Reported Decision : 58 ACSR 298 New South Wales Supreme Court CITATION : ASIC v Vines [2006] NSWSC 760 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 24, 27 March 2006 JUDGMENT DATE : 2 August 2006 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : See under heading "Conclusions" CATCHWORDS : CORPORATIONS - statutory duties of executive officers of corporations - contraventions by all defendants of statutory duty of care - contraventions by one defendant of statutory duty of honesty - civil penalty provisions - form of declarations of contraventions - disqualification orders - whether defendants fit and proper persons to manage a corporation - whether contraventions serious - pecuniary penalty orders - compensation order - causation LEGISLATION CITED : Corporations Law, ss 232(2), 232(4), 1317EA, 1317HA ACCC v Francis (2004) 142 FCR 1 ASC v Donovan (1998) 28 ACSR 583 ASIC v Loiterton (2004) 50 ACSR 693 ASIC v Rich (2004) 50 ACSR 500 ASIC v Vines [2005] NSWSC 1349 ASIC v Vines [2005] NSWSC 738; (2005) 55 ACSR 617 ASIC v Vizard (2005) 54 ACSR 394 Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 Eva v Southern Motors Box Hill Pty Ltd (1977) 30 FLR 213 Forge v ASIC (2004) 52 ACSR 1 Forge v ASIC [2004] NSWCA 448; (2004) 52 ACSR 1 CASES CITED : Mill v R (1988) 166 CLR 59 One.Tel Ltd (in liq) v Rich (2005) 190 FLR 443 Plymin v ASIC (2004) 10 VR 369 Postiglione v The Queen (1997) 189 CLR 295 Re HIH Insurance; ASIC v Adler (2002) 42 ACSR 80 Re One.Tel Ltd (in liq); ASIC v Rich (2003) 44 ACSR 682 Re Tasmanian Spastics Association (1997) 23 ACSR 743 Rich v ASIC (2003) 183 FLR 361 Rich v ASIC (2004) 183 FLR 361 Rich v ASIC (2004) 220 CLR 129 Rural Press Ltd v ACCC (2003) 216 CLR 53 Warramunda Village Inc v Pryde (2001) 105 FCR 437 Australian Securities and Investments Commission (P) PARTIES : Geoffrey William Vines (D1) Francis Timothy Robertson (D2) Timothy John Henry Fox (D3) FILE NUMBER(S) : SC 3138/01 S D Robb QC with R Beech-Jones & E A Collins (P) COUNSEL : B Oslington QC with A S Bell (D1) D L Williams SC with M Fisher (D2) J W J Stevenson SC with L P Menzies (D3) Georgina Hayden, Solicitor for Australian Securities and Investments Commission (P) SOLICITORS : Sparke Helmore (D1) Henry Davis York (D2) Gadens (D3) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J WEDNESDAY 2 AUGUST 2006 3138/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V GEOFFREY WILLIAM VINES & 2 ORS JUDGMENT 1 HIS HONOUR: In my judgment published on 22 August 2005 (ASIC v Vines [2005] NSWSC 738; (2005) 55 ACSR 617), which I shall call "my August judgment", I found that each of the three defendants, Mr Vines, Mr Robertson and Mr Fox, had contravened the statutory duty of care found, at the relevant time, in s 232(4) of the Corporations Law. I also found that Mr Fox had contravened the statutory duty of honesty then found in s 232(2) of the Law. 2 After a further hearing directed towards the contentions of Mr Vines and Mr Robertson that they should have the benefit of the "honesty defence" then contained in ss 1317JA and 1318 of the Law, I delivered another judgment on 23 December 2005 (ASIC v Vines [2005] NSWSC 1349), which I shall call "my December judgment", in which I held that they should not be relieved from liability under either of those provisions. 3 The next and final stage of the proceedings was to conduct a hearing on penalties, in accordance with the procedures set down by the Court of Appeal in Forge v ASIC [2004] NSWCA 448; (2004) 52 ACSR 1. That hearing took place on 24 and 27 March 2006. No oral evidence was heard, but affidavits were read and extensive written and oral submissions were made on matters of fact and law. These are my reasons for judgment on penalties. Statutory provisions 4 The contraventions occurred in the second half of 1998 when the Corporations Law was in force but the amendments to statutory directors' duties made by the Corporate Law Economic Reform Program Act 1999 (Cth) ("the CLERP Act") had not been made. At that time s 232(2) and s 232(4) were civil penalty provisions, for the purposes of Part 9.4B, by virtue of ss 232(6B) and 1317DA. A person who contravened either of those provisions was not guilty of an offence, unless the contravention was knowing, intentional or reckless, and either dishonest and intending to gain an advantage, or intending to deceive or defraud (s 1317FA). But a contravention of either provision gave rise to the consequences set out in Part 9.4B. 5 Those consequences were prescribed by s 1317EA, which said: "(1) This section applies if the Court is satisfied that a person has contravened a civil penalty provision, whether or not the contravention also constitutes an offence because of section 1317FA. (2) The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified corporation, but need not so declare if such a declaration is already in force under Division 4. (3) The Court may also make against the person either or both of the following orders in relation to the corporation: (a) an order prohibiting the person, for such period as is specified in the order, from managing a corporation; (b) an order that the person pay the Commonwealth a pecuniary penalty of an amount so specified that does not exceed 2,000 penalty units. (4) The Court is not to make an order under paragraph (3)(a) if it is satisfied that, despite the contravention, the person is a fit and proper person to manage a corporation. (5) The Court is not to make an order under paragraph (3)(b) unless it is satisfied that the contravention is a serious one. (6) The Court is not to make an order under paragraph (3)(b) if it is satisfied that an Australian court has ordered the person to pay damages in the nature of punitive damages because of the act or omission constituting the contravention. (7) Section 91A defines what, for the purposes of this section, constitutes managing a corporation." 6 In s 9 of the Law, "civil penalty order" was defined to mean a declaration or order made under s 1317EA. Part 9.4B imposed no restrictions on the making of civil penalty orders in this case, other than the restrictions contained in s 1317EA. Since ASIC did not contend that the contraventions in this case have given rise to offences, and no relevant criminal proceedings have been taken, the restrictions on the making of such orders imposed by Division 4 of Part 9.4B have not been attracted. 7 Section 1317HA(1) was as follows: "Where, on an application for a civil penalty order against a person in relation to a contravention, the Court is satisfied that: (a) the person committed the contravention; and (b) the corporation in relation to which the contravention was committed has suffered loss or damage as a result of the act or omission constituting the contravention; the Court may (whether or not it makes an order under subsection 1317EA(3)) order the person to pay to the corporation compensation of such amount as the court specifies." 8 The effect of subsequent changes to statutory company law was dealt with in my August judgment at [1033]-[1034]. To summarise, the CLERP Act of 1999 replaced ss 232(2) and (4) with other provisions and substituted a new Part 9.4B, but the operation of the former provisions in respect of contraventions occurring before 13 March 2000 was preserved by s 1473(1) of the 1999 Act. Although the Corporations Law was wholly repealed by the Corporations Act 2001 (Cth), the substance of ss 232(2) and (4) and Part 9.4B, in the form in which they stood in the second half of 1998, was "carried over" into the Corporations Act by ss 1400 and 1401, as regards the liabilities and obligations of the defendants in respect of the events of the second half of 1998. In effect, the provisions now applicable to the defendants are provisions of the Corporations Act modified to correspond with the relevant provisions of the Corporations Law in force in 1998. In this judgment, as an my August judgment, I shall for convenience refer to the old Corporations Law provisions, as in force in 1998, as if they were directly applicable, without making expressly the qualification that arises from this analysis. 9 It is worth bearing in mind, when considering other cases, not only that the 1999 amendments changed the content of the statutory duty of care and replaced the statutory duty of honesty with a duty of good faith, but also that the 1999 Act altered Part 9.4B in important respects. In particular, s 1317EA(4) was removed (see now s 206C(1)(b) and (2)). 10 For reasons given in my August judgment, I am satisfied that each of the three defendants has contravened a civil penalty provision, namely s 232(4), and that Mr Fox has contravened another civil penalty provision, namely s 232(2). Therefore, by virtue of s 1317EA(1), s 1317EA applies. 11 The effect of s 1317EA(2) is that the court is now under a statutory duty to declare, in respect of each defendant, that the defendant has by specified acts or omissions contravened s 232(4) in relation to a specified corporation or corporations in the GIO Group, and that Mr Fox has by specified acts or omissions contravened s 232(2) in relation to such a corporation or corporations. The only remaining issues about the declarations of contravention, discussed below, relate to drafting and in particular, the extent of specificity that is required. 12 Subsection 1317EA(3) authorises the court to make, against each defendant: (a) an order prohibiting that defendant, for the period specified in the order, from managing a corporation; (b) an order for payment of a pecuniary penalty of up to $200,000. The word "may" in subsection (3) makes it clear that the court has a discretion to make or decline to make orders of either kind. However, the discretion is only available to be exercised if the case falls outside the limitations on the court's power contained in subsections (4), (5) and (6). 13 An order under s 1317EA(3)(a) prevents the defendant, during the specified period, from being a director or promoter of a local corporation (that is, a corporation formed in Australia), or from being in any way (whether directly or indirectly) concerned, or from taking part, in the management of the corporation (s 91A(2)). In the case of a corporation that is not a local corporation, there is a similar restriction but it is generally confined to such conduct in "this jurisdiction" (effectively, Australia). In my August judgment, at [1037]-[1056], I explored the concept of "management" and the meaning of "concerned, or takes part, in", for the purposes of the statutory definition of "executive officer", as it stood in 1998. The cases to which I referred demonstrate the breadth of these concepts. The same concepts are employed in s 91A, and I infer that they have the same meaning. Therefore orders under s 1317EA(3)(a), to which I shall refer as "disqualification orders", impose a very substantial restriction on the business activities of the person subject to the order. ASIC seeks a disqualification order against each defendant. 14 Subsection 1317EA(4) imposes an important qualification on the court's power to make a disqualification order. It requires the court to consider whether, despite the contravention, the defendant is a "fit and proper person to manage a corporation", and the court is not to make a disqualification order if it is "satisfied" that the defendant is fit and proper for that purpose. Once again, "manage a corporation" has the meaning given by s 91A. Importantly for present purposes, the concept is directed to the question whether the defendant is a fit and proper person to manage "a corporation". The application of the statutory language is difficult, because of the very wide range of activities conducted in corporate form. A corporation may be a private shelf company, a private investment company, a corner grocery business, a charitable body, a cashbox, a mining explorer without any present business revenue, an established middle-sized manufacturing business, the parent entity in a massive international group of businesses, and so on, through infinite possibilities. Which of these kinds of activities are encompassed by the expression "manage a corporation"? 15 In my opinion, the words "manage a corporation" refer to the management of corporations generally, not the particular corporation in respect of which the offence occurred, nor any particular subgroup of corporate business activities. It is directed to the overall suitability of the defendant to continue to engage in business management activities in the corporate sphere, encompassing both listed public corporations and unlisted corporate entities. Consequently, a defendant may be a fit and proper person to manage a corporation although the court has concluded that the defendant: · is not a fit and proper person to continue to manage the corporation in respect of which contraventions occurred, for reasons limited to that particular corporation and not applicable more widely (for example, reasons to do with a bad personal relationship between the defendant and the chief executive of the corporation); · is not a fit and proper person to manage any corporations pursuing a particular line of lines of business, for reasons to do with lack of expertise in those businesses. 16 However, in my view a conclusion that a defendant has demonstrated some deficiency or inadequacy with respect to a particular corporation or a particular subset of corporations may be a sufficient reason for the court to be satisfied that the defendant is not a fit and proper person to manage corporations generally. The question will be whether the deficiency or inadequacy relates to the defendant's overall suitability to engage in business management activities in the corporate sphere. For example, a finding that a defendant occupying an executive position persistently failed to inform the board of directors of information that the board needed in order to perform its duties might raise a question about that defendant's appreciation of the function of the board of directors of a corporation or willingness to play his or her part in effective corporate governance. Depending on the circumstances, that may be a sufficient basis for the court to conclude that the person was not a fit and proper person to "manage a corporation", even though the deficiency or inadequacy would be relevant to management of certain kinds of corporations (for example, a private investment company of which the person concerned was both sole shareholder and sole director). 17 In my opinion, a finding of deficiency or inadequacy with respect to the operations of a listed public company, of a kind suggesting failure to appreciate or unwillingness to contribute to aspects of corporate governance that are peculiar to listed companies (for example, the continuous disclosure obligation under companies legislation and listing rules) by also mean that the defendant is not a fit and proper person to "manage a corporation", even though the matter concerned has no relevance except for listed corporations. In such a case, a basis for the conclusion that the defendant is not fit and proper to manage any listed corporation is enough to prevent the court from being satisfied that the defendant is fit and proper to manage corporations generally. 18 ASIC also seeks a pecuniary penalty orders against each of the three defendants under s 1317EA(3)(b). The court is not to make such an order unless it is satisfied that "the contravention is a serious one" (s 1317EA(5)). There is another restriction on the court's power, in s 1317EA(6), but it is not applicable on the facts of the present case. 19 In ASIC v Vizard (2005) 54 ACSR 394 at 401 ([25]), Finkelstein J remarked, in passing, that in the case before him, "penalties must be imposed for the contraventions were in the words of the statute 'serious'". The proposition that if the contravention is serious the court must impose penalties would be inconsistent with other authorities, which indicate that the court has a discretion as to whether a pecuniary penalty order should be made (for example, Re One.Tel Ltd (in liq); ASIC v Rich (2003) 44 ACSR 682). Moreover, as senior counsel for Mr Robertson submitted, the language of s 1317EA(5) of the Corporations Law is expressed in terms of a pre-requisite for the making of the order rather than a duty to make it. Perhaps his Honour's point was that if the contravention is found to be serious, the court's discretionary decision will normally be to make a pecuniary penalty order. I intend to proceed on the basis that under s 1317EA(3)(b), the court has a discretion to make or decline to make a pecuniary penalty order when it is satisfied that the contravention is serious. 20 Thus, s 1317EA presents the following issues for determination: (1) the proper form of the declarations of contravention; (2) whether the court is satisfied, in the case of each defendant, that he is a fit and proper person to manage a corporation; (3) if not, whether, in the exercise of its discretion, the court should make a disqualification order in respect of each defendant, and if so, the period of disqualification; (4) whether the court is satisfied, in the case of each contravention by each defendant, that the contravention is a serious one; (5) if so, whether, in the exercise of its discretion, the court should make a pecuniary penalty order against each defendant, and if so, the amount of the pecuniary penalty. 21 ASIC seeks a compensation order against Mr Fox, but not against the other two defendants. The amount sought is $489,069, plus interest from 3 June 1999. I am satisfied, for the reasons given in my August judgment, that Mr Fox has contravened civil penalty provisions in the way that I identified in that judgment. ASIC has applied for civil penalty orders (a disqualification order and a pecuniary penalty order) in relation to those contraventions. Therefore the court's power to make a compensation order under s 1317HA(1) arises if the court is satisfied, in respect of any such contravention, that the corporation in relation to which the contravention was committed has suffered loss or damage as a result of the act or omission constituting the contravention. If so, the subsection gives the court a discretion, whether or not it makes a civil penalty order, to order that compensation be paid, of such amount as the order specifies. 22 Section 1317HA(1) therefore raises the following additional issues: (6) whether the court is satisfied, in relation to any of Mr Fox's contraventions, that the corporation in relation to which the contravention was committed has suffered loss or damage as a result of be contravening conduct or omission; (7) if so, whether the court should order Mr Fox to pay compensation to that corporation, and if so, the amount of compensation to be ordered. 23 While it is convenient to set out separately the considerations relevant to ASIC's applications for disqualification orders, pecuniary penalty orders and (in the case of Mr Fox) a compensation order, it is important to bear in mind that decisions concerning an order of one kind have a potential impact on the exercise of the court's discretion with respect to orders of another kind. For example, as will be explained, the making of a disqualification order needs to be taken into account when deciding whether to make a pecuniary penalty order. Effectively, the decisions need to be taken together in the realisation that each kind of order is a factor influencing the discretion to make another order. This is not dissimilar to what Santow J described as the "totality" principle, namely that "where a penalty is being imposed for a number of offences, it is necessary to ensure that the penalties in aggregate are just and appropriate" (Adler at [128] to [134], citing Mill v R (1988) 166 CLR 59 at 63). The form of the declarations of contravention 24 All of the defendants accepted the court should now make declarations of contravention in respect of its findings. In the case of Mr Vines, acceptance of that proposition was expressed to be subject to any decision by the High Court of Australia in the appeal in ASIC v Forge. The appeal was heard on 7 and 8 February 2006 (see [2006] HCA Trans 22 and 25) and judgment is reserved. In light of the constitutional challenge in that case, senior counsel for Mr Vines formally submitted that the transitional provisions of the Corporations Act 2001 (Cth) are invalid and that any liability Mr Vines may have had under the Corporations Law ceased to exist when the state law was repealed, and no corresponding liability was created under the Commonwealth law. On the present state of the law I reject Mr Vines' formal submission. 25 Senior counsel for Mr Robertson submitted, extending the reasoning in the dissenting judgment of McColl JA in Rich v ASIC (2003) 183 FLR 361 at 426, and citing the decision of Bergin J in One.Tel Ltd (in liq) v Rich (2005) 190 FLR 443 at [35], that a declaration of contravention made under s 1317EA is at least in part intended to operate in a penal manner. I do not find it necessary to decide whether that is so as a matter of law. There is ample evidence before me that the findings of contravention in my August judgment have had a very detrimental effect on each of the defendants. Consequently the making of declarations of contravention confirming those findings will perpetuate that effect. The significance of the point is that the court must consider whether, in addition to declarations, ASIC has made out a case for the other relief that it seeks against the defendants. 26 ASIC's proposed draft declarations conform closely to my summary of contraventions, given in the December judgment with respect to Mr Vines and Mr Robertson (at [82]). Senior counsel for Mr Vines criticised the proposed first declaration, on the ground that it omitted an important aspect of the summary in a manner that significantly distorted the summary. My summary said that Mr Vines had failed to inform the DDC that the achievement of the $80 million profit forecast was improbable, "given the unavailability of the American Re agreement, unless the unders and overs analysis that had been considered at the PwC meeting and the estimate of Hurricane Georges liability made by Mr Fox, were correct". The quoted words are missing from the draft declaration. But the quoted words are a statement of the context in which the contravention occurred rather than a qualification of the contravention. They are explanatory material. If explanatory material were to be included, the orders would come to approximate the length of the August judgment. In my view there is no distortion in ASIC's proposed first declaration. 27 Senior counsel for Mr Vines drew attention to my observations in my December judgment (at [82]), about the danger of attempting to summarise detailed factual findings of the kind made in my August judgment. He submitted that it was not appropriate for the court to make declarations by way of an attempted summary of the contraventions. He relied on Warramunda Village Inc v Pryde (2001) 105 FCR 437 at 440, where the Full Federal Court said that "the remedy of a declaration is not an appropriate way of recording in a summary form conclusions reached by the court in reasons for judgment". Mr Vines' submission was that the preferred form of declaration would simply be that "the First Defendant contravened s 232(4) in the manner set out in the court's reasons for judgment in ASIC v Vines [2005] NSWSC 738". He said that the court's reasons for judgment are freely available and the best and fairest approach is to give the reader of the declaration a reference, in the court's orders, to the document where the full and accurate statement of the contraventions is to be found, rather than adopting a necessarily imperfect summary. In oral submissions, senior counsel for Mr Vines suggested a modification, by which the orders would referred not only to the judgment but also to the paragraphs of the judgment which explain or describe the contravention that has been found to exist. 28 The Warramunda Village case was not a case about declarations of contravention under civil penalty provisions. It was a case about the Federal Court's general power to make binding declarations of rights. The trial judge's declarations did not declare the rights of the parties, but merely resolved a point along the way to ascertaining their rights, giving no determination from which an appeal could be brought. The case has subsequently attracted some controversy (see ACCC v Francis (2004) 142 FCR 1 at [95]-[96]), although as Gray J remarked in the Francis case (at [97]), "it is hard to see that a declaration that a person, by engaging in certain conduct, has contravened a provision of a statute can amount to a declaration of rights". The problem in those cases is quite different from the problem facing the court in the present case. 29 Under the civil penalty provisions of the Corporations Law, when the court is satisfied that a person has contravened a civil penalty provision, it is required by s 1317EA(2) to declare that the person has "by a specified act or omission, contravened the provision in relation to a specified corporation". The subsection requires the declaration to identify the specified act or omission and the specified corporation, and to declare a contravention by the specified act or omission in relation to the specified corporation. A declaration of contravention in the form propounded in Mr Vines' written submissions would not identify any specified act or omission (or even any specified corporation in relation to the contravention, given that there is more than one relevant corporation), and it would not identify a contravention of contraventions by a specified act or omission. A declaration in such a general and uninformative terms might be objectionable per se (see Rural Press Ltd v ACCC (2003) 216 CLR 53 at [89]-[90]), and at least it would fail to comply with the statutory requirement. The modification proposed on behalf of Mr Vines in oral submissions would go too far the other way, because in many cases the paragraphs of my August judgment containing findings of contravention also contain expressions of reasons for my conclusions. What is necessary is for the declaration to set out the matters prescribed by subsection (2), without drifting into an explanation of the reasons for the finding of contravention. That appears to be the practice of this court, as indicated by such recent cases as ASIC v Loiterton (2004) 50 ACSR 693 (where the text of various declarations of contravention, made at an earlier hearing, is set out in the judgment). In my view ASIC's approach to the drafting of the declarations in this case conforms to the court's practice and more importantly, complies generally with the statutory requirement. 30 Senior counsel for Mr Vines criticised ASIC's draft declarations on the ground that a reader of the bed declarations would not be able to assess the importance or lack of importance of the matters to which they refer. But as I understand the requirements of s 1317EA(2), the declarations are not intended to provide a full explanation of the circumstances surrounding the contraventions but merely a statement of the specified acts or omissions constituting the contraventions in relation to the specified corporation. I agree with the submission that, in it cases such as the present one, attempting to specify the ingredients of contravening the acts or omissions in a manner that is succinct, accurate and misleading is a task fraught with difficulty, but that is the task that the legislation requires to be performed. 31 I have reviewed ASIC's draft declarations by reference to my reasons for decision in the August and December judgments. My view is that in the draft is adequate and I am prepared to make declarations in accordance with it, subject to resolving some matters with respect to Mr Robertson, upon which alternative formulations were presented. Senior counsel for ASIC informed me in submissions that ASIC's intention is to remove the footnote references to the judgments from the draft before the orders are made. 32 Senior counsel for Mr Robertson proposed some amendments to ASIC's draft declarations are affecting him. I was handed a marked up version of the draft and counsel for ASIC gave me his comments. I have reviewed the proposed changes and considered those comments. My decisions are: · the amendments to draft paras 1 and 11 should be made; · subparas (i)-(iii) of paras 5 and 15 should be made but the final 5 lines of the drafts of those paras should be restored; · the amendments to paras 6 and 16 should not be made; · the amendments to paras 10 and 20 should not be made. 33 My reason is that the drafts that I have preferred identify, more clearly and accurately than the alternatives, the specified acts or omissions that constitute the contraventions that I have found against Mr Robertson. Disqualification orders - principles 34 In Re HIH Insurance; ASIC v Adler (2002) 42 ACSR 80, Santow J (as his Honour then was) reviewed the case law with respect to disqualification orders, observing (at [56]) that the courts had made disqualification orders ranging from life disqualification to three years. He continued ((2002) 42 ACSR 80 at 97-99): "The propositions that may be derived from these cases include: (i) Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards: ASIC v Hutchings (2001) 38 ACSR 387 at 395; ASIC v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; ASC v Forem-Freeway Enterprises (1999) 30 ACSR 339 at 349-350; ASC v Donovan (1998) 28 ACSR 583 at 602; ASC v Roussi (1999) 32 ACSR 568 at 570-571; Re Strikers Management Pty Ltd; ASC v Dimitri (Burchett J, Federal Court of Australia, 7 May 1997, unreported); Re Tasmanian Spastics Association; ASC v Nolan (1996) 23 ACSR 743 at 751. (ii) The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and an the suitability of directors to hold office: ASC v Roussi (supra) at 570; Re Gold Coast Holdings Pty Ltd; ASIC v Papatto (2000) 35 ACSR 107 at 112. (iii) Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors: ASC v Roussi at 570; Re Gold Coast Holdings Pty Ltd (supra) at 112; Re Tasmanian Spastics Association (supra) at 751. (iv) The banning order is protective against present and future misuse of the corporate structure: ASC v Donovan (supra) at 603. (v) The order has a motive of personal deterrence, though it is not punitive: Re Magna Alloys & Research Pty Ltd (1975) ? ACLR 203 at 205; ASIC v Pegasus Leverage Options Group Pty Ltd (supra); ASC v Donovan at 607; Re Tasmanian Spastics Association at 751. (vi) The objects of general deterrence are also sought to be achieved: ASC v Donovan at 602. (vii) In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company: ASC v Donovan at 607. (viii) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty: ASC v Donovan at 605-607. (ix) In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public: ASIC v Pegasus Leveraged Options Group Pty Ltd ; ASIC v Parkes (2001) 38 ACSR 355 at 386; ASC v Forem-Freeway Enterprises ; ASC v Roussi at 570-571. (x) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct: ASC v Donovan at 607; ASIC v Parkes (supra) at 386. (xi) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming: ASC v Forem-Freeway Enterprises at 351. (xii) The eight criteria to govern the exercise of the court's powers of disqualification set out in Commissioner for Corporate Affairs v Ekamper (1987) 12 ACLR 519 have been influential. It was held that in making such an order it is necessary to assess: · Character of the offenders; · Nature of the breaches; · Structure of the companies and the nature of their business; · Interests of shareholders, creditors and employees; · Risk to others from the continuation of offenders as company directors; · Honesty and competence of offenders; · Hardship to offenders and their personal and commercial interests; and · Offenders' appreciation that future breaches could result in future proceedings; ASC v Roussi at 570-571; Re Gold Coast Holdings Pty Ltd at 111. (xiii) Factors which led to the imposition of the longest periods of disqualification (that is disqualifications of 25 years or more) were: · Large financial losses; · High propensity that defendants may engage in similar activities or conduct; · Activities undertaken in fields in which there was potential to do great financial damage such as in management and financial consultancy; · Lack of contrition or remorse; · Disregard for law and compliance with corporate regulations; · Dishonesty and intent to defraud; and · Previous convictions and contraventions for similar activities; ASIC v Hutchings ; ASIC v Pegasus Leveraged Options Group Pty Ltd ; ASIC v Parkes . (xiv) In cases in which the period of disqualification ranged from 7 years to 12 years, the factors evident and which led to the conclusion that these cases were serious though not 'worst cases', included: · Serious incompetence and irresponsibility; · Substantial loss; · Defendants had engaged in deliberate courses of conduct to enrich themselves at others' expense, but with lesser degrees of dishonesty; · Continued, knowing and wilful contraventions of the law and disregard for legal obligations; and · Lack of contrition or acceptance of responsibility, but as against that, the prospect that the individual may reform; ASC v Forem-Freeway Enterprises ; ASC v Donovan ; ASC v Roussi ; Re Strikers Management Pty Ltd ; Re Gold Coast Holdings Pty Ltd . The difficulty with Roussi's case is that disqualification for 10 years was ordered, as this was the period of disqualification that the ASC had sought. Had a longer period been applied for, Einfeld J may have considered giving a longer period: ASC v Roussi at 571. (xv) The factors leading to the shortest disqualifications, that is disqualifications for up to 3 years, were: · Although the defendants had personally gained from the conduct, they had endeavoured to repay or partially repay the amount misappropriated; · The defendants had no immediate or discernible future intention to hold a position as manager of a company; and · In Donovan's case, the respondent had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings; ASC v Donovan ; Re Tasmanian Spastics Association ." 35 Santow J's 15 propositions must now be reconsidered in light of Rich v ASIC (2004) 220 CLR 129. The High Court's decision, that proceedings in which an application is made for a disqualification order are proceedings for the imposition of a penalty, for the purposes of the privilege against exposure to a penalty, has very little effect on the propositions. It directly affects only proposition (v), to the extent that a disqualification order should now be regarded as involving the imposition of a penalty. 36 The majority judges in the High Court did not directly consider the principles to be applied by the court when considering whether to make a disqualification order, and if so, the period of disqualification. However, McHugh J considered that topic at some length. His general thesis, expounded at [41], was that although judges frequently said that the purpose of the disqualification provisions is protective, what they did in practice was little different from what judges do in determining what orders or penalty should be made for offences against the criminal law. 37 His Honour enumerated some factors that the courts take into account, in what he referred to as a "synthesis from which the judges make a value judgment concerning whether to order disqualification and, if so, the period of disqualification that should be imposed" (at [43]): · whether the defendant now is or in future will be a fit and proper person to manage corporations; · the size of any losses suffered by the corporation, its creditors and consumers; · legislative objectives of personal and general deterrence; · contrition on the part of the defendant; · the gravity of the misconduct; · the defendant's previous good character; · prejudice to the defendant's business interests; · personal hardship; and · the willingness of the defendant to render assistance to statutory authorities and administrators. 38 He referred to Santow J's 15 propositions with approval, and set them out (at [49]). He remarked (at [50]) that some of the propositions go to the protection of the public, while others relate to considerations that reduce the period of disqualification and therefore benefit the defendant, and still others (such as propositions (v) and (vi)) recognise that the disqualification provisions also have objectives of personal and general deterrence, strongly resembling sentencing principles under the criminal law. 39 He found in Santow J's list of propositions (and also in the comments of the Victorian Court of Appeal in Plymin v ASIC (2004) 10 VR 369) "indications that the factors taken into account in the criminal jurisdiction - retribution, deterrence, reformation, contrition and the protection of the public - are also central to determining whether an order for disqualification should be made under the Corporations Act and, if so, the appropriate period of disqualification", concluding that the jurisdiction cannot properly be characterised as "purely protective" (at [52]). He drew attention to the special importance of retribution, which, he said, is "as much a factor as protection of the public". This was indicated, according to his Honour, by decisions to the effect that the larger the loss, the longer the period of disqualification that is justified; and decisions placing emphasis on personal benefits obtained by the defendants from their wrongdoing (at [56] to [57]). 40 In his written submissions, senior counsel for Mr Vines sought to distinguish the observations of McHugh J about retribution, on the ground that his Honour was speaking of a later version of the disqualification power, in s 206C of the Corporations Law. The submission was that the earlier jurisdiction to disqualify a person from managing a corporation was purely protective, without any punitive dimension, because the court was prohibited from making a disqualification order if it was satisfied that the defendant was a fit and proper person to manage a corporation (citing Re Tasmanian Spastics Association (1997) 23 ACSR 743 at 751, per Merkel J; and ASC v Donovan (1998) 28 ACSR 583 at 602, per Cooper J). In my opinion, while McHugh J's judgment referred to a later version of the disqualification power, the difference in the statutory provisions does not serve to distinguish his Honour's reasoning. The opinion of the majority judges in the High Court, including McHugh J, was that a disqualification order is necessarily punitive, for the purposes of the privilege against exposure to a penalty. That reasoning applies equally to the civil penalty provisions in force in 1998 and the amended provisions that came into force in March 2000. As McHugh J pointed out (at [42]), in a purely protective regime the only issue for the court would be whether the defendant was or would in future be a fit and proper person to manage corporations. But s 1317EA(4) does not make the defendant's suitability the sole criterion. 41 Retribution, as a factor influencing the exercise of the court's discretion with respect to an application for a disqualification order, was considered by Finkelstein J in ASIC v Vizard (2005) 54 ACSR 394. He said (at [33]): "While retribution is important as a stamp of society's disapproval of particular conduct, the governing principle of 'sentencing' in cases of the kind with which we are concerned is general deterrence. The sentence must be exemplary and sufficient so that members of the business community are put on notice if they break the trust which has been reposed in them they will receive a proper punishment." 42 Later he added (at [40]): "Formal retribution is a necessary element in imposing a proper punishment because it ensures the punishment is just and appropriate to the circumstances. Formal retribution takes into account the moral culpability of the offender, having regard to his motive for wrongdoing, his intentional risk-taking, the harm (if any) that has been caused by the offence, and the standard the offender's behaviour." 43 ASIC referred in submissions to other cases decided after Santow J's decision in Adler, on the ground that while other decisions as to penalties should not be applied by factual analogy, they may be used as a guide (Adler at [70]). I have considered those cases: Re One.Tel Ltd (in liq); ASIC v Rich (2003] 44 ACSR 682 (with respect to Mr Keeling); ASIC v Loiterton (2004) 50 ACSR 693; ASIC v Vizard (supra) and ASIC v Rich (2004) 50 ACSR 500 (with respect to Mr Greaves). I have not found them to be of any direct assistance, because of differences in the factual circumstances and the nature of the contraventions. 44 Plymin v ASIC (2004) 10 VR 369 provides some useful guidance at the level of principle. There the trial judge held that the managing director, who had contravened the insolvent trading provisions of the Corporations Law, should be disqualified for 10 years. He found that the defendant was not a fit and proper person to manage a corporation, and said that the protection of the public is the paramount objective. The Court of Appeal reduced the period of disqualification to 7 years. Their Honours acknowledged (at [145]) that deterrence, specific and general, and protection of the public are strong factors to be taken into account. But they decided to reduce the disqualification period having regard to some "mitigating factors" (such as the managing director's unblemished record, his remorse, the assistance he had rendered to the administrators, and the prospect of rehabilitation. It was also relevant that a number of the factors listed by Santow J in his proposition (xiv), for disqualifications ranging from 7 to 12 years, were not present. Additionally, they were influenced by the discrepancy between the disqualification period for the managing director and the periods fixed for other defendants. 45 The last point has particular resonance here. There must be a persuasive rationale for any differences in the disqualification periods for each of the defendants. This reflects the sentencing principle of parity in the criminal law, according to which there should not be a marked disparity between sentences imposed on co-offenders such as would give rise to a justifiable sense of grievance: Postiglione v The Queen (1997) 189 CLR 295; see Adler at [131]. 46 Senior counsel for Mr Vines submitted that some guidance could be obtained by considering Santow J's findings in respect of Mr Fodera. I have considered that submission and his Honour's judgment. The facts are so different that I do not find the decision and reasoning in relation to Mr Fodera to have any useful application to the present case, except for the indication (at [174]) that it is relevant, taking into account the protective purpose of the disqualification provisions, to consider whether it is likely that the defendant will in future fail to appreciate the importance of the matter in respect of which contraventions have occurred. Pecuniary penalty orders - principles 47 In the Adler case, Santow J reviewed earlier decisions dealing with the discretion to impose a pecuniary penalty, summarising the relevant principles as follows (at [126]): "(i) the pecuniary penalty has a punitive character, but it is principally a personal and general deterrent to prevent the corporate structure from being used in a manner contrary to commercial standards. The penalty should be no greater than is necessary to achieve this object: ASC v Donovan at 608; (ii) to determine whether compensation is to be paid and in what amount it is necessary to consider the prospect of the respondent paying such compensation and the hardship to the defendant from such payment. Compensation has been ordered for an amount less than that lost even though there was little prospect of any of it being recovered: ASC v Forem-Freeway at 351; (iii) the capacity of the defendant to pay is a relevant consideration in determining a pecuniary penalty: ASC v Forem-Freeway at 351-2; (iv) in assessing a pecuniary penalty it is important to consider the consequences of an associated disqualification order for the defendant. If the making of such an order has significant consequences, they may operate as a factor in favour of a lesser penalty. Where the disqualification order does not have significant consequences for the defendant, the prohibition order is likely to be only marginally relevant: Re Tasmanian Spastics Association at 751-2; (v) it is important to assess whether the order will prejudice the rehabilitation of the defendant: ASC v Forem-Freeway at 352; (vi) the size of the penalty is a question of discretion. The circumstances of one case should not dictate the size of the penalty in another case: ASC v Donovan at 608; (vii) in ASC v Forem-Freeway civil compensation of $200,000 was ordered. This amount was lower than the losses to the company concerned. This amount was ordered, even though it was highly unlikely that the amount would ever be paid as the respondent was bankrupt. In this case it was held that precision in the amount was therefore unnecessary: ASC v Forem-Freeway at 351; (viii) a fine was not ordered in ASC v Forem-Freeway . However the ASC was given the liberty to apply at a later stage in relation to this matter. The court held that the personal hardship to the respondent, the unintended punitive consequences of the other orders and the lack of capacity to pay, justified such order: ASC v Forem-Freeway at 351-2; (ix) factors leading to the order of a penalty in the range of $20,000-$40,000 included: · the defendant was aware of impropriety of actions; · no intention to deprive company permanently of funds; · amount in question is not large; · no deliberate falsification of accounts; · case classified as being serious misconduct, but not worst case; Re Tasmanian Spastic Association at 752; ASC v Donovan at 609; (x) relevant factors leading the court to order the lower range penalties in the range of $4,000-$5,000 included: · remorse and contrition shown; · efforts to repay misappropriated funds; · acted upon the advice of professionals; · did not contest the proceedings, sought to save costs in proceedings; · tended not to involve dishonesty, but negligence or carelessness; · previously unblemished character; · further contraventions unlikely; ASC v Donovan at 609; ASC v Spencer (1997) 25 ACSR 143 at 144-5." 48 There are some indications in the case law that pecuniary penalty orders are to be resorted to only if the court concludes that a disqualification order will not do justice. In Rich v ASIC, at [45], McHugh J quoted extensively from the first draft of the Corporate Law Reform Bill 1992 (Cth), in which it was said (at para 178): "It is expected that the courts would consider imposing a pecuniary penalty only if it [sic] considered that a civil penalty disqualification provided an inadequate or inappropriate remedy." 49 Senior counsel for Mr Robertson cited some observations of Spigelman CJ in Rich v ASIC (2004) 183 FLR 361 at 382 (reversed: Rich v ASIC (2004) 220 CLR 129), where his Honour also referred to the explanatory paper, and observed that "the imposition of a pecuniary penalty was higher in the pyramid of sanctions than an order prohibiting a person from managing a corporation". He said that hierarchy was made clear by s 1317EA(5), which permits the court to impose a pecuniary penalty only if it is satisfied that the contravention is serious. There is no similar requirement in relation to disqualification orders. 50 Counsel for ASIC contended that the pyramid of enforcement was eroded by High Court's decision in Rich, which meant that disqualification orders were not purely protective and both disqualification orders and pecuniary penalty orders are now available for deterrence and retribution. 51 I agree with ASIC's submission, in this sense. If there is a pyramid or hierarchy, it yields where there is a good reason for the court to make a pecuniary penalty order as well as a disqualification order. The explanatory paper contemplated, in the passage quoted by McHugh J in the High Court, that in appropriate circumstances the court might choose to impose both a civil penalty disqualification and a pecuniary penalty in relation to one contravention. Such orders have been made: for example, in ASC v Donovan (1998) 28 ACSR 583 a disqualification order and a pecuniary penalty order were made against each respondent. 52 The approach to be taken by the court in fixing the amount of a pecuniary penalty, once a decision has been reached to impose a penalty, was explained by Santow J in the Adler case, at [127]-[132], [140]. It is appropriate to impose a single penalty against a defendant for all of that defendant's contraventions, but if the penalty is being imposed for a number of contraventions, it is necessary to ensure that the aggregate amount is just and appropriate. Care must be taken to bring into account the differences in conduct which are the subjects of the various findings of contravention, and to avoid artificial claims of disparity between co-contraveners. Santow J said he sought to apply the totality principle in a way that would act as a personal and general deterrent without being oppressive, bringing to bear what the High Court has referred to in sentencing as an "instinctive synthesis" of relevant factors (citing Wong v R (2001) 185 ALR 233 at 252). Inevitably a degree of artificiality is involved in allocating the aggregate amount to the individual contraventions. ASIC's allegations of dishonesty and impropriety, and adverse publicity 53 It is appropriate to deal separately with this matter, because similar submissions were received from Mr Vines and Mr Robertson and it is necessary to make some findings of fact for the purpose of assessing the submissions. 54 When this proceeding began, ASIC was alleging, in addition to its claim that the defendants failed to exercise reasonable care and diligence (s 232(4)), that they made improper use of their positions in relation to the profit forecasts, and that Mr Vines and Mr Fox made improper use of their positions in relation to the American Re reinsurance contract (s 232(6)). In September 2001 ASIC amended its pleadings to include allegations that the defendants also acted dishonestly in relation to these matters (s 232(2)). The pleadings were amended again in October 2003, with the effect of abandoning the allegations of improper use of position and dishonesty, except for the allegation of dishonesty against Mr Fox. 55 Both Mr Vines and Mr Robertson made submissions referring to ASIC's initial announcement that it had commenced the proceeding. They emphasised the degree of adverse publicity their clients received at that time - in particular, adverse publicity arising out of the allegation of improper use of position. They pointed out that until 10 March 2006, ASIC's initial announcement remained on its website and no announcement was made that ASIC had withdrawn its allegations of dishonesty and propriety against them in October 2003. 56 The initial announcement was made by Media Release 01/217 on 20 June 2001. The announcement said ASIC was alleging that the respondents (identified as the three defendants) improperly used their positions and failed to exercise the duties of care and diligence required by the Corporations Law, when preparing forecasts and other relevant information for consideration by the board and the DDC. The announcement recorded ASIC's allegation that as a consequence of their failure properly to discharge their duties, information was released to shareholders that was seriously defective and misleading. It said ASIC also alleged that Mr Vines and Mr Fox made improper use of their positions as directors of GIO Insurance in respect of (in effect) the American Re agreement. 57 ASIC's announcement was widely reported in the media. The media reports conveyed the idea that there were charges of improper use of position against all defendants. 58 For example, on 21 June The Australian Financial Review referred to "improper conduct by the executives directly involved". On the same day The Sydney Morning Herald referred to ASIC's allegations that "these men" (naming the three defendants) improperly used their positions and failed to exercise the duties of care and diligence required by the Corporations Law when preparing forecasts and other relevant information for consideration by the board and due diligence committee. On the same day, a columnist in The Australian referred to ASIC's allegation, said to be that the "the trio" (who were named) improperly used their positions and failed to discharge their duty of care and diligence when preparing forecasts and other relevant information for consideration by the board and due diligence committee. 59 An article in a publication called "CFO" on 1 August 2001 grouped ASIC's complaints against the defendants with other corporate calamities, some of which had involved allegations of fraudulent conduct. Similar associations were made in an article in The Australian on 7 September 2001, headed "Knott's A-list is one to avoid". In a long article in The Weekend Australian on 4 January 2003 ("Headhunter - Inside David Knott's Trophy Cabinet") the present proceeding was noted in conjunction with discussion of cases involving allegations of insider trading and other criminal activity, with no indication of the nature of the allegations against the present defendants except that they were for breach of duty. It seems to me that if the allegations against Mr Vines and Mr Robertson were confined to failure to exercise reasonable care and diligence, with no allegation against them of dishonesty or impropriety, some differentiation would have been needed between their position and the position of others against whom charges of fraud or dishonesty had been made. 60 In some of the media coverage, an suggestion was implied that according to ASIC's case, the defendants' breaches of duty may have resulted in the reinsurance division reporting a loss for the year ended 30 June 1999 of $759 million. For example, in a program broadcast on the ABC's PM program on 20 June 2001, the presenter said the GIO urged shareholders to resist the takeover bid by the AMP, backing it up with strong profit forecasts; then asserted that by August 1999 GIO's reinsurance losses had blown out to a "shocking" $759 million; and then referred to ASIC's allegation that the three defendants played a key role in preparing the profit forecasts. 61 There were further newspaper articles during the period up to commencement of the hearing, during the hearing, and after publication of my August judgment. But none of them adverted to the fact that the pleadings had been amended to limit the case against Mr Vines and Mr Robertson to a case of breach of duty of care. 62 At the hearing on 15 and 16 December 2005 of the applications by Mr Vines and Mr Robertson for relief under ss 1317JA and 1318, senior counsel for those defendants drew attention to ASIC's website, which at that time still contained the initial announcement without any correction to say that the allegations of improper use of position were withdrawn in October 2003. That meant, as Mr Vines pointed out in his affidavit of 24 February 2006, that anyone using the "google" facility on a computer to search his name would identify the initial media release as well as a number of other reports on the initial allegations in the case. He said the "google" facility is a very public medium used extensively by companies as a source of reference for dealing with new business associates of a considering new applicants for work. 63 No adequate explanation has been given to the defendants or the court as to why ASIC brought claims based on allegations of impropriety and dishonesty and then abandoned them after two years. In their submissions Mr Vines and Mr Robertson emphasised the gravity of those charges and the scope of damage to their reputations, as well as the personal and professional distress to them involved in making and publicising the allegations. 64 Mr Vines' submissions cited Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at 867, where the Full Court of the Supreme Court of Victoria observed that if a claim is made against individuals in relation to their probity or competence, it is not hard to infer that the defendants are under a heavy burden, and added: "But where a claim extends beyond mere casual negligence to acts which reflect upon the competence or probity of a defendant, especially when that competence or probity is critical to the defendant's future livelihood, then the delay in bringing an action on for hearing will probably be held to impose severe additional prejudice on a defendant." 65 Mr Vines' submissions also referred to Eva v Southern Motors Box Hill Pty Ltd (1977) 30 FLR 213 at 222-3, where Smithers J said that in assessing appropriate punishment for a crime, the court is required to take into account a variety of associated circumstances including adverse publicity. He said: "Adverse publicity is often one of the inevitable consequences of wrongdoing and in most cases is without influence in the assessment of the appropriate penalty. "But adverse publicity initiated by the prosecuting authority itself requires special consideration. If the matter is publicised ahead of the trial, and widely, and in terms likely to induce public censure of the parties concerned and those parties are in day-to-day business relationships with the public, then there is obvious danger of injury to the lawful business of the parties which from a practical point of view may have the effect of effectuating a cumulative punishment …. In such a case an element has been injected into the situation which subjects the parties to more than the natural and probable consequences of mere publication of the fact that they are being prosecuted for named offences. In my view this is a case in which, by reason of the press release of the prosecuting authority, the danger of cumulative punishment along these lines is real and should be treated as part of the background against which the penalty should be assessed." 66 In my December judgment (at [118]-[119]) I found that the publicity with respect to allegations of impropriety that were later withdrawn was a factor relevant to the exercise of my discretion whether to grant relief under the "honesty defence", but I found that it was not a weighty matter on that issue. I expressed the view that if ASIC commences a proceeding for dishonesty or impropriety as well as negligence, and announces to the world that it has done so, and later withdraws the allegations of dishonesty and propriety, it should take scrupulous care to make a further announcement countermanding the previous one. But I decided that the primary remedy was for ASIC to correct the public record rather than for the court to use what was essentially a collateral matter as a ground for granting relief from liability for the contraventions. 67 On 10 March 2006, more than 2 1/2 months after publication of my December judgment containing these observations, ASIC published media release 06-072 on its website. The new announcement referred to and summarised the initial announcement, and then summarised the amendments to the pleadings made in September 2001 and October 2003, though without any explanation of the reasons for the amendments. The announcement noted that the court had found that the defendants breached the duty to act with reasonable care and diligence on certain occasions and that Mr Fox had breached his duty to act honestly, and that the court had subsequently rejected applications by Mr Vines and Mr Robertson for relief from liability, and would be conducting a hearing on penalties later that month. 68 I regard the announcement of 10 March 2006 as adequate to countermand the impression created by the earlier media release, but there is still no adequate explanation for the fact that ASIC did not make such an announcement in October 2003, or least well before March 2006. The observations of the courts in the Bishopsgate Insurance and Southern Motors cases need to be borne in mind by ASIC when it makes media releases of the kind made in this case in June 2001. Importantly for present purposes, a consequence is that Mr Vines and Mr Robertson have suffered avoidable prejudice over a substantial period of time, which is to be taken into account by the court in exercising its discretions with respect to disqualification orders and pecuniary penalties. Mr Vines Mr Vines' circumstances and character evidence 69 Mr Vines is 57 years of age. He has been married for 29 years and has two children, aged 25 and 23. This year he is undertaking postgraduate studies in Environmental Science at Macquarie University. His only directorships are in two proprietary companies, which are the trustees of the Vines Investment Trust and the Vines Family Trust. The trusts have passive investments and the corporate trustees do not engage in any activity other than as trustees. The discretionary beneficiaries of the trusts are members of his family. He has not provided any specific evidence of his financial circumstances. 70 As noted in paras [26]-[28] of my August judgment, Mr Vines is by profession and training a chartered accountant and auditor. He worked with Price Waterhouse from 1968 to 1995, becoming an audit partner in 1981, specialising in banking while also being auditor of GIO Australia Holdings. He was the managing partner for New South Wales during his last five years at Price Waterhouse. One of the witnesses who gave evidence in his case called him one of the "stars" of PwC. He explained in his affidavit of 24 February 2006 that in his position as managing partner, he was accountable to the Management Committee and Board of the firm for the six offices he managed (comprising 120 partners and approximately 1200 staff) to ensure compliance with the firm's quality control standards. As a member of the Price Waterhouse Australasian firm's Management Committee and Policy Board, he was involved in setting the firm's professional standards, the implementation of compliance systems and the management of actions against the firm in respect of "troublesome practice matters". For approximately four years in the late 1970s/early 1980s he was a member of the Membership Committee of the Institute of Chartered Accountants, which assessed applicants for membership and had responsibility for issues such as the qualifications and suitability of applicants. 71 Mr Vines commenced his employment with GIO in July 1995. I reviewed his responsibilities at GIO in my August judgment (at [29]-[36]). After his employment with GIO ended in 1999, he became a senior executive officer with Reinsurance Australia Corporation Ltd (ReAC, the name of which was changed to Calliden Group Ltd in February 2005). At the time of commencement of the proceeding in June 2001, he was chief executive officer of ReAC, managing the solvent run-off of the company. His initial financial investigation and subsequent monitoring of ReAC's financial progress were carried out in close association with the Australian Prudential Regulation Authority (APRA). 72 Mr Vines says he is particularly proud of his work at ReAC, which had come close to extinction and, after his intervention, had embarked on the re-establishment of the general insurance business. One of his witnesses described his role at ReAC as "pivotal" in the company's turn-around. This is of some significance to the present case because, as one of Mr Vines' witnesses pointed out, ReAC's reinsurance contracts included some contracts covering risks similar to those the subject of the present proceeding, and there were a number of similarities between the reinsurance businesses of ReAC and GIO. 73 ReAC was a listed non-life reinsurer incorporated in New South Wales, with offices abroad. It had suffered serious underwriting and financial loss in 1998 and its capital base had been depleted. Shortly after Mr Vines arrived at ReAC, very strong windstorms caused substantial damage in Europe leading to further large reinsurance losses in ReAC. Its board considered whether the company should be put into voluntary administration, but the board's decision was to stop underwriting new risks and confine itself to running off its liabilities. Mr Vines' work involved establishing a system of monthly solvency reviews in conjunction with APRA, drastically reducing staff, closing several international branches and establishing new systems and standard procedures for run-off. During his first two years as chief executive, the board or its urgent issues subcommittee found it necessary to meet approximately 75 times. Mr Vines was frequently required to seek professional advice in Australia and overseas from actuaries, solvency experts, loss adjusters and lawyers, including advice in relation to commutation of claims and complex reinsurance litigation. This work appears to have been successful. During Mr Vines' tenure as chief executive, ReAC's capital base rose from a low of $35 million to $84 million and its insurance liabilities fell from $1.3 billion to approximately $40 million. 74 Not long after the ASIC announcement of 20 June 2001, the chairman of the board of directors of ReAC, Richard Hill, was approached by APRA with the suggestion that Mr Vines should be stood down from his role as chief executive, given the seriousness of the allegations that ASIC had made against him. The board considered that suggestion and determined, unanimously, not to do so, while agreeing to keep the matter under review. Mr Vines remained as chief executive of ReAC until 30 June 2004, though in the period from August 2003 to February 2004 he significantly reduced his involvement in management activities (with reduced remuneration), with the knowledge of acquiescence of the board, to concentrate on his preparation for the hearing. 75 In February or March 2004 Mr Vines attended a further meeting with APRA, together with Mr Hill, to discuss ReAC's future. ReAC was seeking to emerge from its position in run-off and to commence writing new business. After the meeting Mr Hill told him that he thought the senior representative of APRA had been uncomfortable at the presence of Mr Vines at the meeting. Mr Vines gave evidence that he reflected on Mr Hill's comments, and concluded he could not lead the company during the next phase, when it would be seeking to obtain a new insurance licence from APRA. At a subsequent board meeting of ReAC, Mr Vines outlined the position and the board accepted his proposal that he should resign from the company effective 2 July 2004, though each board member expressed their regret at losing him as chief executive. Mr Hill told him that, depending on the outcome of the case, he would be delighted if Mr Vines were to take a position as a non-executive director of ReAC, but they agreed that he would not do so pending the decision in this proceeding. 76 Mr Vines gave evidence of approaches made to him, and applications by him, for employment after he left ReAC and before conclusion of the hearing. He had interviews but the discussions did not come to anything. He disclosed the proceeding against him, which had not been resolved, and in some cases it was agreed that potential employers would have to inform their own clients were he to be engaged by them. Mr Vines said that while the judgment was reserved, he considered it untenable to actively seek out any full-time employment, because any potential employer would reasonably wish to know the outcome of the case. 77 According to Mr Vines' evidence, the past five years should have been a time when his earning capacity was at its height. In other circumstances, following his retirement from full time employment, he would have expected to have been offered non-executive directorships, having regard to his background and qualifications. It seems to me that such an expectation would have been reasonable. Indeed, the evidence given on his behalf leads me to conclude that offers of non-executive directorships on good-quality boards would have been likely. He said he was hoping to be in a position to emulate his father, Sir William Vines, who was chairman or a non-executive director of several major public companies and governmental and charitable bodies. In fact, he has not been in regular employment since June 2004, his only employment being limited professional coaching assignments from which he earned approximately $6,000. 78 Mr Vines gave evidence that he has always sought and striven to uphold the highest standards of moral and ethical integrity in his personal and professional life. His service for the Institute of Chartered Accountants and on the Management Committee and Policy Board of Price Waterhouse provide some support for that claim. He testified to the effects of the proceeding on him and his family. He spoke of the great distress he had felt when ASIC commenced the proceeding, particularly because of the allegations of dishonesty and improper use of position, which ASIC withdrew only after two years. He said they were a serious slur on his character and severely undermined his professional reputation and standing in the business community, which had been based on 30 years of exemplary behaviour. 79 Mr Vines said that the allegations of dishonesty and impropriety had potential ramifications as to the availability of professional indemnity cover for the defence of the proceeding. He said he was well aware of the high cost of legal services and was greatly concerned that a potential consequence of the making of the allegations would be to expose him and his family to enormously burdensome financial pressure in relation to the defence of the proceeding. He said the matter was raised with him by his initial legal adviser soon after the allegations were made. I accept Mr Vines' evidence that the risk of exposure to legal costs caused him considerable distress, but I infer that ASIC's withdrawal of the allegations of dishonesty and impropriety meant that his apprehensions about lack of professional indemnity cover were unfounded. 80 Mr Vines said that apart from the distress caused by ASIC's allegations, he found the trial and the preparation for it to be highly stressful, because of the sheer volume of evidence, requiring many weeks of intense study. His health suffered and his wife was also detrimentally affected by the extended period of high stress. 81 He gave evidence that my findings of contravention in the August judgment were deeply distressing to him, because he had always sought to live up to the highest professional standards and genuinely believed, at the time of the events in question, that he had done so. He said he accepted the court's decision and added: "Were I ever to be in a similar position (which I now do not expect to be), I would unhesitatingly have regard to and seek to apply the standards in respect of which the court has held my conduct to have been deficient". 82 Evidence (including character evidence) has been given in support of Mr Vines in affidavits by the following: · David Craig, currently chief financial officer of Australand Property Group and formerly a colleague of Mr Vines at PwC; · Jack Lowenstein, executive director and deputy chairman of Hunter Hall International Ltd and a director of other companies, who had dealings with Mr Vines at ReAC because Hunter Hall was one of the largest investors in ReAC; · Robert Tobias, a partner at Philips Fox solicitors, specialising in corporate and securities regulation and compliance, who was an adviser to Mr Vines at ReAC; · Timothy Price, a partner at Phillips Fox in the insurance and risk management area, who also advised Mr Vines at ReAC; · James Williams, group executive for corporate relations and culture at MBF Australia Ltd, who was general legal counsel at ReAC when Mr Vines was employed by that company; · Donald Findlater, a senior partner in KPMG's audit practice and the audit partner at KPMG responsible for ReAC while Mr Vines was employed with that company; · Richard Wilkinson, a director of KPMG Actuaries Pty Ltd specialising in the valuation of insurance companies, who was ReAC's approved actuary; · David White, who was a senior partner with McKinsey and Co providing strategic consulting advice to GIO while Mr Vines was the chief financial officer of the GIO Group, and undertook a diagnostic review of ReAC after Mr Vines had become chief financial officer of that company; · Mark Moyes, who held various offices with ReAC including General Manager Claims and Services, while Mr Vines was employed with that company; · Richard Hill, who was chairman of ReAC while Mr Vines was employed with that company; · Leslie Phelps, a senior executive at APRA from 1998 until July 2002, who had previously worked in banking supervision for the Reserve Bank of Australia. 83 A strongly positive impression emerges from this evidence as to Mr Vines' sound character, honesty and integrity, and his high ethical and professional standards. All of the deponents adhered to their favourable views of his character notwithstanding the court's findings of contravention, and some gave evidence to the effect that they regard those findings as out of character for him. On the contrary, they stressed such things as his open and professional approach, his very good understanding of the business of reinsurance and his particular strength on the accounting aspects, his careful attention to detail, his consistency in dealing with people, his ability to ask the appropriate questions, his willingness to seek and accept legal advice, and the transparency of his management and work style. Some of them said Mr Vines is the type of person that would treat the court's findings against him very seriously and ensure that in future, in similar circumstances, all relevant information was conveyed to the board of directors. 84 Those who were involved with him at ReAC, when Mr Vines had responsibilities for keeping directors informed about complex insurance matters, mentioned the quality of the briefings and advice that he gave to the ReAC board. Mr Wilkinson said Mr Vines was "at the top end of people in his position". Mr Hill said the continuing question whether ReAC should continue to trade or be put into liquidation placed an enormous strain on Mr Vines as its chief executive, and he always handled that "with great countenance, and with very clear and considered advice to the Board". Mr Price said that many of the issues confronting ReAC were "life-threatening" and often required decisions on complex issues to be made on an urgent basis, and yet in his assessment Mr Vines was no less cautious or diligent in his approach under those pressures. Mr White said that in 1999 ReAC was facing high risk exposures that were not well understood by the management team and the board; when he was appointed Mr Vines ensured that Mr White was given all the information he needed for the purposes of his diagnostic review, to which Mr Vines contributed with particular diligence. I was particularly impressed by the observations by Mr Phelps, from the perspective of ReAC's regulator. He found Mr Vines open and forthright, he had no reason to doubt Mr Vines' honesty or integrity or to believe that relevant information was being concealed, and he was impressed by Mr Vines' diligence and hard work which were reflected, he said, in ReAC's subsequent success as a profitable company. 85 Mr Vines does not expect to be offered any directorships or similar positions because of the findings of contravention against him, and effectively he is now retired, 13 years earlier than intended. But he asks the court not to disqualify him from acting as a director or managing corporations should an opportunity present itself. He says his professional and management experience over many years put him in a position to make a valuable contribution at board level. 86 The evidence indicates that there is a non-negligible prospect that he may be offered board positions and even a position in senior management if he is not disqualified from managing corporations. Mr Craig said in his affidavit that Mr Vines would make an extraordinary company director as he possesses a rare combination of skills, and that he would have no hesitation in recommending him for senior executive roles or non-executive board positions. Mr Lowenstein expressed the opinion that because of the "stigma" of the proceeding and the findings, boards would be reluctant to appoint Mr Vines, but he expressed the view that Mr Vines could make an excellent contribution to a number of boards in a reasonable range of industries, and pointed out that the "searching examination" he had endured in this case on matters of conduct and judgment would arguably only enhance his ability to contribute. Mr Moyes, who is now an independent consultant to the insurance industry with particular emphasis on reinsurance matters, said he would not hesitate working with Mr Vines in the future and would be happy to recommend him to clients, leaving it up to the client to decide whether they would retain Mr Vines given the findings made against him. 87 On the other hand, Mr Hill gave evidence of his conversations with representatives of two executive placement firms, both of whom said that my August judgment meant that they would not put Mr Vines forward for any positions. Mr Hill expressed the view that Mr Vines will find it extremely difficult to be appointed to a senior executive or non-executive director position. He said the Court's findings have had and will continue to have an extremely punitive effect on Mr Vines' career. The court's findings against Mr Vines 88 I found that Mr Vines was chief financial officer of GIO Australia Holdings and that he had assumed a "special responsibility with respect to the integrity of the profit forecast" (August judgment, at [1128]). Although he was a director of GIO Insurance, I found that his contraventions were committed in his capacity as an executive officer of GIO Australia Holdings (August judgment, at [1129]). 89 My summary of findings in respect of Mr Vines, in my December judgment (at [82]) was as follows: (1) Before or in the course of giving his management sign-off on 8 December 1998, Mr Vines failed to ensure that the DDC was properly informed of all material aspects of the maintenance of the reinsurance profit forecast. He failed to inform the DDC that the achievement of the $80 million profit forecast was improbable, given the unavailability of the American Re agreement, unless the unders and overs analysis that had been considered at the PwC meeting and the estimate of Hurricane Georges liability made by Mr Fox, were correct (August judgment at [1167]). (2) On 8 December 1998, Mr Vines failed to draw the attention of the DDC to those parts of the draft Part B statement that implied that the reinsurance profit forecast would be achieved on the basis of assumptions that did not spell out the position known to him, and he failed to invite the DDC to consider some re-drafting in light of the matters of disclosure that he was obliged to bring to their attention (August judgment at [1168]). (3) At the DDC meeting on 8 December 1998, in circumstances where reliance on the American Re agreement was no longer possible, Mr Vines failed to ensure that the DDC was informed of all matters material to the estimate of loss from Hurricane Georges so that the committee could exercise its judgment as to the viability of the forecast and the disclosure to shareholders that should be made. Mr Vines failed to draw the DDC's attention to the fact that Mr McClintock's figures had been taken from Mr Fox's statement about management's best estimate of liability, the accuracy and reliability of which had become crucial because of the unavailability of the American Re agreement and reliance on an unders and overs analysis (August judgment at [1172]). (4) Mr Vines should not have given the kind of unqualified assurance about the Group forecast that he gave to the DDC meeting on 8 December, in circumstances where real doubts have emerged about a material component of that forecast, without making accurate and complete disclosure of all the material circumstances that had led him to believe that, on balance, the Group forecast could still be achieved and should be adopted. Given the existence of substantial doubts emerging from the unavailability of the American Re agreement and the need to rely on unders and overs, and the need for judgment to be exercised, he should have ensured that the DDC had before it the information necessary for it to make the appropriate judgment, rather than to make his own assessment and then give the DDC his conclusions without the judgmental steps in his reasoning process (August judgment at [1174]). (5) On 8 December 1998, Mr Vines failed to disclose to the DDC PwC's negative attitude to the American Re agreement, which was in terms a matter making it improbable that the profit forecast would be achieved, and he failed to disclose some other balancing matters that might have assisted the company to reach the profit forecast (August judgment at [1175]). (6) In the delicate circumstances that existed on 8 December 1998 (namely: PwC had decided not to accept the American Re agreement; the due diligence process for which Mr Vines had central responsibility was due to be finalised; Mr Vines was aware of some adverse claims movement up to the end of October and the prospect that further adverse movement may have occurred in November; an unders and overs analysis acceptable to PwC had been developed at the meeting on 7 December), Mr Vines should not have confirmed to PwC that "appropriate inquiries of other Directors and officials of GIO" had been made, in the solemn circumstances in which that confirmation was given (August judgment at [1178]-[1179]). (7) After 8 December 1998, Mr Vines failed to give directions to ensure that monitoring arrangements were continuing at the divisional level and that the results were brought forward promptly to the appropriate senior corporate officer so that an assessment could be made about further disclosure to the market (August judgment at [1184]). (8) On 9 November 1998, Mr Vines should not have given the board an unqualified assertion of management's confidence that the GIO Re profit forecast could be met. His statement to the board was incomplete and misleading, in the absence of disclosure that a problem had arisen out of management disagreement leading him to rely on the proposed retrocession agreement and his unders and overs schedule to protect the forecast (August judgment at [1234]-[1237]). (9) On 17 November 1998, Mr Vines failed to disclose to the board, before the media release of that date was approved and issued, that · the October results had been supported by the American Re agreement; · the American Re agreement had not been approved by APRA or the auditors; · it was not certain that the American Re agreement could be accounted for in a way that would protect the profit forecast and the first four months' profit; · if the American Re agreement were effective, it would follow that claims recoveries from American Re in the 1999 year would have to be repaid in premiums in later years; and · he believed that there would be sufficient redundancy in his unders and overs analysis to protect the forecast (August judgment at [1245]-[1246]). (10) Mr Vines' e-mail to the DDC dated 22 November 1998 failed to disclose that the October results assumed that the American Re agreement would qualify as reinsurance and would effectively protect the results from adverse claims movement, and failed to disclose the doubt that existed about that matter. It failed to disclose Mr Vines' belief that if the American Re agreement were ineffective, redundancies would be available to compensate for it. The e-mail of 22 November was materially misleading in those respects (August judgment at [1247]-[1252]). (11) Mr Vines should not have endorsed the GIO Re profit forecast in his report to the DDC on 22 November, by reiterating the substance of Mr Robertson's views in his 4 November memorandum, without addressing the new ultimate loss figures in the catastrophe model, which had invalidated Mr Robertson's view as to the adequacy of the $25 million reserve. The report was materially misleading in that respect (August judgment at [1254]). 90 As I made plain in my December judgment (at [83]), my findings of contravention were about misleading or inadequate disclosure to the board of directors or DDC, but I did not find that the defective disclosure was deceptive and I made findings that certain specific conduct was not undertaken with any intention to deceive (for example, August judgment at [1236]). I was satisfied, for the purposes of the statutory exoneration provision, that Mr Vines acted honestly. There was no finding that Mr Vines obtained personal gain or benefit from his contraventions, or that the contraventions were flagrant, or that he engaged in impropriety or deception or was conscious of impropriety on the part of others. 91 Paras (1)-(6) of my summary of findings relate to Mr Vines' failure to exercise reasonable care and diligence by making material disclosure to the DDC on 8 December 1998, and to PwC at that time. Para (7) relates to Mr Vines' failure to discharge his duty of care and diligence in monitoring developments at the divisional level after the DDC and board approved the Part B statement. Paras (8), (9), (10) and (11) relate to misleading or incomplete disclosure to the board on 9 and 17 November 1998 and to the DDC on 22 November 1998. Except for para (7), the problems identified by those findings relate to defective disclosure by the senior executive with direct responsibility for the Part B process to the board and board committee whose task it was to review and approve the document. I found that the defects in disclosure related to matters within Mr Vines' personal knowledge, in circumstances where the directors or the DDC were relying on him to make timely, accurate and complete disclosure of material matters (December judgment, at [87]). His conduct, in failing to disclose material information of which he was aware to bodies that were relying on him to present financial information material to their decisions on important matters relating to disclosure to investors, was unreasonable (December judgment, at [88]). As regards para (7), his failure to take appropriate steps to ensure that monitoring arrangements in respect of Hurricane Georges claims were in place after publication of the Part B statement was also unreasonable (at [88]). 92 In my December judgment, I accepted a submission that Mr Vines' contraventions painted a picture of an executive, whose responsibility was to provide the board with all the information available to him and material to their decisions concerning the Part B statement and profit forecast, and who failed to discharge that responsibility. Instead he limited the disclosure of material information to the board and its committee in a manner that deprived board members of the opportunity to make fully informed decisions on some important matters. By deciding not to give the board information certain material matters, he effectively substituted his own decisions for board decisions. 93 Under the heading " The seriousness of the contraventions", I made the following observations, to which I adhere after hearing submissions at the penalty hearing: "90 Under our system of corporate governance it is the board of directors who have the ultimate decision-making responsibility on matters of management. But they cannot discharge their responsibility unless the senior executives of the company, having responsibility to do so, lay before them all the matters material to their decision. Mr Vines' pattern of contraventions is incompatible with these principles governing the board/senior executive relationship and has the tendency to undermine the efficacy of corporate boards. The contraventions are therefore matters of real significance, not trivial matters or matters of inadvertence. "91 These general considerations of corporate governance are reinforced in the special context of defending a hostile takeover. The corporations legislation imposes heavy civil, and sometimes criminal, liability on those who provide misleading information to the public securities markets about the price or value of quoted securities. The law seeks to protect investors, and in particular target shareholders, by endeavouring to ensure that the information upon which they make their decisions is materially accurate and complete. "92 Where the vehicle for provision of information to investors is a Part B statement, the law prescribes the required content in some detail, while also demanding that the document must disclose all information material to the making of a decision by target shareholders whether or not to accept the offer, being information known to any of the directors and not previously disclosed (see, at the time relevant to these proceedings, Corporations Law, s 750, Part B, para 13). "93 The principal responsibility for ensuring that the target company complies with its statutory obligations and that the information in the Part B statement is materially accurate and complete is borne by the directors of the target. They are not expected to treat their disclosure obligation as an occasion for exercising entrepreneurial flair and risk-taking. They are expected to satisfy a standard of reasonable care and diligence that is informed by the seriousness of the disclosure obligation. Correspondingly, the executives who provide information to the board must meet a standard of reasonable care and diligence that reflects their position in the process of assisting the directors and the company to discharge their duties." ASIC's submissions, in summary 94 ASIC contended that it would be appropriate for the court to prohibit Mr Vines from managing a corporation for a period in the order of 7 to 8 years. ASIC's submission emphasised that the contraventions had been found to form a pattern of conduct involving non-disclosure at a particularly sensitive time for GIO. Having regard to Mr Vines' very senior position and the effect of the contraventions, which was to limit material information being passed to the board, his conduct was, according to ASIC, seriously irresponsible. 95 ASIC drew attention to the strong public interest in ensuring that senior executives, vested with the responsibility of conveying to the board of directors adequate information about the company's affairs, act in accordance with their obligations and are aware of the seriousness with which the court will consider a lapse. It contended that a disqualification will serve as a deterrent to others and will involve an element of retribution by way of public condemnation of his conduct. 96 For the same reasons, ASIC contended that a pecuniary penalty order should be made against Mr Vines. ASIC's submission advocated that the court should follow the approach to assessment of the penalty adopted by Santow J in the Adler case. Recognising the interaction between a disqualification order and a pecuniary penalty order (see proposition (iv) in Adler at [126]), ASIC submitted that if a period of disqualification is imposed by the court, the aggregate of the penalties imposed for the contraventions should be $100,000. Mr Vines' submissions, in summary 97 A principal submission made on behalf of Mr Vines was that the court should be satisfied that he is a fit and proper person to manage a corporation, and therefore there is no basis for the making of a disqualification order. That matter is considered below. As to the exercise of the court's discretion, if it is not so satisfied, emphasis was placed on the court's findings that Mr Vines had not acted dishonestly or improperly or with the intention to deceive, and that he did not obtain any personal gain from the contraventions. Attention was drawn to the evidence of Mr Vines' probity and competence in his work for ReAC, and to his contrition and acceptance of the court's findings, as well as to the devastating impact of the proceeding and the court's findings on his prospects of future employment. Emphasis was placed on the impact on Mr Vines of ASIC's allegations of dishonesty and improper use of position, which remained on foot for over two years, and the effect on him of ASIC's press release of June 2001 which was not countermanded until March 2006. 98 It was submitted that these last two matters mean that he had already suffered, and is likely to continue to suffer, significant punishment as a result of the proceeding and the attendant publicity, the findings of contravention and the declarations that are to be made. It was submitted that the twin policy goals of deterrence and punishment have already been satisfied. Assessing these considerations 99 Some of my findings point against the imposition of penalties, or at least large penalties: specifically my findings that Mr Vines did not act dishonestly or with impropriety, that he had no intention to deceive or consciousness of impropriety of others, and he did not receive any personal gain through his wrongful conduct. On the other hand, the contraventions include findings that he failed to discharge his duty of care and diligence by making incomplete or misleading disclosure in circumstances where the information to be disclosed was known to him. In respect of one contravention, I found that there had been a conscious decision not to disclose (see December judgment, at [98]). I found that the contraventions were not 11 separate, isolated incidents, but rather, they indicated a continuity and pattern of limited and incomplete disclosure which deprived the DDC and the board of the opportunity to make fully informed decisions on important matters. The contraventions were made the more serious because of the matters set out in paras [90]-[93] of my December judgment, relating to Mr Vines' role in GIO's system of corporate governance and in particular, his pivotal role in reporting to the DDC and the board with respect to the Part B statement and profit forecast. Putting these considerations together, without more, I would tend to the conclusion that a disqualification order and a pecuniary penalty order were both warranted, but probably in the mid-range rather than at the high or low ends. 100 There are some potentially mitigating factors that need to be taken into account. One is the expanded responsibility and work pressure to which Mr Vines was subject at the time of his contraventions. Mr Vines' workload was addressed in my August judgment, particularly at [31]-[36]. I observed (December judgment, at [103]) that he set about performing his added responsibilities "conscientiously and with some diligence" and it was he who initiated the formation of the DDC. As one of the witnesses on his behalf pointed out (Mr Craig, in para 10 of his affidavit), the professional staff working for Mr Vines was a very small group, given his workload and responsibilities. I found that Mr Vines initially had a professional staff of three, later expanded to four and then five. Mr Craig said that as chief financial officer of Australand Property Group he has about 50 finance personnel and about 30 IT personnel reporting direct to him. 101 However, as I observed in my December judgment (at [97]-[101]), extreme workload is not a sufficient general excuse for failing to discharge the duties that Mr Vines contravened, in the way that he contravened them. His contraventions were, by and large, failures to act with due care and diligence to make complete and accurate disclosure to the board or the DDC on important occasions, of material information known to him. They were not contraventions arising out of failure to undertake some additional investigations or failure to obtain some additional expert input, contraventions that might plausibly be mitigated by reference to extreme workload and pressure. However busy he was, Mr Vines made time, as he was required to do, to participate in the meeting with Price Waterhouse on 7 December, to report to the DDC on 8 December, to sign his management sign-off and letters of representation, to prepare papers for the board meetings on 9 and 17 November, and an e-mail report to the DDC on 22 November. Workload and pressure of work cannot reasonably be regarded as excuses for the kinds of incomplete or misleading statements made in those documents, given their importance and his level of knowledge. I accept that Mr Vines' extreme workload and pressure provides some limited mitigation, but they do not constitute a significant factor having regard to the nature of the contraventions and the circumstances in which they occurred. 102 Another mitigating factor is Mr Vines' contrition and acceptance of the court's judgment. Here the evidence of contrition on the part of Mr Vines, which I have described, is very strong. He has made it plain that, if given the chance to return to a management position, he would have full regard to what the court has said in its judgments against him. His own assurance is reinforced by the character evidence upon which he has relied, as previously discussed. 103 The fact that he resisted the allegations made against him at the hearing does not serve to discount his evidence of contrition. As I said in my December judgment (at [85]), Mr Vines was entitled to resist the allegations made against him and he achieved a significant degree of success. This is not a case of a defendant guilty of obvious and palpable wrongdoing who has maintained his innocence against the overwhelming weight of evidence. Rather, the contraventions I have found against Mr Vines were the product of a long and intricate process of fact-finding and the consideration of detailed submissions not of a kind that could be rejected out of hand. I therefore regard this as a substantial mitigating factor, particularly bearing upon the length of the disqualification period. 104 Another mitigating factor to which I have decided to give some weight is the impressive evidence of Mr Vines' achievements at ReAC. The delay in bringing this case to trial has meant, perhaps unusually, that evidence has become available concerning Mr Vines' activities in later executive employment. The evidence is strongly in his favour, both as to his honesty and probity and his professional competence in a reinsurance context. 105 One of the factors referred to in the cases is whether the contraventions led to large financial losses (see proposition (xiii) in Santow J's judgment in Adler). In my December judgment (at [109]-[111]) I pointed out that I had made no finding in my August judgment that the contraventions by Mr Vines did not cause any loss to the company. I found (at [112]) that it was plausibly arguable that Mr Vines' contraventions may have caused a loss suffered by the company or its shareholders, but I said (at [113]) that it was inappropriate for me to make any determination about whether Mr Vines' conduct caused such a loss, since this is not a case, in terms of pleadings, evidence or submissions, in which the plaintiff has sought to make out any such causal connection. In view of those observations, it is not appropriate to relate Mr Vines' contraventions to the losses of the company or its shareholders for the purpose of determining penalties. 106 The first question to consider, bearing in mind these competing considerations, is whether the court should make a disqualification order against Mr Vines. The case law shows that such an order may be justified by the need to protect the public from misuse of the corporate structure, and considerations of personal and general deterrence and retribution. For the reasons explained below, I am not satisfied, on the evidence before me now, that Mr Vines is a fit and proper person to manage a corporation. That being so, protection of the public and personal deterrence are relevant considerations, although their weight is lessened, in particular, by the evidence of Mr Vines' contrition and his good work at ReAC. 107 In my view general deterrence and retribution are important considerations in the present case. Mr Vines is part of the class of senior managers of major Australian public companies, executives who report to the chief executive, or some other officer of the most senior level, or direct to the board. They have very substantial power within the corporation, are under minimal day-to-day supervision, and are exposed to a great deal of pressure as well as financial incentives to contribute to the company's success. Senior executives, like executive directors, are "sensitive to risk", to use Finkelstein J's description in Vizard at [34]. Finkelstein J explained: "The few that may be tempted to gain prestige, wealth and security by illegal means can be dissuaded from that course if the risk of detection and serious punishment is too great". That is to say, the few who are subject to temptation may be influenced to resist it by the general deterrent effect of the court's orders in other cases. Finkelstein J was referring to the temptation to engage in intentional wrongdoing, but it seems to me that this reasoning applies where the risk-taking by an executive has to do with failure to exercise due care and diligence to ensure that the board or a board committee is fully and accurately informed of material information. Orders reflecting the seriousness of such failures should have a suitable deterrent effect. 108 Making a disqualification order in the case of Mr Vines will make it clear that there is a substantial prospect that serious consequences will be visited on senior executives who, by failure to act with due care and diligence, risk leaving their boards uninformed on material matters known to management. It would obviously not be appropriate to sacrifice any defendant to the perceived public interest by making orders disproportionate to the defendant's contraventions, but where the contraventions are serious, as they are in the case of Mr Vines, the objectives of general deterrence and retribution point against any substantial discounting of penalties. 109 Weighing up these considerations and also taking into account the factors in favour of Mr Vines that I have found to bear on my decision, it seems to me that a disqualification order is warranted for the protection of the public and for personal and, particularly, general deterrence and retribution. . I do not regard the making of findings and declarations of contravention, or the publicity afforded to this case and the consequent devastating effect on Mr Vines' reputation and career, as sufficient to supply the kind of general deterrent that I have described, in the absence of orders attaching specific consequences to the declarations. There should be a period of disqualification reflecting Mr Vines' pattern of failure as a senior executive to exercise due care and diligence to disclose material information to his board and a board committee. In this case, the mitigating factors that I have identified seem to me to have greater significance on the question of length of disqualification than on the issue whether to make a disqualifying order at all. 110 I turn now to the question whether I should also make a pecuniary penalty order. ASIC's case for a pecuniary penalty order is that, given the serious nature of the contraventions, the order will operate as a personal and general deterrent to prevent the corporate structure from being used in a manner contrary to commercial standards: Adler, at [126], proposition (i). I accept this submission. I have already explained my view that a disqualification order is justified by considerations including personal and general deterrence, particularly the latter. In the circumstances of the present case, my view is that the objective of general deterrence requires the combination of a disqualification order and a pecuniary penalty order. 111 Mr Vines submitted, referring to the observations of Cooper J in ASC v Donovan at 608, adopted by Santow J in Adler, that the penalty should be no greater than necessary to achieve the principal policy object of personal and general deterrence. That being so, it was submitted, there was no case for a pecuniary penalty order because the goals of personal and general deterrence are well secured without the need for any such order. I accept the former part of this submission, but I do not agree with the latter part, for the reasons I have explained. I think it is important for the court to convey by its orders its view of the nature and seriousness of the contraventions so as to achieve a deterrent effect. Although the need for personal deterrence is not pressing in the present case, because of Mr Vines' contrition, I have decided that personal deterrence should still be an objective of the orders, given there is some prospect that he might return to a senior executive position in future or be appointed to non-executive directorships. But the principal justification for a penalty order is general deterrence. 112 Mr Vines did not adduce any evidence to suggest that he would incur financial hardship in meeting any pecuniary penalty that may be ordered against him. Therefore questions about the capacity of the defendant to pay do not arise in his case. Given that the court has made adverse findings and will make declarations of contravention and a disqualification order in any event, the addition of a pecuniary penalty order is not likely to make it substantially harder for Mr Vines to be "rehabilitated" by finding board positions or other employment (see Santow J's proposition (v) in Adler). My conclusion, after balancing these considerations with the mitigating factors to which I have earlier referred, is that the case for a pecuniary penalty order against Mr Vines has been made out, subject to the consideration of discretionary factors going to the quantum of the penalty (considered below). 113 In summary, ASIC has made out its contention that the court should exercise its discretion to make a disqualification order and a pecuniary penalty order against Mr Vines. For the reasons set out below, the court is not precluded from making such orders by either s 1317EA(4) or (5). Fit and proper person 114 As indicated in my discussion of the statutory provisions, the law applicable to the events of the second half of 1998 (in substance, s 1317EA(4) of the Corporations Law) requires the court to consider whether it is satisfied that, despite the contravention, the defendant is a fit and proper person to manage a corporation. If so, the court is prohibited from making a disqualification order. If the events had occurred after the commencement of the CLERP Act of 1999, the court's discretion would have been more open. 115 In the present case there are competing considerations. On the one hand, I have found that Mr Vines' contraventions disclose a continuity and pattern involving failure to discharge his duty of care and diligence as an executive officer by incomplete or misleading disclosure of material information known to him, in circumstances made particularly serious by his role in GIO's corporate governance and the Part B process. The contraventions go to the executive officer-director relationship in a publicly listed corporation, and in the corporate structure generally (excluding only corporations so small that there is no room for non-director executives). They raise a question as to whether, at the time, Mr Vines properly appreciated the need for senior executives in his position to ensure that the board and any board committee receive the information available to management which is material to their decision. They suggest that a person in the position of Mr Vines may not be suitable to engage in business management activities in the corporate sphere. The seriousness of the contraventions and the pattern that they reveal are considerations suggesting that the court should not be satisfied that Mr Vines is a fit and proper person to manage a corporation. I do not hold that any of these matters is the case, but only that the contraventions give rise to a basis for concern. 116 On the other hand, evidence given on behalf of Mr Vines tends to the conclusion that whatever unsuitability there may have been at the time of the contraventions has subsequently been addressed. In particular, there is very strong evidence of Mr Vines' careful and effective work at ReAC. Further, there is evidence of Mr Vines' contrition, his present understanding of the court's reasoning and his willingness to abide by that reasoning in future. Together these matters might be taken to suggest that the ground for concern as to whether he is a fit and proper person, though arguably present up to the hearing, has now been removed. 117 My view is that the contraventions by Mr Vines have created a basis for concern as to his suitability to manage a corporation, relating to his suitability to engage in business management activities in the corporate sphere. Important though the evidence of his good work at ReAC and his contrition is for the assessment of the length of the disqualification period, it does not suffice to satisfy me that Mr Vines has become a fit and proper person to manage a corporation. 118 The requirement of subsection s 1317EA(4) is rather odd because, if the court reaches a positive conclusion that the defendant is inherently and permanently not a fit and proper person to manage a corporation (not, of course, the present case), the only disqualification period that would be justifiable would be a period sufficiently long to prevent the defendant from ever managing corporations again. Yet the implication from subsection 1317EA(3)(a) is that some more limited period may be considered appropriate. It seems to me that the key to understanding subsection (4), in its context, lies in the words "if it is satisfied". The legislature permits the court, in the exercise of its discretion, to make a disqualification order if the court concludes that there is evidence of good work and contrition giving rise to a degree of probability that the contraventions will not be repeated, but that the evidence is not so strong as to remove from consideration the concern that arises from the nature and pattern of the contraventions. In the present case, balancing these considerations, I am not satisfied that Mr Vines is a fit and proper person to manage a corporation. Serious contravention 119 As previously indicated, the court is not to make an order imposing a pecuniary penalty unless it is satisfied that the contravention is a serious one (s 1317EA(5)). In the present case it seems to me that Mr Vines' contraventions, individually and taken together, are serious. The contraventions other than item (7) in my summary are serious for the reasons I first gave in my December judgment at [89] and [90]-[93], which are set out above. Item (7) is serious because it also relates to the need for senior management to take care to provide the board of directors with material information necessary for them to discharge their duties. In respect of item (7), Mr Vines' duty was to take care to ensure that monitoring arrangements were operating at the divisional level so that information was identified, as it arose, that might need to be disclosed to the market, so that the parent company and its directors could discharge their obligations under the continuous disclosure requirements of the stock exchange listing rules and the Corporations Law. Quantification of orders in the case of Mr Vines 120 Having concluded that a disqualification order and a pecuniary penalty order should be made, my task is to set an appropriate period of disqualification and the amount of the pecuniary penalty. The case law shows that the court takes into account the nature and seriousness of the contraventions and the mitigating factors that have been established, by reference to considerations including protection of the public, retribution and deterrence. 121 In my view, in the circumstances of this case, the making of a disqualification order for a relatively short period will reflect the seriousness of the contraventions and considerations of protection of the public, retribution and deterrence. The evidence shows clearly that the findings of the court have already had a devastating effect on Mr Vines' future prospects. The making of any disqualification order, implying as it does that the court is not satisfied that he is a fit and proper person to manage a corporation, will add substantially to that effect. 122 Mr Vines' contraventions do not easily fall into any of the three categories of periods of disqualification identified in paras (xiii), (xiv) and (xv) of Santow J's propositions in the Adler case. It seems to me that the considerations I have set out under the heading "Assessing these considerations" point to a range of disqualification periods of 4-6 years, rather than the 7 to 8 years advocated by ASIC. Some particular considerations that lead to this range are that this is a duty of care case (though of a serious nature) rather than a case of dishonesty; that the conduct was not undertaken for personal gain; and that a long period of disqualification for a man of Mr Vines' age would effectively end his career, in circumstances where he would otherwise have some chance of employment. ASIC has submitted that the possibility that Mr Vines might be offered directorships or other senior executive positions is a ground for a longer rather than shorter disqualification period, because of the need to protect the public. But the evidence of Mr Vines' achievements at ReAC, and the favourable assessments of his work given by the witnesses who gave character evidence on his behalf, are at least a partial antidote to ASIC's contention. Taking into account, in addition, the generally favourable impression I formed of Mr Vines as a witness (August judgment, at [97]), his obviously conscientious approach to the preparation of his case, and the fact that he was successful in relation to a substantial part of the allegations against him, it seems to me the outcome should be at the low rather than the high end of that range. 123 Two other factors suggest that a further reduction is appropriate. First, it seems to me that, for reasons I have explained, I should take into account the additional distress caused by ASIC's publication of allegations against Mr Vines of improper use of position, withdrawn in September 2003, but remaining on ASIC's website until corrected in March 2006. Secondly, it is appropriate to take into account, on the question of length of disqualification period, the evidence of his achievements at ReAC, his contrition and acceptance of the court's judgment, and also the evidence that shows his previously unblemished record and contributions to ethical and professional standards in the accounting profession. 124 My conclusion, weighing up these matters, is that the appropriate period of disqualification in the case of Mr Vines is, notionally, three years. This may seem to be a "soft" outcome, given my remarks about the need for general deterrence. However, my view is that general deterrence is achieved, in this case, by the combination of a disqualification order and a pecuniary penalty order, and it is therefore appropriate to give some substantial effect to the factors operating in favour of Mr Vines, at the level of fixing the period of disqualification. 125 For reasons to do with the court's pressure of work, the need for separate hearings on the "honesty defence" and on penalties, difficulties created by an initially unrealistic estimate given to the court of the length of this case, the fact that there were three defendants each separately represented, and the sheer complexity of the case, it has taken a very long time to reach the point when orders can be made. It seems to me that at the commencement of the hearing, it would have been reasonable for each defendant to have anticipated that judgment would be given in his own case, were it heard separately, and orders would be made, by about the end of June 2004. The evidence, in the case of Mr Vines, makes it plain that his prospects of gaining any board positions or senior executive employment have been extinguished for practical purposes pending the completion of this case. Effectively, it is as if he was subject to a disqualification order from July 2004, when he left ReAC, to the present time. In those circumstances, it seems to me appropriate that the notional three-year disqualification period, to which he should be subjected, should be taken to have commenced on 1 July 2004. Thus, the remaining period of disqualification, to which my orders will relate, will be the period from today until 30 June 2007. 126 Although the remaining period of disqualification is relatively short, I regard the imposition of such a disqualification period for a person in the position of Mr Vines as a substantial penalty, given that he has in effect been subject to such a constraint for over two years. I have referred to the evidence adduced on his behalf, which shows the devastating effect that adverse findings in a case such as this has on the further career prospects of a senior executive such as Mr Vines. That effect is magnified by the making of a disqualification order. 127 It was submitted on behalf of Mr Vines that any disqualification order made against him should contain an exception permitting him to continue to manage the two proprietary companies which are trustees of family trusts, referred to in para 37 of his affidavit. Given that the disqualification order will operate only until 30 June 2007, it seems to me unnecessary to require any disruption of the management arrangements for the trusts, and therefore I shall make that exception to the disqualification order. 128 As to the amount of pecuniary penalty that should be ordered, ASIC invited the court to adopt an approach consistent with Santow J's approach in Adler, by determining the aggregate amount of the penalty and then allocating it so that it represents a penalty for each of the contraventions that have been established and which is a serious contravention. For the reasons I have given, my view is that all of the contraventions established against Mr Vines are serious, for the purposes of making civil penalty orders. 129 ASIC submitted that the aggregate of the penalties imposed for Mr Vines' contraventions should be $100,000. There is only limited guidance in the case law as to the appropriate quantum of pecuniary penalties, especially in a case where financial hardship has not been raised. Factors considered relevant in other cases and applicable here include the nature and seriousness of the contraventions and the defendant's knowledge of the matters not disclosed, the defendant's contrition and the his previously unblemished character. For the reasons I have explained, while I take the view that the pecuniary penalty should reflect the serious nature of the contraventions and operate as a personal and general deterrent, it is not appropriate to relate the amount of the penalty to any losses suffered by the company or its shareholders as a result of the contraventions. 130 Bearing in mind the approach taken by Santow J in the Adler case, I have considered whether it is appropriate, for the purpose of assessing the quantum of penalty, to group together the contraventions relating to the events of 7 and 8 December (items (1)-(6)), and then to consider separately the earlier defective disclosures to the board and DDC (items (8)-(11)) and the failure to establish proper monitoring arrangements after publication of the Part B statement (item (7)). Having carried out that exercise, I am not persuaded that there is any significant difference between each contravention and every other, of a kind that would justify differential penalties. In my view each contravention, if considered in isolation, would warrant a pecuniary penalty in the order of $10,000, given the seriousness of each of them. I see no justification for treating some contraventions as justifying a greater penalty than others, in the case of Mr Vines. When they are considered together, and one takes into account the mitigating factors to which I have referred, it is appropriate to apply a small discount, which in my view leads to the result advocated by ASIC, an overall penalty of $100,000. I regard a penalty of $100,000 as an appropriate one when the contraventions are considered as a whole. 131 Mr Vines submitted that the present case shared many of the characteristics of the range of $4,000-$5,000 described by Santow J in Adler (para (x) of the principles with respect to pecuniary penalties), such as "remorse and contrition shown" and "previous unblemished character". But some of the characteristics of that range are not present here (for example, "did not contest the proceedings, sought to save costs in proceedings"). More importantly, the submission overlooks the importance, on the question of penalty, of general deterrence having regard to my findings about the nature and seriousness of the contraventions. Mr Robertson Mr Robertson's circumstances and character evidence 132 Mr Robertson is now 65 years of age. He has not been employed in a remunerated position since he was made redundant by GIO on 31 August 1999. He resides with his wife in the Lake Macquarie area, south of Newcastle. He is not a director of any public or private corporation and has no present intention of taking up such a position. He is the secretary of a local incorporated association sponsored by Rotary, which aims to advance intellectual and cultural interests amongst retirees. He is also a Group Leader in the scouting movement, working in that capacity to meet youth needs in the local community. 133 He has provided detailed evidence of his financial circumstances. I have agreed to keep specific information about his financial position confidential, while taking the evidence into account in making my decision. It is necessary to address his financial circumstances at a general level in order to explain my reasons for decision. For a man who has held senior positions within the insurance industry, his income and circumstances are relatively modest, apart from a substantial superannuation plan. His evidence, given in February 2006, was that he would withdraw his superannuation in May 2006 when he turned 65, and invest it to produce annual income. The projected amount of income seems to me to be adequate for comfortable but not lavish everyday living for a man without dependants and otherwise in his circumstances. He has not said that his wife is a dependant, and it appears she receives income in an undisclosed amount under an allocated annuity. 134 As to the question of costs, Mr Robertson's solicitors have informed ASIC as follows: "we do not assert that, for the purposes of the penalty hearing, any potential liability for costs is a relevant matter to be taken into account in determining any other orders the court might make". That elliptical statement would be consistent with the inference that Mr Robertson's costs and any order for costs against him are covered by a D & O insurance policy. It is unnecessary for me to make any such finding, but in the circumstances I need not take into account his liability for ASIC's costs in deciding on the quantum of a pecuniary penalty. The solicitors' letter said that any pecuniary penalty would be paid by Mr Robertson personally. 135 Mr Robertson gave evidence that, before the commencement of the present proceeding, he expected to be, in his retirement, " an honoured and respected elder statesman" of the actuarial profession. He had every reason for this expectation. He had been an active member of the professional bodies of actuaries in Australia and New Zealand, had written 60 or 70 papers in various professional journals, had given lectures to insurance associations in various Asian countries, and had delivered lectures in Australian universities. He was offered consulting opportunities in China and India, but says he did not pursue them because it would be necessary to disclose ASIC's claims to the government agencies in those countries. 136 When the present proceeding began, he decided not to renew his membership of the Institute of Actuaries of Australia, and consequently, he says, he has largely lost contact with his former colleagues and with the actuarial profession generally, save for a small group of friends. He says ASIC's allegations of dishonesty and improper use of position for personal gain, which were only withdrawn shortly before the commencement of the hearing, weighed particularly heavily on him. His evidence is that the effect of the present proceeding has been to deny him any directorships, together with other opportunities, for the past two to three years and to bring his professional life to an earlier conclusion than otherwise would have been the case. 137 Two witnesses made affidavits giving character evidence on behalf of Mr Robertson. William Jocelyn, an actuary by profession, worked in the Australian insurance industry for 33 years. He was the managing director of the Government Insurance Office and subsequently GIO Australia Holdings Ltd from 1984 to 1998. He and Mr Robertson studied together to be admitted as actuaries. Mr Jocelyn has a very high regard for Mr Robertson's intelligence, and advocated Mr Robertson's appointment as his successor in the office of managing director. He said he had recruited Mr Robertson for consulting work and then as chief financial officer for the GIO Group. He said he had never been given cause to question Mr Robertson's honesty or integrity, and he regarded Mr Robertson as a reliable and diligent executive whose analysis was faultless. He said the court's findings against Mr Robertson were out of character, and have been a severe blow to the great pride that Mr Robertson took in his work and achievements. 138 Michael Eyers, a solicitor since 1971 who has held various senior executive positions in public sector bodies, was adviser to the board of the Government Insurance Office on the privatisation proposal in 1991. He then met Mr Robertson, and continued to have frequent dealings with him after the privatisation was completed. He said he has the highest regard for Mr Robertson, professionally and personally, and regards him as a man of honesty and integrity and of great intelligence. He said Mr Robertson would place greater importance on the preservation of his integrity than on the avoidance of the consequences of any action that he may have taken or failed to take. He said in his dealings with Mr Robertson, Mr Robertson had demonstrated a professional approach and there is no evidence of lack of care or diligence. The court's findings against Mr Robertson 139 In my August judgment (at [1267]-[1275]) I found that Mr Robertson was an executive officer of GIO Insurance until 5 November 1998, and in the period from 5 November to 8 December 1998 he had substantial executive responsibility in GIO Insurance notwithstanding that Mr Fox had taken over the role of executive director. He held executive responsibility with respect to the divisional profit forecast, and was therefore also an executive director of GIO Australia Holdings. 140 In my December judgment, I summarised my findings against Mr Robertson (at [122]) as follows: (1) Mr Robertson failed to make inquiries as to the level of notified claims for Hurricane Georges before he presented his memorandum dated 4 November 1998, which was a final report by which he "signed off" on his work as executive director up to the time of arrival of Mr Fox, and which had the effect of affirming the profit forecast on the basis of an historical market share loss assumption (August judgment at [1282], [1286], [1287], [1288]). (2) In signing the due diligence questionnaire and November management sign-off in Boston, Mr Robertson failed to take into account or disclose the information he had received on 5 November 1998 concerning the level of notified claims for Hurricane Georges to the end of October (August judgment at [1302], [1313]). Mr Robertson received the information at a meeting with Mr Fox and Mr Schneider on 5 November 1998, when Mr Schneider referred to figures in the Status of Registered Events Report for October (August judgment at [1304]). His statement in the answers to the due diligence questionnaire that all issues relevant to the forecast had been extensively discussed with Mr Vines, the auditors and Mr Lange was knowingly incomplete (August judgment at [1305]). He could have stated in the answers to the due diligence questionnaire that the claims notifications to the end of October have cast some doubt on the forecast to the extent that it relied on an estimate of $25 million for Hurricane Georges (August judgment at [1312], [1313]). (3) In signing the due diligence questionnaire and November management sign-off in Boston, Mr Robertson failed to disclose the fact that the contract-by-contract analysis had been undertaken, or the results of it as shown by the HG table, which had been completed by 10 November (August judgment at [1316]). I found that Mr Schneider told Mr Robertson and Mr Fox on 5 November that a contract-by-contract review was nearly completed and he thought that Hurricane Georges was going to be a $100 million type event (August judgment at [1314]). Though I did not find that Mr Robertson was aware of the results of the analysis, set out in the HG table dated 9 November, when he signed the documents in Boston on 10 November, I held that a competent reinsurance manager in Mr Robertson's position would have inquired as to the progress of the review and would have been informed of the results as set out in the HG table, and would have incorporated the results into his answers to the due diligence questionnaire (August judgment at [1315], [1316]). (4) In signing the due diligence questionnaire and November management sign-off in Boston, Mr Robertson failed to disclose the planned purchase of reinsurance cover to protect the company from further deterioration of Hurricane Georges claims, a matter that had been discussed at his meeting with Mr Fox and Mr Schneider on 5 November 1998 (August judgment at [1320]). (5) Mr Robertson affirmed the profit forecast at or shortly after the meeting with PwC on 7 December in three ways, namely: by failing to correct Mr Fox's advice to PwC of a profit impact for Hurricane Georges (either from property only or property and marine) of $60-65 million; by making a statement at the meeting with PwC that the information available to him gave him no reason to think that he could make a better estimate of the 1999 profit than $80 million; and by signing the representation letter and the management sign-off. He knew that Mr Schneider had carried out a contract-by-contract analysis and he knew the contents of the HG table. By affirming the profit forecasts in these ways without further inquiry as to whether the HG table should be taken into account, and without disclosure of the fact of the contract-by-contract analysis or the contents of the HG table to Mr Vines, PwC or the DDC, Mr Robertson failed to discharge his duty (August judgment at [1325], [1327], [1335]). (6) At the meeting with PwC on 7 December 1998, which to Mr Robertson's knowledge was an important one, Mr Robertson failed to query or correct the statements made to the meeting about the level of claims notifications, the maximum potential loss, the relevance of accelerated and precautionary claims, and management's best estimate of the Hurricane Georges liability, having regard to his state of knowledge at the time (August judgment at [1336], [1341], [1344]). A reasonable person in a like position to Mr Robertson would not have regarded the information he had about accelerated and precautionary claims as sufficient to make him comfortable with the $60-65 million best estimate, without subjecting the information to some appropriate form of testing (August judgment at [1367]). Although it was appropriate for Mr Robertson to take into account the prospect of reinstatement premiums in the order of $10-15 million, he should at least have queried the statements about accelerated and precautionary claims and "management's best estimate", and his failure to do so was a breach of duty (August judgment at [1373]). (7) Mr Robertson should not have signed the representation letter and the December management sign-off, which had the effect of affirming the profit forecasts, knowing the contents of the HG table, without making further inquiry to determine whether the figures in the table should be taken into account or discounted (August judgment at [1377], [1378], [1380], [1383]). His mental calculation of "unders and overs" depended crucially on the profit impact of Hurricane Georges property losses, net of reinstatement premiums, not exceeding $60 million and a reasonable person in his position would have had grave concerns that this assumption would prove to be invalid (August judgment at [1382]). (8) Mr Robertson should not have signed the representation letter and the December management sign-off without making inquiries about the availability of any results of the various classes of GIO Re business since 30 September, given the general content of those documents and the specific statement in the representation letter about good performance of the attritional property book in the 1999 year to date (August judgment at [1389]). (9) Mr Robertson should not have signed the representation letter and the December management sign-off, having regard to his state of knowledge, without making inquiries to ascertain whether GIO Re had determined whether there would be any benefits arising from any "changes in retrocession arrangements under consideration" (one of the matters identified in the representation letter as justifying the view that no adjustment was needed to the reinsurance profit forecast notwithstanding deterioration in the performance of the catastrophe portfolio) (August judgment at [1399], [1403]). (10) Mr Robertson should not have signed the December management sign-off without correcting its unqualified language, given my finding (item (6) above) that he should have queried or corrected the representations made to PwC at the meeting on 7 December (August judgment at [1405]). 141 While recognising the dangers of an assessment made with hindsight, I said that the breaches that I had found to exist in each case were "quite basic breaches that ought to have been obvious to a reasonable person in Mr Robertson's position at the time" (August judgment at [1409]). 142 In my December judgment (at [143]-[144]) I said there are two striking aspects of the contraventions found against Mr Robertson. The first is that each of them relates to the information supplied on crucially important occasions in the course of preparation of the Part B statement and the due diligence process. The second is that the contraventions all relate to inadequacy of disclosure on those important occasions, the inadequacy being one of four kinds: · failure to query or correct statements that were wrong or open to question, having regard to his level of knowledge; · the making of general statements that were incorrect in the absence of qualification; · failure to disclose additional information material to the matters under consideration; · circumstances where he ought to have made further inquiries, having regard to what he knew, before making the statements that he made. 143 I also found, in my December judgment (at [145]), that Mr Robertson's contraventions, like the contraventions of Mr Vines, reflected a pattern of defective disclosure during a critical time for the takeover defence process. I pointed out that the contraventions went to the adequacy and quality of the information presented to the board and DDC for the purpose of their decisions about the Part B statement and, in particular, the profit forecast (at [146]). I reiterated my remarks, made in the context of the contraventions by Mr Vines, about the fundamental importance of senior executives providing their boards with all information they have that is material to the board's decisions, under our system of corporate governance, especially having regard to the special context provided by the process of responding to a hostile takeover bid. I expressed the view (at [147]) that, while contraventions arising out of failure to make a qualification to a general statement or failure to make further inquiries might in some circumstances be minor or venial breaches of duty, in the present case the contraventions were serious because the statements were made in a relatively "solemn" context in which the information would be relied upon by others in the takeover defence process. 144 On the other hand, I observed in my December judgment (at [124]-[125]) that there was no challenge to Mr Robertson's honesty. I singled out for mention two specific aspects of this. The first was his willing and open co-operation with ASIC, in which he submitted to a private examination before an ASIC examiner without legal representation and did not follow the usual practice of claiming privilege before giving answers. I concluded that the episode spoke volumes for his honesty and his preparedness to account for his actions. The second matter was Mr Robertson's honesty as a witness. Although I did not accept his evidence on occasions, I did not make any adverse finding as to his credit, and when I made the important finding that he had been told about the contract-by-contract analysis on 5 November I noted that his evidence to the contrary gave me no reason to doubt that he was endeavouring to tell the truth. He gave evidence that when he returned from Boston in November 1998, Mr Schneider showed him the HG table, something that Mr Schneider did not claim to have done in his evidence in chief. Mr Robertson's evidence on that matter was given against interest. Indeed, his evidence proved to be an ingredient in the court's findings of the contraventions in items (5), (6), (7) and (10). 145 Nor was there any finding that Mr Vines obtained any personal gain or benefit from his contraventions, or that they were flagrant, or that he engaged in impropriety or deception or was conscious of impropriety on the part of others (December judgment, at [129]). ASIC's submissions, in summary 146 On the question of disqualification, ASIC submitted that the contraventions found against Mr Robertson related to each important stage in the period from 5 November to 7 December 1998 when he was called upon to provide or confirm information relating to the profit forecast. ASIC accepted it is unlikely that, even if there were no disqualification, Mr Robertson would ever conduct any significant commercial activity again. It submitted that the question of disqualification turns upon issues of general deterrence and retribution. 147 Having regard to Mr Robertson's senior position, which required high standards of diligence and disclosure, and his "basic" contraventions, there is according to ASIC a strong public interest in ensuring compliance during critical periods in a company's affairs. ASIC submitted that this objective could be furthered by the imposition of a significant period of disqualification that would operate as a deterrent to others in similar senior positions, and would involve an element of retribution by way of public condemnation of such conduct. 148 ASIC's submissions compared the positions of Mr Robertson and Mr Vines, noting that there were two differentiating factors that tended to work against each other. The contraventions against Mr Robertson extended over a lengthier period than those found against Mr Vines and involved a failure to take steps which, according to ASIC, were significantly easier than those required of Mr Vines. But Mr Vines occupied the more senior position and had the more onerous obligations in terms of disclosure to the DDC. Overall, ASIC submitted that Mr Robertson's conduct amounted to "serious incompetence and irresponsibility" falling within proposition (xiv) of Santow J's judgment in Adler, relating to the disqualification range from 7 to 12 years. 149 Overall, ASIC's submission was that the court should impose a slightly higher period of disqualification on Mr Robertson than on Mr Vines, but also in the order of 7-8 years. 150 On the question of pecuniary penalty, ASIC submitted that each of the contraventions was serious and they together revealed a pattern of defective disclosure. In the circumstances, following the approach of Santow J in Adler, ASIC submitted that the aggregate of penalties should be in the order of $100,000. Mr Robertson's submissions, in summary 151 Senior counsel for Mr Robertson contended that a hearing on penalty following a finding of contravention of the Corporations Law bears "the hallmarks of the sentencing process in a criminal trial", and as a consequence, "the principles attended upon that process [are] invoked" (citing Forge v ASIC (2004) 52 ACSR 1 at [414]). That being so, not only must the punishment fit the crime, but the circumstances of the offender are equally important to the question of appropriate sentence (Forge at [414]-[416]). 152 Counsel drew attention to my findings, summarised above, concerning Mr Robertson's honesty and co-operation with ASIC, and the absence of personal gain from his contraventions. 153 He also referred to various matters concerning the circumstances in which the contraventions occurred, summarised in submissions made on 14 November 2005 for the purposes of the "honesty defence". A matter of particular importance related to Mr Robertson's unique position after Mr Fox took up his appointment early in November 1998. I touched upon Mr Robertson's position in my August judgment at [41]-[42], [53]-[58] and [989]-[1029]. 154 Reliance was also placed on the evidence of Mr Robertson's good character to which I have referred, his community service for retirees and boy scouts, and the absence of previous contraventions. I was taken to Mr Robertson's evidence, in his own affidavit and in the evidence tendered on his behalf, as to the effect of the proceeding on Mr Robertson's professional reputation and on Mr Robertson personally. 155 It was submitted that Mr Robertson's conduct could not be characterised as "serious incompetence and irresponsibility". It was said that there are important considerations implying that his contraventions were less serious than those of Mr Vines, including Mr Vines' central role in the due diligence process and his direct dealings with Mr Schneider, Mr Robertson's unusual position following the appointment of Mr Fox, the absence of any involvement by Mr Robertson in the American Re agreement, the admonitions made by Mr Robertson in his evidence, and the other mitigating factors to which I have referred. 156 It was submitted that the public needs no protection from Mr Robertson, and he does not need to be deterred from engaging in similar conduct again. This is because, as the court accepted in the December judgment (at [155]) there is no practical risk that Mr Robertson will contravene again. As ASIC said in its written submissions, it is unlikely that Mr Robertson would ever conduct any significant commercial activity again, if there were no disqualification. 157 It was said that the public humiliation to which Mr Robertson has been exposed, the public criticism of his conduct in my August judgment, and the public identification of transgressions in the declarations that are to be made, adequately satisfy any function of punishment or retribution and any notion of general deterrence. Emphasis was placed on the making of the declarations of contravention, which I described as an "enduring stigma" in my December judgment (at [9]). Attention was drawn to the distress to Mr Robertson caused by ASIC's media release of 20 June 2001 alleging improper use of position by Mr Robertson, and ASIC's failure to correct the media release until March 2006. Reference was made to Mr Robertson's evidence of turning down consulting opportunities the lack of other opportunities, and his loss of contact with professional colleagues. 158 In those circumstances, it was contended that Mr Robertson should not be sacrificed to the so-called "public interest". It was also submitted that the court should be satisfied Mr Robertson is a fit and proper person to manage a corporation. Assessing these considerations 159 As with Mr Vines, I am influenced by the findings in my December judgment as to the seriousness of Mr Robertson's contraventions. They related to important occasions for disclosure of information that would be material information with respect to the maintenance of the profit forecast. I agree with ASIC that Mr Robertson's senior position, though unique in some respects, required high standards of diligence and disclosure, and he failed to meet those standards during critical periods in the affairs of GIO Insurance. 160 The court is required to make declarations of contravention. Senior counsel for Mr Robertson strenuously submitted that findings of contravention followed by declarations are a form of public shaming, which is punishment enough for Mr Robertson, whose career has ended as a result of this proceeding. 161 In the Vizard case, Finkelstein J responded to a similar argument as follows (at [40]): "While shaming is a form of punishment, it is not a substitute for the formal expression by society through its courts that the offender has committed a wrong. Formal retribution is a necessary element imposing a proper punishment because it ensures that punishment is just and appropriate to the circumstances." 162 That case involved a director of a public company making improper use of information acquired by virtue of his position to gain advantage. The judge thought it appropriate to speak in terms of an "offender" and "white-collar crime", terms that are not appropriate in the case of Mr Robertson. But in my opinion his point about shaming not being a substitute for other orders is also valid where there are serious contraventions of the statutory duty of care and diligence. As counsel for ASIC pointed out in submissions, to make declarations of contravention without further sanction, after findings of serious contraventions, would be undermining rather than serving the public interest. The interest that counsel had in mind was obviously not the protection of the public from future wrongdoing by Mr Robertson, since there is no likelihood that he will engage in any future significant commercial activity; nor, for the same reason, personal deterrence of Mr Robertson. It is the public interest in general deterrence and retribution. 163 In my view this is an appropriate case for making a disqualification order so as to reflect the perception of wrongdoing expressed in the court's findings, with a view to general deterrence. During his career Mr Robertson was, like Mr Vines, part of the class of senior managers of major public companies, whom I am a have described as "sensitive to risk", citing some observations by Finkelstein J in Vizard at [34]. As in the case of Mr Vines, a disqualification order against Mr Robertson will emphasise the substantial risk of serious consequences for senior executives who fail to discharge their duty of care in respect of providing material information to their boards and board committees. 164 The next question is whether, in addition to making a disqualification order, the court should make a pecuniary penalty order against Mr Robertson. The power to make a pecuniary penalty order is to be used sparingly, in the sense that the penalty should be no greater than is necessary to achieve the object of personal and general deterrence to prevent the corporate structure from being used contrary to commercial standards (ASC v Donovan at 608). Here, the case for a pecuniary penalty order against Mr Robertson is the same case of general deterrence and retribution that has led me to conclude that a disqualification order should be made. The objective is to convey to executive risk-takers that serious contraventions of the law involving failure to disclose material information to boards and board committees will be visited with serious consequences. The deterrent effect of a disqualification order against Mr Robertson, though significant, is reduced by his circumstances as a retiree who is unlikely to seek out further executive positions. Combining a disqualification order with a pecuniary penalty order will be a more effective deterrent. 165 The mitigating factors relied upon in submissions affect, to a degree, matters of measure or quantum, but in my view they do not countermand the making of orders at some level. 166 I have referred to the strong evidence given on behalf of Mr Vines of his contrition and acceptance of the judgment of the court. There is no similar evidence on the part of Mr Robertson. My December judgment (at [130]) gave no weight to ASIC's submission that there was a lack of contrition on the part of Mr Robertson. I said that Mr Robertson was entitled to resist the allegations made against him, and that he had it achieved a measure of success, although not as much as Mr Vines. The discretionary considerations that apply the point of deciding on the appropriate orders are rather different from those governing the observations in my December judgment. Nevertheless I have decided not to attach any significance in the circumstances to the lack of any statement of remorseful contrition by Mr Robertson. His position is that he has effectively withdrawn from commercial and professional life and is in retirement in a community south of Newcastle. As senior counsel submitted on his behalf, these actions speak more loudly than any formal statement of contrition. 167 As in the case of Mr Vines, I do not approach the exercise of my discretion concerning Mr Robertson on the basis that his contraventions caused loss to the GIO Group or it shareholders. 168 In summary, I believe the correct course is to make out a disqualification order and a pecuniary penalty order against Mr Robertson, provided that the respective requirements of s 1317EA(4) and (5) do not stand in the way. Fit and proper person 169 Mr Robertson submitted that the court should find him to be a fit and proper person to manage a corporation for four reasons: · the court's findings that there is no practical risk that Mr Robertson would contravene again, and any lack of understanding of his role ought to have been addressed by the outcome of the proceeding (December judgment at [155]); · the court's findings that Mr Robertson was an honest witness who co-operated fully and frankly with ASIC (December judgment, at [126]-[127]); · the court's findings that Mr Robertson did not obtain any personal gain or benefit from his contraventions, which were not flagrant, that he did not engage in any impropriety or deception and was not conscious of any impropriety on the part of others (December judgment at [129]); · the evidence of Mr Jocelyn and Mr Eyers, both of whom worked closely with Mr Robertson, as to their very high regard for him professionally and personally and their experience that he performed his duties to the highest standards and is a man of honesty and integrity. 170 These considerations must not be overstated. In para [155] of my December judgment I described Mr Robertson's contraventions as more than mere "aberrations", and said they amounted to a series of failures to discharge his duties in matters of disclosure on important occasions. I observed that his contraventions would be consistent with a finding that he did not properly understand his role, and that any lack of understanding ought to have been addressed by the outcome of the proceeding. That does not amount to a finding that all of the contraventions were to be explained by his lack of understanding of his responsibilities due to unfamiliarity with the takeover process. 171 It is plain from the way the findings were made in my August judgment, and my emphasis on their serious nature in my December judgment (at [146]-[147]), that the contraventions reflected a pattern of inadequate disclosure on crucially important occasions. A lack of familiarity with hostile takeover bids and imperfect understanding of his role in providing information to the board and the DDC for the profit forecast would not explain away these contraventions. The importance of documents such as the 4 November memorandum, the due diligence questionnaire and November management sign-off, and the December representation letter and management sign-off was obvious on the face of the documents, regardless of his lack of experience in the takeover context. It is a relevant discretionary factor that any lack of understanding of his role in the takeover in due diligence process during November 1998 would have been by reading my August judgment, but that is not a factor that excuses or minimises the seriousness of the contraventions. 172 As counsel for ASIC pointed out, the second and third matters relied upon by Mr Robertson serve to highlight the absence of negative findings. ASIC did not present a case at the hearing based upon allegations of dishonesty or personal gain. The absence of adverse findings of those kinds does not overcome findings of serious contraventions of the duty of care and diligence in connection with disclosure in the takeover due diligence process. 173 The evidence of Mr Jocelyn and Mr Eyers is impressive character evidence, necessarily given at a general level. It is helpful to Mr Robertson that neither of them saw any evidence of the kind of conduct found to amount to contraventions of the Corporations Law, and even more helpful than Mr Jocelyn was able to say that findings were out of character for Mr Robertson. But that general evidence cannot be an effective counterbalance when weighed against the great volume of evidence about Mr Robertson's specific conduct during November and December 1998, leading to the detailed findings in the August judgment. The evidence of Mr Jocelyn and Mr Eyers lacks particularity, and there is nothing in Mr Robertson's case to compare with Mr Vines' evidence of subsequent employment in a senior executive position. 174 In the circumstances I am not satisfied that Mr Robertson is a fit and proper person to manage a corporation. The findings and analysis in my August judgment create a doubt about the matter, which is not removed by the evidence upon which Mr Robertson relies. Serious contravention 175 The findings expressed in my December judgment establish, in my view, that the contraventions by Mr Robertson are serious for the purposes of s 1317EA(5). I refer, in particular, to paras [143]-[147], where I drew attention to the importance of the senior executive disclosure role in corporate governance, especially during preparation of a takeover defence, and described the contraventions as a pattern of defective disclosure during a critical time. Quantification of orders in the case of Mr Robertson 176 The contraventions by Mr Robertson were serious, basic contraventions, as I have said. I would not apply the expression "serious incompetence and irresponsibility", used by Santow J to identify cases of disqualification orders for 7 to 12 years, because the concept of "incompetence" seems unsuitable. But in my view the findings in my August judgment imply a course of conduct by Mr Robertson that was irresponsible. Therefore the contraventions in the present case bear some affinity with the 7 to 12 years category, but some of Santow J's components are not present here, such as substantial loss, wilful contraventions and conduct by the defendants to enrich themselves at others' expense. 177 I think it is important, in the interests of parity, to compare positions of Mr Vines and Mr Robertson and achieve a remedial outcome in which any differences between them are carefully justified. In the case of Mr Vines, I took the view that the appropriate range to consider was disqualification periods of 4-6 years. There are some considerations in the case of Mr Robertson that are very similar to those applying to Mr Vines. Thus, the case against Mr Robertson is a duty of care case (though of a serious nature) rather than a case of dishonesty; his contravening conduct was not undertaken for personal gain; he is supported by favourable character evidence; and he impressed me as an honest witness. Mr Robertson does not have Mr Vines' potential for re-entering the workforce, but he is serving his local community in an organisation caring for the interests of retirees, and in the boy scouts movement. These respective considerations are sufficiently similar that the interests of parity point to allocating them to the same bracket of disqualification periods, 4-6 years. 178 In the case of Mr Vines, there were two additional considerations that led me to reduce the disqualification period to three years. One of those factors is identical in the case of Mr Robertson, namely ASIC's publication in June 2001 of its allegations of improper use of position against both men, withdrawn only two years later, without any public announcement of the withdrawal until March 2006. The evidence is that these circumstances caused Mr Robertson every bit as much stress as they caused Mr Vines. The other matter leading to a reduced disqualification period for Mr Vines was his achievement at ReAC coupled with his unblemished career in the accounting profession. In the case of Mr Robertson there is evidence of a distinguished career in the actuarial profession, but there is nothing equating to Mr Vines' post-GIO experience at ReAC. The absence of that factor, which was significant in favour of Mr Vines, would suggest a higher disqualification period for Mr Robertson. But there are some other considerations in favour of Mr Robertson which, in combination, are of approximately similar weight. They include considerations arising out of Mr Robertson's very unusual position after the arrival of Mr Fox, and his open and willing co-operation with ASIC and his frank admissions in his evidence. 179 Recognising that the assignment of a disqualification period is not governed by any exact science, I have decided that the disqualification period for Mr Robertson should notionally be three years. 180 In the case of Mr Vines, I decided that the disqualification period should notionally commence to run on 1 July 2004, for reasons described above. The same reasoning applies in the case of Mr Robertson. Therefore Mr Robertson's disqualification period, though notionally three years, will be from the date of making of the order until 30 June 2007. 181 As to the amount of pecuniary penalty, it is appropriate to apply the same methodology to Mr Robertson as I applied to Mr Vines, and bear in mind the parity principle once again. In my view the assessment should proceed on the basis that 10 contraventions have been found against Mr Robertson, even though ASIC's draft declarations contained 20 paragraphs because two companies are involved. In the case of Mr Vines, I decided that the penalty for each contravention should be $10,000, and I discounted the aggregate penalty for the 11 offences by $10,000, having regard to mitigating factors, to produce a penalty of $100,000. In the case of Mr Robertson there are mitigating factors very similar to those applicable in the case of Mr Vines, suggesting a discount of the aggregate penalty to $90,000. 182 Additionally, there is a special consideration in the case of Mr Robertson not present in the case of Mr Vines. That is Mr Robertson's evidence of financial hardship. 183 Any pecuniary penalty order will have to be met by Mr Robertson personally. His evidence as to the annual income he expects to receive from the investment of the proceeds of his superannuation plan implies an overall rate of return of 5.2%. It is plausible to infer that he would pay the pecuniary penalty by withdrawal from his invested funds. The withdrawal of $100,000 to pay a pecuniary penalty in the amount advocated by ASIC would, applying that overall rate of return, reduce Mr Robertson's annual income by $5,200. On this basis, if I were to confine my attention to the income effect of the withdrawal and payment of the penalty, I might conclude that a penalty of this amount would not require any substantial change to his day-to-day lifestyle. But I think it would be wrong to confine attention to the income effect of the withdrawal for payment of the penalty. Mr Robertson is a retiree with little or no earning prospects. The withdrawal would not only reduce the capital amount available to Mr Robertson's estate; it would operate as a significant constraint upon any further withdrawals of capital for larger-scale expenditure or to improve lifestyle. It seems to me likely, therefore, that a pecuniary penalty order in the amount sought by ASIC would have a significance for Mr Robertson's financial circumstances disproportionate to its income effect. 184 That being so, my view is that it would be fair to make a substantial reduction of the amount that would otherwise be ordered by way of pecuniary penalty. All things considered, I have decided to reduce the pecuniary penalty to $50,000. Doing so does not offend the principle of parity because the reduction is based on specific evidence of financial circumstances adduced by Mr Robertson, in circumstances where Mr Vines has not given any such evidence. The objectives of general deterrence and retribution will still be achieved by the combination of a disqualification order and a pecuniary penalty which is still for a substantial amount, especially bearing in mind Mr Robertson's circumstances. Mr Fox Mr Fox's circumstances and character evidence 185 Mr Fox is 59 years old. He is living in suburban London with his wife Barbara Fox, to whom he has been married since 1969. They have three adult children. 186 Except on the question of costs, no detailed or quantified evidence was given on behalf of Mr Fox about his income and financial circumstances, but Mrs Fox gave some general evidence in that area. According to her evidence, her husband has not worked since leaving GIO in June 1999 and he has not been able to seek employment in the industry. He is not yet receiving a pension. He is a self-made man who does not expect to receive any inheritance. He has contributed a large part of his salary into the family, paying for the private education of their three children and supporting two of them through university. He lives in a house owned by Mrs Fox, and drives an 8-year-old second-hand car. This evidence does not identify any current source of income for Mr Fox. 187 After I delivered my August judgment, solicitors for one of GIO's D & O insurers wrote to Mr Fox's solicitors expressing the opinion that in light of my judgment, an exception to the policy coverage, relating to dishonest acts, was applicable. That being so, the solicitors said that defence costs in an amount exceeding $1.15 million were to be repaid and Mr Fox should proceed on the basis that any further defence costs would be to his own account. 188 Mr Fox is honorary treasurer, but not a member of the board of trustees, of a local registered charity that provides counselling and support to the hard of hearing. The description of his position as "honorary" treasurer suggests that he is not paid for his work. The trustees are members of the local community where Mr Fox resides. Mr Fox created and has managed a computerised accounting system and provides financial advice to the board of trustees, enabling the charity to remain in surplus and increase its reserves. He was also instrumental in preparing and submitting a successful application for substantial funding by the National Lottery Fund. When my August judgment was published, he offered his resignation but it was unanimously and emphatically refused. 189 Mrs Fox said that penalties would have a very severe effect on the lives of her husband, herself and their children, but the most distressing part of my August judgment has been my finding that her husband was dishonest. She did not say that her husband has any remorse or contrition in consequence of my serious findings about matters of dishonesty as well as lack of care and diligence. She said the conduct as found in the judgment did not accord with her experience of her husband's character and conduct. 190 Mr Fox relied on several affidavits supplying character evidence. Mrs Fox said her husband has always been honest, reliable, kind and caring, and has always been careful to understand the ramifications of his financial and other dealings. He has assisted her, and their children and other relatives and friends with their financial affairs in a cautious and careful manner. She said that during the 34 years that her husband worked in England, first for Victory Insurance Company and then for American Re, he had never been the subject of criticism or any investigation by regulatory authorities or his employers. She said that according to her observation as his wife, he was held in high professional and personal regard in the reinsurance industry during that time. 191 Giampaolo Bianchini was a colleague who worked closely with Mr Fox at American Re for more than 20 years. He said Mr Fox was a team player who always exercised care and diligence, meticulously examined the exposures presented by the transactions in which he was involved, worked with strict business ethics, and was not accused of any lack of care or dishonesty during their time together. He said Mr Fox never accepted business on the spot or made decisions to commit American Re irrevocably, and with very few exceptions, every visit was followed up by a written report for internal purposes or by letter to the client. 192 Richard Sparrow, now retired, had a distinguished career in reinsurance and was a member of Lloyd's. He had a close business relationship with Mr Fox for about 25 years, dealing with Mr Fox when he advised American Re on reinsurance protection for its marine underwriting in the London market. He was instrumental with Mr Fox in forming a joint venture with American Re, which operated in the 1990s. Mr Fox was a member of the joint venture entity's board. Mr Sparrow said that in their dealings, Mr Fox was proficient and technical in his approach, acted honestly and never acted in an underhand or dishonest way, and he expressed the opinion that Mr Fox's conduct as found in my August judgment was at odds with his experience of Mr Fox's behaviour. 193 John Varca has worked in the insurance/reinsurance business in the United States for over 31 years, and is a member of the American Academy of Actuaries. He worked in the international division of American Re during the 1990s and was a member of American Re's senior management group. From 1997 until Mr Fox's departure for Australia in 1998, Mr Fox reported directly to him and they were in daily communication. He said during his dealings with Mr Fox, Mr Fox was a team player, who displayed very good managerial talents and was very diligent. He referred specifically to Mr Fox's high quality work in the preparation of realistic business plans. He also mentioned Mr Fox's responsibility for filing periodic financial statements and company reports with the Department of Trade and Industry. He said Mr Fox kept the interests of American Re in the forefront of all his business activities, during a time when American Re's UK branch grew to a full-service underwriting branch with an annual turnover of US$100 million. He said Mr Fox's reputation as a diligent and honest insurance professional was unquestioned, and he expressed the opinion that the conduct I had found Mr Fox to have engaged in differed from his conduct when working with Mr Varca. 194 The chairman of the board of trustees and the manager of the charity for which Mr Fox currently works in an honorary capacity both gave affidavit evidence about Mr Fox's character. The chairman said that Mr Fox is honest and trustworthy and has consistently given the trustees sound financial and business advice, and had always taken great care to produce accurate information. He expressed the opinion that the conduct found in the judgment, particularly the findings of dishonesty, are out of character. The manager gave evidence to the same effect. The court's findings against Mr Fox 195 In my August judgment, I found that Mr Fox had contravened the statutory duty of honesty in s 232(2), as well as the statutory duty of care in s 232(4). My findings precluded any application by him for exoneration under the "honesty defence", and therefore I had no occasion to summarise my findings against him for the purposes of my December judgment. ASIC has provided a summary in its written submissions on penalties. I have checked it against my August judgment and have found that it is correct (subject to some minor editing). I have therefore used ASIC's summary, as edited, for the purposes of this judgment. 196 I found that Mr Fox is a resident of the United Kingdom, recruited to join GIO Re during August 1998. I held that he became the sole executive director of GIO Re from at least the time he arrived in his new position on 5 November 1998, with the full responsibility of a reinsurance manager (August judgment at [1006]). I held that he had a substantial responsibility, jointly with Mr Robertson, for financial matters of GIO Re and for the financial data on which the GIO Re profit forecast was based, including data relating to Hurricane Georges claims (August judgment at [1417]). He was an executive officer of both GIO Australia Holdings and GIO Insurance from 5 November 1998 and at all relevant times thereafter (August judgment at [1425]). 197 I found that in various ways, Mr Fox contravened the statutory duty of honesty in s 232(2) of the Corporations Law, and also the statutory duty of care in s 232(4). 198 ASIC's summary of my findings of contravention by Mr Fox of the duty of honesty, which I adopt for the purposes of this judgment, is as follows: (1) At a meeting with PwC on 7 December 1998 to discuss the profit forecast for GIO Re Mr Fox falsely advised them that the level of notified claims (property and marine: August judgment at [1442]) for Hurricane Georges was $60-65 million whereas he knew that as at 4 December 1998 they exceeded $89 million, and he made that statement knowing that it was not in the best interests of either GIO Australia Holdings or GIO Insurance to do so (August judgment at [1442] and [1426]); (2) At the meeting with PwC on 7 December 1998 to discuss the profit forecast Mr Fox falsely advised them that a detailed review of GIO Re's exposure to Hurricane Georges contract by contract had indicated a maximum potential loss of $105 million, whereas he knew that it had revealed a maximum potential loss of $211 million, and he made that statement knowing that it was not in the best interests of either GIO Australia Holdings or GIO Insurance to do so (August judgment at [1442] and [1426]); (3) In or about November 1998 Mr Fox caused or participated in causing GIO Re to enter into an alleged reinsurance contract, known as the American Re agreement, and to make an offer in a letter dated 13 November 1998 to accept some of the risk being ceded under that agreement knowing that it was not in the best interests of GIO Australia Holdings and GIO Insurance to do so because (August judgment at [1475] to [1476]): · it involved payment by GIO Re to American Re of a substantial fee disproportionate to the remote risk being transferred to American Re under the agreement; · it was an artificial transaction involving no risk transfer in respect of the American Re cover and only an extremely remote risk transfer in respect of a defined event; and · it was not a genuine retrocession agreement capable of achieving the accounting advantages that GIO Re was seeking. ASIC's summary of my findings of contravention by Mr Fox of the statutory duty of care and diligence, which I also adopt for the purposes of this judgment, is as follows: (4) Mr Fox made the statement concerning maximum potential loss referred to in para (2) of the summary of contraventions of the duty of honesty (August judgment at [1438]); (5) He made the statement concerning notifications of claims referred to in para (1) of the summary of contraventions of the duty of honesty (August judgment at [1438]); (6) He advised PwC in the meeting on 7 December 1998 that management of GIO Re was firmly of the opinion that the impending renewal and the uncertainty surrounding the takeover offer for the GIO Group was prompting cedants to notify claims for Hurricane Georges early and on a precautionary basis when no inquiries or adequate inquiries had been undertaken as to whether that statement could be supported (August judgment at [1434] and [1438]); (7) He advised PwC during the meeting on 7 December 1998 that while a further deterioration in GIO Re's exposure could not be ruled out, management's best estimate of the exposure to Hurricane Georges was approximately $60-65 million when he had been advised that the contract by contract analysis had indicated Hurricane Georges was likely to be a $100 million type event (August judgment at [1431], [1436] and [1438]); (8) He signed a management sign-off and representation letter on or about 7 December 1998 notwithstanding his knowledge of the level of Hurricane Georges claims, and without explaining to PwC what he knew about the likely effect of Hurricane Georges and making further inquiries (August judgment at [1452]); (9) He failed after the date of publication of the Part B statement in December 1998 and before the close of the period in which AMP's takeover remained open to take any steps to notify the board of the development of Hurricane Georges claims (August judgment at [1457]); (10) He caused or participated in causing GIO Re to enter into the American Re agreement and make the offer in the letter of 13 November (referred to in para (3) above) in circumstances where: · the real purpose of GIO Re's entry into the agreement was to maintain the $80 million profit forecast by artificially deferring the requirement that total Hurricane Georges claims in excess of $25 million be brought to account in the 1999 financial year; · the agreement was not a genuine retrocession agreement in commercial terms as the only apparent underwriting risk undertaken by American Re was extremely remote; · the profit commission payable to American Re was uncommercial and an excessive consideration for the degree of apparent underwriting risk undertaken by American Re; · the profit commission payable to American Re was substantially a consideration for American Re's facilitating GIO Re's being able to defer bringing into account total claims resulting from Hurricane Georges in excess of $25 million until after the 1999 financial year; · GIO Re entered into the agreement without any expert actuarial or accounting advice that the agreement was a proper retrocession agreement or that the deferral in accounting for total claims resulting from Hurricane Georges in excess of $25 million until after the 1999 financial year was in accordance with proper accounting practices (August judgment at [1470] and [1458]); (11) Mr Fox failed to bring to the attention of the DDC and PwC the fact that a contract by contract analysis had been undertaken and that it purportedly demonstrated that Hurricane Georges would be a $100 million type event (August judgment at [1486]). 199 In his submissions, senior counsel for Mr Fox drew attention to two matters in my August judgment that he invited me to reconsider. He submitted that I may have made some statements in my summary paragraphs towards the end of the judgment that did not reflect the evidence or the findings that I had made. It is appropriate to clarify the position on those two matters in the present judgment, before orders are made. 200 The first matter relates to para [1466] of the judgment. At that stage I was dealing with group (2) of ASIC's allegations that Mr Fox contravened the statutory duty of care and diligence. Group (2) relates to the involvement of Mr Fox in the American Re agreement. One of the assertions made by ASIC (para (e) at [1458]) was that GIO Re entered into the retrocession agreement and the associated letter of offer without any expert actuarial or accounting advice. Dealing with that assertion, I said: "[1466] As to (e), it is a fact that no external actuarial or accounting advice was taken as to whether the agreement was a proper retrocession agreement before it was entered into. Mr Fox submitted (written submissions, para 123ff) that Mr Vines had the responsibility to obtain auditor approval and decided not to seek it prior to the execution of the contract (T 2665, 3018). That is correct. But it was Mr Fox who saw the transaction through to completion, contributing his letter of 13 November, and knowing that there would be no prior auditor approval." 201 Senior counsel for Mr Fox queried the words "and knowing that there would be no prior auditor approval". He submitted that these words were not based on any earlier findings in the judgment. He invited me to consider whether I intended the final words of para [1466] to be my finding of fact, and if so, whether such a finding was justified by the evidence in my earlier findings; or whether those words were intended merely as a summary of a finding made elsewhere, and if so, whether I was inadvertently in error because there was no finding to that effect elsewhere in the judgment. 202 I do not regard the final words of para [1466] as intended to be a primary finding of fact. The words I used convey an assumption that the proposition that Mr Fox knew there would be no prior auditor approval had emerged from elsewhere in the judgment. I have not been able to locate any express finding earlier in the judgment, although (as I shall show) there are findings in the judgment which support an inference to that effect. 203 I asked senior counsel for Mr Fox whether he thought I could address the matter now and make a finding, and he replied in the affirmative (T 4712). That is what I propose to do. Orders have not yet been made, and the parties have had the opportunity to address this issue at the penalty hearing. I find that the evidence supports the conclusion that Mr Fox was aware, at the time when the American Re agreement was entered into on 13 November 1998, that no approval of the terms of the placement slip had been obtained by GIO Re's auditors. 204 The evidence identified at [1466] establishes that Mr Vines had the responsibility to obtain auditor approval, and he decided not to seek approval prior to the execution of the contract. There is no direct evidence that he told Mr Fox of that decision before the contract was executed. However, in my view the following matters, considered cumulatively, point strongly to the conclusion that Mr Fox was aware that there was no prior approval of the transaction by GIO Re 's auditors: · Mr Fox was aware that there was a pressing need for protection against Hurricane Georges (at [558]); · the letter of offer of 13 November and the circumstances surrounding its preparation (explained at [685]-[700]) confirm that he was aware of the urgency of GIO Re procuring the placement slip; · during an open-line telephone conversation with Mr Vines and Mr Schneider on 5 November, Mr Fox gave an assurance that in London such retrocession arrangements work (at [395]); · Mr Vines gave evidence that he was confident that the retrocession agreement would be accepted by the auditors partly because of Mr Fox's positive opinion (at [572]); · Mr Vines dropped out of the retrocession negotiations on or shortly after 6 November (at [1459]); · Mr Fox was substantially engaged in the transaction, as Mr Schneider's supervisor (at [1459]): as he had the authority as executive director of GIO Insurance to purchase reinsurance and to delegate negotiations to someone else such as Mr Schneider (at [590]); · he attended a meeting with representatives of American Re on 9 November (at the commencement of the negotiations: see [599]), and was present for a time at another meeting on 12 November (at [627]ff); e-mails were copied to him during the course of the negotiations (at [621]), including Mr Yee's e-mail of 10 November acknowledging Mr Schneider's draft placement slip (at [625]); and Mr Schneider had a number of discussions with him on 12 or 13 November prior to signing the slip (at [634]-[636]); · the matters just noted show that Mr Fox was aware of the progress of the negotiations with American Re and therefore was aware that the placement slip was in a draft form until shortly before it was signed, and that the timing of the transaction would make it very difficult to obtain auditor approval of the document in final form or a mature draft of it; · on 23 November, 10 days after the placement slip was executed, Mr Fox wrote to Mr Murray, the PwC audit partner for the GIO Insurance, enclosing a copy of the placement slip, in terms indicating his belief that Mr Murray was not previously aware of the arrangement (at [643]). 205 Mr Fox gave evidence (T 3771) that he assumed Mr Schneider was getting advice from the auditor as to whether the contract worked. That evidence is inconsistent with the strong inference arising from the matters listed above, and therefore I reject it. It was contended on behalf of Mr Fox that his letter to Mr Murray of 23 November, immediately upon his return to Australia, makes clear that Mr Fox thought it appropriate to inform the auditors of the existence of the contract. Be that as it may, the wording of the letter assumes that the auditor was not already aware of the transaction. 206 The second matter raised by senior counsel for Mr Fox relates to the following paragraph of my August judgment: "[1468] ASIC submitted that Mr Fox's letter of 13 November 1998 was a 'farce'. Mr Fox's position (written submissions, para 184) was that he understood American Re wished to know what GIO Re's appetite was for the kind of cover referred to in the letter, and that by writing the letter, he was conveying what he had been told of GIO Re's underwriting department's response to that inquiry. Mr Fox invited me to find that the letter was American Re's idea, something it insisted on in exchange for the urgent issue of cover on 13 November. But his evidence and submissions were inconsistent with other evidence, which I have accepted." 207 The concern expressed by senior counsel for Mr Fox is that the last sentence of para [1468] may be inconsistent with earlier findings in my August judgment. At para [630] I decided it would be unsafe to accept Mr Schneider's evidence that at a meeting with representatives of American Re on 12 November Mr Fox had suggested that GIO might take back some of the risk under the retrocession agreement. I concluded that this suggestion came from Mr McDermott of American Re. 208 The last sentence of para [1468] is poorly expressed, but it was not intended to contradict the finding in para [630]. It was merely intended to say, in a summary way, that Mr Fox's evidence and submissions, considered as a whole, were inconsistent with other evidence that I accepted. In retrospect, it would have been clearer if I had said "inconsistent in some respects". But though poorly expressed, the last sentence of the paragraph is clearly enough intended as a link to para [1469], where I identified in a summary way some findings about Mr Fox's evidence about the letter of offer. My full findings are relevantly at [701]-[711]. One of my principal findings was that the account exposure to which the letter of offer referred was American Re's exposure under its placement slip with GIO Re, not (as Mr Fox claimed) potential exposure to a client of American Re's International Division in Mexico. ASIC's submissions, in summary 209 ASIC drew attention to the serious nature of Mr Fox's contraventions, particularly his contraventions of his duty of honesty. It submitted that Mr Fox, as a senior executive, had lied to PwC about the financial performance of his company, knowing that the information he provided would form part of the Part B statement prepared by the company in relation to a takeover; he also caused it to enter into a purported reinsurance contract in an attempt to artificially bolster its results. ASIC pointed out that there is no evidence of contrition on the part of Mr Fox. It contended that his contraventions of the duty of care and diligence demonstrated a certain recklessness about making representations to third parties such as PwC, in the most formal and important of circumstances. 210 ASIC called for a substantial disqualification period, to operate both as a deterrent to others and to involve a strong element of retribution by way of public condemnation of his conduct, proposing a disqualification period in the order of 15 years. Having regard to the totality of the contraventions and their serious nature, ASIC submitted that pecuniary penalties in the aggregate of $300,000 should be imposed. Mr Fox's submissions, in summary 211 Senior counsel for Mr Fox acknowledged that the court's findings about his client are extremely serious, particularly the three findings of dishonesty under s 232(2). He acknowledged that in view of the findings against Mr Fox, the court would not deal with him merely by way of making declarations of contravention, and that instead a period of disqualification and a pecuniary penalty must follow (T 4704). 212 The submissions drew attention to the punishment Mr Fox has already suffered by virtue of the publicity of the case. It was said that his career is effectively now over at the age of 59. The court's attention was drawn to the evidence of his financial circumstances, such as it is. The submissions assumed, as will I, that at least as a practical matter, my orders will have an effect in the United Kingdom. It was contended that there is no practical risk of any future contravention by Mr Fox. 213 It was said that there is no evidence of any previous misconduct, and the court has not found that Mr Fox acted to enrich himself or obtain personal gain, or to cause damage to GIO Re's interests. Therefore, it was submitted, though the conduct is serious, it is not in the worst category. 214 I was asked to take into account that in view of the evidence of the attitude of the insurer, to which I have referred, Mr Fox will be required personally to meet the costs order that will be made against him, as well as facing the insurer's claim for recovery of costs already incurred in the sum of more than $1.155 million. 215 I was referred to the character evidence adduced on behalf of Mr Fox, from which I was asked to infer that Mr Fox's contravening conduct is out of character; that he is not a "serial offender"; that his wrongful conduct all occurred within the space of one month (during part of which he was away); and that he was required during that time to master a large amount of complex material. 216 Counsel made some submissions about why Mr Fox behaved in the way that I have found. He submitted that his client is not a fraudster or a wicked man. He suggested, referring to my August judgment at [584], that Mr Fox may have been eager to accept responsibility and demonstrate his capability (T 4710). He suggested his client may have been out of his depth, or misjudged priorities, or paid insufficient attention to material that passed over his desk during the critical period. 217 Counsel addressed each of the findings of dishonesty. As to the finding concerning the letter of offer of 13 November, counsel drew attention to my finding that the offer was initially American Re's idea, and submitted that, consistently with my findings at [713] and [714], the arrangement reflected in the letter was intended to have only a short life and not to be an arrangement for taking back the risk on a permanent basis. 218 As to my findings that Mr Fox made two deliberately false statements at the 7 December meeting, counsel pointed out that I accepted that the events of that day came as a surprise to Mr Fox (at [1450]). He submitted that what his client had done on that day was in the heat of the moment rather than the product of cold-blooded premeditation. He also contended that what Mr Fox had said was not the subject of any demur of anyone else. Assessing these considerations 219 The first three contraventions by Mr Fox, breaches of his duty of honesty, are very serious matters. I agree with senior counsel for Mr Fox that they are not in the most serious category of contraventions. They do not involve conduct designed to gain personal benefit or cause harm to the company. Nevertheless, they are each matters involving intentional misstatement of GIO Re's financial position - two of them by making statements at the meeting with PwC on 7 December which Mr Fox knew to be untrue, and the other by causing or participating in causing the company to enter into an artificial transaction that involved no risk transfer and was not a genuine retrocession agreement capable of achieving the accounting advantages that the company was seeking. 220 In my opinion the fact that Mr McDermott suggested the letter of offer of 13 November does not detract from the seriousness of the contravention that occurred when Mr Fox took up the suggestion and wrote the letter. While the letter may not have been quite as objectionable as some other "side letters" written to reflect permanent arrangements reversing the effect of what appears on disclosed documentation, it was nevertheless an objectionable part of an objectionable transaction, for the reasons I have fully explained in my August judgment (especially at [712]-[715]). 221 As to the incorrect statements at the PwC meeting, it seems to me beside the point that the statements were not the subject of any contradiction by anyone else. They were not, as counsel submitted, the product of cold-blooded premeditation, but it is not accurate to call them actions in the heat of the moment. They were found to be deliberate and intentional statements made in the course of a long meeting dealing with important subject matter, in circumstances where it was clear that other others would take heed of them. 222 These three matters relate to one of the foundations of corporate governance, so basic that it may easily be overlooked. Not only must senior executives take care to present their boards and board committees with the material information necessary for decision-making. They must not provide information that they know to be untrue, or enter into transactions that they know to be artificial, in order to achieve misleading accounting outcomes. 223 Of the eight contraventions of the duty of care found against Mr Fox, three contraventions overlap with the findings of dishonesty, and the other five are similar to the contraventions found against the other two defendants. They go to the disclosure of material information by senior executives to boards of directors and their committees, and therefore they are serious contraventions although relating to the duty of care and diligence. I do not detect in them some additional element of recklessness that requires them to be treated differently from the contraventions of the duty of care and diligence by the other two defendants, but nor do I see them as any less serious. 224 No argument is made against the making of a disqualification order and a pecuniary penalty order, Mr Fox's submissions being directed rather to the question of quantum. But it is nevertheless appropriate to record that the various objectives of disqualification and pecuniary penalty orders are all called into play in the case of Mr Fox. It has been submitted that there is no practical risk of any future contravention by Mr Fox. But the evidence as to his future prospects is insubstantial. He has not been employed since 1999 but he has acted as voluntary treasurer for a local charity, evidently doing a good job. That suggests that, if no disqualification order were made, he may be able to obtain remunerated employment of the same kind. If he were to do so in a place within the reach of the court's orders, the public would be placed at risk of further wrongdoing involving either dishonesty or serious want of care in diligence. 225 The element of personal deterrence is a consideration here, because of the absence of evidence of contrition. The only evidence bearing on that subject is Mrs Fox's statement that the most distressing part of my August judgment has been my finding that her husband was dishonest. That falls well short of the kind of evidence that might persuade the court that personal deterrence is to be disregarded or discounted. The considerations of general deterrence that I dealt with in the case of Mr Vines are applicable here with even more force, because some of the contraventions involve dishonesty. 226 As in the case of Mr Vines and Mr Robertson, and for the reasons already given, I do not take into account any perceived causal connection between Mr Fox's contraventions and the losses to the company and its shareholders, other than (in the case of Mr Fox only) in respect of the American Re agreement. 227 None of the mitigating factors advanced on behalf of Mr Fox was said to be a factor that would lead the court not to make a disqualification order or a pecuniary penalty order. I am satisfied that the case for making both kinds of orders has been made out. Fit and proper person 228 I am not satisfied that Mr Fox is a fit and proper person to manage a corporation, for the purposes of s 1317EA(4). I take into account the serious nature of the contraventions and the fact that some of them involve dishonesty. That necessarily makes it difficult for the court to reach the level of being satisfied of the defendant's fitness and appropriateness to manage a corporation. The evidence adduced on Mr Fox's behalf is, in part, general character evidence. Given the very specific findings made against Mr Fox, general testimony as to his character does not persuade me to be satisfied for the purposes of subsection (4). In part, the evidence goes to Mr Fox's good work as honorary treasurer for a local charity. I do not disregard that evidence, but in light of the nature of the contraventions there would have to be very much more evidence of good work in a position or positions of trust to persuade me to be satisfied for the purposes of subsection (4). Evidence of his reputation and achievements before the contraventions is necessarily of less weight than evidence going to his activities after the contraventions, because evidence of his earlier career cannot gainsay the fact that in 1998 he engaged in activities that have been found to be dishonest, and activities wanting in due care and diligence in serious ways. Serious contravention 229 It is obvious that the contraventions of the duty of honesty are serious contraventions. The other contraventions are serious for the same reasons as the contraventions by Mr Vines and Mr Robertson have been held to be serious. Quantification of orders in the case of Mr Fox 230 Unlike the cases of Mr Vines and Mr Robertson, in the case of Mr Fox it is appropriate, in my view, to make differential assessments of pecuniary penalties. In the first place, the contraventions of the duty of honesty require larger penalties than the contraventions of the duty of care. In the second place, it seems to me that those contraventions of the duty of care that, in a sense, replicate the contraventions of the duty of honesty should not be allocated separate penalties, the better course being to allocate a single penalty to each of the three areas in which contraventions of the duties of honesty and care have been correspondingly found. This is because, in my view, it would not make sense to try to separate from one another the considerations that warrant a penalty order to the extent that the contravention is a breach of the duty of honesty, and those warranting a penalty order to the extent that it is a contravention of the duty of care in diligence. 231 Considering, then, the three areas in which contraventions of the duty of honesty have been found, it seems to me that, for the reasons I have explained in my August judgment, especially at [657]-659 and [712]-[715], the breaches of duty relating to the American Re agreement and the letter of offer of 13 November are the most serious contraventions, warranting the highest disqualification period and pecuniary penalty. So far as a disqualification order is concerned, the element of dishonesty takes the case of Mr Fox into the high end of the 7-12 years category or the low end of the higher category (see propositions (xiii) and (xiv) in Santow J's judgment in the Adler case). 232 So far as contrition is concerned, my view is that the correct conclusion is as advocated by senior counsel for Mr Fox. There is no positive evidence of contrition and that means that Mr Fox does not have the benefit of any concession that such evidence might have brought to him. But there is no evidence that Mr Fox refuses to accept the court's judgment. The only evidence is that the court's findings have been distressing, and that he vigorously maintained that he had not breached his duties up until the end of the principal hearing. In these circumstances I would not take the view that "lack of contrition" should raise his case into a higher level of punishment. 233 All things considered, my view is that the contraventions relating to the American Re agreement and the letter of offer point to disqualification in the range of 12 to 15 years. The dishonesty contraventions in relation to the PwC meeting firmly reinforce that conclusion. The contraventions of the duty of care (other than those associated with the dishonesty contraventions) would, if they were the only contraventions, leading to a lower disqualification period, probably in the range of 4 to 6 years. In the present circumstances, they simply reinforce the need for a disqualification period at least that long. 234 As to pecuniary penalties, again it seems to me, for reasons I have given, that the dishonesty and lack of due care in relation to the American Re agreement and the letter of offer are the most serious contraventions. In my view the penalty in respect of those matters take this case into a higher range than the $20,000-$40,000 referred to in proposition (ix) for pecuniary penalties in Santow J's judgment in Adler, and well beyond proposition (x). My view is that the appropriate penalty in respect of these contraventions (propositions (3) and (10) in my list of contraventions) is, subject to mitigating factors, $100,000. 235 The contraventions relating to untrue statements to PwC at the meeting of 7 December 1998 (respectively, propositions (1) and (5), and (2) and (4) in my list of contraventions) are in my opinion of equivalent gravity to one another for the purposes of fixing the amount of pecuniary penalties. They are less serious than the contraventions relating to the American Re agreement and the letter of offer because they do not appear to have been premeditated, but they are still cases of dishonesty of a very serious kind. In my view, subject to mitigating factors, they are of greater gravity than Santow J's proposition (ix), and I would fix each of them at $60,000. 236 The five remaining contraventions of the duty of care (propositions (6)-(9) and (11) in my list of contraventions) are, in my opinion, of equivalent seriousness, and also approximately equivalent to the individual contraventions of the duty of care by Mr Vines and Mr Robertson. In my view the pecuniary penalty for each of them should be, subject to mitigating factors, $10,000. 237 In the result, the pecuniary penalty should be $270,000, subject to mitigating factors. In my opinion that outcome is correct, considered at the aggregate level. 238 There are some mitigating factors that tend to reduce the disqualification period and the amount of the pecuniary penalty, but they are not particularly strong. They include the fact that Mr Fox has suffered by virtue of the long period between the commencement of the proceeding in June 2001 and its final resolution, and by virtue of the publication of the findings of contravention, which will be followed by declarations of contravention. His case, however, ASIC did not publish its intention to allege more serious contraventions than that it in fact alleged at the hearing. Mr Fox's dishonesty contraventions are, as I have said, not in the worst category, though very serious. The evidence indicates that there has been no previous misconduct, and so (as his counsel submitted) Mr Fox should not be regarded as a "serial offender" or a fraudster. While I accept that submission, I do not propose to follow counsel into the speculation about why Mr Fox might have acted the way he did, beyond what I said in my August judgment at [584]. The wrongdoing occurred over a relatively short period of time, although, counterbalancing that, there was a pattern of contraventions of a very serious kind. 239 It appears that Mr Fox is facing a very large bill for legal costs, both because his professional indemnity insurer has given notice that it will seek to recover more than $1.155 million from him and because there will be an order that he pay some of ASIC's costs, as well as costs he may have incurred on his own behalf in recent times. He is not receiving a pension and appears to have very few assets, although I would not infer on the basis of the evidence (as counsel for Mr Fox invited me to do) that Mrs Fox is supporting her husband. That is something that could easily have been proved directly. In the result, the evidence of financial hardship is somewhat ambiguous. 240 It is also relevant to take into account the combined effect of the various orders that are to be made, including the compensation order discussed below. After taking all these matters into account, and endeavouring to weigh them up as best I can, I have reached the conclusion that the correct disqualification period is a "notional" period of 12 years, and the correct aggregate pecuniary penalty is $220,000. 241 As in the case of Mr Vines and Mr Robertson, I intend to take into account the delays that have affected this case in fixing the actual period of disqualification for Mr Fox. I do so for the reasons set out in the case of Mr Vines. Therefore the disqualification period will commence to run when I make the order and will continue for an additional 9 years after 30 June 2007. ASIC's claim against Mr Fox for a compensation order 242 ASIC claims, under s 1317HA(1), that the court should order Mr Fox to pay compensation to GIO Insurance (now Gordian Run-Off Ltd) in the sum of $489,069. In its written submissions dated 9 March 2006, ASIC sought interest on that sum from 3 June 1999, but in a supplementary written submission dated 24 March 2006, the claim for interest was withdrawn, for reasons I shall explain. 243 ASIC's claim to compensation arises out of my findings that Mr Fox contravened the duty of care and diligence in s 232(4) of the Corporations Law and the duty of honesty in s 232(2) in respect of the American Re agreement and the letter of offer of 13 November 1998. My findings of contravention are at [1470] and [1476]. It is said that those contraventions lead to an entitlement to claim compensation under s 1317HA(1). 244 To make out its case for a compensation order under s 1317HA(1), having established that a person contravened civil penalty provisions, ASIC must prove that "the corporation in relation to which the contravention was committed has suffered loss or damage as a result of the act or omission constituting the contravention". ASIC alleges that loss was suffered by GIO Insurance. If this ingredient is proved, the court "may (whether or not it makes an order under subsection 1317EA(3)) order the person to pay to the corporation compensation of such amount as the court specifies" - that is, the court has a discretion as to whether compensation should be ordered, and if so, the amount of compensation (ASIC v Loiterton (2004) 50 ACSR 693 at [110]). Therefore the questions to be considered are whether GIO Insurance has suffered loss or damage as a result of Mr Fox's acts of contravention in relation to the American Re agreement and the letter of offer, and if it had is, whether the court should exercise its discretion to order payment of compensation and if so, in what amount. 245 Section 1317HA(1) requires the court to identify the loss or damage suffered by the corporation "as a result of" the act of contravention. In Re HIH Insurance Ltd; ASIC v Adler (2002) 41 ACSR 72 at [752], Santow J accepted a submission that the concept of loss that has "resulted form" contravening conduct (the modified wording used in the successor to s 1317HA(1)) is the equitable test of causation applied in claims against fiduciaries, rather than the common law approach. His Honour's observation was obiter, because he found (at [768]) that the loss that had been identified had "resulted from" the identified contraventions, whether one applied the equitable or the common law test of causation. In the Court of Appeal Giles JA (with whom Mason P and Beazley JA agreed) disagreed with Santow J's view (at [707]). In his Honour's view, "the words 'resulted from' are words by which, in their natural meaning, only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation" (at [709]). The words should be given "their ordinary meaning of requiring a causal connection between the damage and the contravening conduct, free from the strictures of analogy with equitable claims against fiduciaries" (at [709]). In my view this approach is to be followed in the present case, even though the wording of the statutory provision before me for consideration is slightly different from the provision considered by the Court of Appeal. 246 When considering a claim for interest in the Adler case, Santow J again drew analogy with claims against defaulting fiduciaries (at [774]). But in the Court of Appeal, Giles JA held (at [728]) that the analogy with an award of interest against a defaulting fiduciary should not be adopted. Instead, the inquiry to be made under the statutory provision is an inquiry into loss resulting from the contraventions, and the suffering of loss through loss of use of money is a matter of fact and is to be determined by evidence. Presuming a use made by the recipient of the money, or by the company, is not a correct approach. 247 Assuming, correctly, that this court would follow the approach of Giles JA notwithstanding the slight differences in the wording of the provisions, ASIC has abandoned its claim for interest. 248 Applying the Court of Appeal's approach in Adler, it is necessary to consider whether, as a matter of fact, there is a causal connection between loss suffered by GIO Insurance and Mr Fox's contravening conduct in relation to the American Re agreement and the letter of offer. ASIC claims that GIO Insurance's losses the difference between the amount it paid in premium under the American Re agreement and the amount it received back when a commutation was negotiated. I shall return to that matter. First I shall consider the question of causal connection. 249 My findings of contravention against Mr Fox in paras [1470] and [1476] of my August judgment (and propositions (3) and (10) in the summary of my findings set out above) say that Mr Fox "caused or participated in causing" GIO Re to enter into the American Re agreement. The words "caused or participated in causing" reflect relevant parts of ASIC's pleading and submissions. 250 Occasionally in the course of giving my reasons for those findings, I used different language to express the relationship between entry into the American Re agreement and contravening conduct by Mr Fox. Thus, I observed that Mr Fox was "substantially engaged in the [American Re] transaction, as Mr Schneider's supervisor" (at [1459]). I said (at [657] and [1459]) that the terms of the placement slip and the evidence showed that "Mr Steffey and Mr Vines (to the extent that they were involved), and Mr Fox and Mr Schneider, caused GIO Re to enter into the American Re placement slip for the sole or primary purpose of protecting the profit forecast from adverse movement in Hurricane Georges claims". Although I used the word "caused" in that sentence, I might equally have said "caused or participated in causing". The focus of the sentence was to make a finding of purpose rather than a finding of causation. The reference to Mr Steffey and Mr Vines "to the extent that they were involved" was not intended to be a finding that either of them was involved in the making of the retrocession agreement, but only to acknowledge that their early involvement in negotiations and the development of the retrocession proposal might be relevant to the purpose of the transaction. In fact I found that Mr Steffey ceased to have any active involvement in the negotiations after about 4 November 1998 (at [569]), and Mr Vines dropped out of the direct discussions after 6 November (at [586], [1459]). I held that Mr Vines did not cause or participate in causing GIO Re to enter into the retrocession agreement (at [1185]-[1197], [1459]). 251 However, although I occasionally use different language, I regard it is reasonably clear from my August judgment that my findings did not go any higher than findings that Mr Fox caused or participated in causing GIO Insurance to enter into the agreement. Senior counsel for Mr Fox submitted that if his client merely participated in causing the company to enter into the agreement, he cannot be ordered to compensate the company for the loss had suffered "as a result of" entering into the agreement and eventually negotiating its termination. "Participation in causing" is not, on this submission, causing as a matter of fact. I think that submission is correct. The question then to be asked is whether the evidence supports the stronger finding that Mr Fox caused the company to enter into the agreement. I received submissions on that question at the penalty hearing and I am able to decide it now, before the making of orders. 252 In my view there are findings of fact in my August judgment which, when they are considered together, imply that Mr Fox caused, rather than merely participated in causing, GIO Insurance to enter into the American Re agreement. At the time when the agreement was negotiated and signed, Mr Fox was the executive director of GIO Insurance. As such, he had sufficient authority to purchase reinsurance, and to delegate authority to someone else, such as Mr Schneider, to negotiate for such a purchase (at [590]). As I have said, Mr Vines did not cause or participate in causing GIO Insurance to enter into the agreement (at [1459]). Mr Steffey ceased have any active involvement in the negotiations after 4 November (at [569]). Although Mr Schneider signed the agreement on behalf of GIO Insurance and conducted most of the face-to-face negotiations with American Re, Mr Fox as executive director was Mr Schneider 's supervisor (at [1459]), under Mr Robertson's business plan of May 1998, according to which Mr Schneider reported to the executive director (at [61]). The formal arrangements imply, therefore, that the person responsible for decisions about the proposed placement slip was Mr Fox as executive director. 253 The evidence of what Mr Fox actually did supports the finding that he was Mr Schneider 's supervisor with respect to the negotiations. I considered Mr Fox's role in the negotiations at [579]-[584]. He attended meetings on 9 and 12 November (at [599] and [627]ff), e-mails were copied to him during the course of the negotiations (at [61]) and he had a number of discussions with Mr Schneider on 12 or 13 November prior to the signing of the slip (at [634]-[636]). 254 I did not positively conclude in my August judgment that Mr Fox authorised Mr Schneider to sign the placement slip. I concluded that it was probable that Mr Schneider sought the authority of a superior before signing, and I was unable to conclude that the superior who gave authority was Mr Vines (at [639]). But I found that when American Re increased the amount of its margin during the negotiations, Mr Schneider asked Mr Fox whether GIO should accept, and Mr Fox made the decision (at [634]-[636]). As soon as the agreement was signed Mr Schneider sent his "rest easy" facsimile to Mr Fox, copied to Mr Steffey and Mr Vines. Finally, when Mr Fox wrote to Mr Murray on 23 November, Mr Fox referred to a protection that he had purchased the GIO Re and said he had put the cover in place (at [643]). I found that his explanation of this language as "a flight of ego" was unconvincing (at [583]). 255 I find that this evidence establishes that Mr Fox caused GIO Insurance to enter into the American Re agreement, for the purpose of the assessment that s 1317HA(1) requires the court to make. 256 I turn now to the question of GIO Insurance's loss. In my August judgment I traced the history of amendments to the placement slip after 13 November 1998 (at [662]-[683]). I found that the original American Re agreement of 13 November 1998 was renegotiated by Mr Schneider, who received instructions from Mr Fox. Mr Fox directly participated in the negotiations at a meeting on 15 December 1998. A replacement slip was executed on 18 December 1998. I found that the agreement reflected in the slip was essentially the same transaction as the original agreement, in commercial terms, except that a $150,000 fee component had gone. 257 I also found that on 18 December 1998 Mr Fox signed a handwritten authorisation to Mr McCormick, for immediate payment to American Re of US $1.8 million in respect of "cat X/L cover - reinsurance margin", and Mr McCormick sent an e-mail to Mr Fox on 22 December saying he had arranged the payment. 258 I found that Mr Fox and Mr Schneider negotiated the cancellation of the placement slip, and that it was ultimately agreed that the slip would be cancelled from its inception and American Re would retain a fee of US $250,000 out of the US $1.8 million it had received in premiums. A "commutation endorsement" to that effect was executed on behalf of GIO on 3 June 1999, and shortly afterwards GIO Insurance receive payment of US $1.55 million. 259 ASIC claims that the Australian dollar equivalent of the amount of US $1.8 million paid by GIO Insurance is $2,847,200, and the Australian dollar equivalent of the amount of US $1.55 million received by GIO Insurance is $2,358,131. I assume the exchange rates used are those applicable at the times of payment. The amount of compensation claimed is the difference between these figures, namely $489,069. 260 Accordingly, Mr Fox caused GIO Insurance to enter into the American Re contract, and the company suffered a loss of $489,069, by partly performing and then negotiating termination of the contract. Senior counsel for Mr Fox submitted that there were two causes of the loss that GIO Insurance suffered. One was the nature of the contract; that is, a contract that could not be accounted for as reinsurance, with an illusory transfer of risk. I found that Mr Fox knew the true nature of the contract (at [1474]), but in counsel's submission, my finding that there was an "element of uncertainty" in Mr Vines mind (at [727]) meant that he was also involved in this aspect of the matter. I reject this submission. I regard it as inconsistent with my findings, especially my finding that Mr Vines did not cause or participate in causing GIO Insurance to enter the American Re contract (at [1185]-[1197], [1459]). 261 Senior counsel for Mr Fox also submitted that the cause of loss was GIO Insurance's entering into the contract without auditor approval. He contended that this had nothing to do with Mr Fox. But I have now made a finding on this matter. While Mr Vines made the decision not to seek prior auditor approval, it was Mr Fox who caused the company to enter into a contract when, to his knowledge, there was no approval by the company's auditors. My conclusion is that the causal connection between GIO Insurance's loss on the contract and Mr Fox's contravening conduct has been established. 262 The next question is whether the court should, in the exercise of its discretion, make a compensation order in that amount. In ASIC v Loiterton at [111], Bergin J said that the court's discretion in relation to the amount of compensation is not limited to the choices of awarding "all or nothing". It is open to the court, taking into account the relevant circumstances, to decide that the defendant may be excused from paying the whole of the amount of the company's proven loss. Her Honour held that one of the defendants should not be required to pay the whole of the amount claimed, having regard to be discretionary consideration that he played a less significant role in the contravening conduct than his co-defendants. 263 While acknowledging that discretion, ASIC submitted that it should not be exercised in the present case, and that Mr Fox should be required to pay compensation for the whole of the company's loss. It submitted that Mr Fox did not adduce any persuasive evidence suggesting that a lesser amount the ordered. In particular, it contended that the evidence of Mrs Fox, while it suggested there may be an issue about Mr Fox's capacity to pay compensation in such a large amount, was not persuasive. 264 I think ASIC's submissions are correct, subject to two matters that I shall deal with. Subject to those matters, the position is that GIO Insurance has suffered a substantial loss caused by Mr Fox's contravening conduct, and I see no good reason for not making a compensation order in those circumstances. I have already commented on the evidence of financial hardship. 265 One matter relied on by senior counsel for Mr Fox arose out of a letter dated 2 October 2003 from the solicitors for GIO Insurance to ASIC, communicating their client's view that ASIC should deal with the question of compensation as it saw fit, and that their client would have no objection to the claim for compensation being abandoned as part of the resolution of part or all of the proceeding. Counsel said the letter suggested that the company does not now seek compensation. I do not agree with that construction of the letter. I take the solicitors to be saying that their client would leave the matter of compensation in ASIC's hands and would not object if ASIC negotiated a settlement of the claims on a basis that did not include a compensation order. In other words, the letter was intended to give ASIC negotiating flexibility. I do not regard the letter as providing a sound discretionary basis for refusing or discounting a compensation order. 266 There is, however, one discretionary matter which in my view should reduce the amount of compensation payable. There is evidence, not mentioned in my August judgment, that American Re wrote to Mr Schneider on 6 May 1999 offering to cancel the contract on terms that would provide for American Re to retain US $675,000 (PTB 2272). Mr Fox and Mr Schneider were able to negotiate that figure down to US $250,000. I think it is appropriate to give Mr Fox some of the credit for that success. The evidence does not allow me to allocate disproportionate weights to the contributions of Mr Fox and Mr Schneider to those negotiations, though it does indicate that they both made significant contributions that were considered by American Re (PTB 2273). In the circumstances I shall allocate the "achievement" between them equally. I must also discount their success by the consideration that, in all probability, American Re would have reduced its offer to some degree (albeit a lesser degree) if GIO Insurance were represented by less skilled negotiators. I think it is fair in the circumstances to see half of the reduction in American Re's claim as attributable to the skill of the negotiators - that is, US $212,500 out of the total reduction of US $425,000. Mr Fox's share of that "skill factor" is US $106,250. 267 The result is that there will be a compensation order against Mr Fox for the Australian dollar equivalent of US $250,000 minus US $106,250, that is US $143,750. The exchange rate to be used in converting this amount to Australian dollars should be the exchange rate used to convert American Re's payment to GIO Insurance of US $1.55 million in June 1999. Costs 268 ASIC seeks an order that the defendants should pay its costs of the proceedings. It submits that there is nothing to suggest there should be any departure from the ordinary rule that costs should follow the event. I think that submission is generally correct, but subject to some qualifications. First, I agree with the submissions made on behalf of the defendants that the costs order should be expressed severally. It would be unfair to the defendants to put ASIC in the position of being able to recover the whole of its costs against one of the defendants, when the hearing related to separate allegations of contravention by each defendant. It seems to me that the appropriate costs order is, prima facie, that each defendant pay one-third of ASIC's costs of the proceeding. 269 It was submitted on behalf of Mr Robertson that the court should allocate substantially less than one-third of the costs to him, because a good part of the hearing time was taken up on matters relating to the American Re agreement, with which he was not involved. I have decided not to accept that submission. Matters to do with the American Re agreement had an important impact on findings of contravention by Mr Robertson, in the sense that they were part of the factual circumstances that provided the setting for Mr Robertson's participation in the meeting with a PwC on 7 December 1998 and his signing of the representation letter and December management sign-off. Further, one of my specific findings against Mr Robertson related to his failure to disclose, in answers to the due diligence questionnaire, the proposal to take up a retrocession contract to protect the company from further deterioration of Hurricane Georges claims (August judgment at [1323]). 270 A qualification to the prima facie approach is that in the case of Mr Vines, a substantial part of ASIC's case was unsuccessful. I was referred to Australian Prudential Regulation Authority v Holloway (2000) 35 ACSR 276, where the regulator's costs were reduced because it succeeded only in 18 out of 32 alleged contraventions. I do not regard it as satisfactory in the present case to make an apportionment simply by comparing the number of alleged contraventions with the number of findings of contraventions. I think the better approach is for the court to make an assessment based on its estimate of the amount of hearing time, preparation time and evidentiary material applied to the successful and unsuccessful parts of the case. In my view, about one-third of that part of the hearing apportioned to ASIC's claim against Mr Vines related to the matters upon which ASIC was unsuccessful, particularly with respect to the American Re agreement. I shall therefore reduce ASIC's cost recoverable from Mr Vines (one-third of the whole of ASIC's costs), by one-third of that recoverable amount - that is, I shall order Mr Vines to pay 22% of ASIC's costs. 271 In written submissions made on behalf of Mr Robertson it was contended that his degree of success should reduce the order for costs against him from 33% to 20%. I think that would substantially exaggerate the extent of Mr Robertson's success. In oral submissions senior counsel for Mr Robertson said that the 20% estimate did not take into account the American Re issues and that the percentage figure should be reduced, taking into account those matters, to something in the order of 10 to 15%. I have rejected the submission that the proportion of ASIC's costs payable by Mr Robertson should be reduced by excluding costs referable to the American Re agreement. 272 Having reviewed Part 7 of my August judgment, the chart handed up on behalf of Mr Robertson outlining the level of his success in the proceeding, and in light of the submissions I have received, I have decided that in terms of the volume of evidence, the time taken at the hearing and inferred preparation time, the correct course is to reduce the percentage of its costs that ASIC may recover from Mr Robertson by 5%, that is from 33% to 28%. 273 Finally, I agree with the submissions made on behalf of Mr Vines and Mr Robertson that ASIC should not be entitled to any costs of or incidental to the making of allegations of dishonesty and improper use of position against Mr Vines and Mr Robertson, which were withdrawn shortly before the commencement of the hearing. Bearing in mind the absence of an explanation for the making of those allegations and then their abandonment, the correct order in that respect is for ASIC to pay the costs of Mr Vines and Mr Robertson of and associated with those allegations. Conclusions 274 My decisions are as follows: (1) I shall make declarations of contravention in accordance with ASIC's draft, subject to some modifications in the case of the declarations concerning Mr Robertson that I have identified in these reasons for judgment; (2) I shall make a disqualification order for a "notional" period of three years for Mr Vines, operating until 30 June 2007, subject to an exception to permit him to remain a director of his two family trust companies; (3) I shall make a disqualification order for a "notional" period of three years for Mr Robertson, operating until 30 June 2007; (4) I shall make a disqualification order for a "notional" period of 12 years for Mr Fox, operating until 30 June 2016; (5) I shall make a pecuniary penalty order against Mr Vines in the sum of $100,000; (6) I shall make a pecuniary penalty order against Mr Robertson in the sum of $50,000; (7) I shall make a pecuniary penalty order against Mr Fox and the sum of $220,000; (8) I shall make a compensation order against Mr Fox for the Australian dollar equivalent of US$143,750 at the exchange rate applicable on 3 June 1999; (9) I shall order Mr Vines to pay 22% of ASIC's costs as agreed or assessed; (10) I shall order Mr Robertson to pay 28% of ASIC's costs as agreed or assessed; (11) I shall order Mr Fox to pay one-third of ASIC's costs as agreed or assessed; (12) I shall order ASIC to pay the costs of Mr Vines and Mr Robertson of and incidental to the making of the allegations of dishonesty and improper use of position against them, that were withdrawn by amendment to the pleading in October 2003. 275 I shall direct ASIC to bring in draft short minutes of orders, and stand the proceeding over to another date for the making of those orders, without further debate. ********** 10/08/2006 - In the last sentence of paragraph 248, the words "calls all" have been changed to "of causal". 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