Clause 10(iv) will operate to defeat the claim. Election 883 Porter also pleads that Gordian has elected to treat the claim in respect to the criminal defence costs as having been sufficiently notified before the policy was cancelled and is estopped from asserting otherwise. Porter says Gordian has so treated the claim for criminal defence costs in all correspondence and court documents prior to the filing of its rejoinder and seeks to support this with paragraphs 68 – 73 of his statement of 22 April 2003. The chronology put forward by Gordian is as follows: (a) on 4 February 1999 Gordian declined the plaintiff's claim for indemnity in respect to the civil proceeding; (b) Gordian reaffirmed its position on 9 June 1999; (c) Porter sought to argue the issue with Gordian on 10 June 1999; (d) the response on behalf of Gordian on 16 June 1999; made clear that Gordian had declined indemnity in relation to the Civil Proceedings and maintained its position; however Porter was invited to clarify whether he was seeking indemnity in respect to a second matter, namely the ASIC investigation; (e) on 25 October 1999 the plaintiff was advised that the policy was cancelled. (f) on 23 April 2001 GIO declined Porter's claim in respect of the criminal defence costs. Exclusion 10(iv) and non-disclosure are relied on as reasons for refusal. As Porter says, the letter does not state that a reason for the refusal was that the claim was separate or that there was no GIO policy in force to claim under. However, the letter states "you will appreciate there are a number of other bases on which GIO could deny this claim, however for present purposes it is sufficient to raise the points above only." 884 Porter asserts that it was his state of mind when he was told the policy was cancelled that GIO would treat any future claim based on allegations about the Clifford transaction as being sufficiently connected to the existing claim and therefore already notified and recoverable under the policy. To make good the assertion Porter would need to show that Gordian made some representation which induced the plaintiff to this state of mind, upon which he relied; or as a minimum, that Gordian knew that the plaintiff was labouring under this false belief and failed to correct his misapprehension. 885 Gordian submits that there is no evidence to support these propositions. Any question as to whether possible future claims relating to the Clifford transaction, if made, would be treated as falling within the policy cancelled on 1 November 1999 was not addressed between the plaintiff and Gordian at the time and there is no evidence that Gordian knew the plaintiff was labouring under any misapprehension. To the extent Gordian had raised a question whether the plaintiff was making the claim for indemnity in respect to the ASIC investigation, the plaintiff simply chose not to respond. 886 Porter says there are two hypothetical courses of action which he would have taken had he known GIO would take the point it now has: (a) Porter says he would have protested the cancellation of the policy and subject Hartnell's advice he would not have signed the Deed in February 2000. Gordian submits that this assumes it has acted in some way unconscionably in not telling Porter prior to 17 February 2000 that it would regard a claim for indemnity in respect to Criminal Proceedings as being a separate claim outside the policy. However, Gordian says that it made no statement to Porter on this topic prior to 17 February 2000. This is not surprising given that no criminal charges had then been filed. (b) the second hypothetical course of action is that Porter would have alternatively sued OAMPS for indemnity in respect to the criminal costs. However, that is what he has in fact done. 887 I am satisfied that Gordian has not acted unconscionably. Assuming GIO made the representation which he alleges, Porter did not rely to his detriment in such a way as would prevent Gordian from now submitting that the criminal charges were a separate Claim and that indemnity in respect of that claim was sought after the policy was cancelled. The submission that he would not have signed the Deed is at odds with his evidence. He says that relying on Hartnell he did not believe a prosecution would ever occur. This is not consistent with a belief that he had made a claim for indemnity in respect of criminal proceedings, or that Gordian had acted so that he believed such a claim had been made. 888 Porter further submits that the position taken by Gordian ignores the letter from Porter dated 11 July 2000. That letter was in the following terms: "Please speak to Ben Katekar. I again serve notice that I have, and make, a valid claim under the policy for financial assistance in defending the action brought by ASIC. If you have to treat this matter as a separate claim, so be it. You are on notice, and have been, for over a year now. I have spent the past week with Mr Tony Hartnell who is my counsel in this matter. You have previously been advised of this. Costs are mounting and I would appreciate you taking some interest. If notification is an issue please bear in mind I have been recently advised by OAMPS that they put you on notice of the potential for this claim well over a year ago also. You have an extensive file on all the issues including the ASIC investigation that has now crystalised into DPP charges. If you are going to deny the claim please let me know. Likewise, if you are going to honour your obligations to me as an insured under the terms of the policy, you may wish to make contact with Mr Hartnell and discuss my defence. I had previously been corresponding directly with Mr Katekar who I appreciate is very busy and now unable to speak to me. My own lawyers have advised me to correspond directly with you from now on. As you are aware, the committal commences in Melbourne on 17 July 2000. I would like you to arrange for a Melbourne solicitor to be at the bar table for the week to take notes and advise Mr Hartnell on Victorian Criminal procedures, among other things. Nine prosecution witnesses will be cross-examined during the committal. I look forward to hearing from you and for your assistance." 889 Although there is no evidence that GIO responded to this letter, a response was made on 14 July to Porter's solicitor. GIO advised Withnell Hetherington that Porter should act "as a prudent uninsured" although his claim was still under consideration. This correspondence could not give rise to a claim by Porter. By this time Porter had executed the Deed and the policy had been cancelled. 890 Porter also submitted that the letter from Minter Ellison of 10 May 2001 to Porter's solicitors contains a relevant representation. The letter refers to the reasons why GIO denied Porter's "claim" for indemnity. As I understand it is submitted that the reference to "claim" in the singular should be understood as referring to a claim in relation to the costs of the Civil Proceedings and the ASIC inquiry which gave rise to the Criminal Proceedings. Assuming that submission is accepted, as the policy was cancelled in November 1999, the letter cannot give rise to a representation relied upon by Porter to his detriment. 891 Finally, Porter relies on the form of words used in Condition 1 which defines the limit of liability. It states: "1.1 For the purpose of this Policy, all claims (including claims under any extension to this policy) arising out of Interrelated Wrongful Acts , shall be deemed to be one Claim ." 892 The clause obviously relates to the ultimate liability of GIO, which is defined by aggregating relevant Claims against the Insured. It is of no assistance in resolving the present problem, except to emphasise that Interrelated Wrongful Acts may give rise to more than one Claim against the Insured. If anything a correct understanding of this clause diminishes the force of Porter's argument. A Claim against the Insured may have been made, but, the insured may not have claimed against the insurer. This will be the case if the policy has come to an end before the Claim against the Insured has been made. Exclusion Clause 10(iv) - An Unusual Term? 893 Porter also sought to rely on s 37 of the Insurance Contracts Act (Cth). The unusual provision in Clause 10(iv) was said to be that the exclusion operates irrespective of whether the insured knew the inquiry had commenced before the inception of the policy. Section 14 of the Insurance Contracts Act relevantly provides as follows: "(1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (2) . . . (3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise." 894 Section 37 of the Act is in the following terms: "Notification of unusual terms An insurer may not rely on a provision included in a contract of insurance (not being a prescribed contract) of a kind that is not usually included in contracts of insurance that provide similar insurance cover unless, before the contract was entered into the insurer clearly informed the insured in writing of the effect of the provision (whether by providing the insured with a document containing the provisions, or the relevant provisions, of the proposed contract or otherwise)." 895 Section 71 of the Act has the effect that an insured whose insurance was arranged by an insurance broker cannot rely on s 37. Gordian submitted that, because Porter had a broker acting as his agent, (ie Burdis) he cannot rely on s 37. However, Porter submits that in the circumstances where the notice contemplated by s 37 has not been given then the obligation to act in the utmost good faith, given legislative force by s 14, will have been breached. 896 I am of the view that Porter's submissions regarding the effect of s 14 are not correct. There is no question that the duty of utmost good faith is both fundamental and paramount in an insurance contract. The Act provides for it in Part II and reinforces its significance in sections 12 and 13. Section 14 mentions the obligation and no doubt the legislature had in mind the operation of exclusion clauses when enacting s 14(3). But it would be unlikely that any failure to draw attention to an exclusion clause in the manner contemplated by s 37, the effect of which is expressly qualified by s 71, could give rise to incapacity in the insurer as contemplated by s 14. The legislated scheme understandably imposes obligations on the insured's agent to act to protect the insured, thereby relieving the insurer of burdens which the common law or statute may impose. I am satisfied that there is no aspect of the facts of the present case which mean that the natural consequence of s 37 and s 71 should not apply. 897 Porter tendered a number of D & O insurance policies containing exclusion clauses similar to clause 10(iv) but in each case different from it. Porter called Ms Carol Priest, a qualified lawyer and insurance broker, who confirmed that exclusion clauses dealing with matters in clause 10(iv) take many forms. However, the unusual aspect of clause 10(iv) is said to be that the exclusion operates irrespective of whether the insured knew the inquiry had commenced before the inception of the policy. 898 Gordian submits that Porter did not tender an exhaustive group of D & O wordings. Although this may be correct the submission loses all force when it is appreciated that it did not avail itself of the opportunity to tender other wordings. 899 Gordian referred to the fact that various of the clauses tendered operated by reference to the date upon which a particular matter occurred without consideration of whether the insured knew it had happened. There is a distinction between matters which an insured is required to disclose and the actual risk which is being insured. Each policy had its own commercial advantages and disadvantages. The GIO Mark II policy provided cover for criminal costs, not available under the previous policy, the price being that it came subject to the exclusion in cl 10(iv). 900 Porter's argument accepts that the exclusion will operate if an inquiry had been commenced but emphasises that this fact was not known to Porter before the policy commenced. Gordian submits, which is plainly the case, that at least by 17 September Porter knew that ASIC was conducting enquiries and that statutory notices had been served. A file note to Porter from Michael de Vere of Summerton de Vere solicitors attached and referred to a notice sent by ASIC to Linton (OAMPS' auditor) for the purpose of "ensuring compliance with sections 205, 999 and 1309 of the Corporations Law." However, Porter did not know the status of any Inquiry. Nevertheless as the argument turns upon suggested lack of good faith by Gordian in relying on the exclusion clause this could hardly be the case when Porter knew that ASIC's processes were in train, although perhaps not of the formal Inquiry before the policy commenced. 901 Porter further submits that, because in his submission, Fletcher and Thomas of GIO initially thought clause 10(iv) was confined to costs of defending any Inquiry, it is bad faith to now rely upon it to deny the costs of the Criminal Proceedings. The evidence relied upon is a facsimile from Thomas of GIO to Burdis dated 15 January 1999. At that stage the claim by Porter was limited to the Civil Proceedings and the ASIC investigation. Criminal charges had not been laid. I do not interpret Thomas as offering any opinion about the operation of cl 10(iv) in the event that criminal charges were laid. The same position pertains to Fletcher who gave oral evidence about the matter. 902 In these circumstances I do not accept that by the earlier actions of officers of GIO Gordian may not now rely on exclusion cl 10(iv). Consideration of the application of that clause to the costs of Criminal Proceedings arose at a much later time. PART XVII – EXCLUSION CLAUSE 12 903 Gordian also relied upon exclusion clause 12 which was in the following terms: "This policy does not insure loss arising out of any claim: brought by or on behalf of any individual or entity owning or controlling more than 15% of the issued capital of the Organisation …" 904 Gordian submitted that Exclusion clause 12 is, in effect, an exclusion for actions brought by a substantial shareholder of the "Organisation". The definition of "Organisation" includes AIIL. OAMPS is the only shareholder of AIIL. 905 It was further submitted that OAMPS was one of two plaintiffs in the Civil Proceedings, the other being AIIL. Defence costs incurred by Porter in defending those proceedings are defence costs which were incurred in defending a claim by OAMPS. The policy provides that Loss, including legal costs, "arising out of" claims made by substantial shareholders of the insured Organisation is excluded from cover. The defence costs incurred by Porter in the Civil Proceedings are costs "arising out of" the claim by OAMPS. The policy does not indicate an intention to apportion costs in circumstances where the claim by the substantial shareholder is one of a number of claims prosecuted in the one action: cf. New Zealand Forest Products Limited v New Zealand Insurance Co Limited [1997] 1 WLR 1237. Decision 906 In my opinion exclusion clause 12 was intended to operate when exclusion clause 13 did not, because the relevant claim was an action brought by an associated company or individual. In the present case, I am of the view that exclusion clause 13 operates. However, if it is otherwise, clause 12 would operate to defeat the claim. PART XVIII – EXCLUSION CLAUSE 13 907 Exclusion clause 13 was in the following terms: "This policy does not insure Loss arising out of any Claim: 13. brought by or on behalf of the Organisation except a Claim which is either: (i) initiated by one or more shareholders not being the Insured and acting without the solicitation, assistance or participation of the Insured; … 908 Gordian submitted that as the civil claim was brought by OAMPS, which falls within the definition of "Organisation", the claim is barred by exclusion clause 13. It said that the exception to the exclusion in clause 13(i) does not apply, for two reasons. 909 Firstly, it submitted that as each of Lamont, Austin and Cowden was an "Insured" under the policy, the exception only applies to proceedings initiated by Lamont, Austin and Cowden if the term "Insured" in exclusion clause 13 refers to Porter only. It is submitted that that interpretation would give rise to absurdity both in relation to exclusion clause 13 and in relation to other provisions of the policy. 910 Secondly, it submitted that the exception is limited to shareholder derivative actions or other actions brought by shareholders in their capacity as shareholders and in the name of the company. It is submitted that it is not sufficient that persons who are both directors and shareholders use their powers as directors to initiate the claim. The plaintiff fails to make out the exception because the plaintiff cannot identify any actions by persons in their capacity as shareholders which has initiated the claim. 911 As Gordian points out, on its face, the summons has been initiated and brought by OAMPS as the plaintiff. The pleading does not assert that any one or more shareholders are utilizing some right, statutory or otherwise, to invoke the company's name to bring the proceedings. Nor is there any evidence external to the summons that any shareholder did in fact utilize such a procedure to cause the proceedings to be brought. Such evidence as there is that the three directors, Lamont, Cowden and Austin, made a decision outside a formal board meeting that the proceedings would be instituted by OAMPS. Thereafter the minutes of OAMPS show regular reporting to the board on the action. 912 Directors have power, if acting unanimously, to bind the company to actions notwithstanding they have not observed the formalities of a meeting: In re Bonelli's Telegraph Company (1871) LR 12 Eq. 246 at 258 – 260; Poliwka v Heven Holdings Pty Ltd (No 2) (1992) 8 ACSR 747 at 785-6 per Ipp J; H L Bolton (Engineering) Co Limited v T J Graham & Sons Limited [1957] 1 QB 159; Magnacrete Limited v Douglas-Hill (1988) 15 ACLR 325 at 333. 913 Furthermore, the board of OAMPS ratified the appointment of Henry Davis York as solicitors and ratified the commencement of the action. Such ratification dates back to the institution of the action: Danish Mercantile Co Ltd v Beaumont [1951] Ch at 680; Alexander Ward [1975] 1 WLR 673; Presentaciones Musicales SA Secunda [1994] Ch 271 at 277E, 284H; Victorian Teachers Credit Union v KPMG (a firm) (2000) 1 VR 654 at 662. 914 Gordian further submits that if the term "Insured" in exclusion clause 13 referred to "Porter" only, then the phrase "and acting without the solicitation, assistance or participation of the Insured" in clause 13(i) would be superfluous, because it would be difficult to contemplate a claim brought against Porter with the solicitation, assistance or participation of Porter. Rather, this phrase confirms that the clause applies to proceedings brought by shareholders without the solicitation, assistance or participation of any of the directors or employees of the company. The better view, and the one that accords with the definition of "Insured", is that the term "Insured" in the context of exclusion clause 13 includes all of the directors of OAMPS and AIIL. The exception to the exclusion, properly construed, applies to actions brought by shareholders as such and without the participation of any directors, such as actions under sections 236 and 237 of the Corporations Law. 915 Gordian submitted that this conclusion is confirmed by a consideration of exclusion clause 11, which excludes Loss arising out of any Claim "brought by or on behalf of the Insured". It is submitted that it is difficult to conceive of circumstances in which Porter would suffer loss arising from a claim brought by Porter, which strongly suggests that "Insured" refers to all insureds under the policy, including each other director. 916 Applying this construction, even if, as the plaintiff alleges, the proceedings were initiated by Lamont, Cowden and Austin, this would not activate the exception in clause 13 because it is not a claim "initiated by one or more shareholders not being the Insured". Further, the claim was not a claim brought by shareholders acting without the solicitation, assistance or participation of the Insured, because the claim (on the way in which the plaintiff pleads its case) was brought with the participation of directors. 917 Porter argues that the fact that it is acknowledged by Gordian that there was no formal Board minute is sufficient for the court to conclude that the Directors were not acting to bind the company. 918 With respect to the second ground Porter submits that the phrase used is "the insured" and not "an insured". The use of the word "the" indicates that it is a reference to Porter. It is said to be easy to conceive of a circumstance where for personal reasons an insured might cause an action to be brought against himself. Decision 919 It is unnecessary to deal with all of Gordian's submissions. Notwithstanding the fact that there is no formal Board minute I am satisfied that the proceedings were brought and maintained by OAMPS and not relevantly by any shareholder. The action was reported on to the Board which retained and instructed solicitors to act in the matter. 920 In my opinion the reference to the Insured is a reference to all of the directors of the relevant companies. The obvious intention was to exclude actions initiated or supported by directors acting on behalf of the company but provide indemnity when other shareholders, exercising their available rights, bring an action against a director in the company's name. The suggestion that the exception contemplates an Insured bringing an action against him or herself is not persuasive. 921 Exclusion clause 13 operates to deny indemnity to Porter for costs incurred in the Civil Proceedings. PART XIX – CLAIM UNDER THE PROFESSIONAL INDEMNITY POLICY 922 Porter has pleaded in answer to exclusion clauses 10(iv), 12 and 13 that he is entitled to claim under Section 1, the professional indemnity section of the policy. This section does not have exclusion clauses equivalent to those in the D & O Section. I am of the opinion that the argument should be rejected. 923 By section 1 of the policy, Gordian indemnifies OAMPS in respect of "any civil liability incurred in connection with the Business". 924 The "Business" is defined as "the business carried on by the . . . company in the Schedule as a general insurance broker or life insurance broker and includes acting . . ." [there is then set out a list of tasks and functions related to acting as a broker]. 925 By virtue of paragraph (d) of the definition of "Insured", the protection extends to directors and employees of OAMPS, but only "to the extent that such person acts or acted in the course of the Business." 926 Gordian submits that this claim must fail for many reasons. They are: (a) it is clear that, in proposing, recommending and voting for the purchase by AIIL of shares in Clifford Corporation from Blenheim and Leisuremark, Porter was not acting in the course of the business of OAMPS as a general or life insurance broker. The investment in Clifford had no real nexus to the business of OAMPS as an insurance broker. (b) Neither the Criminal Proceedings, the Civil Proceedings, the criminal defence costs, nor the civil defence costs are a civil liability within the meaning of Insuring Clause 1 of section 1 of the policy incurred by Porter in connection with the business of OAMPS as a general or life insurance broker, in that the relevant liability arises from the investment activities of AIIL and not from the conduct of a broking business by OAMPS or AIIL. (c) Porter's claim for the criminal defence costs does not fall within the Insuring Clauses of the PI policy as: (i) the criminal defence costs are not a " civil liability " within the meaning of Insuring Clause 1 of the PI policy; (ii) the Criminal Proceedings are not a " civil liability " within the meaning of Insuring Clause 1 of the PI policy; and (iii) hence, the criminal defence costs are not costs and expenses incurred by Porter in the defence of any claim against him in respect of which he is entitled to indemnity under the policy, within the meaning of Insuring Clause 2(b) of the PI policy. (d) Porter cannot satisfy Insuring Clause 1(a) in respect to the criminal defence costs because no claim was first made against him during the period of insurance (i.e. ending with the cancellation of the policy on 1 November 1999) or notified to GIO during such period of insurance. The plaintiff's submissions assert that the plaintiff relies upon the claims made on GIO during the period of insurance, being claims specifically under the D & O part of the policy but in law being claims under all parts of the one policy. It is correct that the original claim made on GIO was identified as a claim under the D & O policy. However, there were three separate policies of insurance combined in the one document. The risk insured under each policy was different as is made plain by the different exclusions. A claim under the D & O policy does not become a claim under the PI policy unless it is so notified to the insurer. The criminal defence costs were not the subject of the relevant notification. Even when the plaintiff did seek indemnity for his criminal defence costs on 2 June 2000, after the cancellation of the policy, he did so by reference only to the D & O policy. Prior to the filing of the reply in these proceedings, he has never made a claim under the PI policy. Section 40(3), mentioned previously, cannot assist the plaintiff. The gateway of s 40(1) is not satisfied because the loss in question is the plaintiff's own loss of his defence costs as opposed to a loss suffered by some other person. Second, no notice of circumstances was ever given under the PI policy prior to its cancellation. (e) Porter's claim does not arise from circumstances first discovered by him during the period of insurance, being the period from 4.00pm on 29 September 1998 to 4.00pm on 29 September 2001 as required by Insuring Clause 1(b)(i) of the PI policy, in that it arises from circumstances (being the Clifford transaction and the subsequent raising of allegations and the ASIC inquiry) first discovered by Porter prior to 29 September 1998. (f) Neither the criminal defence costs nor the civil defence costs are costs and expenses incurred by Porter with the consent of Gordian, as required by Insuring Clause 2(b) of the PI policy. (g) Porter's claim is excluded by exclusion clause (a) of the PI policy, in that it is in respect of a civil liability arising from circumstances which he knew, or a reasonable person in the circumstances could be expected to know, prior to 4.00pm on 29 September 1998 to be circumstances which may give rise to a claim against him in respect of civil liability. (h) Finally, Porter's claim is excluded by exclusion clause (n)(ii) of the PI policy, in that it arises from circumstances which were notified under a contract of insurance with HIH Casualty and General Insurance Limited prior to 4.00pm on 29 September 1998 Decision 927 It is not necessary to determine each of the submissions made by Gordian. In my opinion the criminal defence costs are not a "civil liability" within the meaning of Insuring Clause 1 of section 1 of the Policy. The policy responds to "a civil liability incurred in connection with the Business". Porter's costs were incurred in defending himself. The obligation indemnified by the PI section of the policy is that which arises from conduct of an employee or the business which itself gives rise to a liability to a third party. It does not respond to costs which an employee may incur in defending him or herself in Criminal Proceedings. 928 Whether or not in making the Clifford investment Porter was acting in the business of OAMPS or AIIL, as a general or life insurance broker is a matter of some difficulty which was not fully explored in argument. In these circumstances I am reluctant to determine the question. 929 I am satisfied that the submission which Gordian makes with respect to the time at which a claim was made should be accepted. The only claim notified was that made under the D & O policy; a claim was never made under the PI Policy. The D & O policy was relevantly distinct from the PI Policy. The object of the insurance, the nature of the risks and the relevant conditions and exclusions were different. The policy describes section 1 of the schedule as comprising the Professional Indemnity Policy whereas Schedule 2 describes the Directors and Officers/Company Reimbursement Policy. Schedule 3 comprised a further policy being the Superannuation Fund Trustees Liability Insurance Policy. 930 The submission that Porter may succeed in a claim under the PI Policy fails. PART XX – EXCLUSION CLAUSE 7 Exclusion 7 931 Exclusion Clause 7 excludes liability for loss arising out of claims: "based upon, attributable to, or in consequence of: (i) any dishonest, fraudulent, criminal or malicious act or omission; or (ii) any deliberate breach of any statute, regulation or contract; where such act, omission or breach has in fact occurred." 932 I have provided elsewhere in these reasons my findings in relation to the events of 30 June 1998. I am satisfied that Porter promoted and secured approval of the purchase of the Clifford shares with the intention that it would assist a Loiterton controlled company to acquire the OAMPS parcel and to secure his own position as the Managing Director of OAMPS. 933 Gordian relies upon Exclusion Clause 7 in a number of ways. It is submitted that: (a) the conduct by Porter was conduct in breach of section 205 of the Corporations Law , amounting to a criminal offence by virtue of section 1311; (b) the conduct by Porter was also conduct in breach of his director's duties and contrary to s 232 of the Corporations Law , amounting to a criminal offence by virtue of section 1317FA, and in particular: (i) in breach of his duty to act honestly in the exercise of his powers and the discharge of the duties of his office: s 232(2); (ii) in breach of his duty to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances: s 232(4); and (iii) in breach of his duty not to make improper use of his position as a director of the corporation to gain an advantage for himself: s 232(6); (c) the conduct by Porter was in breach of the prohibition imposed by section 232A on voting on the purchase of Clifford shares in circumstances where he had a material personal interest in the outcome, amounting to a criminal offence by virtue of s 1311; (d) Porter authorised or permitted OAMPS to make a statement to the ASX on 2 July 1998 that falsely stated that: (1) OAMPS was unaware of the identity of the purchaser of the FAI parcel; and (2) OAMPS had "no influence" in the purchase of the FAI parcel. in breach of section 1309 of the Corporations Law , amounting to a criminal offence by virtue of section 1311; and (e) the conduct by Porter was also conduct in deliberate breach of sections 205, 232, 232A and 1309 of the Corporations Law . 934 It is further submitted that all of the loss which is the subject of the proceedings brought by Porter against OAMPS is loss based upon the acts of Porter on or before 30 June 1998 in relation to the Clifford transaction. The Civil Proceedings and the Criminal Proceedings (particularly the first charge) are said to be based upon, attributable to, or in consequence of this conduct. Gordian contends that this conduct was: (a) criminal; (b) dishonest; and (c) a deliberate breach of section 205. 935 It is submitted that the second charge against Porter (that he contravened s 232(6) of the Corporations Law) is a charge arising out of the same conduct. 936 It is further submitted that the third charge against Porter, arising out of conduct in breach of section 1309 of the Corporations Law, was likewise based upon, attributable to, or in consequence of the conduct referred to in the previous two paragraphs, because it was that conduct that made the statements to the ASX false and misleading. In addition, it is submitted that part or all of the criminal defence costs arise directly out of the conduct in breach of s 1309. Gordian submitted that such conduct would be considered criminal. Gordian emphasised that any person who breaches the section will have given false and misleading information, which is, in Gordian's submission, dishonest conduct. Accordingly, it is submitted that Exclusion Clause 7 operates to apply to the loss engendered by criminal or dishonest conduct. Section 205 of the Corporations Law 937 Section 205 of the Corporations Law, as it was in force prior to 1 July 1998, relevantly provides: "(1) . . . [A] company shall not: (a) whether directly or indirectly, give any financial assistance for the purpose of, or in connection with: (i) the acquisition by any person, whether before, or at the same time as, the giving of financial assistance, of: (A) shares . . . in the company; or (B) shares . . . in a holding company of the company; or (ii) the proposed acquisition by any person of: (A) shares . . . in the company; or (B) shares . . . in a holding company of the company; . . . (3) For the purposes of this section, a company shall be taken to have given financial assistance for the purpose of an acquisition or proposed acquisition referred to in paragraph 1(a) (in this subsection called the 'relevant purpose') if: (a) the company gave the financial assistance for purposes that include the relevant purpose; and (b) the relevant purpose was a substantial purpose of the giving of the financial assistance. (4) For the purposes of this section, a company shall be taken to have given financial assistance in connection with an acquisition or proposed acquisition referred to in paragraph 1(a) if, when the financial assistance was given to a person, the company was aware that the financial assistance would financially assist: (a) the acquisition by a person of shares… in the company; . . . (5) A company that contravenes this section is not guilty of an offence by virtue of this section or section 1311, but each officer of the company who is involved in the contravention contravenes this subsection." 938 In the present case the assistance which is identified was provided by AIIL; and the shares acquired were shares in its holding company OAMPS (s 205(i)(a)(ii)(B) and (1)(a)(iii)(B)). The money was paid by AIIL to HSBC and was immediately transferred to D J Carmichael Pty Limited who used the money to acquire the FAI parcel for Blenheim. 939 I have made findings with respect to Porter's knowledge and purpose. He disclosed that knowledge and purpose to the meeting on 30 June 1998. Glasgow had been intimately involved in most of the preceding events in any case. Accordingly, AIIL knew that the Clifford transaction would assist Loiterton's company to acquire the FAI parcel. This is sufficient for a breach of s 205 (see s 205(4)). 940 If any of the directors of AIIL were not actually aware of the matters which Porter knew, Porter's knowledge may be imputed to them. Darvall v North Sydney Brick & Tile Co (1987) 16 NSWLR 260 at 293 per Kirby; Dempster v NCSC (1993) 10 ALSR 215; Fitzsimmons v R (1997) 23 ALSR 355 at 369. Diminution of Resources 941 It was submitted by Porter that it was necessary to demonstrate that the corporation's financial resources have been diminished in order to establish a breach of the section. Porter relied upon the decision of Hutley JA in Burton v Palmer [1980] 2 NSWLR 878 at 881 where his Honour said of s 67 of the Companies Act 1961 (which preceded s 205): "the ways in which a company can infringe s 67 of the Corporations Act 1961 are infinitely various but the essence of the matter is clear – has the company diminished its financial resources, including future resources, in connection with the sale and purchase of its shares." 942 In ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495, Waddell CJ in Eq. considered the statement of Hutley JA and noted that the making of a loan, even where it would be paid back in full, constitutes a diminution of resources. His Honour cited the decision of Kirby P in Darvall as support for this proposition. His Honour said, referring to Hutley JA's decision: "Clearly his Honour did not mean to imply that the making of a loan did not diminish the company's financial resources even though, of course, the reduction in money assets is balanced by the asset of an obligation of repayment…It is clear that in the present case, by depositing with Duke Pacific at call the full amount of the subscription moneys received on behalf of Duke Securities, the plaintiff diminished its resources in the sense in which his Honour used that expression. The fact that the deposit was repayable on call should not be taken as showing that there was no diminution of resources." (at 503-504) 943 In Myer Retail Investments Pty Ltd, re (1983) 68 FLR 15, Sheppard J followed Hutley JA. He said: "It was suggested in argument that a contrary view to that of Hutley JA had been expressed in the same case by Mahoney JA. I do not share that view; but if I be wrong in relation to that, I would prefer the view which has been expressed by Hutley JA and to which I have referred." 944 In Milburn v Pivot Ltd (1997) 78 FCR 472, Goldberg J noted that there had been some debate about the matter. His Honour referred to Hutley JA's proposition that the ways in which the section can be infringed are infinitely various, and said: "I agree with that observation (bearing in mind that it is always necessary to identify assistance which is financial assistance) but it leads me to the conclusion that there may be situations which arise where no diminution of resources occurs but there is still nevertheless financial assistance given by the company." (at 503) 945 The Full Federal Court in Sterileair Pty Ltd v Papallo (1998) 29 ASCR 461 adopted Goldberg J's analysis of the authorities on the meaning of financial assistance. However, the Court also said: "The prohibition against a company providing financial assistance for the purpose of, or in connection with, the acquisition of its own shares was first introduced into company legislation in the 1929 Act in the United Kingdom, following upon the recommendation of the Greene Committee in 1926. It was thought that such transactions offended against the spirit of the rule in Trevor v Whitworth (1887) 12 App Cas 409. The House of Lords in that case held that a company could not purchase its own shares since this would result in a reduction of capital : see Gower, Principles of Modern Company Law (1992, 5th ed) pp 212, 226. In other words, an outsider, and especially a creditor or potential creditor, should be able to rely on the subscribed capital of the company being represented by assets. This expectation would be defeated if the company could buy back its shares , or deplete its assets to enable shareholders to acquire shares." 946 In Tallglen Pty Ltd v Optus Communications Pty Ltd (1998) 16 ACLC 1526 Young J heard submissions on whether he should be bound by the narrow view of Hutley JA, or the wider approach of Goldberg J. Young J felt himself bound by Hutley JA's decision. 947 In Wambo Mining Corporation Pty Ltd v Wall Street (Holding) Pty Ltd (1998) 28 ACSR 654 the court considered the decision of Mahoney JA in Burton that the mere repayment of a debt to a purchaser of shares would not constitute assistance under the section. Sheller JA (with whom Powell JA agreed; and with whom Fitzgerald AJA agreed on this point) said: "Wambo obtained covenants, regarded as commercially reasonable, and intended to remove the potential problem of competition from one or more of its principal shareholders. The covenant enured for the benefit of Wambo regardless of whether the Hartogen group of companies bought or continued to hold shares in Wambo. No doubt the existence of the covenants made the shares more attractive to Hartogen. But this of itself did not, in my opinion, amount to the giving of financial assistance for their purchase." (at 669) 948 Sheller JA said that for there to be a breach, Wambo would have had to do more than obtain the covenants to protect its position. It would also have to be shown that in obtaining the covenants, it gave financial assistance in connection with the acquisition in issue. 949 Sheller JA accepted the comments of the Chief Justice, who was the trial judge. Sheller JA said: "the Chief Justice adopted [the finding] that the words "giving financial assistance" in the section had no technical meaning and their frame of reference was the language of ordinary commerce. "One must examine the commercial realities of the transaction and decide whether it can properly be described as the giving of financial assistance by the company, bearing in mind that the section is a penal one and should not be strained to cover transactions which are not fairly within it." It does not matter that the company's balance sheet is undisturbed in the sense that the cash paid out is replaced by an asset of equivalent value ." 950 Sheller JA also discussed the decision of Hoffman J Charterhouse Investment Trust Ltd v Tempest Diesels Ltd (1986) BCLC 1 and referred to the following comment with approval: "the company made cash available to the purchaser. This amounted to giving financial assistance and no less so because it was done without any net transfer of value by the company ." (at 10-11; cited by Sheller JA at 667-668) 951 Porter submitted that the reasoning in Charterhouse supported his contention that when the commercial realities were considered the Clifford transaction should be accepted as legitimate. The potential business synergies were emphasised and held out as justifying the transaction including a payment above market. 952 The plaintiff also submitted that I should look at the substance of the transaction, rather than only at its form. (Independent Steels Pty Ltd v Ryan [1990] VR 247 per Fullagar J at 251-2). It was submitted that the court should look to the dominant purpose and intention for the transaction. 953 Whatever may have been the original force of Hutley JA's statement in Burton, I am satisfied that I should follow the decision in Wambo. It seems to me that the purpose of s 205 is not confined to the protection of the corporation's balance sheet. The protection of the corporation's capital and the maintenance of the integrity of its share price are objectives which may be assisted by confining the provision. 954 In the present case I am completely satisfied that the substantial purpose of Porter was to place a Loiterton company, Blenheim, in funds so that it could purchase the FAI parcel. This is sufficient to constitute a breach of s205. 955 The plaintiff called Professor Aitken, a Professor of Finance at the University of New South Wales who gave evidence that for a large parcel of shares a premium may have to be paid. Aitken also said that the strategic importance of the acquisition could in itself justify the premium. I accept the evidence of Aitken although I doubt whether a parcel representing 4.9% of the issued capital would always justify a premium. However in this case I am satisfied that the price which was paid was not determined by reference to the value of the Clifford shares. AIIL agreed to pay 48.25 cents when the shares were trading at 43.5 cents on the open market. I am satisfied that the price was determined by the amount of money Blenheim required to purchase the FAI parcel rather than by any attempt to determine the fair market value. 956 In these circumstances, even the narrow test proposed by Hutley JA would appear to have been satisfied. As I have related, the purchase of the shares involved a significant immediate accounting loss to OAMPS with a negative impact on its balance sheet. 957 The plaintiff submitted that because of the "business judgment rule" (see Howard Smith v Ampol Petroleum Ltd [1974] AC 821; where it was held that a court should not question the correctness of management's decision in relation to a commercial transaction, if the decision was made in good faith. In my opinion this is not a case for any application of the rule. In this case the relevant issue is the motivation of Porter himself. Porter was not motivated by a conventional commercial desire to secure a large parcel of shares requiring payment of a higher price. His purpose was to place Loiterton in funds, the price for the shares being determined by the amount of money which Loiterton needed to secure the FAI parcel. Section 205(4) - "in connection with" 958 In Darvall, Kirby P concluded that the words "in connection with" required more than a temporal coincidence. At 294-295 the President said: "The words 'in connection with' are words of the widest association. Yet s 129(1) creates a criminal offence concerning each officer in default. It is unthinkable that such an offence should be created by words of such imprecision without a more specific definition. Hence, the definition is exhaustive in order to provide the requisite precision. … In Australia, s 129(4) was inserted in the Code in order to require knowledge on the part of the company of the fact that financial assistance was given in connection with the acquisition of the shares. This, and the requirement of proof that the 'purpose' was 'a substantial purpose of the giving of the financial assistance', were provisions designed to tighten up and limit the application of the prohibition in s 129(1). … the respondents argued that s 129(4) [introduced] 'a measure of mens rea as distinct from indicating a more general nexus between the assistance and the acquisition. On balance, I do not favour the construction urged by the respondents. First, the duty of the court is to give meaning to the language actually used by Parliament. The language in s 129(4) is that a company 'shall be taken to have' given financial assistance if certain things are shown. Had it been intended that s 129(4) were to be an exclusive definition of the phrase 'in connection with', one might have expected that the drafter would have used the expression 'if and only if'. Furthermore, the phrase 'shall be taken to' is one typically used in legislation to provide a notional definition where the ordinary definition will not suffice. Usually, it extends and does not delimit the word(s) defined. It provides a dictionary, but not an exclusive one. Secondly, the same approach must be considered in the light of the provision of an extended definition 'for the purpose of' in s 129(3). I do not read that subsection as an exclusive definition of 'for the purpose of'. Yet if the respondents' argument were right, it would necessarily follow that such was the case in subs(3) as in subs(4). Thirdly, the course of the legislation in Australia and England represents a two-edged sword for the respondents. Whereas in England the phrase 'in connection with' was removed, in Australia it was preserved – presumably for a purpose. That purpose was, one might infer, to overcome the difficulty presented by the obligation to prove the 'purpose' of the company. The necessity to prove a 'connection' still requires something more than temporal coincidence. But it allows the Court to apply a commonsense approach, such as Lord Denning described (above) . The retention of the phrase in our legislation, in the face of the English decision to remove it, suggests to my mind a deliberate decision in Australia to persist with the more stringent obligation affecting the company's officers. Fourthly, there is the argument that the company's awareness is established if an officer, such as Mr Lanceley, is 'aware'. I have already expressed my agreement with Hodgson J that the awareness of a single director can be attributed to the company . If this is a correct interpretation of the section, particularly bearing in mind s 129(5), the suggestion that s 129(4) provides an exclusive definition loses much of its force. 959 Lord Denning in Wallersteiner v Moir [1974] 1 WLR 991 at 1014; [1974] 3 All ER 217 at 238, advocated the common sense approach to which Kirby P refers: "… The transactions are extremely complicated, but the end result is clear. You look to the company's money and see what has become of it. You look to the company's shares and see into whose hands they have got. You will then soon see if the company's money has been used to finance the purchase." 960 Applying a common sense approach in this case I am satisfied that the Clifford transaction was relevantly in connection with the acquisition of the FAI parcel. There was an obvious temporal coincidence. Beyond that the purpose for the transaction was to enable Blenheim to acquire the FAI parcel. This is apparent from the price paid for the Clifford shares and the coordination of the transaction so that the monies changed hands on 30 June. Section 205(5) – "involved" 961 "Involved" is defined in s 79 of the Corporations Law which provides that a person is involved in a contravention if, and only if, the person: (a) has aided, abetted, ………or procured the contravention; (b) has induced, whether by threats or promises, the contravention, (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 962 To be "knowingly concerned" a person must have knowledge of the essential elements constituting the contravention of the Act and must be an intentional participant. In Edwards v R (1992) 173 CLR 653 the court found that the words require knowledge of the offender's purpose to gain an advantage for himself or to cause detriment to the corporation. Although wilful blindness may be evidence of knowledge Giorgianni v R (1985) 156 CLR 473, there is no need to consider such circumstances in this matter. Porter knew that he would gain an advantage for himself. Findings in Relation to Section 205 963 In the present case I am completely satisfied that Porter struck an arrangement with Loiterton whereby OAMPS, or as it happened AIIL its wholly owned subsidiary, would acquire the Clifford shares from Blenheim and Leisuremark, at a premium to market and at a price which would provide sufficient funds for Blenheim to acquire the FAI parcel at the price required by Adler. The monies were used for this purpose. Porter's knowledge was that of AIIL (s 205(4)). 964 It follows that AIIL gave financial assistance contrary to section 205(1). Porter was involved in the contravention. He had the relevant knowledge, intention and belief and accordingly s 205(5) operated. For a breach to occur it is only necessary that Porter knew that Loiterton would, by reason of the purchase of the Clifford shares be in a position to seek to acquire the FAI parcel. I am satisfied that Porter had that knowledge and was motivated by it. 965 The findings I have made have the effect that exclusion clause 7 of the Policy operates. The Claims were "based upon, attributable to, or in consequence of the acts" of Porter in proposing, recommending and voting for the purchase by AIIL of shares in Clifford Corporation. Accordingly, Porter breached s 205 and committed a criminal offence (see s 1311). 966 Furthermore I am satisfied that Porter's conduct amounted to a deliberate breach of section 205, within the meaning of the second limb of exclusion clause 7. Dishonesty 967 Exclusion clause 7 will operate even if there was no criminal act or deliberate breach of statute. It will operate if Porter's conduct was relevantly dishonest or fraudulent. 968 In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 the Privy Council discussed the concept of "dishonesty": "Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts (see, for instance, Reg v Ghosh [1982) QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances . This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated . Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety . However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particularly circumstances. The standard of what constitutes honest conduct is not subjective . Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour. In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless. However, in the situations now under consideration the position is not always so straightforward. This can best be illustrated by considering one particular area: the taking of risks." 969 In East End Real Estate Pty Limited t/as City Living v C E Heath Casualty & General Insurance Ltd (1992) 7 ANZ Ins Cas 61-151 Rolfe J considered dishonesty and breach of duty in the context of real estate agents and their clients. His Honour said: "What constitutes dishonesty has been considered in two decisions to which I have been referred, namely Crowe v Wheeler & Reynolds [1988] 1 Qdr 40 and Duncan Stevenson McMillan v George Israel Joseph (1987) 4 ANZ Insurance Cases 60-822. In each case the Court was dealing with clauses in substantially the same terms as that with which I am concerned and the focus has been upon the words 'dishonesty' and 'dishonest' respectively. The primary difficulty I have is drawing a distinction between conduct which constitutes a breach of duty, even a gross breach of duty and dishonesty. In McMillan Somers J said, at p 75,055 : 'The line between negligence, however gross in character, and dishonesty may sometimes be a fine one, but will usually be recognisable.' I respectfully agree with the first portion of what his Honour said, and I hope that the second portion will occur, or be seen to have occurred, in this case. 'Dishonest', in my opinion, generally connotes a degree of moral turpitude or delinquency, which transcends such a breach of duty . In each of the authorities to which I have referred there was conduct which could be characterised in that way and, accordingly, in each decision it was found that there had been dishonesty. ' discreditable as being at variance with straightforward or honourable dealing, underhand; now, fraudulent, thievish, knavish.' In the authorities to which I have referred reference is made, in particular, to the conduct not being 'straightforward' or being 'underhand'. To that, for present purposes, I would add that the conduct, may be dishonest if it is discreditable as being at variance with honourable dealing . That places it in a professional or quasi-professional context." 970 In McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 the High Court considered the conduct of a solicitor who, motivated by a desire for a secret commission, invested a large sum of his client's money which was lost when it was stolen by a third party. Gleeson CJ said (at 587-588): "Mr Powles did not intend that the Nauru Trust should lose the $US8.55 million. But he paid it away, in breach of his fiduciary responsibilities, without proper (or any) security, knowing there was a risk of its loss, and impelled by his own need for money. He preferred his personal interests to those of his client. He permitted his urgent need to make a secret commission to prevail over his duty to protect his client's funds. The Court of Appeal was right to find that his conduct in relation to the entire $US8.7 million was obviously dishonest and probably fraudulent." (emphasis added) 971 Gaudron J said (at 596): " Dishonesty is an ordinary concept, not a term of art. It is, on that account, difficult to define in any comprehensive manner. However, dishonesty is a matter to be determined by reference to the mental state of the person whose conduct is in issue. It was pointed out in Peters v The Queen that 'in most cases where honesty is in issue, the real question is whether an act was done with knowledge or belief of some specific thing or with some specific intent.' That statement was concerned with positive acts, not with omissions. Leaving aside the situation in which there is an honest claim of right, the question whether a failure to act is dishonest is usually answered by considering whether that failure was motivated by a desire to conceal the truth or to obtain an advantage to which the person concerned knew he or she was not entitled." 972 Commenting upon the quality of the solicitor's actions her Honour said (at 597): "Moreover, the failure of Mr Powles to inform the Nauru Trust as to his knowledge of Linpar and of the pbi market and, also, of the unsuccessful attempt to purchase a pbi for it in the period prior to 15 January 1992 was a dishonest omission. That is because, as a solicitor, Mr Powles must have known that it was his duty to disclose those matters. And, on the facts found at first instance, it can only be concluded that he deliberately concealed those matters so that he could earn secret commissions from the involvement of the Nauru Trust in the pbi market." 973 In HG & R Nominees Pty Ltd v Fara [1997] 2 VR 368 at 421 J D Phillips J took the view that dishonesty referred to conscious and deliberate conduct. The same view was taken by the Court of Appeal in Comino v Manettas (1993) 7 ANZ Ins Cas 61-162. See also Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503 at 506 per Allen J. 974 In the present case I have no doubt the conduct of Porter was dishonest. He encouraged and participated in the decision to acquire the Clifford shares in circumstances where he was motivated by his desire to secure his job. He failed to tell the other persons present at the meeting of the advice he had received from Peter Hall about the capacity and integrity of Loiterton and the financial viability of Clifford. His substantial motivation was to secure a personal benefit which, although disclosed to some of those present, required him to at least disclose it to all who were present and abstain from participating in the decision making process. Instead he chose to pursue the investment and advocate to others that this was in the interests of OAMPS. 975 These findings are sufficient to establish that Exclusion 7 will operate to exclude Porter's claim against Gordian. Although Gordian made detailed submissions in relation to ss 232, 232A and 1309 of the Corporations Law having regard to the findings which I have made it is not necessary to consider those matters further. PART XXI – ATTACK ON THE GOOD FAITH OF GORDIAN 976 Porter pleads that Gordian acted in bad faith towards him with the consequence that it is not entitled to rely on any of the exclusions pleaded, and Porter is entitled to damages for the failure to act in good faith. 977 It is pleaded that Gordian improperly obtained various documents through misrepresentations, and used those documents to defend the claim by Porter and that this is in breach of an agreement reached at a meeting on 7 March 2001. 978 Hartnell was the solicitor acting for Porter at the relevant time. He was called by Porter and cross-examined. Background 979 By March 2001 GIO was considering whether to meet Porter's claim and in particular whether to advance defence costs. Mr McLure, a solicitor of Minter Ellison, had been seconded to GIO and was involved in dealing with Porter's case. 980 At the time Allen Allen & Hemsley, solicitors, were acting for GIO. A meeting was arranged between Mr Katekar of Allens, McLure and Hartnell on 7 March 2001 so that Hartnell could assist GIO in understanding the relevant facts. 981 When the meeting took place McLure introduced himself as being from the GIO and as the "responsible manager for this claim". He did not disclose that he was on secondment from Minter Ellison. 982 Hartnell gave evidence, which I accept, that he said to the meeting: "Our participation in this meeting is on the terms of our correspondence and subject to you agreeing to genuinely and fairly consider the claim by Mr Porter. We are providing this extensive material on the basis you are the insurer and there is a common interest legal professional privilege. Matters of evidence in regard to Mr Adler and his solicitor, Michael Hughes of Minter Ellison are contained in the files are particularly sensitive as to the position of Minter Ellison. These are very important matters that will be raised in the trial. I cannot presently think of any document in this category, but any documents in respect of which 'common interest' privilege cannot be claimed are not intended to be given and, on that basis, you have agreed to return privilege documents without copying them. Katekar or McLure: We are agreeable to those terms." 983 Porter later learned that McLure was a lawyer from Minter Ellison. He became concerned about that fact because Minter Ellison was apparently acting for Adler in matters involving Porter. 984 Gordian submitted that there can be no suggestion that McLure breached the confidence entrusted in him or that the documents which were examined were used other than for the purpose of considering Porter's claim. 985 In summary the evidence of Hartnell was that: (a) He understood that GIO was considering whether to grant indemnity, deny indemnity, or continue to reserve its position. (b) GIO would take copies of the documents and return the originals. (c) He accepted and understood that Porter had an obligation to provide reasonable assistance to GIO in making its investigations, and that this obligation was as set out in clause 3.4 of the policy. (d) The assurance which Hartnell received at the meeting was no more than the duty which was imposed on GIO at law. (e) He did not impose a term as to GIO returning the copied documents. (f) He understood that if GIO denied indemnity, GIO would be able to use the copy documents as a basis for defending their denial in any subsequent proceedings. (g) He expected that GIO would use the documents to continue to reserve its position, and he told Porter of this. (h) Annexure D to Hartnell's statement accurately reflected what was agreed on 7 March 2001, save that there was an overriding obligation to use the documents so as to fairly look at the claim. (i) The only concern Hartnell had about Minter Ellison was to ensure that the documents did not get into the hands of Michael Hughes or anyone working with him at Minter Ellison, because Hughes was the solicitor acting for Rodney Adler. (j) When he learnt that McLure had been on secondment to GIO from Minter Ellison, he assured Porter that Minter Ellison would act properly and professionally to protect Porter's rights in the documents. (k) He has not learnt of any matter since to suggest that his understanding of Minter Ellison's propriety was wrong. (l) When he later learned that Minter Ellison were now handling the matter for GIO, he did not write to them requesting that he be able to retrieve the copied documents. Indeed, when Porter tried to instruct him to seek a return of the documents he told him, in a conversation containing expletives, that the copy documents should be left with Minter Ellison for them to fairly consider his claim. 986 Porter's counsel submitted: "Mr McLure misled Mr Hartnell by not telling him that he worked for Minter Ellison… The material that was not to be seen, that was given on an undertaking that it would not be used for such a purpose, that was obtained by plain deception and obtained and used in breach of an undertaking given by an officer of the Court , was then sought to be tendered by Mr Gleeson, who was [sic] not accused of any knowledge or complicity in these events, and has been sought to be used in other ways, including in various contested applications. The hand up brief material was used by the GIO three days later to refuse the application for interim funding and was relied upon for that purpose. The purported ground for refusing the interim funding was false . . . The pretext for the refusal had been obtained from the illicitly obtained and used materials, themselves the subject of embargo from Bryson J because of criminal proceedings pending. The decision to refuse interim funding was not in good faith and the consent was unreasonably withheld , (a) because they delayed 11 months without notifying refusal, (b) represented in the meantime that funding would be granted, (c) in effect stole material they had no right to see, intending to use it for a purpose altogether different to what they undertook to use it for, (d) the reason they gave for refusing interim funding was wholly wrong ." 987 The evidence of Hartnell makes plain that the documents were not obtained by a misrepresentation and were not improperly used. 988 It was further submitted by Gordian that the claim is not maintainable because each of the documents referred to in that paragraph was discovered by the plaintiff in the proceedings. This is disputed by Porter but in the circumstances it is not necessary for me to resolve the dispute. Questions of privilege and the circumstances of the production of particular documents are in issue. Orders of Bryson J 989 Gordian further submitted that the claim as pleaded in paragraph 123(a) and (b) of the Third Amended Reply misrepresents the true position. The order made by Bryson J, referred to in paragraph 123(a), excused ASIC from producing documents on the grounds of public interest immunity. It is submitted that this could not, and did not, prevent Gordian from using documents which had been made available to it by the plaintiff on two separate occasions: once when provided by Hartnell, and once when discovered. In relation to documents provided in this manner the submission is correct. 990 It is further submitted that the matter referred to in paragraph 123(b) is a reference to observations of Judge Jones in the criminal trial. Whatever be the effect of this observation, it is irrelevant to the use by Gordian of materials provided and discovered to it by the plaintiff. For the same reason that the documents were either provided or discovered by the plaintiff the submission is correct. 991 As I am satisfied from the evidence of Hartnell that there was no breach by GIO of its good faith obligation when it obtained Hartnell's material, the allegation in paragraphs 124 and 125 of the third amended reply fail. Varied Date 992 Porter also pleads a separate cause of action. It is said that, "to the extent that anything happened between 15 September to 29 September 1998 which GIO now seeks to rely on in support of the assertion that it is entitled to avoid the policy for non-disclosure, such reliance is a breach of the duty of good faith having regard to the circumstances in which the "date for inception"" was purportedly varied on 27 October 1998. 993 The pleading has some difficulties. I have already found that the new D & O policy was to commence from 29 September 1998. The hold cover on 8 September did not relate to the D & O cover. No D & O cover had been agreed on 25 August. The date for inception of the D & O Policy was not varied on 27 October 1998. 994 Porter has no cause of action based on anything which occurred on 27 October 1998. Misuse of Documents 995 Porter pleads a series of allegations alleging further misuse of the documents provided by Porter on 7 March 2001. Although the pleading is unclear, there appears to be an additional claim that Gordian made the decision to refuse interim funding in bad faith. 996 I have already considered and rejected any claim in relation to the misuse of documents. With respect to the decision to refuse interim funding, in my opinion the defences raised by Gordian in the present proceedings are well founded. I do not believe it was a breach of any obligation of good faith to refuse indemnity. 997 It was pleaded that Gordian failed to properly assess the plaintiff's claim. No evidence has been placed before me detailing that process. Although the matter was pleaded the allegation is not supported by any evidence. 998 It was also pleaded that Gordian acted in bad faith and unreasonably withheld its consent to Porter's application for advance defence costs. However, there is no evidence which supports this allegation and accordingly that claim fails. 999 It is further submitted by Gordian that the allegation fails to have proper regard to the terms of clause 9 of the policy. Clause 9 contains pre-conditions to the advancement of defence costs, which include (clause 9(ii)): "The written consent of GIO is obtained prior to the Insured incurring such Defence Costs (such consent not to be unreasonably withheld)." 1000 It was submitted by Gordian that Porter has not pleaded a relevant request for consent to the incurring of defence costs, nor pleaded that it was reasonably refused. I do not believe this is correct, although the pleadings are not entirely clear. Porter was told by GIO to "act as a prudent uninsured". The matter was obviously complex and difficult and it is not surprising that GIO took time to consider its position. Porter has not demonstrated that the delay which occurred was such as to justify a finding that GIO acted in bad faith. 1001 Porter also pleads that Gordian has failed to act in good faith because it cancelled the policy without reference to the plaintiff, "although it was a continuing Policy expressed to expire on 15 September 2001, and notwithstanding that it knew that the plaintiff had made a claim under the said policy in respect of the costs which he was incurring in defending the claim brought by OAMPS". 1002 As Gordian points out the policy is a claims made policy. Under Insuring Clauses A and B, insurance is provided for: "All Loss arising from any Claim first made against an Insured during the Period of Insurance and notified to GIO during the Period of Insurance by reason of any Wrongful Act…" 1003 The pleading refers to the claim under the policy "in respect of the costs which [Porter] was incurring in defending the claim brought by OAMPS" (i.e. the civil defence costs). The plaintiff's claim for the civil defence costs was made whilst the policy was on foot and prior to its cancellation. 1004 It follows that there cannot be a failure to act in good faith to cancel the policy in these circumstances. 1005 This further ground fails. 1006 It was suggested by Gordian that it is difficult to see, in any event, how the cancellation of the policy could amount to a failure to act in good faith. Clause 7 of the policy provides that the Organisation (i.e. OAMPS) may cancel the policy at any time by notifying GIO in writing. OAMPS did this on 18 October 1999, with effect from 1 November 1999. Gordian was obliged, pursuant to clause 7, to cancel the policy at the request of OAMPS. 1007 The possibility that OAMPS may require Gordian to cancel the policy was clearly an aspect of this particular policy. Accordingly, it was submitted that the cancellation of the policy, at the request of OAMPS, and in accordance with the terms of the policy, cannot amount to a failure to act in good faith towards Porter. 1008 Although I may be inclined to accept this submission the matter has not been fully argued. Accordingly, it being unnecessary, it is preferable that I do not decide the matter. PART XXII – PORTER SUES BASED ON CANCELLATION OF THE POLICY 1009 Porter claims against OAMPS in contract and tort for cancellation of the GIO policy on 1 November 1999. The damages claimed are said to be measured by his costs of defending the Criminal Proceedings and consequential losses. 1010 On 1 November 1999 OAMPS cancelled the GIO policy and replaced it with a policy in identical terms for two years with other insurers. The Contingent Nature of the Claim 1011 During the hearing, the plaintiff was granted leave to make this claim contingently upon the plaintiff failing against Gordian by reason of Exclusion 10(iv) and the fact that no claim was notified before the policy was cancelled. 1012 As I have found that the claim by Porter under the policy fails because Exclusion clause 10(iv) operates and no relevant claim was notified before the policy was cancelled, this contingent claim must be considered. The Causes of Action 1013 In summary, Porter pleads in relation to this claim that :- (a) there was a breach of an implied term of an indemnity agreement between OAMPS and its directors (including the plaintiff) that at all times OAMPS would act in " good faith " towards the plaintiff. The indemnity agreement is said to be constituted by the so-called " Bardie Russell " resolution passed by the Board in 1997; and (b) the cancellation was a tort because there was an intention by OAMPS (through Lamont, Austin and Cowden) in cancelling the policy to injure the plaintiff by denying him indemnity against the costs and expenses of defending himself against the Clifford share allegations; the cancellation was an unlawful interference with the plaintiff's rights as an insured under the existing GIO policy; and OAMPS in cancelling the policy used unlawful means to injure the plaintiff. 1014 The "Bardie Russell" resolution was in the following terms:- "It was resolved that the indemnification and access to record rights (contained in a deed) granted to Mr Bardie Russell shall be afforded to all current and future directors" 1015 It is pleaded that the indemnification granted to Bardie Russell in the deed included the following term: "OAMPS agrees that following the director's retirement from office it will use its best endeavours to maintain a directors and officers insurance with a reputable insurer in at least as nearly as possible the same as that which was in place immediately prior to the director's retirement from office and agrees to ensure that such a policy will provide cover for the director even though he is retired. When effecting the insurance OAMPS will pay the premium when due and use its best endeavours to ensure the policy will not be cancelled through any action or omission that OAMPS may do or omit to do ..." OAMPS' Submissions 1016 OAMPS submitted that the contractual claim must fail because the Bardie Russell 1997 resolution did not constitute a contract between Porter and OAMPS. There was no agreement between them and no promise by OAMPS supported by consideration moving from Porter: Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 192, 201, 220. 1017 The Bardie Russell deed as pleaded only operated in the event of a director's "retirement" from office. As Porter was removed, and did not retire, the claim must fail. 1018 It was also submitted that, assuming there was a contract, there was no breach of any implied obligation of good faith. 1019 In Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 186 ALR 289 at [40] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ; [155] per Callinan J, the majority declined to decide the issue of the existence of an implied contractual obligation of good faith. Kirby J indicated that he did not think such an obligation sat well with caveat emptor, but also declined to explore the question further: [86]-[88]. However the NSW Court of Appeal has held that a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract: see Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 369B, Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187. So too has the Federal Court in Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151. 1020 There is no uniformally agreed definition of "good faith" in this contractual context. In the three cases to which reference has been made, the Court cited with approval the suggestion of Sir Anthony Mason that "good faith" embraces three notions:- (a) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself); (b) compliance with honest standards of conduct; and (c) compliance with standards of conduct which are reasonable having regard to the interests of the parties. (see Mason "Contract, Good Faith and Equitable Standards in Fair Dealing" (2000) 116 LQR 66). 1021 Barrett J in Overlook v Foxtel (2002) ATPR (Digest) 46-219, (2002) Aust Contracts Rep 90-143 stated:- "It must be accepted that the party subject to the obligation is not required to subordinate the party's own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become) ... 'nugatory, worthless or, perhaps, seriously undermined' ... The implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary ... The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms" 1022 See generally Peden, "The Meaning of Contractual 'Good Faith'" (2002) 22 Aust Bar Rev 235; and Peden, Good Faith in the Performance of Contracts (2003, Butterworths). 1023 Assuming there was a contract and an implied contractual obligation to act in good faith, OAMPS submitted that there was no breach of the obligation. Austin was unaware of the Bardie Russell resolution or deed before the policy was replaced. It was passed before he joined the board. Austin's evidence was that the economic reasons for replacing the policy were to save money and to retrieve commissions which Burdis had received unbeknown to the previous board. Austin assumed that Porter as an ex-director would be protected under the new policy. Porter's Submissions 1024 The plaintiff submitted that there was no good commercial reason for the cancellation of the policy. However, a written calculation made by OAMPS prior to the cancellation indicated that a costs savings of over $30,000 was expected. This was calculated on a gross basis i.e. a rebate of premiums, brokerage and stamp duty for the unexpired almost two year portion of the GIO policy. As it happened the rebates actually received from the underwriters were substantially less than expected. The consequence was that the new policy cost approximately $29,000 more than if the cancellation had not occurred. This was because although the primary underwriter GIO rebated on a gross basis, the secondary underwriters Lloyds & Lippo rebated on a net basis meaning that they did not refund the brokerage and stamp duty for the unexpired term of the policy. If Lloyds & Lippo had rebated on a gross basis - as GIO did - the savings that would have been achieved would have exceeded $50,000. 1025 I accept Porter's submissions that, as Burdis said, a rebate of brokerage upon cancellation of a policy is neither market practice nor a legal requirement. However, I am satisfied the calculation of savings was done with a genuine expectation that brokerage would be rebated, as indeed it was from GIO. I am satisfied that savings of over $30,000 were genuinely calculated and anticipated by OAMPS when considering replacement of the policy. Templeton's File Note 1026 The plaintiff relied on a file note of Templeton of GIO relating to his meeting with Austin and Wyner on 17 September 1999. The file note stated: "As disclosed when we met at their offices the purpose of the meeting:- OAMPS wished to cancel and re-write existing PI Policy which is a 3 year deal but subject to Annual Review which allows premium terms to be modified subject to certain criteria such as Staff numbers increasing, Asset/Revenue Growth and Claims Experience as recorded in our files. It would appear 'deal' should remain on current agreed terms following the Annual Review. However due to internal disputes within the OAMPS Group between current and former Directors the abovementioned Directors Austin and Wyner would like to cancel and re-write their own PI Policy. Their reasoning is to retrieve the commissions paid to the appointed Brokers Swire Blanch as following their own request to Swire Blanch regarding disclosures of Commission arrangements it appears that 50% of the amounts recorded were rebated directly to D Burdis a former OAMPS' Director. They would like to recover the commissions paid to Swire Blanch and D Burdis if possible because they do not believe the deal should have been done on this basis" 1027 OAMPS submitted that the file note evidenced that Austin and Wyner genuinely considered that the recovery of commissions from Swire Blanch was a valid reason to replace the policy with a new policy. 1028 The plaintiff's senior counsel submitted that since the file note recorded the cancellation as being "due to internal disputes … between current and former directors", the cancellation of the GIO policy was motivated by the dispute with Porter and done with intent to injure him. In cross-examination Austin disputed that the cancellation of the policy was due to the internal disputes mentioned in the file note. OAMPS subsequently called Templeton as a witness. He referred to his file note and stated: "That meeting occurred at OAMPS' office in Melbourne. Nothing was said at the meeting about Mr Porter or any dispute with Mr Porter, nor did I intend when drafting the file note to refer or allude to Mr Porter or any dispute with Mr Porter. The 'internal disputes' to which I intended to refer in the file note was a matter of the view of the current directors, as I understood it, that the deal should not have been done on the basis that 50% of the commission paid to Swire Blanch was paid to Mr D Burdis (whom I understood to have been a former director)" 1029 In cross-examination Templeton said that there was no mention at all of Porter's name. The statements made to him were to the effect that OAMPS was dissatisfied with Burdis and wanted to retrieve some of the commission. Spranger's Evidence 1030 The plaintiff argued that bad faith in cancelling the GIO policy in November 1999 is evidenced by a letter of 27 January 1999 from Sprangers on behalf of OAMPS to Fletcher of GIO stating: "Mr Porter does not enjoy any indemnities, other than a possible protection under the Directors & Officers insurance. My interpretation of the policy wordings is quite clearly that under Exclusion No. 13, the Directors and Officers are not protected against loss arising out of any claim brought by or on behalf of the organisation (OAMPS). No doubt you will understand that we are not prepared to entertain any claims under this policy which are not strictly according to the protection of this policy, as this could have a detrimental impact on our renewal terms at next renewal" 1031 The plaintiff further submitted that: "It was eventually established before this Court, contrary to the false denials given by Austin that the Board of OAMPS had instructed Sprangers to write to GIO so as to starve Porter of funds to pay for his legal defence. Sprangers gave evidence that at about the time this letter was sent, either Lamont or Austin, said to him words to the following effect: "We must do everything we can to make sure that Porter does not get any funding for his defence costs from the Directors & Officers Insurance Policy". 1032 Austin gave the following evidence:- "Q. What would you say to the allegation that Mr Sprangers was told by the Board, particularly Mr Lamont, to write this letter? A. I don't know if there is an allegation. I don't know if Mr Lamont asked him to write the letter" 1033 Sprangers' evidence was given after all OAMPS' witnesses had been called and cross-examined. On the express basis that no Browne v Dunn point would be taken, Sprangers was not cross-examined. 1034 Austin said that prior to replacing the policy, he was unaware of the Bardie Russell 1997 resolution or deed. He denied that Lamont expressed hatred of Porter, that he heard him giving instructions to staff and officers of OAMPS in 1998 or 1999 to take steps that would injure Porter, or, that Porter was to be deprived of rights under the insurance policy so as to deprive him of funds to defend the Civil Proceedings. The Claim Fails 1035 As I have indicated, Porter's claim against Gordian's fails for reasons other than the cancellation of the policy. However, I am satisfied that the decision to cancel the policy and seek a new one was based upon a bona fide belief that savings could be made on the policy premium and a belief that Burdis was receiving a benefit to which he was not entitled. Although the saving in premium was not in fact achieved, I accept that the Board genuinely believed that it could be. 1036 The file note made by Templeton reflects this view. I accept his explanation of the reference to the internal dispute. It is consistent with his comment that the existing directors wish to "re-write their own PI Policy", followed by the reference to retrieving commissions paid to Swire Blanch. 1037 With respect to the "Bardie Russell" resolution, in my opinion the plaintiff's claim fails. It did not provide a contract between Porter and OAMPS. The resolution was made to provide for retired directors, not those who were removed as Porter was. In any event, a replacement policy was effected which was intended to continue the insurance which had previously been in force. Whether Porter could recover under the new policy, as OAMPS suggests, is not a matter which I could determine, but it would seem unlikely. 1038 It is likely that Lamont, and possibly other OAMPS directors, were concerned to ensure that Porter would be denied recovery under the GIO policy. However, irrespective of any characterisation of that behaviour it was not, in my opinion, any part of the motivation for the cancellation of the GIO policy. PART XXIII - DAMAGES Damages 1039 The plaintiff claims damages under a number of headings. Significant amounts are claimed for legal expenses in relation to both the civil and criminal trials. Substantial claims are also made for consequential loss said to arise from the forced sale of valuable items of property to raise money to meet legal bills. 1040 The amounts claimed by Porter are not accepted by the defendants. Discussions took place during the trial in an attempt to reach an agreement in relation to quantum but this could not be achieved. As a consequence the parties tendered various documents and helpful submissions were made. 1041 I had intended to resolve the matter of quantum in these reasons in the event that my decision in relation to matters of liability is altered by any appeal. However, I have come to the view that the evidence tendered and the submissions made are not adequate for me to fairly determine these matters. I mean no criticism of the parties or their representatives - the exigencies of the trial made this inevitable. 1042 I have no doubt that if Porter had succeeded before me on matters of liability he would be entitled to a verdict for a money sum. Because of the present state of the evidence, if it had been necessary to determine matters of quantum, I would have invited the parties to address me on whether that matter should have been referred to a Master for consideration. My tentative view is that this would be the appropriate course. PART XXIV - CONCLUSION 1043 Accordingly, Porter's claim fails and the summons should be dismissed. OAMPS succeeds in its cross claim and is entitled to a verdict against Porter. 1044 The parties are to bring in short minutes of order in accordance with these reasons. 1045 Costs may be argued. Last Modified: 08/27/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.