Reported Decision: 62 ACSR 1(2007) 25 ACLC 448 Appeal Outcome: Special leave refused with costs by the High Court - 14 December 2007 New South Wales Court of Appeal CITATION: Geoffrey William Vines v Australian Securities & Investments Commission [2007] NSWCA 75 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 10, 16 & 17 November 2006 JUDGMENT DATE: 4 April 2007 JUDGMENT OF: Spigelman CJ at 1; Santow JA at 579; Ipp JA at 805 DECISION: 1 Appeal from the judgment of Austin J, being ASIC v Vines [2005] NSWSC 738, allowed in part; 2 Declarations 6, 8, 9, 10 and 11 set aside; 3 Appeal dismissed with respect to Declarations 1, 2, 3, 4, 5 and 7; 4 Appeal from the judgment of Austin J, being ASIC v Vines [2005] NSWSC 1349, dismissed; 5 Direct each party to file further submissions on the issue of penalty within three weeks of the date hereof; 6 No order as to the costs of the appeal. CATCHWORDS: Corporations – Management and administration – Duties and liability of officers of corporation – Statutory Duty of Care and Diligence – Standard of care for contraventions under the statutory provisions equivalent to the civil standard – s232(4) Corporations Law - Corporations – Management and administration – Duties and liability of officers of corporation – Statutory Duty of Care and Diligence – The statutory duty set out in s232(4) Corporations Law is a duty owed to the corporation - Corporations – Management and administration – Duties and liability of officers of corporation – Procedural fairness is informed by the context of civil penalty proceedings - Corporations – Management and administration – Duties and liability of officers of corporation – s1317 & s1318 Corporations Act – Appellate intervention in discretionary judgments - Procedure – Judgments and orders – Effect of delay in delivering judgment. Companies Act 1958 (Vic), s107 Companies (NSW) Code, ss229(1), 229(7) LEGISLATION CITED: Corporate Law Reform Act 1992 Corporations Law 1991, ss232(4), 232(11), 232(8), 670A, 1001A, 1317EA, 1317EB, 1317ED, 1317FA, 1317GF, 1317GH, 1317 JA, 1317 HB, 1317HD, 1317JA, 1318, 1324 Uniform Companies Act 1961, s124(1) Adler v ASIC (2003) 46 ACSR 504 Akerele v The King [1943] AC 255 Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236 Andrews v DPP [1937] AC 576 Australian Securities Commission v Gallagher (1993) 11 WAR 105 ASIC v Adler (2002) 41 ACSR 72 ASIC v Maxwell (2006) 59 ACSR 373 ASIC v Vines [2003] NSWSC 1116 ASIC v Vines [2005] NSWSC 738 ASIC v Vines [2005] NSWSC 1349 ASIC v Vines [2006] NSWSC 760 AWA Limited v Daniels (t/a Deloitte Haskins & Sells) (1992) 7 ACSR 759 Banque Commerciale SA En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 Blackburn v Allianz Australia Insurance Ltd (2004) 61 NSWLR 632 Briginshaw v Briginshaw (1938) 60 CLR 336 Browne v Dunn (1893) 6 R 67 Buller v Black (2003) 56 NSWLR 425 Byrne v Baker [1964] VR 443 Callaghan v The Queen (1952) 87 CLR 115 Clout v Hutchinson (1950) 51 SR (NSW) 32 Coal and Allied Operations Pty Ltd v AIRC (2000) 203 CLR 194 Dabholkar v The King [1948] AC 221 Daniels v Anderson (1995) 37 NSWLR 438 Dare v Pulham (1982) 148 CLR 658 Darvall v North Sydney Brick & Tile Co Ltd (1987) 16 NSWLR 212 Clout v Hutchison (1950) 51 SR (NSW) 32 Figliuzzi v Yonan [2005] NSWCA 290 Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134 Gould v The Mount Oxide Mines Limited (in liq) and Ors (1916) 22 CLR 490 GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Pty Ltd [2001] FCA 1761 Greek Herald Pty Ltd v Nikolopoulos (2002) 54 NSWLR 165 CASES CITED: House v The King (1936) 55 CLR 499 Leotta v Public Transport Commission of New South Wales (1976) 50 ALJR 666 Martin v Rowling [2005] QCA 128 Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580 Mernhard v Salmon 249 NY 458 (1928) Monie v Commonwealth of Australia [2005] NSWCA 25 Murphy v Overton Investments Pty Ltd [2002] FCAFC 129 Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992) 67 ALJR 170 Norbis v Norbis (1986) 161 CLR 513 Palmer v Dolman [2005] NSWCA 361 Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109 Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 Provident International Corporation v International Leasing Corporation [1969] 1 NSWLR 424 R v Bateman (1925) 19 Crim App R 8 R v Birks (1990) 19 NSWLR 677 R v D [1984] 3 NSWLR 29 R v Maxwell (1998) 217 ALR 452 R v Minister for Immigration and Multicultural and Indigenous Affairs: Ex parte Lam (2003) 214 CLR 1 R v White (1951) 52 SR (NSW) 188 Re City Equitable Fire Insurance Co [1925] Ch 407 Re HIH Insurance Ltd (in prov. liq); ASIC v Adler (2002) 41 ACSR 72 Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051 Rich v Australian Securities & Investments Commission (2004) 220 CLR 129 Russo v Aiello (2003) 215 CLR 643 Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219 Sheahan v Verco [2001] SASC 91 Singer v Berghouse (1994) 181 CLR 207 Thomas v Van Den Yssel (1976) 14 SASR 205 Townsville City Council v Chief Executive, Department of Main Roads [2005] QCA 226 Vrisakis v Australian Securities Commission (1993) 9 WAR 395 Warren v Coombes (1979) 142 CLR 531 Water Board v Moustakas (1988) 180 CLR 491 Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559 Wyong Shire Council v Shirt (1980) 146 CLR 40 PARTIES: Geoffrey William Vines (Appellant) Australian Securities & Investments Commission (Respondent) FILE NUMBER(S): CA 40490/06 COUNSEL: B Oslington QC, Andrew Bell SC (Appellant) S Robb QC, R Beech-Jones SC, E Collins (Respondent) SOLICITORS: Geoffrey Pike, Sparke Helmore (Appellant) Georgina Hayden, ASIC (Respondent) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 3138 of 2001 LOWER COURT JUDICIAL OFFICER: Austin J 22 August 2005 LOWER COURT DATE OF DECISION: 23 December 2005 2 August 2006 ASIC v Vines [2005] NSWSC 738 LOWER COURT MEDIUM NEUTRAL CITATION: ASIC v Vines [2005] NSWSC 1349 ASIC v Vines [2006] NSWSC 760 - 298 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40490/06 SPIGELMAN CJ SANTOW JA IPP JA Wednesday 4 April 2007 Geoffrey William VINES v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION In these proceedings ASIC alleged breaches of s232(4) of the Corporations Law by the Appellant. This section requires officers of the corporation to exercise care and diligence in the performance of their duties. The Appellant, a chartered accountant and former auditor, was the Chief Financial Officer of the GIO Group, but not a director, when a hostile takeover bid for GIO was launched by AMP Limited in 1998. The Appellant had general responsibility for the financial affairs of the GIO Group and undertook specific responsibilities with respect to GIO's response to the takeover, co-ordinating the work of the Due Diligence Committee set up for this purpose. The alleged contraventions related to the calculation of, and communication concerning, a profit forecast for the year 1998-1999, which included a profit forecast for the reinsurance division of GIO Insurance Ltd, GIO Re. GIO Re was exposed to significant claims as a result of Hurricane Georges, which struck North and Central America a month after the takeover bid was announced. Consideration of the impact of exposure to claims from Hurricane Georges on the profit forecast involved three elements: the magnitude of exposure; the possibility, ultimately not realised, of GIO Re obtaining a "retrocession policy" with another reinsurer effective to protect the profit forecast; and the reassessment of reserves maintained to provide for other risks to which GIO Re was exposed, which was achieved. This issue arose during the period in which GIO was preparing its Part B Statement in response to the AMP takeover bid. The conduct of Mr Vines found by Austin J to have contravened the Corporations Law commenced on 9 November 1998 and continued up to, and after, the publication of the Part B Statement on 16 December 1998. At issue was the inclusion of an $80 million profit forecast for GIO Re in the GIO profit forecast at a time when, on ASIC's case, the Appellant knew or ought to have known of facts that should have led him to advise it was improbable that the company would achieve that forecast. Encompassed within the seven contraventions was: (i) A profit forecast of 9 November 1998; (ii) A report and media release of 17 November 1998; (iii) An email of 22 November 1998; (iv) A management sign-off and draft Part B Statement of 8 December 1998; (v) Advice to the Due Diligence Committee of 8 December 1998; (vi) Advice to the Auditor of 8 December 1998; (vii) Conduct after 8 December 1998. The Appellant sought relief from liability under s1317JA or s1318 of the Corporations Law . Both the Appellant and ASIC appealed from the penalty imposed by Austin J. HELD A Standard of negligence (1) Per Spigelman CJ, Santow & Ipp JJA agreeing The standard of care applicable to the statutory duty is of a generally similar character with respect to the identification of the standard of care as under the director's or officer's common law duty and does not call for a higher order of negligence to be established. The civil penalty regime does not attach serious consequences to a finding of contravention without an additional element of seriousness being established. [134], [142]-[143], [146], [150]-[151], [587], [779], [805] Rich v Australian Securities & Investments Commission (2004) 220 CLR 129 considered. Re City Equitable Fire Insurance Co [1925] Ch 407; Byrne v Baker [1964] VR 443; Vrisakis v Australian Securities Commission (1993) 9 WAR 395; Daniels v Anderson (1995) 37 NSWLR 438 explained. Sheahan v Verco [2001] SASC 91; Australian Securities Commission v Gallagher (1993) 11 WAR 105; AWA Limited v Daniels (t/a Deloitte Haskins & Sells) (1992) 7 ACSR 759; R v Bateman (1925) 19 Crim App R 8; Andrews v DPP [1937] AC 576; Akerele v The King [1943] AC 255; Clout v Hutchinson (1950) 51 SR (NSW) 32; R v White (1951) 52 SR (NSW) 188; Callaghan v The Queen (1952) 87 CLR 115; Dabholkar v The King [1948] AC 221; R v D [1984] 3 NSWLR 29 referred to. (2) Per Spigelman CJ, Ipp JA agreeing The statutory duty set out in s232(4) of the Corporations Law is a duty owed to the corporation. It may be that further development of the law will identify a duty owed to creditors or shareholders or employees, but that does not arise in this case. [84]-[86], [805] S 232(4) is based on the common law duty. Other statutory duties are based on the fiduciary relationship of directors to the corporation. [85], [805] GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Pty Ltd [2001] FCA 1761; Vrisakis v Australian Securities Commission (1993) 9 WAR 395; Daniels v Anderson (1995) 37 NSWLR 438; ASIC v Maxwell (2006) 59 ACSR 373 referred to. Per Santow JA The statutory duty set out in s232(4) of the Corporations Law while owed to the company must be accommodated to the overarching related duty to act honestly and in the interests of the company as a whole, meaning for the benefit of shareholders present and future. In so doing it provides a perspective to judge the conduct in question in the context of a hostile takeover where shareholders seek to be informed as to the choice they make whether or not to accept that takeover offer and do not want to be forced to sell on the cheap. [580], [603], [795viii] (3) Per Ipp JA, Spigelman CJ and Santow JA agreeing The duty of a director or officer cannot be defined without reference to the nature and extent of foreseeable risk of harm to the company as well as prospective benefit from the conduct in question. [310], [539], [600], [814] B Denial of procedural fairness: findings outside of the pleaded case (1) Per Spigelman CJ, Santow & Ipp JJA agreeing The context of civil penalty proceedings, and the seriousness of the consequences of the orders sought, inform the content of the requirement of procedural fairness. Whether a denial of procedural fairness occurred if a finding of contravention departs from the pleaded case must be determined in the context of each contravention, subject to the fact, if it exists, that the parties have chosen to fight the case on a different basis: [55], [57], [59], [586], [805] Gould v The Mount Oxide Mines Limited (in liq)and Ors (1916) 22 CLR 490; Dare v Pulham (1982) 148 CLR 658 applied. Banque Commerciale SA En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279; Leotta v Public Transport Commission of New South Wales (1976) 50 ALJR 666 considered. Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559; Adler v ASIC (2003) 46 ACSR 504; Greek Herald Pty Ltd v Nikolopoulos (2002) 54 NSWLR 165; Water Board v Moustakas (1988) 180 CLR 491; R v Minister for Immigration and Multicultural and Indigenous Affairs: Ex parte Lam (2003) 214 CLR 1 referred to. (2) There was no departure in the 12 October 2005 findings from the pleaded case, except with respect to the declarations relating to the sixth contravention. [240], [297], [301], [441], [449], [478]-[479], [485], [535], [586], [679], [706], [762], [773], [805] C Denial of procedural fairness: failure to put matters during cross-examination Per Spigelman CJ, Santow & Ipp JJA agreeing Whether the rule in Browne v Dunn has been observed is a matter of fact and degree. It should be determined with respect to each particular contravention. However, a cross-examination which covered each possible contingency in the context of a number of uncertain variables was not only impractical, but would have been oppressive; [62], [409], [588], [805]. Also see [428]. R v Birks (1990) 19 NSWLR 677; Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219; Browne v Dunn (1893) 6 R 67; Thomas Van Den Yssel (1976) 14 SASR 205; Martin v Rowling [2005] QCA 128; Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1; Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134; Amalgamated Television Services Pty Ltd v Marsen [2002] NSWCA 419; Townsville City Council v Chief Executive, Department of Main Roads [2005] QCA 226 referred to. D Effect of delay in delivery of contraventions judgment Per Spigelman CJ, Santow & Ipp JJA agreeing There was no substance in the contention that the findings of contravention were compromised by the delay in delivery of the contraventions judgment. The judgment was comprehensive and carefully reasoned: [26]-[27], [31], [588], [805] Monie v Commonwealth of Australia [2005] NSWCA 25; R v Maxwell (1998) 217 ALR 452 distinguished. E The relevance of Briginshaw Per Ipp JA, Spigelman CJ agreeing A serious allegation may be proved by circumstantial evidence. [811], [539] Briginshaw v Briginshaw (1938) 60 CLR 336 explained. Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992) 67 ALJR 170; Palmer v Dolman [2005] NSWCA 361 referred to. The Contraventions (1) The First Contravention: 9 November Profit Forecast Per Spigelman CJ, Santow & Ipp JJA agreeing The Appellant did not contravene his statutory duty of care and diligence by making an unqualified statement of management confidence in the profit forecast for GIO Re to the board. [247]-[248], [670], [805] (2) The Second Contravention: 17 November Report & Media Release Per Spigelman CJ, Santow & Ipp JJA agreeing Notwithstanding the fact that the purpose of the report and media release was to advise the market, the Appellant's conduct did not contravene his statutory duty by failing to provide information about the basis on which the profit forecast was computed. [316]-[317], [679], [691], [805] (3) The Third Contravention: 22 November Email Per Spigelman CJ, Santow & Ipp JJA agreeing It was not negligent for the Appellant to fail to include in his email the qualification, found to be necessary by Austin J, with respect to the assumptions on which the profit forecast was based. [359], [360], [366], [697], [700], [805] (4) The Fourth Contravention: Management Sign Off of 8 December Per Spigelman CJ, Ipp JA agreeing; Santow JA dissenting The Appellant contravened his duty of care and diligence when he signed the Management Sign Off having failed to take positive steps to advise the Due Diligence Committee of the basis of the assumptions underlying the profit forecast. [451]-[453], [456], [458], [460], [711], [730], [733], [736], [750], [759], [794], [805], [874] The Appellant failed to take the positive steps which his role and responsibilities required be taken. [412] There was no need to identify an event indicating the estimates should be checked, but there were such matters. [446]-[449], [451]-[453] Per Ipp JA, Spigelman CJ agreeing There were warning signals that would have lead a reasonable person in the position of the Appellant to take steps to verify Mr Fox's advice. [419], [452], [863], [866] Per Santow JA Absent grounds for suspicion the Appellant was entitled to continue to rely on Mr Fox's estimate of the exposure to Hurricane Georges in accordance with the reporting relationship between them then in place and was not required to advise the Due Diligence Committee of the basis of the assumptions underlying the forecast when they were aware of them. [728]-[729], [734] (5) The Fifth Contravention: Advice to Due Diligence Committee of 8 December Per Spigelman CJ, Ipp JA agreeing; Santow JA dissenting The Appellant contravened his duty of care and diligence when he supported the integrity of the GIO profit forecast to the Due Diligence Committee, for the reasons given with respect to Contravention 4. [481], [489]-[490], [763]-[764], [795], [805], [874] (6) The Sixth Contravention: Advice to the Auditor of 8 December Per Spigelman CJ; Santow and Ipp JJA agreeing The findings of Austin J did depart from the pleading. The relevant test for a finding that the parties had deliberately chosen to fight the case on a different basis has not been met. ASIC abandoned its cross-appeal and no declaration in accordance with the pleading can be made. [506], [515], [768], [805] Dare v Pulham (1982) 148 CLR 658; Gould v The Mount Oxide Mines Limited (in liq) and Ors (1916) 22 CLR 490 applied. (7) The Seventh Contravention: Conduct After 8 December Per Spigelman CJ, Ipp JA agreeing; Santow JA dissenting The Appellant contravened his duty of care and diligence in the period after the Part B issued by failing to give attention to whether the GIO Re profit forecast would be achieved. [537]-[538], [774]-[775], [794], [805], [874] The Honesty Defence (1) Per Spigelman CJ, Ipp JA agreeing; Santow JA expressing no view No basis was made out for interfering with the trial judge's discretionary judgment. [556]-[557], [560], [805] (2) Per Spigelman CJ, Ipp JA and Santow JA agreeing The statute requires a value judgment, prior to the exercise of discretion, which may invoke a less restrictive test for appellate intervention. [572], [556], [558], [802], [805] Warren v Coombes (1979) 142 CLR 531; House v The King (1936) 55 CLR 499 considered. Norbis v Norbis (1986) 161 CLR 513; Singer v Berghouse (1994) 181 CLR 207; Coal and Allied Operations Pty Ltd v AIRC (2000) 203 CLR 194; Russo v Aiello (2003) 215 CLR 643; Buller v Black (2003) 56 NSWLR 425; Blackburn v Allianz Australia Insurance Ltd (2004) 61 NSWLR 632; Figliuzzi v Yonan [2005] NSWCA 290; Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41; Murphy v Overton Investments Pty Ltd [2002] FCAFC 129; AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236 cited. (3) Per Spigelman CJ, Ipp JA agreeing, and Santow JA dissenting On the less restrictive test, given the seriousness of the contraventions, relief should not be granted. [561], [573], [802], [805] (4) Per Santow JA Relief should be granted given the nature of the contraventions as no more than errors of judgment, as not being flagrant, as involving no dishonesty on the Appellant's part, and where only three out of seven contraventions were upheld on appeal so discounting the cumulative factor relied on by Austin J. [799]-[802] IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40490/06 SPIGELMAN CJ SANTOW JA IPP JA Wednesday 4 April 2007 Geoffrey William VINES v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Judgment TABLE OF CONTENTS Paragraphs SPIGELMAN CJ 1 I INTRODUCTION 2 II THE GROUNDS OF APPEAL 1 Overview 20 2 Delay 26 3 Departure from Pleaded Case 32 4 Failure to Cross-Examine 60 III STANDARD OF CARE 63 1 Austin J's Analysis of the Standard of Care 66 2 Austin J's Analysis of the Higher Standard Submission 88 3 The Statutory Duty Case Law 98 4 Standard of Care in Crime 117 5 The Statutory Standard 128 6 The Statutory Regime 138 7 Conclusion on Standard of Care 142 IV PRE CONTRAVENTION EVENTS 1 The Appellant's Role 153 2 The Development of the $80 million Forecast 168 3 The Extent of the Exposure to Hurricane Georges 175 4 Retrocession Cover 204 5 Excess Reserves 217 V THE FIRST CONTRAVENTION: THE PROFIT FORECAST OF 9 NOVEMBER 228 VI EVENTS BETWEEN 9 NOVEMBER AND 17 NOVEMBER 1 31 October Results 250 2 Draft Four Month Results 258 3 Hurricane Georges Register 260 4 Mr Vines' Knowledge 265 5 The American Re Agreement 269 6 Due Diligence Documents 276 VII THE SECOND CONTRAVENTION: THE REPORT AND MEDIA RELEASE 17 NOVEMBER 1998 280 VIII THE THIRD CONTRAVENTION: THE EMAIL OF 22 NOVEMBER 1998 319 IX DEVELOPMENTS BEFORE THE PART B 1 The Federal Court Judgment 368 2 The American Re Agreement 369 3 Maintaining the Profit Forecast 376 4 DDC Meeting of 6 December 383 5 Events of 7 December 387 X THE PART B CONTRAVENTIONS 1 The Part B Statement 396 2 The Position on 8 December 402 3 The Appellant's Knowledge as at 8 December 414 XI THE FOURTH CONTRAVENTION: THE MANAGEMENT SIGN OFF AND DRAFT PART B 421 XII THE FIFTH CONTRAVENTION: ADVICE TO THE DUE DILIGENCE COMMITTEE 467 XIII THE SIXTH CONTRAVENTION: ADVICE TO THE AUDITOR 492 XIV THE SEVENTH CONTRAVENTION: CONDUCT AFTER 8 DECEMBER 1998 517 XV REASONS OF IPP JA 539 XVI THE HONESTY DEFENCE 540 XVII PENALTY: APPEAL AND CROSS-APPEAL 575 XVIII ORDERS 577 SANTOW JA XIX INTRODUCTION 579 XX THE STATUTORY DUTY OF CARE AND DILIGENCE IN ITS BROAD APPLICATION 591 1 Elaboration of the Role and Responsibilities of Mr Vines 620 2 Outline of Salient Events with Commentary 628 3 Summing Up 661 XXI THE CONTRAVENTIONS 1 The First Contravention: The profit forecast of 9 November 1998 663 2 The Second Contravention: The report and media release of 17 November 1998 673 a Conclusion 691 3 The Third Contravention: The email of 22 November 1998. 692 4 The Fourth Contravention: The management sign-off. 701 a Reliance by Mr Vines on Mr Fox 723 b Recapitulation 726 c Conclusion 760 5 The Fifth Contravention: Advice to the Due Diligence Committee on 8 December 1998 761 6 The Sixth Contravention: Advice to the Auditor 8 December 1998 765 7 The Seventh Contravention: Conduct after 8 December 1998 769 8 The Contraventions as a whole – a Perspective 778 9 Summation 795 XXII OUGHT MR VINES FAIRLY TO BE EXCUSED? 796 XXIII OVERALL CONCLUSION 804 IPP JA XXIV THE ISSUE ADDRESSED IN THESE REASONS 805 XXV THE RELEVANCE OF BRIGINSHAW 808 XXVI THE POTENTIAL HARM TO GIO ARISING FROM MISLEADING PROFIT FORECASTS AND ITS RELEVANCE TO MR VINES' DUTY 814 XXVII HOW THE PROFIT FORECAST IN THE PART B STATEMENT WAS ARRIVED AT 824 XXVIII MR VINES' RESPONSIBILITY FOR THE PROFIT FORECAST 835 XXIX FACTS KNOWN BY MR VINES RELATING TO THE ACCURACY OF THE PROFIT FORECAST 839 XXX WARNING SIGNALS 863 XXXI CONCLUSION 875 1 SPIGELMAN CJ: I INTRODUCTION 2 The Appellant appeals from the judgment of Justice Austin in which he was found to have contravened s232(4) of the Corporations Law, as preserved in force by subsequent legislation, in proceedings for a civil penalty instituted by the Respondent ("ASIC"). 3 Section 232(4) provided: "In the exercise of his or her powers and the discharge of his or her duties, an officer of the corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances." 4 His Honour rejected the case of the Respondent in a number of respects. In the respects in which his Honour upheld that case and made findings of contravention, the Appellant appeals. 5 It is convenient to refer to his Honour's first judgment as the Contraventions Judgment (ASIC v Vines [2005] NSWSC 738; 55 ACSR 617). 6 This judgment also dealt with contraventions by two other officers of the same corporation, which proceedings were heard together with the proceedings against the Appellant. 7 The Appellant sought relief from liability under s1317JA or s1318 of the Corporations Law. Those sections provide, relevantly: "1317JA(2) Where, in eligible proceedings against a person, it appears to the court that the person has, or may have, contravened civil penalty provisions but that: (a) the person has acted honestly; and (b) having regard to all the circumstances of the case (including, where applicable those connected with the person's appointment as an officer of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention; the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention." "1318(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit." 8 His Honour rejected these defences in a second judgment. (ASIC v Vines [2005] NSWSC 1349; 65 NSWLR 281.) The Appellant appeals from this decision. It is convenient to refer to this as the Honesty Judgment. 9 Save with respect to this aspect of the appeal, the Honesty Judgement is not directly relevant to other grounds of appeal. However, the Respondent often referred to it as a useful summary of the Contraventions Judgment and did so without objection. Furthermore, the Appellant expressly relied on it, again without objection, to elaborate on findings in the Contraventions Judgment. Some limited reference to the Honesty Judgment on the principal appeal is, in these circumstances, appropriate. 10 In a third judgment his Honour considered penalty. His Honour made eleven declarations of contravention. He imposed a fine of $100,000 and disqualified Mr Vines from acting as a director for three years. (ASIC v Vines [2006] NSWSC 760; 58 ACSR 298.) It is convenient to refer to this as the Penalty Judgment. The Appellant appeals from the penalties imposed upon him. 11 Mr Vines was the Chief Financial Officer of GIO Australia Holdings Ltd ("GIO"), a company listed on the Australian Stock Exchange and engaged in insurance. On 25 August 1998, a takeover bid for the shares in GIO was announced by another insurance company, AMP Limited. This was a hostile takeover bid and was resisted by the board of GIO. 12 As required by the Corporations Law, GIO in due course published its Part B Statement on 16 December 1998. That Part B Statement contained a profit forecast for the year 1998-1999 of A$250 million for the GIO Group. The amount included a forecast profit of A$80 million for GIO Re, the reinsurance division of GIO Insurance Ltd, a subsidiary of GIO. 13 As can readily be appreciated, the profit forecast was of considerable significance in the context of a hostile takeover battle. The Part B Statement was accompanied by a number of documents which are pertinent to specific contraventions. I will refer to those documents in the context of dealing with each contravention. 14 These proceedings focused on the validity of the $80 million profit forecast for GIO Re. That division was exposed to significant claims as a result of Hurricane Georges which struck Puerto Rico and the United States Virgin Islands, moved into the Gulf of Mexico and made land fall in Mississippi in the period from 21 to 28 September 1998. This was about a month after the takeover bid had been announced and occurred during the period in which GIO was preparing its Part B Statement. 15 The conduct found to have contravened the Corporations Law on the part of Mr Vines commenced on 9 November 1998 and continued up to and, indeed, after the publication of the Part B Statement on 16 December 1998. The principal issue with respect to each of the alleged contraventions was whether Mr Vines contravened the statutory duty of care and diligence in or in connection with the profit forecast for GIO, by reason of the impact of Hurricane Georges on GIO Re, having appropriate regard to other matters relating to the making of the profit forecast for the GIO Group. 16 There were, relevantly, three elements which were under consideration for the purposes of determining the profit forecast for GIO Re. Each of these elements varied from time to time. 17 The first element was the magnitude of the exposure to Hurricane Georges. The hurricane had occurred but the final size of the claims to which GIO Re's policy would have to respond could only be estimated. 18 The second element was the possibility of GIO Re obtaining a policy with another reinsurer, known as a "retrocession policy", which would enable it to assert, relevantly for accounting purposes, that it had transferred the risk of its exposure to Hurricane Georges exceeding the amount of A$25 million that had been taken into account in the computation of the $80 million GIO Re profit forecast. 19 The third element was a reassessment of the reserves made by way of provision for other risks to which GIO Re was exposed. The reserves for GIO Re's exposure to professional negligence insurance is referred to as MIPI. The argot of insurers used the terminology of an "unders and overs" analysis by which extant reserves would be assessed, some of which made inadequate provision ("unders") while others made excessive provision ("overs"). MIPI was accepted to have been one of the "overs" for which an adjustment needed to be made. II THE GROUNDS OF APPEAL 1 Overview 20 The further Amended Notice of Appeal contains 34 separate grounds. I will deal with these grounds under a series of headings and subheadings to encompass the following matters: (i) Failure to adopt a higher standard of negligence. (ii) Denial of procedural fairness by the making of findings outside of the pleaded case. (iii) Denial of procedural fairness by the failure to put matters to the Appellant by way of cross-examination. (iv) The effects of delay in delivery of the Contraventions Judgment. (v) The failure to deal with the full range of submissions made on behalf of the Appellant. (vi) Challenges to findings of fact including assertions that the findings were not supported by the evidence, that findings were not made on constituent elements and the implications of the rejection of constituent elements, together with specific error in a finding in the judgment at [916]. (vii) Challenges to each finding of contravention which I will consider under the following subheadings (the contraventions being dealt with in their order chronologically rather than as numbered in the pleadings): · The Profit Forecast of 9 November 1998. (The First Contravention) · The Report and Media Release of 17 November 1998. (The Second Contravention) · The Email of 22 November 1998. (The Third Contravention) · The Management Sign-Off and Draft Part B of 8 December 1998. (The Fourth Contravention) · Advice to the Due Diligence Committee of 8 December 1988. (The Fifth Contravention) · Advice to the Auditor of 8 December 1998. (The Sixth Contravention) · Conduct after 8 December 1998. (The Seventh Contravention) 21 As noted above, a number of the contraventions found by his Honour occurred on 8 December 1998, being the date on which the contents of the Part B Statement were finalised. The sting in each of the contraventions found by Austin J concerned the fact that statements were made on the basis of an $80 million profit forecast for GIO Re at a time when the Appellant knew or ought to have known of facts that should have led him to advise it was improbable that the company would achieve that forecast. 22 There was, in substance, a single course of conduct on 8 December constituted by a series of discreet acts which I will consider, as noted above, in the following sequence: (a) Execution by the Appellant of a document headed "Management Sign-Off" for purposes of inclusion in the Part B Statement. (b) Advice to the Due Diligence Committee of the Board (the "DDC") for purposes of Board approval of the Part B Statement. (c) Advice to Price Waterhouse Coopers Securities ("PwC") for the purposes of that company's report to be included in the Part B Statement. 23 Each of the matters set out as (v), (vi) and (vii) in par [20] above – failure to deal with submissions, challenges to findings of fact and to each finding of contravention – are best considered in the context of each contravention. I will set out his Honour's factual findings which determine the overall context and the findings of fact up to the time of the first contravention. Thereafter I will consider each contravention chronologically, under the subheadings I have indicated, with sections indicating developments between contraventions. 24 With respect to the assertion that certain submissions were not dealt with, I note his Honour's express observation at the outset of his judgment: "Although the judgment is long, I have not set out and expressly dealt with every written and oral submission (cf Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58, at [282]-[291]). I have done my best to consider every submission, but I have confined my express reasons for judgment to the findings of fact and submissions that I regard as material, in the sense of being significant to "the decision-making process": see Customs and Excise Commissioners v A [2003] 2 All ER 736, at 753-4; and Digi-Tech at [284]." 25 His Honour's approach was entirely appropriate. No submission was made that it was not. Nor that the authorities to which his Honour referred were inapplicable. 2 Delay 26 The Appellant relies on the fact that some 16 months elapsed between the conclusion of oral submissions and the delivery of the Contraventions Judgment. Reliance was placed on the principles applied in R v Maxwell (1998) 217 ALR 452 and Monie v Commonwealth of Australia [2005] NSWCA 25; 63 NSWLR 729. I observe, first, that the careful detailed and comprehensive judgment of Austin J under appeal in this case does not suggest even a glimmer of a comparison with either of the judgments dealt with in Maxwell and Monie. Indeed, throughout the Appellant's submissions frequent reference is made to the care and cogency of his Honour's analysis and reasoning, whenever it suits the Appellant's case. 27 In the event the Appellant was reduced to submitting that, whilst his Honour's careful and detailed analysis of the facts was "full and closely reasoned", this Court should hold that the ultimate findings of contravention should be regarded in a different way. 28 During the course of this submission the Appellant relied on a document produced by Austin J after the Contraventions Judgment was handed down, setting out 147 corrections to the original judgment. Almost all of these corrections were typographical and I can see no basis for drawing any kind of adverse inference from their number, in the context of a judgment of this size and complexity. The 147 corrections upon which the Appellant relied in his written submissions included a significant number of omitted commas and trifling spelling errors, missing letters or numbers in the typescript and occasionally inappropriate capitalisation. Even so, the number of 147 corrections was, as the Respondent submitted, something like 0.08 percent of the number of words in the Contraventions Judgment. 29 These proceedings involved three interrelated cases against three different individuals. The reasons in the case of Mr Vines were only one part of this judgment. There were 56 days of hearing, 4,740 pages of transcript, around 3,000 pages in the original tender bundle and over 800 pages of written submissions. The final judgment itself consists of 1,495 paragraphs over 292 pages. A lengthy delay was to be expected in a case of this magnitude. That was not the case in either Maxwell or Monie. 30 In the event, in submissions in reply the Appellant advanced a limited number of propositions, abandoning a number of matters that it had emphasised in its original written submissions. It first said that this was a case that required "greater scrutiny" than other judgments that come on appeal. This Court has given the appeal appropriate scrutiny. It was also submitted that the Court should not "readily assume" that the trial judge took into account evidence and submissions not expressly referred to in the judgments. This Court is not in the habit of "readily assuming" anything of the character. The Appellant's submissions to the effect that his Honour failed to deal with certain submissions or made inappropriate factual findings, or failed to make appropriate factual findings will be dealt with on their merits in the context of the respective contraventions that his Honour ultimately found. 31 The length of time that elapsed before delivery of the final judgment was much longer than anyone would have wished. However, the case involved a considerable level of complexity with numerous factual issues needing to be decided in the three separate proceedings that had been heard together. Furthermore, this Court is not in a position to allow a trial judge to concentrate on a single case to the exclusion of other cases. Austin J would have been interrupted frequently in the course of preparing judgment in this matter. In the event, his Honour has prepared a judgment which deals comprehensively with the full range of issues in a sensitive, detailed and thorough manner. The reliance placed on the delay and on the list of typographical errors by the Appellant is entirely unwarranted. 3 Departure from Pleaded Case 32 The Appellant submits that none of the trial judge's findings of contravention fall within the pleaded case. The Appellant submits that each finding of contravention was materially, substantially and prejudicially outside the pleading. The Appellant submits that in each case the departure from the pleadings was such as to constitute a denial of procedural fairness. He further submits that the gravity of the consequences that attend civil penalty proceedings is such that the significance of any departure from the pleaded case is magnified. 33 The Respondent asserts that his Honour's findings of contravention did not depart from each charge as pleaded. It acknowledges that, as the trial developed, certain further particulars of conduct emerged which were within the scope of the pleading properly understood. These particulars became the subject of findings by Austin J, but only after the Appellant had had a full opportunity to deal with them. 34 Accordingly, ASIC submits that insofar as these particulars were either within the scope of the pleading, or constituted particulars of matters that were not the subject of any pleading, there was no denial of procedural fairness. As will appear below, each charge as pleaded took the form of identifying an act together with, generally, particulars of Mr Vines' state of knowledge. As will appear, some of the matters of which complaint is made are not particulars of knowledge and, therefore, are not a departure from the pleaded case. Even if, as appears to be the case, no particulars of such matters were sought or received, an issue of procedural fairness could still arise. It will be necessary to assess whether there was a denial of procedural fairness in any respect. 35 The Appellant relied particularly on the following passages from the judgment in Banque Commerciale SA En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279. 36 In the joint judgment of Mason CJ and Gaudron J, their Honour's said at 286: "The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd in liq) (1916) 22 CLR 490 at p517, per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, e.g. Browne v Dunn (1893) 6 R at p76; Mount Oxide Mines (1916) 22 CLR 490 at pp517-518." 37 Furthermore, Brennan J said at 288: "When the pleadings bring the parties to the issue, the court's function is to determine that issue and to grant relief founded on the pleadings unless the parties are allowed to alter the issues at the trial without amendment of the pleadings (as to which, see the observations in London Passenger Transport Board v Moscrop [1942] AC 332 at pp340, 347, 351, 356. The rule is clearly laid down in the judgment of this Court in Dare v Pulham (1982) 148 CLR 658 at p664: 'Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings ( Gould and Birbeck and Bacon supra at pp517, 518 ; Sri Mahant Govind Rao v Sita Ram Kesho (1898) LR 25 Ind App 195 at p207).' " 38 The Appellant also relied on the observations of this Court in Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559 at 603 where the Court said: "[164] In our opinion, a finding of breach of s.232(2) was not open on the way the case was put by the respondent. This was a charge of serious misconduct, and as such had to be formulated with precision. Neither of the two possibilities we have raised was canvassed in the case, either in the pleadings or during the twelve-day hearing before the primary judge. Even now, they have not been advanced by the respondent, either in a Notice of Contention or in any other appropriate way. In relation to them, natural justice has not been afforded to the appellant. It would not in those circumstances be right for this Court to consider and rule upon some new basis which it has itself formulated, such as these two possibilities. [165] In those circumstances, our conclusion must be that, even if the appellant had been found to have deliberately failed to sign the poll paper, this could not, on the way the case was pleaded and conducted, have been found to be a breach of s.232(2). Accordingly, we do not think it would be appropriate to order a new trial on this issue." 39 In response to these submissions, the Respondent referred to the observations of Giles JA, with whom Mason P and Beazley JA agreed, in Adler v ASIC (2003) 46 ACSR 504, where his Honour said, after referring to Banque Commerciale v Akhil Holdings, with respect to the function of pleadings: "[139] But their function as a foundation for procedural fairness means that whether matters were within or outside ASIC's pleaded case must have regard to the pleading as a whole and should not be approached with undue pedantry." 40 Giles JA went on to repeat the observations of Mason P in Greek Herald Pty Ltd v Nikolopoulos (2002) 54 NSWLR 165, with respect to a pleading of defamatory imputations, where his Honour said at [18]: "The pleader's task is to capture the essence of the specific matters imputed in relation to the plaintiff. Necessarily there will be questions of degree and 'if a problem arises, the solution will usually be found in considerations of practical justice rather than philology' (per Gleeson CJ in Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135 at 137). In this as in other areas, pleadings serve the ends of justice; they must not be permitted to assume an independent self-referential function. The pleaded imputation remains 'the statement which, as the plaintiff alleges, the publication gives the reader or viewer to understand' (per Mahoney JA in Singleton v Ffrench (1986) 5 NSWLR 425 at 428). It is not a straitjacket, although the rules of procedural fairness place limits upon judge and jury's capacity to enlarge the issues." 41 In Adler v ASIC Giles JA noted at [140] that "particulars serve the same function, but for a further reason are not a straitjacket". His Honour went on to refer to Dare v Pulham (1982) 148 CLR 658, to which I will further refer below. Giles JA concluded: "[141] The underlying regard to procedural fairness is material to whether it should be concluded that a pleaded and particularised case, fleshed out by evidence, was not open to a party." 42 It was recognised in the two judgments from Banque Commerciale v Akhil Holdings that I have quoted above, that there was an exception to what was described as a general rule that the case is confined by the pleadings. That exception was characterised as one where the parties have "deliberately chosen some different basis" for the determination of the issues. The two High Court authorities referred to for this proposition are Gould v The Mount Oxide Mines Limited (in liq)and Ors (1916) 22 CLR 490 and Dare v Pulham supra. As the Respondent relies on this proposition it is pertinent to set out the reasons of the High Court in these two cases. 43 In Mount Oxide Mines supra at 517-518 Isaacs and Rich JJ said: "Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleading should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out it is impossible for either of them to hark back to the pleadings and treat them as governing the area of context … There are qualifications, no doubt, and each case must depend for the proper application of the principle upon its own facts. It has been laid down by the Privy Council that 'as a rule relief not founded on the pleadings should not be granted'. 'But in this case' (said their Lordships) 'the substantial matters which constitute the title of all the parties are touched, though obscurely, in the issues; they have been fully put in evidence, and they have formed the main subject of discussion and decision in all three courts. The High Court are right in treating the cases as not within the rule. [ Srimahant Govind Rao Sita Ram Kesho 25 Ind App 195 at 207.]" 44 In Dare v Pulham supra the joint judgment of the High Court said at 664: "Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it ( Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq) (1916) 22 CLR 490 at p517); they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial ( Miller v Cameron (1936) 54 CLR 572 at pp576-577); and they give a defendant an understanding of a plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings ( Gould and Birbeck and Bacon at p517, 518); Sri Mahant Govind Rao v Sita Ram Kesho (1898) LR 25 Ind App 195 at p297). But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence. Particulars may be amended after the evidence in a trial has closed ( Mummery v Irvings Pty Ltd (1956) 96 CLR 99 at pp111, 112, 127), though a failure to amend particulars to accord precisely with the facts which have emerged in the course of evidence does not necessarily preclude a plaintiff from seeking a verdict on the cause of action alleged in reliance upon the facts actually established by the evidence ( Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 at p446; 50 ALJR 666 at p668)." 45 The last mentioned authority in this extract is Leotta v Public Transport Commission of New South Wales (1976) 50 ALJR 666 and the reference was to the judgment of Stephen, Mason and Jacobs JA, who said at 668: "The pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence which had emerged … Now and for many years past, a plaintiff does not fail while being refused leave to amend or through failure formally to apply for amendment, where the evidence had disclosed a case in the cause of action fit to be determined by the tribunal of fact." Their Honours went on to contrast a situation at 668-669: " … Where amendment would not raise a fresh issue based on a different duty of care but would only amend the expression of the course of events so that the facts pleaded would conform with the evidence given." 46 It is, of course, of significance that these observations were made in the context of proceedings in negligence for damages. 47 ASIC submits that the Appellant's submissions were based on an over simplified version of the way in which the trial was conducted. It submits that a simple comparison between the Statement of Claim and the reasons for judgment was not appropriate and that what was required, in order to determine whether "the trial judge correctly addressed the issues which were contested before him", was a detailed consideration of the Statement of Claim and certain other matters. 48 The ASIC submissions referred to the expert witness called by ASIC, Mr Hogendijk, giving particular attention to the nature of the objections which the Appellant made to the admissibility of Mr Hogendijk's evidence and to the detailed cross-examination of Mr Hogendijk, together with the evidence in chief given by the Appellant and his cross-examination. ASIC placed particular reliance on the fact that the Appellant did not object to those parts of Mr Hogendijk's evidence at issue in the appeal on the basis that any of them fell outside the pleaded case. There were objections, including objections as to relevance, but no objection on the basis that they were outside the pleaded case. This submission appears to be correct. Particular attention was drawn to the detailed cross-examination by counsel for the Appellant about each of the matters said to constitute the conduct about which there was a finding of contravention. 49 ASIC also drew attention to the fact that, with two exceptions which it submits are not material, no submission was made in written or oral submissions before Austin J to the effect that ASIC's submissions with respect to the contraventions were not permissible on the ground that any one of them was outside the pleaded case. 50 ASIC further submitted to this Court: "The Appellant has adopted an unduly technical approach to the function of pleadings and circumstances where the contraventions were squarely raised at trial." 51 In many respects his Honour accepted the evidence given by the Appellant and, for that reason, made findings adverse to the ASIC case which had been set out in the pleadings and particulars provided by ASIC in the absence of knowledge of the case to be mounted by way of defence. A specific example was the use by the Appellant of his own "Unders and Overs" schedule, to which I will refer below, which played a significant role in the evidence in a number of respects. There can be no basis, ASIC submits, for a conclusion that the Appellant has been denied procedural fairness in circumstances where he has been given a full opportunity to be heard. 52 In conclusion, ASIC's submission to this Court was: "While the specific findings of contravention made by the trial judge are not always formulated in terms identical to ASIC's pleaded contraventions, they capture the substance of, and are not inconsistent with, the specific matters pleaded and reflect the evidence at trial." 53 Nevertheless, it is of significance that at no stage of the case, including after the evidence given by Mr Vines in his own case, did ASIC seek to amend its pleadings or particulars. This may have been advisable in a context where, given the fact that Mr Vines was not obliged to disclose his case or any evidence before the close of the ASIC case, that case could have been modified, consistently with the requirements of procedural fairness, after it closed. Indeed, even an indictment can be amended during the trial. (See s21 of the Criminal Procedure Act 1986.) 54 However, primarily with reference to the evidence of Mr Hogendijk, ASIC relied upon the following observations in Water Board v Moustakas (1988) 180 CLR 491 at 495: "In deciding whether or not a point was raised at trial no narrow or technical view should be taken. Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet. In cases where the breach of a duty of care is alleged, the particulars should mark out the area of dispute. The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings. Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged. (See Dare v Pulham (1982) 148 CLR 658) In Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 at p668; 9 ALR 437 at p446), a case having been submitted to the jury which was factually different from that alleged in the pleadings and particulars, Stephen, Mason and Jacobs JJ observed that the pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence. The failure to apply for the amendment in that case was held not to be fatal. But in Malone v Commissioner for Railways (NSW) (1978) 53 ALJR 291 at p294; 18 ALR 147 at pp151-152), Jacobs J, with whom the other members of the Court agreed, pointed out that the conclusion in Leotta was reached only upon the presupposition that the new issue or new way of particularizing the existing issue had emerged at the trial and had been litigated. It is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial, especially where a particular is equivocal." 55 In the present case, this matter must be assessed in the context of civil penalty proceedings. The seriousness of the consequences that may arise in such a case is greater than in a civil action for damages. Accordingly, the necessity to formally amend is significantly higher than would otherwise be the case. Particulars which are, to use the terminology of Moustakas "equivocal" or, to use the terminology of Mr S Robb SC, who appeared for ASIC, which have a "penumbra of uncertainty", will not readily be understood in their broadest sense. Nevertheless, the issue is one of procedural fairness and the course of the trial may determine that there has been no failure in that regard. 56 It will be necessary below to consider the alleged departure from pleadings in the context of some of the contraventions which his Honour found. If necessary at all, the role of Mr Hogendijk's evidence may need to be considered. The Respondent contends that in no respect did the Appellant object to the evidence of Mr Hogendijk as falling outside the pleaded case, indeed, that there was extensive cross-examination with respect to the very matters that were found to have constituted the contraventions. Furthermore, both ASIC and the Appellant addressed Mr Hogendijk's evidence in submissions. 57 If necessary at all, each contravention will have to be addressed separately with a view to determining whether, in any respect in which there is found to be a departure between the pleadings and the finding of contravention, the test that the parties have chosen to fight the case on a different basis has been met. (The relevant test being that as set out in Mount Oxide Mines and Dare v Pulham, quoted above.) 58 It may also be necessary to assess the significance of any departure from the pleadings in view of the express statutory requirement in s1317EA(2), set out above, that any declaration of contravention must identify "a specified act or omission" which constitutes the contravention. 59 The Appellant's submissions rely on the application, in the circumstances of the proceedings, of the requirement of procedural fairness. The seriousness of the consequences of the orders sought and, in the event, visited upon the Appellant, must inform the content of that requirement. Nevertheless, as is well established, procedural fairness does not involve a fixed body of rules to be applied in a formulaic manner. As Gleeson CJ said in R v Minister for Immigration and Multicultural and Indigenous Affairs: Ex parte Lam (2003) 214 CLR 1 at [37]: "Fairness is not an abstract concept. It is essentially practical. Whether one talks of procedural fairness or natural justice, the concern of the law is to avoid practical injustice." 4 Failure to Cross-Examine 60 The test of "practical injustice" also reflects Chief Justice Gleeson's analysis of the "rule" in Browne v Dunn in R v Birks (1990) 19 NSWLR 677 at 688: "It is plain that their Lordships, whilst recognising and affirming a rule of practice in the terms in which they expressed themselves, also recognised the need for flexibility in its application. That need arises from the very nature of the subject matter which it concerns. The central purpose of the rule is to secure fairness in the conduct of adversary proceedings. That consideration provides the best guide, both to the practical requirements of the rule in a given case, and to the consequences which may properly flow from its non-observance, including the remedies that are available to deal with a problem so created." See also Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219 at 235-237. 61 There is no unfairness where the relevant witness has had notice before giving evidence of the matter in issue, e.g. of an "intention to impeach the credibility of the story he is telling" (Browne v Dunn (1893) 6 R 67 at 71), as in personal injury cases where damage is always in issue (Thomas Van Den Yssel (1976) 14 SASR 205 at 207-208; Martin v Rowling [2005] QCA 128 at [4]); or where notice has been given of reliance on certain matters; (Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 16; Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134 at 148) e.g. where material was already in evidence and a witness "could have dealt with it but chose not to" (Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 at [438]) or where it was clear from one expert's report that the methodology and opinion of another expert was contested (Townsville City Council v Chief Executive, Department of Main Roads [2005] QCA 226; [2006] 1 Qd R 77 at [51]-[52]). 62 The Appellant relied on the "rule" in Browne v Dunn supra as a rule of procedural fairness requiring that the "central propositions in a particular party's case and/or matters central to critical facts found" be put to a witness or party. This matter arises in the context of specific findings and it is appropriate to consider this ground where it is raised with respect to particular contraventions. Matters of fact and degree necessarily arise with respect to the application of this principle. No submission was made to the effect that the rule in Browne v Dunn, as an application of procedural fairness, was not applicable. Whether the rule was not observed has to be determined with respect to each particular contravention. III STANDARD OF CARE 63 The Appellant repeated in this Court the submission made before Austin J that the degree of negligence that must be established to constitute a contravention of s232(4) is higher than that which would support a claim of negligence at common law. The Appellant directed attention to the consequences of a finding of a breach of the statutory provision which include a declaration of contravention, penalties in the form of monetary fines, disqualification from office and compensation orders. These consequences are wider than the damages that could be awarded in a claim of negligence at common law. The Appellant submits that in this statutory scheme the failure to act with care and diligence must be "gross enough to become a matter of public concern, to interest the State by reason of its gravity". 64 In support of this submission the Appellant relied on the case law for criminal offences which can be committed by negligent conduct, where a higher standard of care had been adopted. I will discuss these cases below. The Appellant relied, by way of analogy, on the general approach to the legislative scheme here under consideration adopted by the High Court in Rich v Australian Securities & Investments Commission (2004) 220 CLR 129. 65 His Honour rejected this submission after a consideration of the cases relied upon by the Appellant. The Respondent submits that his Honour was correct for the reasons he gave. 1 Austin J's Analysis of the Standard of Care 66 When Austin J considered the Appellant's submission on the standard of care in the Contraventions Judgment, his Honour expressly referred to and adopted his own earlier analysis in the course of a ruling on the admissibility of expert evidence with respect to the conduct of a competent chief financial officer of a corporation. (See ASIC v Vines [2003] NSWSC 1116; 48 ACSR 322). I will refer to this as the Expert Evidence Judgment. In that judgment his Honour indicated that his ruling on evidence would not preclude further submissions on the matter but, having heard such submissions, his Honour remained of the view that he had expressed in the ruling on evidence. In substance, his Honour incorporated the Expert Evidence Judgment into the Contraventions Judgment. 67 Both in the Expert Evidence Judgment and in the Contraventions Judgment his Honour gave particular attention to the question of whether s232(4) of the Corporations Law adopted an objective standard of care and found that it did. The Appellant does not question this aspect of the reasoning. His Honour also held that the words "in a like position" in s232(4) incorporate both the designated executive office held by each defendant (in Mr Vines' case the post of Chief Financial Officer) and any additional responsibilities relevantly, in Mr Vines' case, the particular responsibilities he acquired after the announcement of the AMP takeover bid, especially with respect to the formulation of the Part B Statement. (See at [1062].) The Appellant does not challenge this aspect of his Honour's analysis. 68 His Honour commences his consideration of the issue of standard of care in the following way: "[1070] Given the language of s 232(4) and the case law interpreting it (especially the recognition in Daniels v Anderson that the statutory formula includes a standard of skill), it seems to me that the general law of torts may now be called in aid as a source of guiding principles for the content of the statutory standard of care of company directors and officers. The statutory standard should not be treated as an idiosyncratic and isolated phenomenon, at any rate so far as the content of the duty is concerned. It seems to me that this is so whether the general law duty of care of company directors and officers is an equitable duty arising out of a fiduciary relationship, or now part of the general law of torts; and if it is equitable, whether it is the equitable standard that is adopted by the statute. Ascertaining whether the statutory standard adopts the substance of an equitable duty may be a matter of significance where the issue is (say) measure of compensation or causation, but that matter does not appear to be significant where the issue is the content of the standard of care. It is therefore of assistance to look to the general law of torts ." [Emphasis added] 69 His Honour referred to the well-known passage in the judgment of Mason J in Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47 identifying the significance of an assessment, when determining what reasonable care required in particular circumstances, of both the magnitude of the relevant risk and the degree of probability of its occurrence. 70 In this, as in many other respects, the structure of proceedings for contravention of the statutory duty of skill and diligence differs from that which is usually to be found in a case based on negligence at common law. The proceedings do not have the benefit of the particular focus occasioned by having a specific plaintiff before the Court who suffered damage in specific circumstances. 71 With respect to the issue of "magnitude of risk" his Honour referred to a formulation of Dixon J in Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580 at 601 when his Honour said: "In considering the extent and nature of the measures that due care demands, the first question must be the gravity, frequency and imminence of the danger to be provided against." 72 Austin J went on to say: "[1074] In the present case the danger to be provided against was that the GIO shareholders might be left in a position of making their decision whether to accept or reject the AMP takeover bid on the basis of inaccurate or incomplete information, if the defendants or any of them failed to discharge their statutory duty of care and diligence. If, in consequence of the defendants (or any of them) breaching their duty by conduct which allowed too high a profit forecast to be published, GIO shareholders were to decide not to accept the takeover offer, the risk to them would be that they would find themselves locked into a minority position in a company, management control of which had passed under the bid. Without, at this stage, making any findings about causality or remoteness of damage, the court can infer that this risk was a substantial one, because the liquidity of the market for a listed target company's shares, and the share price, will ordinarily be adversely affected once control has passed and any control premium has evaporated. [1075] The statutory standard set by s 232(4) establishes an inquiry as to the degree of care and diligence that a reasonable person "would exercise", not what a reasonable person might do. The standard is similar in concept to the standard that applies in professional negligence cases . If a professional person acts as a reasonable professional would act, he or she is not negligent even if many others would have acted differently in the circumstances. In applying the general standard of care and diligence to a professional person such as a lawyer, auditor, actuary, reinsurance manager or chief financial officer, the law distinguishes between negligence and mere mistakes." [Emphasis added] 73 With respect to the issue of "probability of occurrence" his Honour said: "[1072] … The three defendants occupied positions which, in somewhat different ways, were capable of influencing the content of GIOs Part B Statement and in particular, the profit forecast. It seems reasonable to infer that the content of the Part B statement, and in particular, the level of the profit forecast, was likely to influence GIO shareholders in making their imminent decision whether to accept or reject the AMP bid. Therefore in this case there was a significant likelihood that failure by the defendants, or any of them, to discharge their duty of care and diligence would be likely to cause harm." 74 After referring to other authorities his Honour then said: "[1077] … Forecasting in a reinsurance business is a difficult and uncertain process, where there is much room for differences of opinion and even small variations of input can produce widely different outcomes (see section 1.2). The issue under s 232(4) is not whether the defendants made mistakes during the course of the due diligence process, but whether they failed to meet the standard of care and diligence that the statute lays down. The statutory standard, like the general law, permits the court to take into account the circumstances of the particular case, and requires the standard to be applied to those circumstances as they existed at the relevant time, without the benefit of hindsight." 75 Austin J went on to discuss the role of the law in protecting investors in the context of public fundraising and takeover battles. His Honour identified the significance of a profit forecast in this context, outlined the practice that had emerged of a formal due diligence process and referred to the particular role of Part B Statements. In this context his Honour said: "[1082] … the Part B process shared with prospectus offerings the fundamental characteristic that the information to be conveyed to investors was vitally important information for the purposes of the decision they were invited or required to make. [1083] … What is important for present purposes is that the process was very much the formal due diligence committee-dominated process that had become the practice in other areas. Mr Vines made clear in his letter to executives dated 10 November 1998 that the purpose of the due diligence process was to identify matters to be disclosed in the Part B statement and to ensure that the document complied with the law … [1084] It was plain to anyone who read those documents, and must have been plain to the defendants, that the information given to the DDC would be considered for inclusion in the Part B statement. The same is true of information given to PwC, since it was well-known that PwC Securities was preparing a report upon which the DDC and the board of directors of GIO Australia Holdings would rely for the purposes of the Part B statement …" 76 His Honour concluded: "[1085] … the matters that I have described affected the standard of care and diligence to be met by the three defendants. When they provided information for the purposes of the Part B statement, either to the DDC or to PwC, their standard of care and diligence was influenced by the circumstance that the information was provided within the framework of a due diligence process that was designed to ensure adequate and materially complete disclosure to GIO shareholders in compliance with the law and in a fashion that would protect those involved in the process from liability should a defect later be discovered in the document. These circumstances made it necessary for the defendants to take particular care in providing information. Moreover it was or should have been clear from the questionnaire that it would not be enough for them to confine their attention to what they knew, in circumstances where they could uncover material information by appropriate inquiries. It was apparent that the DDC was relying on senior executives including the three defendants to give their conscientious and careful attention to the documents they were asked to complete and to the information they were to provide in other contexts, such as in discussions with PwC." 77 As appears from par [1074] of the judgment of Austin J, set out in par [72] above, that his Honour identified a particular risk, namely the "danger" that GIO shareholders might make their decision as to whether or not to accept or reject the AMP bid on the basis of inaccurate information. He referred to the possibility that some could reject the bid in the case of a high profit forecast and then be locked into a minority position. However, in the passage of his judgment which identified the higher "due diligence" standard, which the board of GIO had determined should be applicable to the Part B process, as set out in pars [75]-[76] above, his Honour held that the standard of care and diligence applicable to Mr Vines extended to the contents of the Part B Statement, irrespective of the position of particular GIO shareholders. I do not understand his Honour in the ultimate analysis to have restricted himself to the limited danger he identified in his par [1074]. 78 The section of his judgment which was concerned with the relevant standard encompassing a "due diligence" element, commenced with the following: "[1078] The law imposes heavy civil, and sometimes criminal, liability on those who provide misleading information to the public securities markets about the price or value of 'securities'. The law is concerned with the protection of investors by endeavouring to ensure that the information upon which they make their investment decisions is materially accurate and complete. Issues of high public policy are involved." 79 A focus on the risk of existing GIO shareholders being locked in as minority shareholders, as suggested in his Honour's [1074], is too narrow a focus for the scope of the duty and the determination of the relevant standard of care. Nor, in my opinion, did his Honour adopt so narrow a focus as his consideration of the significance of the "due diligence" process indicated. His Honour held that the standard of care and diligence was determined and, it would appear, rendered higher than usual, by reason of the decision of GIO to approach the bid on the basis of adopting a "due diligence" approach. 80 In his Honour's par [1085], which I have quoted at [76] above, he referred not only to the necessity of "disclosure to GIO shareholders" but went on to refer to the need to "protect those involved in the process from liability should a defect later be discovered in the document". 81 The reference to "parties involved in the process" would encompass the directors and auditors who could be exposed to liability if, relevantly, the profit forecast proved to be negligently wrong. Most significantly, the reference to "parties" included the GIO itself as a corporate entity. 82 No submission was made that his Honour's reference to the risk to existing shareholders being locked in was inappropriate. In any event, the reference to the exposure of "parties involved in the process" is sufficient to extend the relevant "danger", against which the exercise of care and diligence was required, to actions by shareholders against, most relevantly, the company itself. 83 Indeed, somewhat accidentally, one of the authorities which indicates the possible exposure of the company to such a suit by shareholders – albeit not in a way which is pertinent factually to the present case – is an action by shareholders of the GIO with respect to subsequent conduct concerning the exposure of the GIO's reinsurance business which, with respect to an earlier time, is in issue in this appeal. (See GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Pty Ltd [2001] FCA 1761; 117 FCR 23.) 84 The statutory duty set out in s232(4) is, in my opinion, a duty owed to the corporation. That is suggested by the statutory context and the scope of the parallel common law duty. (See e.g. Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449; Daniels v Anderson (1995) 37 NSWLR 438 at 505; ASIC v Maxwell (2006) 59 ACSR 373 at [102], [105]-[110]; R P Austin et al Company Directors: Principles of Law and Corporate Governance Lexis Nexis Butterworths, Australia 2005 at [5.3], [6.2] and [6.16].) 85 The relationship is implicit in the historical origins of the common law duty, upon which the statutory duty is based and in the fiduciary relationship of directors to their corporation upon which other statutory duties are based. That duty has been extended, relevantly by statute, to other officers of the corporation. 86 It may be that further development of the law will identify a duty owed to creditors or shareholders or employees. (See e.g. Gower and Davies Principles of Modern Company Law (7th ed) London, Sweet & Maxwell, 3003 at pp371-379.) However, no such issue arises in the present case. 87 It is sufficient for present purposes to note that his Honour did not confine the scope of the relevant risk to a shareholder being locked in and, even in that case, such an eventuality carries with it clearly identifiable risks to the corporation. 2 Austin J's Analysis of the Higher Standard Submission 88 I return to consider his Honour's reasoning with respect to the submissions made by the Appellant as to whether there was a special standard of care and diligence under the statute. His Honour said: "[1086] A finding of negligence in a civil penalty proceeding attracts a declaration of contravention and may attract penalties in the form of monetary fines, disqualification from managing a corporation and compensation orders which are potentially wider in some respects than the damages that could be recovered in a common law negligence action. Mr Vines submitted that, whereas in a common law case the slightest degree of negligence is sufficient to found a suit for damages, in a civil penalty proceeding such as the present one the degree of negligence to be proved must be of a higher level (that is, as I understand the submission, the statutory standard of care and diligence must be a lower standard than the general law ). His submission … was that the negligence 'must be gross enough to become a matter of public concern, to interest the State by reason of its gravity', and the degree of negligence must be 'sufficient to merit the punishment which can be imposed'. [1087] Sometimes the legislature enacts a law creating a criminal offence for merely negligent conduct. For example, the Crimes Act 1900 (NSW) s 54 provides that 'whosoever by any unlawful negligent act, or omission, causes grievous bodily harm to any person, shall be liable for imprisonment to 2 years'. The interpretation of that provision was at issue in the Court of Criminal Appeal of New South Wales in R v D [1984] 3 NSWLR 29, in which Yeldham J usefully brought together some of the earlier authorities. The case law shows that the courts have generally interpreted such provisions as setting a standard of care distinctly higher than the common law standard." [Emphasis added] 89 His Honour went on to refer to other authorities including Andrews v DPP [1937] AC 576; Dabholkar v The King [1948] AC 221; Clout v Hutchison (1950) 51 SR (NSW) 32; R v White (1951) 52 SR (NSW) 188 and Callaghan v The Queen (1952) 87 CLR 115. I will consider these authorities below. 90 His Honour concluded: "[1092] Civil penalty proceedings share many of the characteristics of other civil proceedings. For example, the burden of proof is on the balance of probabilities (subject to the Briginshaw standard), the trial is before a judge sitting alone, and the civil laws of evidence and procedure apply. But they have some of the characteristics of criminal proceedings. For example, they are concerned with public wrongs rather than the vindication of rights and duties between subjects. They may lead to the imposition of penalties not typical of the civil law such as pecuniary penalties and disqualification orders. They are contests between the power of a government agency and one or more citizens. They have been held to attract the privilege against exposure to a penalty: Rich v ASIC (2004) 78 ALJR 1354. [1093] Callaghan is authority for the proposition that the content of the standard of care may vary depending on the purpose for which it is invoked. The High Court thought it appropriate to apply a higher standard where the statutory description, though using the language of civil negligence, was intended to describe fault so blameworthy as to be punishable as a crime. It is arguable, by analogy with this reasoning, that the civil penalty provisions single out certain contraventions for special treatment on the basis that those provisions describe conduct that is more blameworthy than civil negligence, though not as blameworthy as, at least, some kinds of criminally negligent conduct. It would follow, if this argument were accepted, that the statutory duty of care for company directors and officers would be set at a lower standard than the civil duty of care applicable to professionals and employees, so as to confine the statutory provision to the more serious kinds of negligent conduct . [1094] While the point seems open to argument, at least at the appellate level, my view is that to hold that [the] legislature has lowered the statutory standard of care and diligence below the civil standard by rendering the statutory provision a civil penalty provision would be inconsistent with the legislative history of s 232(4) and also with the present case law ." [Emphasis added] 91 His Honour then went on to refer to the legislative history of s232(4), giving particular attention to the Second Reading Speech and Ch 3 of the Cooney Report. This was a reference to the Report of the Senate Standing Committee on Legal and Constitutional Affairs entitled Company Director's Duties: Report on the Social and Fiduciary Duties and Obligations of Company Directors AGPS, Canberra 1989. This Report was influential in the removal of criminal sanctions for breach of a range of director's duties and the adoption of the civil penalty regime. Nevertheless, the Report was expressed in general terms and further widespread consultation and detailed drafting, including amendments made during the course of Parliamentary consideration, occurred before the Corporate Law Reform Act 1992 was enacted. 92 As part of his consideration of the legislative history Austin J said: "[1095] … In Chapter 3 of the Cooney Report there is a discussion of the case law dealing with the duties of care, skill and diligence of company directors. Plainly the discussion proceeds on the basis that the general law standard of care was relevant to, though not determinative of, the proper interpretation of the statutory provision, at that time s229 of the Companies Code , which establishes a criminal offence punishable by fine. The Cooney Committee concluded that the common law duty of care of company directors was unsatisfactory because there was no objective common law standard of the reasonably competent company director, as there are objective standards for other professions (Report para 3.25). The Committee said that the state of law was not satisfactory, and therefore recommended that an objective duty of care for directors be provided in the company's legislation (Report para 3.28). Far from recommending that the statutory standard of care be made (or remain) less demanding than the common law, the Cooney Committee recommended that the standard be raised." 93 His Honour concluded: "[1096] The case law since that time has proceeded on the basis that developments with respect to the general law standard of care and diligence of company directors and officers are relevant and highly persuasive, if not directly applicable, to the interpretation of the statutory standard . Daniels v Anderson (1995) 37 NSWLR 438, a case about the general law standard of care of company directors, has been applied at first instance in the statutory context. I referred to the principal authorities in ASIC v Vines (2003) 48 ACSR 322. Sitting at first instance, I would not be justified in holding that the location of s 232(4) in the civil penalty regime had the effect of setting the standard of care at a lower and less demanding level than the general law . I reject Mr Vines' submission." [Emphasis added] 94 His Honour said that the general law standard of care was "relevant and highly persuasive, if not directly applicable". This was a recognition that his Honour had to apply a statutory formulation, rather than the common law. However, it is clear that his Honour did reject the Appellant's contention that a higher order of negligence was required. 95 This is apparent from his Honour's incorporation by reference of his Expert Evidence Judgment, which analysis, as noted above, he expressly affirmed in the Contraventions Judgment. In the Expert Evidence Judgment his Honour set out earlier authorities to which I will have regard below. These included Vrisakis v Australian Securities Commission supra; Byrne v Baker [1964] VR 443; Daniels v Anderson supra. 96 The Expert Evidence Judgment was directed to determining whether s232(4) of the Corporations Law imposed an objective standard of reasonable competence so that it could be the subject of expert evidence concerning what a reasonably competent officer would do in the circumstances. His Honour upheld the admissibility of such a report and in doing so referred to case law which he ultimately held, in his Contraventions Judgment, also resolved the separate issue of the applicability of a general law standard of care. His Honour concluded that as a judge sitting at first instance the authorities required him to act on that basis. The issue for this Court is whether those authorities which constitute decisions of intermediate courts of appeal, have determined the question in a manner in which this Court should follow. 97 I note that in Sheahan v Verco [2001] SASC 91; 79 SASR 109, Mulligan J came to a similar conclusion as Austin J when he said at [97]: " … The nature and extent of the duty imposed upon a director of a company by s232(4) and the common law … is in essence the same." 3 The Statutory Duty Case Law 98 The legislative history of s232(4) commences with s107 of the Companies Act 1958 (Vic) which, for the first time, made a director who failed to perform his duty of due diligence liable to being convicted of a criminal offence. This provision was adopted in s124(1) of the Uniform Companies Act 1961, then in s229(2) of the Companies Code and then in s232(4) of the Corporations Law 1991. 99 Each of these sections created an offence. When the Corporations Law was first enacted, the penalty on conviction was a maximum of $5000. (By the combined effect of s1311 and Sch 3.) This changed after the Corporate Law Reform Act 1992, which replaced the criminal sanction with the civil penalty regimes applicable to the present proceedings, save in the circumstances I will mention below. 100 The statutory duty of care operates in parallel with the common law duty of diligence, skill and care, which had received an early and for a long time influential exposition in the judgment of Romer J in Re City Equitable Fire Insurance Co [1925] Ch 407 at 428-9. 101 The relevant case law commences with Byrne v Baker supra which was a prosecution for contravention of s107 of the Companies Act 1958 (Vic). The Full Court of the Supreme Court of Victoria referred to s107(1), and compared it with the analysis of Romer J in Re City Equitable Fire Insurance. It stated at [1964] VR 443 at 450: "A comparison of the language … would suggest that the [section] was inspired by the [judgment]." The Court went on to consider why the Parliament had not adopted the reference which Romer J made to "skill". 102 In Byrne v Baker the principal issue was whether the charge which specified a number of separate acts or omissions was bad for duplicity. The issue now before this Court was not under consideration. However, the Full Court went on to say that the statutory words adopted "one aspect of the concept of negligence, as known and acted upon for many years by the courts on misfeasance summonses against directors" (at 453). 103 Austin J referred to these parts of Byrne v Baker in his Expert Evidence Judgment ((2003) 48 ACSR 322 at [13] and [14]). 104 Of more direct relevance are the observations of Malcolm CJ in Vrisakis supra where his Honour set out the legislative history, referred to the judgment of Romer J in Re City Equitable Fire Insurance and the observations by the Full Court in Byrne v Baker and said of the latter, at 172: "The approach adopted by the Full Court was that the degree of diligence demanded by s107(1) was no higher than that required under the general law." 105 I should note that on my reading of Byrne v Baker it is by no means clear to me that this was the actual conclusion reached by the Full Court but, to describe this as the "approach" of the Full Court is accurate in the sense that their Honours proceeded on the basis that the judgment of Romer J was clearly the origin of the statutory formulation. Malcolm CJ's characterisation – the statutory standard was "no higher than" the common law duty – does not resolve the issue before this Court. 106 In Vrisakis the Court was concerned with a prosecution for contravention of s229(2) of the Companies (WA) Code. With respect to that section, Malcolm CJ said at 172: "The duties so imposed reflect the general concept of negligence at common law." 107 This statement played no further role in his Honour's analysis of the issues before the Court. It was, however, picked up in the later judgment of Clarke and Sheller JJA in Daniels v Anderson supra at 504-505, where their Honours said: "Although there was no reference to skill in s229(2) of the Companies (NSW) Code – nor is there in s232(4) of the Corporations Law, Malcolm CJ in Vrisakis ( at 407-8) thought that the duties imposed by the section reflected the general concept of negligence at common law. This means conduct ordinarily measured by reference to what the reasonable man of ordinary prudence would do in the circumstances. Skill is that special competence which is not part of the ordinary equipment of the reasonable man but the result of aptitude developed by special training and experience which requires those who undertake work calling for special skill not only to exercise reasonable care but measure up to the standard of proficiency that could be expected from persons undertaking such work …" 108 The fact that the statutory formulation made no reference to "skill" was originally raised in Byrne v Baker supra at 450 by way of contrast with the use of that term in the judgment of Romer J in Re City Equitable Fire Insurance. It is not a matter which is the focus of attention before this Court. 109 In his Expert Evidence Judgment, Austin J referred to the judgment of Clarke and Sheller JJA in Daniels, with its internal reference to the judgment of Malcolm CJ in Vrisakis. (See (2003) 48 ACSR 322 at [37].) The passage quoted by his Honour concluded with the statement that a director owed a duty of care at common law, which was the issue before the Court in Daniels v Anderson. That case did not involve an allegation of contravention of the statutory duty. Nevertheless, the passage from the judgment of Clarke and Sheller JJA, which Austin J set out at some length, did treat the statutory duty and the common law duty together and in such a manner as to justify the conclusion of Austin J: "[38] I take this to be an expression of opinion by their Honours that the statutory formulations in ss229(2) and 232(4) encompass an objective standard measured by reference to what a reasonable man of ordinary prudence would do enhanced where the directorial appointment is based on special skill by an objective standard of skill referrable to the circumstances." 110 For present purposes, the feature of most significance is the degree of identification between the two duties suggested by Clarke and Sheller JJA, which Austin J accepted. That identification also appears in the judgment of Powell JA in Daniels v Anderson, when his Honour said at 603, reflecting the "no higher than" formulation of Malcolm CJ in Vrisakis: "Such authorities as there are in relation to statutory provisions such as s229 of the Companies (NSW) Code would seem to demonstrate that the duty imposed upon the directors of a company by such provisions is no greater than that which was imposed upon directors by the general law." 111 Powell JA went on to refer to Byrne v Baker at some length and its application in Australian Securities Commission v Gallagher (1993) 11 WAR 105 at 115-116 and Vrisakis supra. His Honour concluded at 606: "Not only was the duty imposed on a director by the provisions of s229(2) of the Companies (NSW) Code no greater than that to which he would have been subject under the general law, but the remedy provided by s229(7) of the Companies (NSW) Code in respect to a failure to fulfil that duty – a right to recover, as a debt, an amount equal to any loss or damage suffered by the company – was akin to that – equitable compensation for the value of any loss or damage suffered by any breach – provided by the general law in respect of any breach of director's duty to the company under the general law." 112 I note that s229(7) of the Companies (NSW) Code upon which Powell JA relied, was continued as s232(8) of the Corporations Law as originally enacted, but was deleted by the 1992 Act and replaced by s1317HD, which I will set out below. 113 It is noticeable that in none of these judgments was any particular attention given to the criminal consequences of contravention of the statutory provisions. Both Byrne v Baker and Vrisakis were criminal prosecutions in which the line of authority upon which the Appellant now relies could have been invoked. It does not appear that it was. 114 In Vrisakis Ipp J referred to the judgment of Rogers CJ CommDiv in AWA Limited v Daniels (t/a Deloitte Haskins & Sells) (1992) 7 ACSR 759 at 872-3 which referred to the possibility that a standard of care required from a director might vary depending upon the circumstances. Ipp J then added at 211: "It does not follow, however, that the duty imposed on a director under s229(2) of the Code is entirely equivalent to the common law duty not to be negligent. Nor does it follow that the test for an offence under s229(2) is precisely the same as for a breach of the common law duty of care. Nevertheless, to paraphrase Byrne v Baker at 452, the language used in s229(2) is appropriate and was designed to introduce aspects of the concept of negligence, as known and acted upon for many years by the courts in misfeasance summons against directors." 115 Ipp J said at 213, significantly, for present purposes: "An important distinction between the failure to exercise care and diligence under s229(2), leading to the commission of a criminal offence, and the breach of a common law duty of care is that the negligence necessary to establish a criminal charge is greater than that required to establish civil liability. For a crime to have been committed the negligence of the defendant must go beyond a mere matter of compensation and must show such disregard for the interests of others as to amount to a crime against the State and deserving of punishment. There is a significant difference between the negligence which gives a right to compensation and the negligence which is a crime. R v Bateman (1925) 94 LJ KB 791; (1925) 19 Crim App R 8, approved by the Privy Council in Akerele v R [1943] AC 255. It would be most unusual for negligence to constitute a crime where no harm is caused by that negligence. For this reason it would ordinarily be expected of the prosecution in proceedings under s229(2) to prove that the conduct complained of had adverse consequences to the company, which could not be categorised as insignificant." 116 It does not appear that Malcolm CJ adopted this particular analysis, although he agreed with other parts of the judgment of Ipp J. The third member of the bench in Vrisakis, Rowland J dissented and did not consider this issue. It may be that some aspects of the reasoning of Ipp J is not consistent with the subsequent judgment of this Court in Daniels v Anderson, as Austin J noted at par [39] of the Expert Evidence Judgment. Nevertheless, his Honour's views are open to be adopted, as recognised by Austin J, by an intermediate court of appeal. 4 Standard of Care in Crime 117 The origins of contemporary doctrine with respect to the test of negligence in a criminal context is found in the judgment of Hewart LCJ in R v Bateman (1925) 19 Crim App R 8 where his Lordship said at 11: "In a civil action, if it is proved that A. fell short of the standard of reasonable care required by law it matters not how far he fell short of that standard. The extent of his liability depends not on the degree of negligence, but on the amount of damage done. In a criminal Court, on the contrary, the amount and degree of negligence are the determining questions … In explaining to juries the test which they should apply to determine whether the negligence, in the particular case, amounted or did not amount to a crime, judges have used many epithets, such as 'culpable', 'criminal', 'gross', 'wicked', 'clear', 'complete'. But, whatever epithet be used and whether an epithet be used or not, in order to establish criminal liability the facts must be such that in the opinion of the jury, the negligence of the accused went beyond a mere matter of compensation between subjects and showed such disregard for the life and safety of others as to amount to a crime against the State and conduct deserving punishment." (11-12) 118 This reasoning was referred to with approval, save in one no longer pertinent respect, by Lord Atkin in Andrews v Director of Public Prosecutions supra. His Lordship described the judgment as "both valuable and correct" (at 593). His Lordship added: "Simple lack of care such as will constitute civil liability is not enough: for purposes of the criminal law there are degrees of negligence: and a very high degree of negligence is required to be proved before the felony is established. Probably of all the epithets that can be applied 'reckless' most nearly covers the case." 119 The observations of Hewart LCJ were also approved by the Privy Council in Akerele v The King [1943] AC 255 at 262. 120 The reasoning in Bateman and Andrews v DPP was applied by Street CJ in this Court in Clout v Hutchinson supra at 34 and R v White supra at 191. In Clout Street CJ referred to the case law as authority for the proposition that, with respect to a criminal statute: " … the negligence referred to in such a section, and which must be proved before an accused can be convicted, is of a different type or degree to that which is sufficient in order to establish civil liability." 121 This issue was considered by the High Court in Callaghan v The Queen supra, where the Court said at 121: "The words 'use reasonable care and take reasonable precautions' smack very much of the civil standard of negligence; yet particularly of late, defaults involving no moral blame at all are treated as exposing the party to civil liability for negligence in respect of any damage which results. It is out of keeping with the conceptions of the purpose of the Criminal Code to regard such defaults as making the person guilty of manslaughter or the lesser crime created by s291A." (Section 291A of the Criminal Codes (WA) created an offence arising from failure to use reasonable care in the use and management of a vehicle.) 122 The High Court went on, at 121, to pose a choice between "a single and unvarying standard no matter what the purpose for which the description is employed" and a recognition that "it may have different applications when it is a description of fault so blameworthy so as to be punishable as a crime and when it is used to describe a basis of civil responsibility for harm that is occasioned by the omissions". 123 Their Honours concluded at 124: "The conclusion we have formed is that the expression 'omission to perform the duty to use reasonable care and take reasonable precaution' … must be regarded from the point of view of the context where it occurs. It is in a Criminal Code dealing with major crimes involving grave moral guilt. Without in any way denying the difficulties created by the text of the Criminal Code we think it would be wrong to suppose that it was intended by the Code to make the degree of negligence punishable as manslaughter as low as the standard of fault sufficient to give rise to civil liability." 124 It is pertinent to note that not all criminal statutes can be regarded as requiring the same degree of negligence. In Andrews v DPP Lord Atkin referred to Road Traffic Acts which regulate the degree of care to be taken in driving motor vehicles. His Lordship said at 584: "Their prohibitions, while directed no doubt to cases of negligent driving, which if death be caused would justify convictions for manslaughter, extend to degrees of negligence of less gravity. Section 12 of the Road Traffic Act 1930, imposes a penalty for driving without due care and attention. This would apparently cover all degrees of negligence." 125 This approach was applied by the Privy Council in Dabholkar v The King where the Court was concerned with a statutory offence of negligent surgical treatment. The Court concluded supra at 225: " … Although the negligence which constitutes the offence in these circumstances must be of a higher degree than the negligence which gives rise to a claim of compensation in a civil court, it is not, in their Lordships opinion, of so high a degree as that which is necessary to constitute the offence of manslaughter." 126 This line of authority was considered in R v D [1984] 3 NSWLR 29 which concerned the validity of the direction given by a trial judge in terms of the formulation set out above from R v Bateman i.e. that the test of negligence is whether or not the accused showed "such disregard for the life and safety of others as to amount to a crime against the State and conduct deserving punishment". The direction was upheld. 127 The Court rejected the contention on behalf of the Attorney General that, however appropriate this direction may have been for the crime of manslaughter by a negligent act, it was not applicable to the offence of negligent infliction of grievous bodily harm. The Court referred to authority which indicated the possibility of varying degrees of negligence with respect to criminal liability, including Andrews v Director of Public Prosecution, Clout v Hutchison, R v White and Dabholkar v The King. The Court concluded, however, that in the case of the statutory offence of negligent infliction of grievous bodily harm the same standard of negligence as that held to be appropriate for the crime of manslaughter was applicable. ([1984] 3 NSWLR 29 at 34.) 5 The Statutory Standard 128 I have referred above to Austin J's reliance on that part of the legislative history constituted by the Cooney Report. There was, as his Honour indicated, a reference in the relevant Second Reading Speech to "provisions which implement the report" of the Cooney Committee (Hansard House of Representatives, 3 November 1992 at 2401). However, the consideration by the Committee in its Report is discursive and general and does not sufficiently focus upon the matters now before this Court. 129 Austin J approached the matter in terms of whether or not Parliament has established a standard of care by s232(4) which was "lower and less demanding" than the common law standard of care. It was in this respect that his Honour referred to the legislative history which suggested it was not the intention of legislators to adopt a lower standard. 130 It is quite clear that it was the intention of Parliament to adopt an objective standard, so that the earlier debate about whether or not directors could be excused by reason of their own particular lack of relevant experience or skill was resolved. The significance of the objective standard was, of course, determinative with respect to the admissibility of expert evidence in his Honour's Expert Evidence Judgment. 131 I can see no evidence in the Cooney Report, the Second Reading Speech or the Explanatory Memorandum prepared in 1992 which suggests that the matter now before the Court received any attention whatsoever. The issue must be determined in accordance with the law of statutory interpretation, which requires this Court to apply the intent of the Parliament in an objective rather than any subjective sense. That requires a consideration of the legislative scheme as a whole. 132 The cases which identify the high level of negligence required where negligent acts or omissions can give rise to a finding of criminal guilt, are no longer directly relevant to the case before the Court. Nevertheless, those cases which indicate that, even in the criminal context, there can be variations in the level of negligence required, are instructive. The civil penalty regime does not carry with it the particular stigma of criminal guilt. Nevertheless, the ability to impose penalties which are indistinguishable from a fine, together with the serious consequences of a disqualification order, are such as to suggest that the approach to the determination of the standard of care, applicable in a context of civil liability for damages, may not be appropriate. 133 As I have noted, the Appellant relied in this respect by way of analogy on the judgment of the High Court in Rich v ASIC supra. The issue there before the Court was whether a disqualification order constituted exposure to a penalty for purposes of the application of common law principles which establish a privilege from disclosure in a context of exposure to penalties and forfeitures. 134 The reasoning of the High Court in that case is not directly in point because the question turned on the application of that privilege to the statutory regime which permitted a disqualification order. Nevertheless, the consequentialist analysis of the joint judgment of the High Court (see e.g. at [37]) is of analogous force in the present context. It is because of the severity of the consequences that can follow a finding of criminal guilt that the common law developed an approach, in the context of the law of statutory interpretation, which required a higher standard of negligent conduct. The emphasis of the High Court in Rich v ASIC upon the significance of the consequences of a disqualification order is, in my opinion, relevantly analogous to the principle of the law of statutory interpretation that has been invoked by the Appellant in the present case. 135 As indicated in the passages from the judgment of Austin J that I have italicised above in Part C.1, his Honour approached the matter on the basis of determining whether or not the Parliament intended to adopt a lower standard of care than that applicable at common law, when it enacted the statutory duty of care. The other way of approaching the issue is to determine the obverse of that proposition, that is to say, did the Parliament intend a higher level of negligence before a finding of contravention of the statutory duty could be made. 136 It is clearly the case that the Parliament did have reference to the existence of a duty at common law for purposes of enacting the statutory standard. Nevertheless, when a common law formulation is incorporated as a provision in a statute, its legal nature is altered. The words must now be interpreted as statutory language, albeit having regard, in an appropriate way, to the origins of the statutory formulation. The whole of the law of statutory interpretation must be applied including, relevantly, the statutory context which provides for a structure of sanctions for breach of the statutory standard. 137 This is not the occasion on which to trace the development of the liability of directors and managers in tort. It is quite clear that the scope of that liability has significantly been expanded over the years. The expansion commenced about the time that the first such provision was inserted in the Companies Act 1958 of Victoria. (See, for example, the analysis of the trend in authority by Sir Douglas Menzies "Company Directors" (1959) 33 ALJ 156.) At the time that the Cooney Committee reported and, indeed at the time that the Corporations Law was enacted, including the 1992 amendments, the trend to expand the liability of directors and managers for negligence had still not culminated. It may be that in Australia that occurred with the decision of this Court in Daniels v Anderson in 1995. The particular statutory formulation adopted in the Corporations Law reflected this trend and was clearly influenced by it. In my opinion, for the reasons I set out below, when Parliament used language clearly derived from the common law it had in mind creating a statutory duty of a generally similar character with respect to the identification of the standard of care. 6 The Statutory Regime 138 The directly relevant provisions of the Act are: "1317EA(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 contravention: (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 to 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. … 1317EB(1) An application for a civil penalty order may be made by: (a) the Commission; or (b) a Commission delegate; or (c) some other person authorised in writing by the Minister, under this paragraph, to make the application." (Section 9 of the Corporations Law , defines a civil penalty order to mean either a declaration or order under s1317EA.) "1317ED(1) In hearing and determining an application for a civil penalty order, the Court is to apply the rules of evidence and procedure that it applies in hearing and determining civil matters. … 1317FA(1) A person is guilty of an offence if the person contravenes a civil penalty provision: (a) knowingly, intentionally or recklessly; and (b) either: (i) dishonestly and intending to gain, whether directly or indirectly, an advantage for that or any other person; or (ii) intending to deceive or defraud someone (2) A person who contravenes a civil penalty provision is not guilty of an offence except as provided by subsection (1). … 1317GF(1) This section applies if the person is tried on indictment for the offence and the jury is satisfied beyond reasonable doubt that the person committed the contravention, but is not satisfied beyond reasonable doubt that the person did so as mentioned in subsection 1317FA(1). (2) The jury may find the person not guilty of the offence, but guilty of the contravention. (3) If the jury does so, the court is to declare that the person has, by a specified act or omission, contravened the civil penalty provision in relation to a specified corporation. (4) If the court is the Court, it may then proceed to make orders under subsection 1317EA(3) on the application of the prosecutor or someone else who has power under section 1317EB to apply for a civil penalty order in relation to the contravention. (5) Subsection (4) has effect despite section 1317EC. (6) A declaration under subsection (3) is subject to appeal or review as if it were a conviction by the court for an offence constituted by the contravention." (Section 1317GG is a parallel provision to s1317GF with respect to proceedings for summary conviction of an offence and establishes a similar alternative verdict regime. Section 1317GH extends such an alternative regime to a finding by an appeal court.) "1317HA(1) 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)) order the person to pay to the corporation compensation of such amount as the order specified. (2) A corporation may intervene in an application for a civil penalty order against a person in relation to a contravention, unless the application was made under Division 4. (3) A corporation that so intervenes is entitled to be heard: (a) only if the Court is satisfied that the person committed the contravention in relation to that corporation; and (b) only on the question whether the Court should order the person to pay compensation to the corporation because of the contravention. 1317HB(1) If: (a) a court finds a person guilty of an offence constituted by a contravention of a civil penalty provision in relation to a corporation; and (b) the court is satisfied that the corporation has suffered loss or damage as a result of the act or omission constituting the contravention; the court may (whether or not it imposes a penalty) order the person to pay to the corporation compensation of such amount as the order specifies. (2) If: (a) a court declares under Division 4 that a person has, by an act or omission, contravened a civil penalty provision in relation to a corporation; and (b) the court is satisfied that the corporation has suffered loss or damage as a result of that act or omission; 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 order specifies. … 1317HD(1) Where a person contravenes a civil penalty provision in relation to a corporation, the corporation may recover from the person, as a debt due to the corporation: (a) if that or another person has made a profit because of the act or omission constituting the contravention – an amount equal to the amount of that profit; and (b) if the corporation has suffered loss or damage as a result of that act or omission – an amount equal to the amount of that loss or damage; whether or not: (c) the first-mentioned person has been convicted of an offence in relation to the contravention; or (d) a civil penalty order has been made against the first-mentioned person in relation to the contravention. (2) Proceedings under this section may only be begun within 6 years after the contravention." 139 In terms of the recovery of damages it is also pertinent to note s1324 of the Corporations Law, which empowers a court to issue injunctions where conduct occurred that was or would constitute a contravention of the law, also provides in s1324(10) that the court could, either in addition to or in substitution for the grant of the injunction, order a person to pay damages. 140 Parliament has turned its attention to the relationship between the regime of the statutory duty and civil duty when it enacted, relevantly to the duty of care and diligence, s232(11): "232(11) This section has effect in addition to, and not in derogation of, any rule of law relating to the duty or liability of a person by reason of the person's office or employment in relation to a corporation and does not prevent the institution of any civil proceedings in respect of a breach of such a duty or in respect of such a liability." 141 Where, as here, the Parliament has expressly turned its mind to the possibility of both the statutory duty and the common law duty applying to the same conduct, it is not necessary for purposes of implementing the statutory regime to adopt the same standard of care as is applicable to the civil duty. 7 Conclusion on Standard of Care 142 As a starting point I would accept that Parliament, when it used language, albeit in a slightly modified form, plainly derived from the civil case law, had in mind a standard of care of a similar character. Nevertheless, Parliament must be taken to have acted on the basis that the law of statutory interpretation will be applied. That may lead to a different conclusion. 143 As the above outline of the statutory scheme makes clear, the consequences that may flow from a finding of contravention of a civil penalty provision are of a different order of severity to the consequences that may flow from a successful action for breach of the civil duty of care by company directors or officers. Although such a contravention does not invoke, directly, the particular stigma of a finding of criminal conduct, nevertheless the consequences to an individual by way of penalty and or disqualification may be as severe as any likely criminal sentence, save for a term of imprisonment. The law of statutory interpretation requires this Court to have regard to these consequences. 144 The first step in the statutory scheme is the determination under s1317EA(1) that a judge is satisfied that a person has contravened a civil penalty provision. The finding of a "contravention" of a statutory provision carries of itself a significant sting, perhaps somewhat higher than a finding of "breach" of a civil duty of care. Such a finding can have a significant effect on the reputation of the individual about whom it is made with, one could expect in the usual case, considerable commercial consequences. 145 At this stage of the application of the statutory scheme, it does not appear to me that the effect on reputation is of a qualitatively different order to a finding of negligence in a civil action, for example, the effect of such a finding in the most closely analogous sphere of professional negligence. At this stage of the analysis I do not believe that the principle that negligence of a higher order may be required is applicable. 146 In my opinion, it is of great significance and, indeed, it is determinative of this ground of appeal, that no further consequence follows unless the Court forms an opinion with respect to additional matters, each being of a kind which requires consideration of, and a determination of, a higher level of seriousness with respect to the breach or contravention. That is to say, the statutory regime makes its own provision in recognition of the seriousness of the consequences that are attendant upon any order beyond a declaration of contravention. 147 For the Court to make an order under s1317EA(3)(a) prohibiting a person from managing a corporation it must apply s1317EA(4), which prevents such an order being made if the Court is satisfied that "despite the contravention, the person is a fit and proper person to manage a corporation". 148 Similarly, the Court cannot make an order for the payment of a pecuniary penalty under s1317EA(3)(b) unless, pursuant to s1317EA(5) it is "satisfied that the contravention is a serious one". 149 Finally, pursuant to s1317FA the contravention of a civil penalty provision, which is an element in the commission of an offence, requires the additional elements of knowledge, intention, recklessness and either dishonesty or intent to deceive or defraud to be established in accordance with that section. 150 In my opinion, unlike the criminal statutes which adopt the language of negligence as an element of an offence, the civil penalty regime here under consideration does not attach serious consequences for which it makes provision without consideration of further matters over and above the contravention itself. In one case, namely the disqualification order, the Court must be satisfied of fitness and propriety, which imposes an evidentiary onus that the contravener must bear. It is unnecessary to decide where the onus of proof lies. However, in each other case the applicant for relief must establish an additional element going to the seriousness of the contravention. In my view, this is sufficient to distinguish this statutory regime from a regime where negligence constitutes an offence. 151 I am reinforced in this conclusion by the express provision in s1317HA that, upon an application for a civil penalty order, the Court, after upholding the contravention is empowered to order the contravener to pay to the corporation compensation for loss or damage which arose as a result of the contravening conduct. Similarly, s1317HB empowers a criminal court which has found a person guilty of a contravention, to make a compensation order. Section 1317HD provides for the corporation to seek and receive damages, or an account for profits from the contravener, whether or not any civil penalty order, which includes even a declaration, has been made. It is clear that the purpose of s1317HA and s1317HB is to avoid multiplicity of proceedings. They would not have that effect if the standard of care applicable in proceedings in tort for negligence was different from the standard of care applicable in the case of compensation orders under the Act. 152 This ground of appeal should be rejected. IV PRE CONTRAVENTION EVENTS 1 The Appellant's Role 153 The Appellant was a chartered accountant and auditor. He worked at Price Waterhouse from 1968 to 1995, becoming an audit partner in 1981. He had been auditor of GIO. He commenced work as Chief Financial officer within the GIO group in 1995. His Honour made findings about the breadth of his responsibilities as a chief financial officer of GIO which are not challenged. (See at [26]-[33].) 154 In June 1998, Mr N Steffey was appointed as managing director of GIO. Mr F Robertson, the Second Defendant in the proceedings before Austin J, was the executive director of GIO Insurance at the time. His aspirations to be appointed as managing director of GIO having been disappointed, he had indicated that he would only stay on as executive director of the subsidiary until a replacement was found. On 5 November 1998, Mr T Fox, the Third Defendant before Austin J, was appointed to that position. Mr Robertson, however, retained a diminished role, relevantly with respect to the profit forecast of GIO Insurance for the Part B Statement (see at [58]). 155 Mr Steffey altered the Group's governance structure from the then existing structure in which the subsidiary companies of GIO Holdings, including GIO Insurance which included GIO Re, were run as autonomous business ventures that reported to the Group every three months. Mr Steffey introduced a more integrated arrangement, whereby the subsidiaries became governed by executive boards, and reported to the Group on a monthly basis (at [109], [141]–[146]). 156 Mr Steffey instructed Mr Vines to undertake an extensive review of the reserves and provisions in place to ensure they were adequate. His Honour noted Mr Vines' evidence that: "[133] … [T]he purpose of the exercise was to set reserves at a level where the new chief executive would not inherit any of the 'sins of the past'. Evidently it is not uncommon for a new chief executive to set the balance sheet on a very conservative basis when he or she first arrives - perhaps in a manner similar to politicians who seek to blame the predecessor government's financial management when they are first elected to office." 157 It is also relevant to note the manner in which Mr Vines implemented Mr Steffey's instructions, and his Honour's remarks thereon: "[135] Mr Vines did not pass Mr Steffey's instructions on to Mr Robertson but instead, he spoke to Mr Schneider, asking him whether there were any aspects of the valuation that were less than conservative. That appears to be of some significance and tends to explain Mr Robertson's anger when he later found out about the proposals for increased provisioning. Mr Vines said that he knew Mr Robertson's general attitude towards such a review, and knew him to be 'somewhat cynical of chief executives behaving in this way', and expected that Mr Robertson would be reluctant to make 'large and precipitous changes' to GIO's reserves. He said he wished to avoid confrontation with Mr Robertson, an aspiration not realised, as will be seen. The picture that emerges is that Mr Robertson, frustrated in his desire to become chief executive, occupying the position of executive director of GIO Insurance on a temporary basis, and closely associated with the past management of the Group, may have been somewhat marginalised after Mr Steffey's arrival." 158 The end result of this process of reprovisioning was to arrive at a loss for the reinsurance division of $88.9 million for the six months to 30 June 1998. His Honour noted that: "[138] Mr Vines reported his discussions to Mr Steffey and expressed some concern that reporting such a large loss might have a negative impact on GIO Re's commercial viability, but Mr Steffey said he was not concerned about that ramification and wanted a balance sheet that was 'bulletproof'. He told Mr Vines to look further into the aviation contracts, and subsequently Mr Vines instructed Mr Schneider to conduct a review of what became known as 'the misbehaving contracts'. The review involved looking at the underlying aviation contracts that had given rise to the poor result and calculating ultimate loss ratios for each of those contracts. This amounted to a form of 'contract-by-contract analysis' generally similar to the analysis undertaken in respect of contracts affected by Hurricane Georges ..." 159 Mr Schneider was an employee of GIO Insurance with a background in actuarial valuation in the reinsurance industry. He reviewed the aviation contracts as instructed, and agreed to strengthen those reserves ([160]ff). While that process was tangential to the matter with which the proceedings below were concerned, his Honour noted the process was relevant in two ways: "[165] … First, as will be seen, subsequent calculations made in connection with the profit forecast drew upon what was perceived to be a generous reserve for aviation, to cover perceived losses. Secondly, the episode is relevant to understanding the relationships between Mr Vines, Mr Robertson and Mr Schneider and the tensions between the latter two. Thirdly, the episode shows the extent to which Mr Vines was prepared to become involved, as early as August 1998, in the financial affairs of GIO Re." 160 His Honour had earlier found at [65] concerning the relationship between Robertson and Schneider: "there was a degree of tension between them, bordering on animosity". 161 His Honour made findings about Mr Vines' knowledge of Mr Schneider's role: "[113] … He understood that Mr Schneider would constantly monitor the performance of GIO Re's business at the portfolio level, and would be chiefly responsible for modelling GIO Re's aggregate exposure to claim events. Mr Vines understood that Mr Schneider was supposed to have systems in place to ensure that he remained constantly aware of the aggregate exposure of each underwriter, and he was supposed to be aware of potential clashes of exposures between underwriters, and the overall position of GIO Re. Mr Vines knew Mr Schneider was chiefly responsible for making recommendations to the reinsurance committee about the design, but not the implementation, of GIO Re's retrocession protections. Generally, Mr Vines agreed that in so far as anyone in GIO Re was carrying out the professional activities of an actuary, it was Mr Schneider and those who assisted him, and if anyone was going to take a view dependent upon actuarial investigation, it would be Mr Schneider in the first instance." 162 His Honour outlined what Mr Vines' role was after July 1998 (and during the period of the contraventions): "[32] … Mr Vines' role thereafter put him in closer contact with financial matters at a divisional level, though in a supervisory role. Mr Vines agreed in cross-examination that his role as chief financial officer required him to satisfy himself that such matters as budgets were properly and reasonably formulated, and that it was his function to investigate what was reported to him in order to satisfy himself, through his own inquiry, that it was essentially valid. As regards financial accounts and reporting, he agreed that as chief financial officer of a substantial company group, he had the following responsibilities: · to review financial information on a consolidated basis; · to respond to issues raised by management or auditors at the subsidiary level; · to ensure that the financial statements of the Group as a whole and its divisions reflected compliance with Australian accounting standards, and to give advice to the management and the board to ensure that this happened; · to ensure that accurate information about the company's financial position was prepared and provided to management and the board of directors; · to ensure that the information that was supplied to the stock exchange in the investment community was accurate and meaningful; and · to intervene if he became aware of some deficiency in a division's financial statements that was not being dealt with. [33] Mr Vines agreed that he 'had, generally speaking, a supervisory role in relation to [the financial affairs of the Group]', and 'had the responsibility of a chief financial officer, as [he] saw it'. In cross examination, senior counsel for ASIC explored with Mr Vines what he understood by the responsibilities of a chief financial officer. While he said that the chief financial officer's role is influenced by how the group is managed and personalities involved, he accepted that there is a substantial commonality of role and function in the positions of chief financial officers of company groups, and agreed that a chief financial officer of a company group has responsibility for the financial integrity of the group. [34] There were substantial additions to these functions in the second half of 1998, particularly after AMP's takeover bid was announced. The result was, in my opinion, to leave Mr Vines with a very heavy workload (demonstrated by his diary entries, to which he was taken during examination in chief), and also to put him in a central position in the takeover response process. I shall deal with some of these matters in more detail later, but it is appropriate to bring together here the principal elements of his additional responsibilities: · he attended meetings of the takeover response committee and the Part B working group as well as the DDC, where he had a co- ordinating role; · he was in very frequent contact with the advisers, including Macquarie Bank, Chase, PwC and the lawyers; · he met with Mr Steffey and Macquarie Bank every day, often for hours on end; · he participated in meetings organised by Macquarie Bank with institutional shareholders, and had discussions with rating agencies (T 2565) and brokers; · he devoted substantial time to discussions with McKinseys in relation to their strategic review and with Trowbridge in respect of the capital adequacy study; · there was additional work for him in the area of commentary on monthly management reporting, and in redefining the delegation authorities to executive directors consequent upon Mr Steffey's revised board structure; · he was required to supervise projects which involved restating GIO's accounts under United States Generally Accepted Accounting Principles; · he supervised the outsourcing of the internal audit function, a task involving a tendering process by external accountants who were briefed by Mr Vines; · he reviewed the tax and accounting implications of various senior management employment incentive programs formulated by the new general manager of human resources hired by Mr Steffey, Stuart Yoland; · he and his team continued their responsibilities for capital management, tax compliance and tax planning." [References removed] 163 As noted above the AMP takeover bid was launched on 25 August 1998. In response to AMP's Part A Statement, GIO commenced proceedings in the Federal Court. From the service of the Part A Statement on 8 September until 30 November 1998, his Honour found that there was uncertainty about whether the bid would proceed (see at [126]). 164 Nevertheless, GIO commenced the process of preparing the Part B Statement required of a target company by the Corporations Law. As I have noted above a critical feature of the Part B Statement, as eventually published, was a profit forecast of $80 million for GIO Re. The seven contraventions which his Honour found to have been committed relate, directly or indirectly, to this profit forecast. 165 Mr Vines' involvement in the preparation of the Part B Statement on behalf of the Board of GIO was the subject of non-contentious findings of fact by his Honour: (1) A Part B working group was formed, responsible for putting together what was described as the "selling document" that was to appear at the front of the Part B Statement. The working group included a number of the company's advisors as well as Mr Vines. [181] (2) Under the direction of Mr Vines, a sub-committee was established to review drafts of the profit forecast which would then be considered by the auditor of GIO. [182] (3) The board of GIO established a Due Diligence Committee, referred to in the proceedings as "DDC", comprising five non-executive directors, Mr Vines, a representative of the company's solicitors, and a representative of the merchant bank advising the company. That committee performed the functions, inter alia, of the audit committee of the Board with respect to the Part B Statement. [183] (4) In a document described as a planning memorandum, the DDC made it clear that Mr Vines had the central executive role in the due diligence process including, relevantly, with respect to changes in the financial position of the GIO group and the financial forecast. [185] (5) Individual directors were deputed to become familiar with specific components of the profit forecast relevantly, in the case of Reinsurance, Mr Lange. Mr Vines was to conduct and support each director in this task. Mr Vines himself described his role as "the arms and legs of the non-executive directors". [186] (6) A formal due diligence and verification procedure, of the kind usually adopted for prospectuses, was adopted, on Mr Vines' recommendation, for the Part B Statement. (7) Pursuant to the DDC planning memorandum, senior management, including Mr Vines, filled out due diligence questionnaires and, in due course "representations letters" which provided express assurances as to the accuracy and completeness of the process in which they had engaged including, relevantly, the profit forecast. [190] (8) The company's auditors, when preparing a report for the Part B Statement, forwarded to Mr Vines on 23 October 1998 a draft including a review of the 1999 profit forecasts, which draft had added to it a comment: "consider Georges disclosure". [282] (9) On 29 October 1998 Mr Vines had a meeting with a number of other officers, including representatives of PwC, who made certain observations concerning the exposure to Hurricane Georges. [287] (10) His Honour concluded, in a finding that is not contested, that by the end of October Mr Vines knew that PwC was concerned about the catastrophe component of the profit forecast. [290] 166 It is also pertinent at this stage to repeat his Honour's observations at [1085] quoted in par [76] above that, by reason of the fact that the Board adopted a due diligence process for the Part B Statement the standard of care and diligence required of the senior executives necessitated "particular care" to be taken "in providing information" and "it would not be enough for them to confine their attention to what they knew, in circumstances where they could uncover material information by appropriate inquiries". The DDC required "the conscientious and careful attention" of the senior executives. 167 His Honour also held with respect to the scope of Mr Vines' responsibilities: "[1115] The only evidence before me is the evidence of Mr Hogendijk himself, and some occasional statements by Mr Vines in oral evidence, which did not contest the notion that there is a recognised position in listed public companies entitled "chief financial officer". I accept that there may be quite a range of responsibilities borne by corporate officers bearing that title, but it does seem to me that there is a core of common responsibilities identified by Mr Hogendijk in his affidavit (paras 96-97), relating to the financial operation of the corporate group, supervision of preparation of financial statements, compliance with accounting standards, provision of accurate financial information to management, the board of directors and the stock exchange and investment community. [1116] In the present case an analysis of Mr Vines' full responsibilities shows that by any measure, he was an executive with a large portfolio of responsibilities going well beyond the recognised core responsibilities of chief financial officers. It is important to assess his position and responsibilities, and ultimately his legal duties, by reference to the particular role that he played in the GIO Group. Mr Hogendijk was, to a degree, sensitive to Mr Vines' additional responsibilities (see, for example, affidavit para 98), although on the whole his opinions were directed to the standard applicable to a competent chief financial officer. … [1127] Neither Mr Hogendijk nor Mr Vines has said that a chief financial officer is, as such, subject to a special responsibility in respect of a profit forecast issued by the company group, as opposed to financial statements and other historical financial information. I would expect his or her responsibility to depend upon the precise role occupied by the chief financial officer in respect of preparation of the forecast. Mr Vines' role in respect of the Part B profit forecast for GIO Insurance and matters surrounding it was a prominent one, as can be seen from my detailed review of the evidence. I note, in particular: 1) Mr Vines' involvement in the increase in GIO Re's aviation reserve for the purposes of the June 1998 financial statements, when he bypassed the executive director of GIO Insurance, Mr Robertson, and dealt directly with Mr Robertson's subordinate, Mr Schneider (see section 3.2); 2) his involvement in the process of formulating GIO Re's $80 million profit forecast, particularly by suggesting, on the basis of his review of the budgets of the business units, that GIO Re might be able to adopt the approach taken by GIO General by bringing to account as forecast profit some of the projected premium income (see section 3.7); 3) his role in the takeover response process, in which the profit forecast was a central component, including his membership of the takeover response committee and the due diligence committee and his co-ordinating role for the latter, and his daily contact with advisers (see section 2.1); 4) his active role in settling the October 1998 profit result for GIO Insurance, when he reviewed Mr Schneider's figures, which would have produced a loss of about $4 million, and suggested that some components of the calculations (the level of IBNR for the Air China catastrophe, and the increase in the level of prudential margin) should be reconsidered (see section 3.19); 5) his involvement in the Guy Carpenter and American Re negotiations, up to about 6 November (see sections 3.22 and 3.23); 6) his participation in the process of obtaining KPMG's "educated view" of the American Re contract and his discussions with PwC about the efficacy of the contract (see section 3.26). [1128] In these circumstances, it seems to me that Mr Vines was given and assumed special responsibility with respect to the integrity of the profit forecast. It was a responsibility the same as, or closely similar to, his responsibility as chief financial officer for the financial integrity of the Group. That encompassed a responsibility (equivalent to the one he acknowledged to exist in respect of financial accounts: T 2890) to exercise care and diligence to the statutory standard, to ensure that accurate information about the profit forecast was prepared and provided to management and the board of directors." 2 The Development of the $80 million Forecast 168 The $80 million profit forecast for the reinsurance division originated from work done by Mr Schneider in the period from 26 August to 23 September 1998. His Honour noted the relevant steps in the process at [195]ff. 169 On 26 August 1998, both Mr Robertson and Mr Schneider produced memoranda forecasting a profit in the area of $50 million. Mr Robertson's memorandum was sent to Mr Vines. Both memoranda contained words to the effect "if there are no catastrophes, business profits will be $85 million higher than shown above." 170 Next, his Honour set out at [197]ff a process, instituted by Mr Vines, whereby a further $30 million was added to the forecast. That process involved a reassessment of the proportion of catastrophe premiums paid that would be recognised as profit. As a result of the reassessment, the figures were altered to reflect an assumption that 33% of catastrophe premiums for 1998/99 could be included as profit. However, on the evidence of Mr Schneider, this additional profit was expressly based on the assumption that no major catastrophe occurred (see at [200]). 171 His Honour described the final outcome of the process: "[202] … Consequently the effect of including 33% of the premium income as profit, along with some other changed assumptions, was to increase the forecast profit from about A$50 million to about A$80 million. … Mr Vines said in cross-examination that his intervention in the formulation of the profit forecast was part of his role as chief financial officer, but said he would not have proceeded with the forecast if it did not meet with the approval of the executive director." 172 Hurricane Georges struck Puerto Rico and the United States in the period 21–28 September 1998, only days after the finalisation of the $80 million profit forecast. His Honour noted the following: "[208] Mr Murray of PwC gave evidence that 'the reinsurance industry as a whole underestimated the loss of Hurricane Georges and the rest of the Australian reinsurance market also significantly underestimated its share of the market'. He agreed that it was only in early 1999 when the results of Hurricane Georges became widely known that the extent of the underestimation began to be realised. [209] It is plain from the evidence, explained in detail below, that: GIO Re had issued reinsurance contracts under which claims would be made in respect of Hurricane Georges; · it had retrocession protection, under a contract with Overseas Partners Ltd referred to as "the OP Re contract" and other marine retrocession cover, that had the effect of limiting its marine losses to A$8 million in aggregate; · it did not have any retrocession protection in respect of property claims at the level they were likely to be made; therefore Hurricane Georges had the potential to impact on GIO Re's profit in the 1998/99 financial year, and hence to affect the 1998/99 profit forecast." 173 Plainly, the $80 million profit forecast so recently arrived at, had to receive careful attention, particularly in the context of the need to publish a Part B Statement. There are three interrelated and overlapping elements which are of particular significance for the ASIC case upheld by his Honour: (i) The size of GIO's exposure. (ii) The ability to limit exposure by a retrocession policy. (iii) The release of reserves to support the profit forecast. 174 The significance of these elements turn on what the Appellant knew or ought to have known about them. The elements are interrelated and both the actual state of affairs, and Mr Vines' knowledge, changed from time to time. In these respects, it will be necessary to treat each of the seven contraventions chronologically and separately with respect to the impact on the $80 million profit forecast. 3 The Extent of the Exposure to Hurricane Georges 175 Over the relevant period a number of officers of GIO Re maintained records or made estimates of the exposure to Hurricane Georges. Some were quite formal reports, others were estimates. His Honour made a number of findings of fact, including after contested evidence, about Mr Vines' knowledge of these records and evidence. Generally those findings were favourable to Mr Vines and caused his Honour to reject significant parts of ASIC's pleaded case. 176 The focus of attention was what information was in fact conveyed to Mr Vines with respect to this matter. 177 The first information was contained in a document prepared by Mr Schneider and his staff entitled "First Quarter Highlights" which contained the following statement: " … The GIO historically has a 0.6% market share of an insured loss caused by natural catastrophes. On this basis the cost of Georges would be $25M in Australian dollars … Hurricane Marilyn and Hurricane Luis occurred in the Caribbean in the same year, weeks apart. However Lloyds' share of Marilyn and Luis was 41% and 5% respectively to the property market. If Georges turns out to be like Marilyn the cost to us could be expected to reach $100M. On the other hand it could be a non-event. These issues remain unresolved. The 0.6% market assumption was adopted, at this time, and hence Georges is included at $25M." 178 Further, the report included: " … Given the level of uncertainty, it is my recommendation, that we place a warning on the full year projection of earnings of $80M. Without much time to prepare an analysis I would recommend reducing the projection to $45M representing one of either Georges or Karaha materializing moderately and assuming the whole account is profit neutral. Please note that if Georges does indeed turn out to be a significant event to the GIO it has the potential to reduce the business profit further." 179 Mr Schneider's opinion that, by reason of uncertainty, a "warning" should be placed on the profit forecast, together with the comment about exposure to Georges was a significant matter, known to Mr Vines. It was relied upon as a particular of knowledge in a number of the pleaded allegations of contraventions which were upheld by his Honour. 180 His Honour considered the preparation of the First Quarter Highlights document commencing at [229]. His Honour found the document to be significant. His Honour said: "[241] The first quarter highlights are important for ASIC's case. They constitute a clear warning, by a GIO Re executive discharging actuarial functions, in a considered report prepared in connection with quarterly reporting, that Hurricane Georges could lead to a substantial ultimate loss for GIO Re having a direct impact on the $80 million profit forecast. It was a warning that this loss could reach $100 million, the majority of which would stem from the Lloyd's and Company market in London, where the impact of Hurricane Georges was at that time uncertain. On the other hand, the opinions expressed about Hurricane Georges were not expressed to be based on any actuarial or other analysis, and they were expressed in terms of possibilities based only on comparison with other hurricanes. The overall effect, in my opinion, was to draw attention to the risk of loss from Hurricane Georges in such a fashion that reasonable persons in the shoes of those responsible for the profit forecast would have thereafter treated the development of Hurricane Georges loss as a matter to be kept under particular review. But it does not seem to me that a reasonable person in that position, acting on the basis of the limited analysis and reasoning in the document, would have immediately revised and adjusted the $80 million figure in the manner recommended by Mr Schneider, or at all. On 19 October Hurricane Georges was still a recent phenomenon and it was too early to assess the Hurricane's full impact on the reinsurance market, particularly the London market in which GIO Re might have its main exposure. In its terms, Mr Schneider's recommendation to reduce the forecast was not grounded in analysis. Indeed, ASIC did not submit that the first quarter highlights compelled an immediate revision of the forecast." [ Emphasis added ] 181 His Honour considered Mr Vines' evidence on the First Quarter Highlights commencing at [244]. His Honour found at [246] that Mr Vines obtained the document on 19 or 20 October 1998 and studied it [244]. His Honour held at [264] that Mr Vines and Mr Schneider discussed the First Quarter Highlights document in October 1998, but accepted Mr Vines' version of the conversation in preference to Mr Schneider's. 182 Insofar as the Respondent relied on a particular of knowledge based on this document – which it frequently did in the form of "Mr Schneider had warned that the profit forecast should be reduced" – his Honour upheld that particular. (See at [1244].) Nevertheless, as the italicised part of [241] set out at [180] above indicated, the effect of the warning was to identify Hurricane Georges exposure to be "a matter to be kept under particular review". 183 On 20 October 1998 Mr Schneider sent an email to Mr Robertson, copied to Mr Vines, identifying a number of assumptions which would have to be made good if the $80 million profit forecast were to be maintained. His Honour noted at [269] that the first assumption, that the cost of Hurricane Georges would be GIO Re's average historical market share for property catastrophe losses, was the most important. His Honour found that, at the time the email was sent, Mr Robertson was continuing to rely upon his own tracking mechanisms which his Honour found to be inadequate (see [211]–[217]). 184 His Honour discussed Mr Vines' evidence concerning this email: "[270] Mr Vines gave evidence (T 2587-8) that, when he read Mr Schneider's e-mail he thought the assumptions Mr Schneider outlined were not unreasonable assumptions that might support the $80 million projection, but he had the sense that Mr Schneider himself was not convinced that the assumptions were sustainable. He inferred that there was a continuing disagreement between Mr Robertson and Mr Schneider about the projection but they were not irreconcilable. [271] In the following two days Mr Driessen supplied to Mr Vines, by e-mail copied to Mr Robertson and others, figures with respect to claims experience (PTB 0606). They included a table headed "undiscounted ultimate claims" (PTB 0611), which recorded claims of A$24.9 million for the July-September 1998 quarter in respect of Hurricane Georges. Mr Vines explained that he asked for that information so that he could get an understanding of the kind of claims experience GIO Re had had in the first quarter (T 2590), and he observed that the figure recorded for Hurricane Georges claims was approximately the figure of $25 million referred to in the first quarter highlights (T 2591). ASIC pointed out that this episode demonstrates, if demonstration were needed, that Mr Vines could have access to detailed information from within GIO Re if he wished to have it. But for the reasons I have given, my view is that in the third week of October Mr Vines was not under any obligation to make his own enquiries separately from the executive director, about claims developments for Hurricane Georges." 185 The act constituting the first contravention, was the statement on 7 November that management remained confident of the $80 million profit forecast. (Set out by his Honour at [272]–[274].) Mr Vines' evidence was that he was "drawing on Mr Robertson's memorandum of 4 November, as well as his own belief" in making that statement. In the following 180 paragraphs, his Honour made findings relevant to the formation of that belief. 186 At [275] his Honour found that Mr Vines was aware in October 1998 that Hurricane Georges would result in claims on policies issued by or on behalf of GIO Re and that those claims were relevant to the attainment of the $80 million profit forecast. 187 At [278] his Honour considered a draft report to the board of GIO dated 22 October, prepared by PwC and faxed to Vines on the following day, referring to Hurricane Georges as a "significant matter". The report noted that hurricane exposure had varied significantly in the past, relevantly for Georges, between $9 million and $178 million. The draft report said: "There is significant uncertainty as to GIO Re's exposure to this event … and the ultimate exposure could be significantly more than the $25 million currently reserved." 188 His Honour noted at [279] that Mr Vines did not consider that anyone took the number $178 million "seriously". His Honour held: "[280] In my view … the draft report did nothing more than to reinforce the warning implied in the first quarter highlights, that Hurricane Georges claims might develop in a manner impacting on GIO Re's profit and therefore the claims development had to be monitored. The statement merely gives a range from a very low to a very high figure, evidently based on nothing more than a comparison with GIO Re's losses in respect of two other hurricanes, and draws attention to significant uncertainty. To say, as ASIC did, that the statement should have been taken (very seriously) is not to imply that any particular steps should be taken in response to it. It does not seem to me that PwC's submission of its draft report to Mr Vines had any separate effect on his duties in the circumstances. The position explained by Mr Vines in cross-examination was, therefore, not unreasonable." 189 On 23 October 1998 Mr McClintock of PwC Securities sent a draft report suggesting that Georges disclosure be considered (at [282]). PwC was also apprehensive about the 33 percent profit assumption, and Mr Vines was aware of this concern (at [284]). The 33 percent profit assumption is discussed at [197]–[202] and involves a reassessment of the proportion of catastrophe premium that would result in profit. It will be recalled that, upon Mr Steffey's ascension to the role of Managing Director, it was determined that the June 1998 figures would be particularly conservative to ensure it would contain no "sins of the past" (at [133]), and hence it was determined that the catastrophe premium would be forecast to break even. 190 His Honour made a further finding at [290]: "[290] It is clear… that Mr Vines and Mr Steffey had been made aware, by the end of October, that PwC was concerned about the catastrophe component of the profit forecast in light of both an uneasiness about the assumption that the Hurricane Georges loss would conform to the historical average, and an apprehension that the shortfall in profit for the first quarter had undermined the 33% profit assumption." 191 His Honour also upheld the ASIC submission that by the end of October, Hurricane Georges was regarded by PwC as a "very important issue" (at [290]). 192 On 4 November 1998 Mr McClintock of PwC Securities sent a further email to Mr Vines advising of the need to reforecast, but still working on the assumption that Hurricane Georges liability would be no greater than $25 million (see at [291]). 193 On 4 November 1998, a meeting occurred between Messrs Vines, McClintock, Murray and Robertson, at which the impact on the profit forecast of falling interest rates was discussed [301]. Shortly after that meeting Mr Robertson wrote a memorandum to Mr Vines which is significant for the first contravention. 194 His Honour considered in detail Mr Robertson's memorandum of 4 November 1998 at [365]ff. His Honour noted at [368] that Mr Vines considered the memorandum to be Mr Robertson's response to his request to deal with the issues arising from the First Quarter Highlights. His Honour summarised the content of the memorandum at [370]: "[370] Mr Robertson began the memorandum by noting that an error had been discovered in the reinsurance outstanding claims valuation program, which had the effect of understating profit in an environment of falling interest rates. He went on to identify the result in space as disappointing, but observed that there had been a valuation error from a previous reporting period, the correction of which reduced the space result by A$8.1 million, most of that adjustment being borne in the first quarter. He referred to Hurricane Georges and explained the basis for estimating loss by recourse to the average market share of 0.6%, without questioning the adequacy of the reserve of A$25 million calculated in that fashion. He said that the shortfall of A$8 million arising from the error in the space result would be made up by favourable development in the MIPI account, in which claims incurred had reduced by A$6.7 million during the first quarter. He expressed the opinion, 'subject to all the usual caveats that must accompany any forecast of reinsurance results', that the A$80 million profit forecast remained appropriate after considering the actual outcome of the first quarter. He acknowledged, however, that if Hurricane Georges should prove 'much more expensive than' the reserve allowed for it of A$25 million, then 'this would affect attainment of our profit forecast'." 195 At [377] his Honour noted the use made of the memorandum by Mr Vines, namely that he took from it the major points that should Hurricane Georges become a greater cost than $25 million it could impact on GIO Re's ability to meet the forecast, but that $25 million was the best view of what the loss would be at that time. The gist of Mr Robertson's memorandum was reflected in the board paper prepared by Mr Vines for the meeting of GIO held on 9 November (at [378]). 196 A meeting occurred on 5 November between Messrs Vines, Robertson, Fox, McClintock and Lange, a non-executive director of GIO who was a member of the DDC and had particular responsibility for the reinsurance figures (see at [186]). 197 Mr Vines said that Mr Robertson's memorandum of 4 November was used at this meeting to discuss issues surrounding the re-insurance forecast (at [387]). It was at this meeting that the difference of opinion between Mr Schneider and Mr Robertson was discussed, and Mr Lange suggested that Mr Robertson and Mr Fox should meet with Schneider to resolve differences that might remain. 198 For purposes of the First Contravention, his Honour made a significant finding at [392]: "[392] ASIC submitted (written submissions, para 180) that Mr Vines must have had it in the forefront of his mind, as a result of the meeting with Mr Lange, that there was disagreement between two of the most senior executives within GIO Re as to the likely effect of Hurricane Georges on the profit forecast, and that this issue was central to the concern as to whether the forecast could be attained. I agree with this. Although Mr Schneider was junior to Mr Robertson, he occupied an important position in GIO Re. The fact that the opinion he expressed in the first-quarter highlights seemed, on its face, to be speculative and not supported by analysis, did not exonerate Mr Vines, as the most Senior Executive Officer supervising the takeover defence process and Pt B profit forecast, from making sure that the disagreement was adequately investigated as proposed by Mr Lange, and either resolved or presented clearly to the DDC as an issue for the committee's determination." 199 The meeting between Messrs Fox, Robertson and Schneider to resolve their differences was held on 5 November. It was at this meeting, his Honour held, that Mr Schneider informed Mr Fox and Mr Robertson of a "contract by contract analysis" he had conducted and its likely outcome (at [379]ff). His Honour's findings are set out at [437]: "[437] My findings are that: § a meeting of Mr Robertson, Mr Fox and Mr Schneider took place on 5 November, after the meeting with Mr Lange at which he had suggested that it should occur; · the purpose of the meeting was to consider the disagreement between Mr Robertson and Mr Schneider about the impact of Hurricane Georges and whether the profit forecast to GIO Re should be revised and reduced; · during the meeting Mr Schneider expressed his opinion that Hurricane Georges was a $100million type event, and he referred to the contract-by-contract analysis; · Mr Schneider showed Mr Fox the Status of Registered Events report as at 31 October, which recorded total claims of more than $25million; and · the difference of opinion between Mr Robertson and Mr Schneider was not resolved, but instead, they discussed a proposal to protect GIO Re against Hurricane Georges losses in excess of $25million by a retrocession agreement, which Mr Schneider agreed would remove the need to adjust the projection if it was deemed by APRA to be reinsurance." 200 His Honour held that Mr Schneider did not tell Mr Vines that he was undertaking a contract by contract analysis before it was completed [325]. Mr Vines' evidence was that he first discovered that claims on Hurricane Georges were up to about $100 million on 7 January 1999, immediately after AMP had closed its successful takeover bid (see at [970]). 201 As will appear below, Mr Vines' state of knowledge of Mr Schneider's references to Hurricane Georges being a "$100 million type event" was a significant particular for a number of the contraventions pleaded in ASIC's case. Mr Schneider gave evidence about conversations in which he made such a reference in the period between 9 and 13 November and on 6 or 7 December. His Honour rejected that evidence and accepted Mr Vines' denial. 202 His Honour said: "[617] It seems to me that there is an important difference between the statements in the first quarter highlights, which, as I have said, were rather speculative and not expressed to be based on analysis, and a statement by a person in Mr Schneider's position giving an estimate within a broad category of loss, in the range of $100 million on the basis of a contract-by-contract analysis. A fortiori, there is a very great difference between a statement of the latter kind and a vague and speculative statement, without reasons, that Hurricane Georges could reach $100 million. A statement that is supported by an analytical and empirical process, within the general area of expertise of the person making the statement, demands to be taken seriously and should produce the kind of reaction that, indeed, Mr Vines said he would have undertaken if such a statement had been made. But it would be understandable if a vague and speculative statement not based upon expert analysis did not provoke a reactive course of conduct, or even (in light of the statements already made in the first quarter highlights) an invitation to explain the basis of the speculation. I do not agree with ASIC (written submissions, para 136) that the mere fact that the statement was made by a person holding a position equivalent to the position of internal actuary meant that it should be acted upon, where the statement was vague and speculative and did not purport to be based on analytical or empirical grounds." 203 However, his Honour also found with respect to Mr Vines' state of knowledge after the 5 November meeting: "[392] ASIC submitted (written submissions, para 180) that Mr Vines must have had it in the forefront of his mind, as a result of the meeting with Mr Lange, that there was disagreement between two of the most senior executives within GIO Re as to the likely effect of Hurricane Georges on the profit forecast, and that this issue was central to the concern as to whether the forecast could be attained. I agree with this. Although Mr Schneider was junior to Mr Robertson, he occupied an important position in GIO Re. The fact that the opinion he expressed in the first quarter highlights seemed, on its face, to be speculative and not supported by analysis, did not exonerate Mr Vines, as the most senior executive officer supervising the takeover defence process and Part B profit forecast, from making sure that the disagreement was adequately investigated as proposed by Mr Lange, and either resolved or presented clearly to the DDC as an issue for the committee's determination." 4 Retrocession Cover 204 At [560], his Honour set out the bases upon which Mr Vines, around 3 November, considered it necessary, hastily, to obtain retrocession cover for Hurricane Georges. One reason was that the agreement had to be in place before the Part B Statement was issued. The timing of the Part B Statement was at that time uncertain as it depended upon the Federal Court delivering judgment. 205 On 3 November 1998 Mr Steffey and Mr Vines met with Guy Carpenter, a reinsurance broker, represented by Mr Grove, in relation to the possibility of obtaining retrocession cover (at [564]). In an email to his colleagues, Mr Grove noted that the accounting issues were the important issues to Mr Vines (at [566]). 206 On 5 November, a meeting was held regarding retrocession attended by Messrs Vines, Fox and Grove (set out at [570]ff). According to Mr Grove's file the "deterioration of the Georges book" was discussed. In an email to his colleagues Mr Grove said: "the main concern of Mr Vines and Mr Steffey was to obtain a cover which would protect/guarantee their projected profit". 207 At [572] his Honour said: "Mr Vines accepted that he said his main concern, and Mr Steffey's, was to obtain cover that would protect the projected profit of $80 million." 208 His Honour made a finding at [573] that Mr Vines must have understood on 5 November that the proposal was for cover to be obtained against the possibility that Hurricane Georges would exceed the $25 million, up to a total of $50 million (which was later increased to $75 million, and then $100 million). 209 At [578] his Honour set out Mr Vines' discussions with Mr Grove, during which Mr Grove indicated that Guy Carpenter had been involved with similar retrocession arrangements with two other insurance companies which had been approved by their auditors. 210 From 6 November it appears that Mr Vines dropped out of negotiations for the retrocession arrangement (see [586]). After this time the matter was primarily negotiated by Mr Schneider, although Mr Fox was also closely involved. On 8 November Mr Fox made a decision to negotiate with American Re rather than Guy Carpenter, for reasons set out at [590], being that cover could probably be obtained more cheaply from American Re, and brokerage fees would be avoided. 211 In order for a retrocession agreement to deliver the accounting advantages required to support the $80 million profit forecast, it was necessary for the agreement to be classified as a reinsurance agreement, rather than as a financing transaction. His Honour discussed the regulatory requirements for an agreement to be so classified (at [716]ff). Relevantly, a retrocession agreement must involve a transfer of risk. 212 However, as Hurricane Georges had already struck, protection of this kind did not involve any transfer of risk. (Mr Vines understood this (see [564]), but was persuaded by Mr Grove that such retrocession could be arranged (see [578]).) 213 The liabilities that are assumed under a retrocession agreement include premiums to be paid in later years. If the agreement is a genuine retrocession agreement rather than a financing transaction, then the future stream of liabilities can be reflected in the accounts in the year in which they are paid. If, however, the agreement should be characterised as a financing transaction, then the present value of the future stream of premiums should be taken into account in the current year. On that basis, a genuine retrocession agreement would support the profit forecast, insofar as exposure to Hurricane Georges exceeded the amount for which provision had been made. 214 In the event, GIO entered into an agreement with American Re which was held, after some delay, not to be a retrocession agreement which could be given the accounting treatment required to support the profit forecast. 215 It is pertinent to note his Honour's finding at [742] that "up to 1 December 1998, Mr Vines believed it was probable that Hurricane Georges losses above $25 million would be covered by the American Re agreement". 216 It is also relevant to note his Honour's findings as to Mr Vines' evidence of a "high level of understanding" of the Am Re agreement. His Honour said at [562]: "[562] Mr Vines' 'high level' understanding was evidently still a quite sophisticated grasp of the regulatory and accounting issues raised by financial reinsurance, as is shown by the evidence of Mr Vines' participation in negotiations for the retrocession contract, and with the accounting firms concerning it. That is what one would expect, having regard to his background as an auditor for banks and for the GIO Group." 5 Excess Reserves 217 The level of confidence in the profit forecast was also affected by recognition that, in specific respects, GIO reserves as at 30 June 1998 may be able to be released. The focus of attention was upon the reserves for professional indemnity claims known as MIPI. 218 On 12 August 1998, Mr Latham had produced a document that considered provisioning for claims, in which a number of relevant comments relating to MIPI are found. His Honour said: "[158] … [Mr Latham] noted that … the development of GIO's claims experience up to 30 June 1998 was over A$30 million less than the [claims incurred but not reported] for which provision had been made. But he said he was loath to suggest that the provision be reduced, because the MIPI treaty was notorious in its experience and it was plausible that the estimated [claims incurred but not reported] would eventually emerge. This last statement needs to be remembered when one comes to consider how Mr Vines and Mr Robertson subsequently treated Mr Latham's report as the basis for identifying, in effect, a hidden profit reserve of over $30 million to counterbalance Hurricane Georges losses." 219 The MIPI account was referred to by Mr Robertson in his memorandum of 4 November which his Honour summarised at [370], set out above. This memorandum indicates that MIPI was thought to contain redundancies at that time. At [374] his Honour noted that Mr Robertson's view concerning the MIPI redundancies arose from Mr Latham's report dated 12 August 1998 and a discussion between Robertson and Latham in which Latham estimated the MIPI surplus to be $7-8 million. 220 Mr Vines had prepared, what is called, in the argot of the industry, an "unders and overs" analysis which reassesses the adequacy of reserves as at a particular date, in this case as at 30 June 1998. ASIC conceded that an unders and overs analysis, properly conducted, was a legitimate means of supporting the profit forecast (see at [455]). 221 The purpose for which the document was first created was explained by his Honour: "[456] … Mr Vines described the document as 'an inventory of all the various adjustments we had put in place at 30 June', and later said it was his view of 'redundancies and deficiencies and other actions that had been taken at 30 June which had the effect of underpinning the financial position of the Group and future performance'." 222 However, it is also clear that on 9 November Mr Vines believed that MIPI contained significant redundancies. As his Honour said: "[463] … Whereas Mr Latham had identified some redundancy in the years up to 1994/95, Mr Vines (without disagreeing with Mr Latham) believed that there would also be profit in the later years (T 2540). He told Mr Mortimer that in his opinion, the later years would generate at least a $30 million redundancy in due course. That was in addition to the redundancy of approximately $30 million that appeared to emerge from Mr Latham's figures." 223 The reference to Mr Latham's figures is a reference to Mr Latham's report of 12 August. 224 In the course of discussing Mr Vines' unders and overs analysis, his Honour discussed Mr Vines' views of the excess reserves in the Reinsurance division as at 30 June: "[461] It is appropriate to examine the 'overs' and 'unders' for Reinsurance more fully. There was said to be an 'over' for Aviation, 'per Robertson', of $45 million. Mr Vines explained to Mr Mortimer (T 2537) that this entry referred to the new provision of $105 million, and reflected Mr Robertson's view that the new provision was excessive in an amount of about $45 million. Next to that entry in the schedule there was a handwritten note, 'taken $9.3 million'. Mr Vines said he made this note before his discussion with Mr Mortimer, and that it signified that in the first quarter results, the Swissair loss had been recognised and to the extent that premium income from the aviation catastrophe book did not absorb the effect of that loss, $9.3 million had been applied against the $105 million aviation reserve that had been created as at 30 June 1998 (T 2543). In other words, the Swissair loss had been accounted for in the first quarter by applying premium income to it and setting the remaining $9.3 million against the aviation reserve. [462] There were 'overs' listed for property and general liability attritional, and for D & O, totalling $48 million, which Mr Vines said were derived from Mr Latham's opinion that there had been over-provisioning to that extent (T 2537). [463] There was an entry for MIPI expressed as '+???'. Mr Vines said he told Mr Mortimer that in his report, Mr Latham had come as close as you can get an actuary to come to saying he thought MIPI had been over-reserved, without putting a number on it (T 2539). Mr Vines said he had personal knowledge about MIPI. He said that after the boom and bust of the late 1980s there had been some very significant claims against accounting firms, and consequently the accounting firms had reviewed their audit and risk management techniques and had formed a series of captive insurers so that, in effect, the accounting firms had become almost self-insured, other than for very major claims (T 2539). For reserving purposes, Mr Schneider had assumed that IBNR would equal premium income derived between 1991 and 1998 and therefore MIPI would generate no profit, but Mr Vines strongly believed that profit would emerge in the later years by virtue of the actions that had been taken by the profession and by the insurance industry (T 2540). Whereas Mr Latham had identified some redundancy in the years up to 1994/95, Mr Vines (without disagreeing with Mr Latham) believed that there would also be profit in the later years (T 2540). He told Mr Mortimer that in his opinion, the later years would generate at least a $30 million redundancy in due course. That was in addition to the redundancy of approximately $30 million that appeared to emerge from Mr Latham's figures. [464] Mr Vines said he discussed MIPI with Mr Schneider from time to time. He said Mr Schneider was very wedded to the methodology that he had introduced into GIO Re and was firmly of the view that it produced the right answer (T 2605). [465] Another 'over' for Reinsurance was said to be 'Prudential Margin earnings', in the amount of $12 million. Mr Vines explained that this was because the prudential margin, unlike other claims liabilities, was not discounted. The discounting of liabilities would match and negate the earnings produced by the assets put in place to support the liabilities. Since there was no discounting for the prudential margin, the earnings on assets supporting it would flow through to the bottom line (T 2541). This schedule also identified 'GIO UK' as an 'over' of $5 million. Mr Vines was unable to recall in the witness box the reason for this entry (T 2541). [466] The list of 'unders' included Marine ($12 million) and Malaysia ($14 million), both from Mr Latham's report. There were two other items, namely Aviation and New Catastrophes, for which there were question marks rather than figures. As to Aviation, this was simply an acknowledgement of the possibility that the $105 million provision, expected by Mr Robertson to be excessive, might prove inadequate. Mr Vines said he did not personally believe that this was likely, and told Mr Mortimer his view (T 2541). [467] As to 'New Catastrophes', there are handwritten notes next to the question marks, identifying several catastrophes for a total amount of $139 million, comprising Swissair ($42 million), Hurricane Georges ($25 million), Gujarat ($21 million) and Space ($51 million), and then the handwritten words 'but $195m premium deferred 30/6' appear. Mr Vines gave evidence that he made the handwritten notes on the document immediately prior to his discussion with Mr Mortimer on 9 November (T 2542). That was shortly before conclusion of the American Re retrocession agreement. The note signified that there was about $139 million worth of catastrophe events that had occurred in the first quarter of the year to June 1999, but there was said to be $195 million of premium income deferred from the June 1998 year into the 1999 year. Mr Vines said he discussed these figures with Mr Mortimer on 9 November (T 2543)." 225 Mr Vines said he told Mr Mortimer, the Chairman of GIO, that in his report, Mr Latham had come "as close as you can get an actuary to come to saying he thought MIPI had been over-reserved without putting a number on it". His Honour also recorded Mr Vines' strong belief that profit would emerge from MIPI in later years (also at [463]). 226 His Honour also noted at [467] that, next to the words "new catastrophes", Mr Vines had included hand written annotations including "Hurricane Georges ($25 million)". Mr Vines gave evidence that he made annotations immediately prior to his discussion with Mr Mortimer on 9 November. 227 It is relevant to note the evidence of Mr Vines that an unders and overs analysis only became necessary on 1 December, when he realised that the losses from Hurricane Georges above $25 million would not be covered by the American Re agreement [742]. This appears to recognise, as ASIC submitted in this Court, than an unders and overs analysis requires a process of verification before it can be accepted as having an impact on a profit forecast. Mr Vines' unders and overs was too informal to have such an effect. Nevertheless, it may still be pertinent for purposes of determining whether Mr Vines acted negligently and for the honesty defence. V THE FIRST CONTRAVENTION: THE PROFIT FORECAST OF 9 NOVEMBER 1998 228 On 9 November 1998 at a meeting of the directors of GIO, the Appellant tabled a report entitled "Quarterly Results ended 30 September 1998". The report set out the results for the GIO group including a distinct section "Reinsurance". In that section the following statement appeared: "Claims arising out of Hurricane Georges have been assumed to be $25 million based on our average historical market share of such catastrophes. Management remains confident the full year forecast business profit of $80 million can be met." 229 The pleading was as follows: "[114] The 1st Defendant advised the board of GIO Australia as pleaded in para 64 hereof that the management of GIO Re remained confident that the $80m profit forecast could be met, knowing full well that: (a) Mr Schneider had warned that the profit forecast should be reduced; (b) An analysis of GIO Re's reinsurance contracts had led to an estimate that Hurricane Georges would be a $100m type event; (c) PwC Securities had warned that GIO's exposure to Hurricane Georges could be as high as $178m, as pleaded in para 27 hereof; and (d) He had not sought to obtain external advice as to whether the views of the 2nd Defendant in relation to the $80m profit forecast, as pleaded in para 31 hereof, were reasonable and ought to be preferred to the views of Mr Schneider, as pleaded in para 21 hereof." 230 Paragraph [64] referred to the Quarterly Results document, the relevant part of which I have extracted at par [228] above. 231 The reference to PwC Securities in par [27] of the Statement of Claim is to the draft Report dated 22 October and sent to Mr Vines the following day, discussed at par [187] above. 232 The difference of views between the Second Defendant (Mr Robertson) and Mr Schneider was pleaded in pars [31] and [21]. 233 Paragraph [31] referred to Mr Robertson's memorandum of 4 November discussed at par [194] above. 234 Paragraph [21] referred to the views of Mr Schneider expressed in the First Quarter Highlights Document discussed at pars [180]-[182] above. 235 In the part of his judgment where his Honour set out his conclusions with respect to this contravention his Honour identified the issue as whether: "[1232] … in all the circumstances, a reasonable person in like position to Mr Vines would have given the board a relevantly unqualified assurance of management confidence in the forecast when he knew that there was a dispute in the executive ranks about a matter material to the forecast which, as far as he was aware, had not been resolved. This is not a question about whether to commission independent advice to resolve the dispute, or disclose the dispute the board, but rather whether, in the circumstances of the dispute, an unqualified affirmation of the profit forecast was justified." 236 His Honour had earlier said: "[1231] For the reasons given above, I do not agree that the first quarter highlights were a matter for disclosure to the board, or that there was any obligation to disclose to the board on 9 November the disagreement between Mr Robertson and Mr Schneider, or to take some independent advice about it. The PwC draft report to which the pleading and Mr Hogendijk refer (PTB 0618), a document that was apparently never finalised, was simply a comparison based on historical experience for other hurricanes, giving a range from $9 million to $178 million, not expressing any view within that range. I think it would have been premature to disclose that draft report on 9 November." 237 His Honour proceeded to conclude: "[1234] My view is that Mr Vines failed to discharge his s232(4) duty in respect of his report to the board meeting of 9 November, because of his statement about management's confidence in the forecast. My opinion is based on my own assessment of his role and responsibilities in the particular position he occupied, in the company's particular circumstances. He was responsible under the planning memorandum for co-ordinating the due diligence process and had a special responsibility for the financial forecast. His own explanation to executive staff of the purpose of the due diligence process for the Part B disclosure shows that he understood the importance of management bringing forward all material matters to the DDC, and ultimately the board, for consideration. He was well aware of the nature and scope of the disagreement, by virtue of his attendance at the meeting with Mr Lange on 5 November (and also his reading of various documents such as the first quarter highlights, Mr Schneider's 'assumptions' e-mail of 20 October, PwC's draft report of 22 October, Mr McClintock's e-mail of 4 November and Mr Robertson's memorandum of 4 November), and that it was a disagreement between the most senior officer of GIO Re (Mr Robertson) and, relevantly, the second most senior officer (Mr Schneider) about a matter of highly material significance to the first-quarter results and the viability of the profit forecast. [1235] In those circumstances a reasonable person in like position in a corporation in GIO's circumstances, acting carefully and diligently, would not have reported to the board, after merely noting the $25 million reserve based on average historical market share, that management remained confident that the full-year forecast business profit of $80 million could be met. I accept, as Mr Vines said, that at the time he had the view that the proposed retrocession would deal with adverse development above $25 million, and he had in mind his unders and overs schedule. But he did not tell the board about these things, or mention to the board that there was a problem arising out of management disagreement which led him to rely on such matters. Instead, the report made a relevantly unqualified assertion about management's view, an assertion that was, in my opinion, incomplete and misleading. The fact that the statement was, objectively, a misleading statement does not necessarily mean that there was a breach of the duty of care and diligence in making it. One can be objectively misleading notwithstanding all due care. But this was a statement that was objectively misleading because of the omission of material facts known to the maker of the statement. Such a statement was not one that a reasonable person in like position in a corporation in GIO's circumstances would make, exercising his or her powers and discharging his or her duties with care and diligence. [1236] In reaching this conclusion I do not hold that Mr Vines intended to deceive the board by making this statement. His own evidence implies that he believed the statement was true, as regards his own view and the view of Mr Robertson, because of the retrocession agreement and the unders and overs. [1237] I have held it was not necessary for Mr Vines to make full disclosure to the board on 9 November of the disagreement between Mr Robertson and Mr Schneider. A reasonable person in like position in a corporation in GIO's circumstances might well have taken the view that the board had established a committee, the DDC, for dealing with matters at that level of detail in circumstances where the position had not reached finality and the problem might be resolved before the Part B statement was adopted. It might have been sufficient for Mr Vines to tell the board that some issues had arisen about the impact of Hurricane Georges on the profit forecast, and that they were being addressed by management, in circumstances where the DDC would be kept fully informed. But a statement to the board that was misleading, because of the omission of material facts known to Mr Vines, was in a different category." 238 In the Honesty Judgment his Honour summarised the above reasoning: "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 [1234]-[1237]." 239 The relevant declaration made by Austin J was: "8 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited, by his provision to the Board, as an officer of that corporation, of an unqualified assertion of management's confidence that the GIO Re profit forecast could be met on 9 November 1998, a statement which 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." 240 The first ground of appeal is that his Honour erred in making a finding of contravention in this, as in each, respect. I do not, in the circumstances, finds it necessary to deal with other grounds of appeal, such as the alleged departure from the pleaded case. 241 Paragraph [114] of the Statement of Claim asserts that the Appellant contravened his statutory duty of diligence and care by making a statement that "management remained confident" of the $80 million profit forecast. His Honour held, in essence, that there was a contravention of the duty of diligence and care by the making of such a statement, without acknowledging the then extant disagreement between Mr Robertson and Mr Schneider. To conclude that this constituted a contravention must depend on the persons to whom, and the circumstances in which, the statement was made. As his Honour's own analysis made clear, it would not be sufficient to conclude, if it be fact, that the statement was misleading. 242 The mode in which this contravention was committed was in a report to the board. Unlike the next contravention, there was no suggestion that this report would be the basis of any kind of media release and the Part B Statement, although in preparation, was some way off. Mr Vines was aware that Mr Lange, the non-executive director of the GIO who had particular responsibility for the reinsurance figures and that component of the profit forecast, was himself aware of the differences that had emerged in this regard between Mr Schneider and Mr Robertson. 243 His Honour did not refer to that consideration in his analysis of the breach of duty. The Appellant submits that it was a significant aspect of the alleged contravention. I agree. 244 In its submissions to this Court, ASIC relied on the proposition that Mr Lange, who had left the 5 November meeting urging that Mr Schneider and Mr Robertson resolve their differences, must have inferred from Mr Vines' unqualified statement that such a resolution had occurred. I can see no basis for such an inference. There was no evidence to that effect from Mr Lange or any member of the board. His Honour made no finding of fact to that effect. It is not appropriate for this Court to draw such an inference for the first time on appeal. 245 It is by no means clear that an assertion that "management remained confident" contains an implication of unanimity within management. Furthermore, it is by no means clear that there was anything misleading about the statement at a time when Mr Vines and Mr Robertson both held the view, as his Honour found that they did, which was accurately described as confidence in the profit forecast as at that time. 246 To the knowledge of everyone involved, the due diligence process and the Part B Statement had, at this stage, some way to go. There were proceedings in the Federal Court challenging the takeover. There is no material before the Court which suggests that the meeting to which this report was to be delivered was to consider any step in the process that required the kind of qualifications to the statement about management opinions which his Honour held to be required. 247 The member of the board with delegated responsibility for the very matter in issue was aware of the matter which his Honour held should have been specifically addressed. In my opinion, an officer in Mr Vines' position could, acting with due diligence, make the representation he did make, which accurately represented the predominant view then held by senior management, without the qualifications which his Honour held to be necessary. 248 In these circumstances, it was not in my opinion, necessary for an officer in Mr Vines' position to disclose at that time the existence of divergent views within management or even that 'some issues had arisen' about the profit forecast. No conduct based on the profit forecast was, at that time, likely to occur before the disagreement was addressed. 249 In my opinion, the appeal against this finding of contravention should be allowed. VI EVENTS BETWEEN 9 NOVEMBER AND 17 NOVEMBER 1 31 October Results 250 His Honour found at [473] that: "[473] Mr Vines also gave evidence that, when he was shown the October results on 11 November, he held the belief that GIO Re would become entitled to reinstatement premiums arising from Hurricane Georges claims, although he did not give any particular view as to the quantity of those premiums. He said he formed that belief on the basis of an exchange of emails that included Mr Schneider's email to Mr Fox dated 10 November. In that email Mr Schneider had said that one would expect significantly more reinstatements arising from Hurricane Georges, not included in the projection, which had used a '33% of claim premium' approach." 251 His Honour considered the formation of the 31 October results at [474]ff. These were the second set of monthly figures produced, in accordance with the new monthly reporting procedures instituted by Mr Steffey on his appointment as Managing Director of the Group. 252 For this purpose, Mr Schneider prepared a document entitled "GIO Re Analysis of Results". The document reflected an assumption on the part of Mr Schneider that the Am Re contract would be in place and limit exposure to Hurricane Georges to $25 million. Mr Schneider gave evidence that due to the pressure of time, he did not adjust the predictions to reflect the contract by contract analysis (at [477]). 253 It is relevant to note that, with respect to Hurricane Georges, the analysis within the document, while assuming the Am Re agreement would be in place, noted that, if it was not, there would be a loss of $29.78 million for the month (at [478]). 254 Mr Vines attended a meeting on 11 November including Messrs Fox, Schneider and Driesson, to discuss the October figures. At that meeting, Mr Schneider gave Mr Vines a copy of the "GIO Re Analysis of Results" document and explained it. His Honour found, however, that Mr Schneider did not tell Mr Vines about the contract by contract analysis or that Georges "could be a $100 million event". (See [485] and [608]-[618].) Mr Vines, was, however, told at their meeting that the Am Re agreement was close to being finalised (at [486]). 255 The 11 November meeting was the first occasion on which Mr Vines was held to have learned that the liabilities for Hurricane Georges would exceed $25 million. He learned at the meeting from the October results, that the gross estimate for Hurricane Georges was in the region of $69 million, from which he understood that there was no longer a disagreement between Robertson and Schneider, and that Robertson now agreed with Schneider (at [488]). 256 His Honour also found: "[491] Mr Vines gave evidence that the figures discussed at the meeting had been prepared on the basis that the American Re cover would be in place. He said he was broadly comfortable with making that assumption for management accounting purposes, because he knew that the cover was close to resolution, but he also knew that if the cover was not written, for whatever reason, there were other ways in which a loss for Hurricane Georges of the level being referred to by Mr Schneider could be dealt with: T 2665. As to the appropriateness of taking the American Re cover into account without first receiving accounting advice, Mr Vines said he relied on the representations received from Guy Carpenter, which suggested that what was in contemplation would receive accounting approval, and therefore getting the slip in place was, in his opinion, the first priority, and he expected the views of the auditors to be obtained once the slip was in place: T 2665. [492] Mr Vines said that if the auditors did not accept the American Re cover, then it would be necessary to look at the 'redundancies' that existed within the reinsurance division as an alternative to the retrocession: T 2665. He said his own "unders and overs" had suggested that there was a substantial redundancy within the reinsurance book, without any quantification of MIPI. MIPI had behaved well in the first-quarter results and so, by 11 November, he was even more strongly of the view that MIPI contained a substantial redundancy that could be released, if necessary. He said that if he had not had a belief in the existence of the redundancies, he would not have been content to let the October results go forward without first obtaining external accounting advice on the efficacy of the American Re cover: T 2666." 257 His Honour also made findings, contrary to the evidence of Mr Fox, as to what Mr Fox must have known at this time. It must also follow that Mr Vines, whose version of the meeting was accepted by his Honour, must also have had the following understandings, set out by his Honour: "[495] … It follows that Mr Fox heard at the meeting, and understood, that $44 million of the total increase in ultimate claims in the catastrophe model results was due to Hurricane Georges and that the October figures were based on the assumption that the American Re contract would be put in place so that there would be protection for Hurricane Georges up to US $100 million and it would not be necessary to recognise any additional Hurricane Georges loss in October" 2 Draft Four Month Results 258 Following the 11 November meeting, a draft commentary on the first four month's results was prepared for Mr Vines' review as part of the process of briefing Mr Steffey. This is relevant, as the draft document contains phrases that appeared in Mr Steffey's report to the board on 17 November that constituted the second contravention (see [498]-[499]). In particular, the document noted a "strong result" in property catastrophe. 259 His Honour noted Mr Vines' awareness that the property catastrophe result depended upon the Am Re agreement delivering the accounting benefits intended. However "Mr Vines did not think it necessary to draw attention to that fact because he had every reason to believe that the cover would be effective" (at [499]). 3 Hurricane Georges Register 260 His Honour considered the manner in which the Hurricane Georges register was maintained at [503]ff. At [513], his Honour accepted that the register contained exaggerated or precautionary claims, as Mr Vines thought. It was the view of management that, due to the uncertainty created by the AMP bid, some claims notified would be precautionary rather than actual (see [19], [222]-[223]). His Honour accepted Mr Vines' evidence that he was told of this phenomenon by Mr Steffey on 29 October, and that he thought it "made good sense" (at [289]). 261 At [516]ff his Honour noted the development of a document known as the "Status of Registered Events Report" which was distributed to Messrs Fox, Robinson and Schneider, but not the Appellant, that tracks the evolution of the Hurricane Georges liability. 262 His Honour found at [547] that while the register contained errors, it was not useless and was a tool for management to employ in the course of discharging their duties. 263 On 11 November 1998, Mr Vines was forwarded a document entitled "Catastrophe Claims Spreadsheet", considered by his Honour at [551], showing undiscounted claims for Hurricane Georges at 31 October 1998 to be $69.06 million, an increase of $44 million from 30 September 1998. That document had been created in the first week of November. This increase does indicate a significant adverse development. 264 It is also relevant to note his Honour's findings at [557] that, had a request been made in early November 1998, up-to-date data concerning the Hurricane Georges liability could have been compiled within minutes (at [557]). 4 Mr Vines' Knowledge 265 A series of conversations alleged by Mr Schneider to have occurred in the period 9 to 13 November between himself and Mr Vines are considered by his Honour at [606]. Mr Vines' evidence that the conversations did not occur was preferred by his Honour. His Honour found at [613], contrary to the evidence of Mr Schneider, that Mr Vines was not informed in the period 9 to 13 November that Mr Schneider was of the opinion that Hurricane Georges was a $100 million event or that he had carried out a contract by contract analysis. 266 His Honour referred, without criticism, to Mr Vines' evidence that he only had a "vague memory" that someone mentioned $100 million in connection with Hurricane Georges, and that such a mention was "expressed in some sort of speculative terms". 267 It is relevant to note that his Honour considered ASIC's submission, also referred to in oral argument on appeal, that Mr Schneider was unlikely to have made such a comment about "speculative terms" given that he had by that stage completed the contract by contract analysis, and the Hurricane Georges register was functioning. That submission was considered at [615], along with a submission noting that at this stage the retrocession cover proposed had been increased from $75 million to $100 million. His Honour accepted Mr Vines' evidence at [617]. 268 His Honour also accepted Mr Vines' evidence that had he been told in the period 9 through 13 November that Hurricane Georges losses were expected to be $100 million on the basis of a contract by contract analysis, that statement would have prompted action, and he would not have agreed to the profit forecast going forward (at [616]). His Honour gave his reasons at [617]-[619] for accepting Mr Vines' evidence, which analysis makes it clear that his Honour applied a Briginshaw standard of proof. 5 The American Re Agreement 269 The American Re agreement was signed on 13 November, and provided retrocession cover for losses in respect of Hurricane Georges in excess of $25 million up to US$100 million. His Honour accepted Mr Vines' evidence that Mr Schneider did not discuss the details of the slip with Mr Vines (at [636]). However, at [640] his Honour found that after the slip was signed Mr Schneider "promptly sent a facsimile to Mr Fox, copies to Mr Steffey and Mr Vines, attaching the signed cover note and saying 'I think we can all rest easy'." (at [639]). His Honour found at [641] that Mr Vines would have glanced at it, and would have been aware on 13 November, that cover for Hurricane Georges had been substantially increased from what had been proposed to Mr Grove on 5 November, that is the extent of cover had been increased from the initially proposed $50 million to US$100 million. 270 His Honour made the following finding about the entry into the American Re agreement: "[657] In my opinion the terms of the placement slip and the evidence that I have set out show 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. Bearing in mind that a whole account protection cover was contemplated by Mr Steffey and Mr Fox for 1999 and subsequent years, and therefore that the placement slip was a temporary cover, there is no plausible basis for inferring that those who negotiated the placement slip on behalf of GIO Re were concerned to protect the company from the risk of a second US$10 billion Gulf of Mexico hurricane in any 12 month period. Plainly enough, that part of the transaction was included in order to give the transaction an appearance of genuine risk transfer, even though the real risk transfer was only very remote, so that it would pass muster with the auditors and the prudential regulator. The central part of the transaction represented by the placement slip was an arrangement, not involving any risk transfer, whereby American Re contracted to cover GIO Re for surplus Hurricane Georges claims above US$15 million (A$25 million) in exchange for GIO Re's promise to pay equivalent amounts in later years plus a substantial fee. This, it was hoped, would enable GIO Re to remove the surplus Hurricane Georges claims from its balance sheet at 30 June 1999 and therefore justify a profit forecast which disregarded those surplus claims." 271 His Honour set out the factual basis for this inference, an inference which is not challenged in this appeal. However, amongst the matters his Honour referred to at [658] as supporting the inference, was Mr Vines' own evidence that "his main concern … was to obtain cover that would protect the projected profit of $80 m". 272 His Honour further held: "[661] Mr Vines, on the other hand, did not have detailed understanding of the regulatory and accounting issues and looked to Mr Fox for expertise. Although he initiated negotiations, initially with Guy Carpenter, for a retrocession arrangement along the lines of what was eventually negotiated, he did not become involved in the details of the contract or the details of its accounting treatment before the placement slip was signed on 13 November. His evidence was that he relied on what he was told by Guy Carpenter and by Mr Fox as to the feasibility of obtaining retrocession cover that would protect the profit forecast from deterioration of Hurricane Georges claims." 273 His Honour set out the background to the accounting treatment of reinsurance arrangements such as the American Re agreement [716]ff. His Honour said: "[723] It was important for GIO Re that the distinction between true reinsurance and deposit or financing arrangements would impact on the accounting treatment for the transaction. The question was whether it was permissible, under the accounting standards and proper accounting practice, for GIO Re to take to account, in GIO's financial statements for the year to 30 June 1999, its entitlement to be covered by American Re under the agreement for Hurricane Georges claims received in the year, without being obliged to bring to account in the 1999 year its obligation to repay equivalent amounts to American Re by way of premium in later years. [724] If this accounting treatment were permitted, then the American Re agreement would protect the profit forecast, because any Hurricane Georges claims that were to be brought to account in the year ended 30 June 1999 in excess of the reserve of A$25 million would be offset, in the same year, by American Re's obligation to make payments under the agreement. But if it was necessary, under the accounting standards or by virtue of proper accounting practice, to "accrue" or bring to account in the 1999 year the obligation to repay American Re in later years, the agreement would have no relevant effect, and the profit forecast would be invalidated to the extent that claims with respect to Hurricane Georges were required to be brought to account in the year to 30 June 1999 in excess of the A$25 million reserve. The issue turned on the proper classification of the American Re agreement - was it a true reinsurance agreement, or a deposit/financing arrangement?" 274 His Honour made the following findings with respect to Mr Vines' understanding in this regard: "[726] Mr Vines gave evidence that statements made by Mr Fox and by the Guy Carpenter representatives, during the negotiations with Guy Carpenter, led him to believe that the retrocession contract would be acceptable to GIO Re's auditors, and he therefore did not think it necessary to consult with the auditors until the contract had been negotiated and signed, and he thought it necessary to have the agreement in place so that the auditors could consider the terms and conditions (T 2789; T 3018). He added that he understood there was a tacit agreement with American Re that the agreement would be abandoned if approval was not received from APRA (T 2790; cf T 2790-1). But the signed placement slip was not provided to PwC until 23 November, 10 days after it was signed. Mr Fox sent it to PwC, after a meeting of Mr Fox, Mr Schneider and Mr Vines on that day. Mr Vines explained in evidence that he wanted 'an educated view on the slip', by obtaining an independent opinion before approaching PwC (T 2702). [727] In my opinion, there is an inconsistency in Mr Vines' evidence here. If he was confident enough not to seek an accounting opinion on the slip before it was signed, why did he consider it necessary to obtain an independent opinion and an educated view (indeed, to obtain two independent opinions) before putting the matter to the auditors? Mr Vines said he wondered whether the terms and conditions of the placement slip with American Re were consistent with the sort of terms and conditions that Guy Carpenter had referred to as acceptable to the auditors of other general insurers (T 2700). But apparently he had that thought only when he received draft advice from KPMG. Weighing up this evidence, my view is that, while Mr Vines received some encouragement from the opinions of Mr Fox and Mr Grove that contracts of the kind that had been entered into on 13 November would succeed as reinsurance contracts, there was an element of uncertainty in his mind, especially as to whether PwC would, as GIO's auditors, allow the proposed accounting treatment of the arrangement. It seems to me probable that he adopted the strategy that he would present PwC with a signed slip reinforced by opinions from other auditors, so as to create pressure at PwC to accept the arrangement, believing that if they did not, American Re would unwind the contract. Unfortunately for him, the strategy did not work because KPMG would not approve the arrangement." 275 A DDC meeting occurred on 16 November. The papers for this meeting did not refer to the Am Re agreement (see at [785]). 6 Due Diligence Documents 276 On 10 November, Mr Vines circulated a memo to GIO executives, regarding the Part B Statement, enclosing a "Due Diligence questionnaire" for senior management to return by 12 November. Mr Vines' copy of the questionnaire was completed on 10 November (at [754]). It identified Hurricane Georges as a catastrophe claim, stated there were "no" other matters for disclosure, and listed only "retrocession" under the heading "Significant contracts pending", by which Vines said he meant the Am Re retrocession agreement. 277 His Honour made a finding as to Mr Vines' state of mind at the time he filled out the questionnaire on 10 November. His Honour said: "[755] ASIC submitted … that when he answered the due diligence questionnaire, Mr Vines knew that the $80 million profit forecast could not be achieved if the ultimate loss to GIO Re for Hurricane Georges exceeded the reserve of $25 million, subject to the possibility of any shortfall being made up in other areas of GIO Re's business. In my view the documentary evidence establishes that this is correct." 278 His Honour then listed the documentary evidence upon which he based this finding which included: · The first quarter highlights. · Mr Schneider's email of 20 October. · PwC's draft report on the first quarter figures dated 22 October. · Mr McClintock's email of 4 November. · Mr Robertson's memorandum of 4 November. · The meeting with Mr Lange at which these differences between Mr Robertson and Mr Schneider were aired (on 5 November). 279 His Honour also made findings as to what Mr Vines did not know at that time set out at [756]: "[756] … It is therefore not clear whether, at the time when Mr Vines handed in his completed due diligence questionnaire, he was aware of Mr Schneider and Mr Driessen's model which predicted, as at 31 October, ultimate loss in respect of Hurricane Georges of $69 million undiscounted and $67 million discounted, and which therefore showed that the reserve of $25 million was no longer adequate and that the profit forecast might have to be reviewed. Since Mr Vines did not refer to these developments in his answers to the due diligence questionnaire, where it would have been relevant to do so, the correct conclusion on the balance of probabilities is that he was unaware of the 31 October figures at that time." VII THE SECOND CONTRAVENTION: THE REPORT AND MEDIA RELEASE OF 17 NOVEMBER 1998 280 On 17 November 1998, GIO issued a Media Release which was entitled "GIO Post $88 million Pre-tax Profit for First Four Months of 1998/9". This was described as a "strong performance" and as having included "excellent results from personal insurance and financial services and good profits from reinsurance". As noted above, this Release was issued in the middle of a hostile take-over battle. 281 Of particular relevance for present purposes was the statement in this Media Release that: "GIO Re's insurance business achieved a sound profit despite exposure to events such as the Swiss Air crash and Hurricane Georges." 282 The Board meeting that approved this Media Release had before it assurances in the form of reports from, or referring to statements by, the Appellant. 283 The meeting of 17 November 1998 records the following as having been conveyed in the Chief Executive Officer's Report: "Results for four months ended 31 October 1998. The Board considered a paper from the Chief Executive Officer. The results for the four months ended 31 October 1998 and additional material provided by the Chief Financial Officer and approved the announcement of group revenue, pre-tax and post-tax figures at the Annual General Meeting." 284 This meeting also recorded under the heading "Chief Financial Officer's Report": "The Chief Financial Officer's Report and the latest draft of the Price Waterhouse Coopers Review of the 1998/1999 profit forecast, (was close to finalisation) with tables." 285 The events of the board meeting of 17 November, and the media release issued to the stock market and approved by Mr Vines, are set out by his Honour at [777] and following. At that meeting Mr Steffey presented a report, based upon Mr Vines' work, stating that the property catastrophe result was "strong". 286 Mr Vines also tabled the PwC report on the $80 million profit forecast, noting the assumptions upon which it was based, including a 33 percent profit on net premiums, and PwC's view that "performance of the space and catastrophe portfolios in the first quarter would make the full year budget for those portfolios difficult to achieve" (at [780]). 287 His Honour also held at [781] that there was nothing to indicate that the operation and effect of the Am Re agreement was explained to the board, or that the board was told that the agreement had been entered into without accounting advice or auditor approval. His Honour also noted that the statement issued to the market in the media release included a quote that GIO was financially strong, which Mr Vines had reviewed and was "broadly" happy with (at [783]). 288 Two paragraphs of the Statement of Claim relate to this contravention. They are pars [116] and [117]: "[116] The First Defendant advised the board of directors of GIO Australia as pleaded in para 65 hereof that in the four months to 31 October 1998 GIO Re had achieved a strong result in its property catastrophe portfolio, well knowing that: (a) Mr Schneider had warned that the profit forecast should be reduced; (b) An analysis of GIO Re's reinsurance contracts had led to an estimate that Hurricane Georges would be a $100m type event; (c) The property catastrophe portfolio's results had been prepared on the basis that the American Re Agreement could be accounted for in the manner referred to in para 113 hereof, and but for that fact, would have returned a significant loss for that period; and (d) Expert actuarial or accounting advice had not been obtained by GIO Re to the effect that the American Re Agreement could be accounted for in the manner referred to in para 113 hereof. [117] The First Defendant was aware of and approved the media release issued by GIO Australia on 17 November 1998, as pleaded in paras 66 and 67 hereof, containing a statement that GIO Re's business had achieved a sound profit despite exposure to events such as Hurricane Georges, well knowing that Mr Schneider had warned that the profit forecast should be reduced, that an analysis of GIO Re's reinsurance contracts had led to an estimate that Hurricane Georges would be a $100m type event, and that the October 1998 results had shown that GIO Re would have suffered a loss of $29.7m in October 1998 in the absence of retrocession cover to limit total claims resulting from Hurricane Georges payable by GIO Re to $25m." 289 The reference to par [65] in [116] picks up a reference to a document tabled at the Board meeting headed "Year to Date Results for the Four Months to 31 October 1998". In that document the Appellant stated: "Reinsurance reported a four month result of $30.2 million, slightly behind budget of $37.9 million space returned to profit in October and a strong result was posted by property catastrophe." 290 The reference to par [113] in [116] picks up the following: "[113] The First Defendant caused, or participated in causing, GIO Re to enter into the American Re agreement as pleaded in paragraphs 56 to 63 hereof, and the revised American Re agreement, as pleaded in paragraphs 96 to 100 hereof in circumstances that: (a) the real purpose for GIO Re's entering into each 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; (b) neither agreement was a genuine retrocession agreement in commercial terms, as the only apparent underwriting risk undertaken by American Re was extremely remote; (c) the profit commission payable to American Re was uncommercial and an excessive consideration for the degree of apparent underwriting risk undertaken by American Re; (d) the profit commission payable to American Re was substantially a consideration for American Re's facilitating GIO Re's being able to defer bringing to account total claims resulting from Hurricane Georges in excess of $25 million until after the 1999 financial year; and (e) GIO Re entered into each agreement without any expert actuarial or accounting advice that the agreement was a proper retrocession agreement, or that the deferral of the bringing to account of total claims resulting from Hurricane Georges in excess of $25 million until after the 1999 financial year was in accordance with proper accounting practices." 291 The Media Release pleaded in detail in par [66] included the particularly pertinent passage that I have quoted above. 292 With respect to this contravention his Honour had made a pertinent finding regarding Mr Vines' state of mind in relation to the Am Re agreement at [778]. His Honour said: "[778] Mr Vines agreed in cross-examination (T 3037; and see T 3014) that the statement that there was a strong result in property catastrophe depended upon the American Re agreement being effective, subject to the capacity to fall back on an 'unders and overs' analysis, but he said he had no reason to believe that the agreement would be ineffective, bearing in mind what he had been told by the Guy Carpenter people. He said he could not recall whether the board was told that the result depended upon the efficacy of the American Re agreement. He also said (T 3037-8) that at the time, he did not understand that the consequence of the American Re agreement would in substance have been (if effective) to defer the 1999 claims loss to later years. I do not accept this evidence, for reasons given in my analysis of Mr Vines' similar evidence with respect to his understanding of the first draft Guy Carpenter placement slip." 293 His Honour's findings with respect to this contravention were as follows: "[1244] The issues raised by allegedly inadequate disclosure to the board and in the media release are essentially the same. The allegation made in para 117 is that Mr Vines was aware of and approved the media release knowing certain things. One of them, which he clearly knew, was that Mr Schneider had warned that the profit forecast should be reduced. That was in the first quarter highlights. Another was that an analysis of reinsurance contracts had led to an estimate that Hurricane Georges would be a $100 million type event. I have found that Mr Vines was not aware of that matter on 17 November. The third matter alleged to have been known by Mr Vines was that the October results had shown that GIO Re would suffer the loss of $29.7 million in October in the absence of retrocession cover. [1245] ASIC submitted (written submissions, para 240) that Mr Vines knew that the October results, which were part of the first four months' figures announced to the market, had been supported by the American Re agreement, which had not been approved by APRA or the auditors, and at the time of the announcement it was not certain that the American Re agreement could be accounted for in a way that would protect the profit forecast and first four months' profit. Additionally, as I have found, Mr Vines was aware that if the American Re agreement was effective, it would follow that claims recoveries from American Re in the 1999 year would have to be repaid in premiums in later years. In those circumstances, ASIC contended that even though Mr Vines had limited influence on the terms of the media release, he was obliged to bring to the board's attention the matters that he knew. In ASIC's submission, the media release implied that sound profits had been generated from the ordinary business activities of GIO Re, whereas in fact the profits had been propped up by what was hoped would be the effect of the American Re agreement. [1246] In my opinion ASIC's submission has been made out. It was important for the board to know the relationship between the October results in the assumed efficacy of the American Re agreement, so that the board would have the opportunity to consider how, if at all, the full information should affect the media release. Mr Vines claimed in cross-examination (T 3040) that, when he participated in the process leading to the publication of the media release, he believed in good faith that there would be sufficient unders and overs to protect GIO Re against whatever excess loss ( above the $25 million reserve) might arise for Hurricane Georges. It seems to me that his belief in unders and overs was not a justification for non- disclosure to the board but, rather, an occasion for further disclosure so that the full facts would be presented to the board." 294 In the Honesty Judgment his Honour summarised these findings as follows: "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])." 295 The declaration of contravention relating to the advice and Media Release of 17 November 1998 is: "9 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, on 17 November 1998 to disclose to the Board before the media release of that date was approved and issued the following matters: (i) that the October results had been supported by the American Re agreement; (ii) that the American Re agreement had not been approved by APRA or the auditors; (iii) that 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; (iv) that 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 (v) that he believed that there would be sufficient redundancy in his unders and overs analysis to protect the forecast." 296 As is clear, the declaration is based on the summary in the Honesty Judgment. 297 The Appellant submitted that his Honour did not make findings in accordance with the pleaded case and, accordingly, denied the Appellant procedural fairness by departing from the pleaded case. This submission should be rejected. There was, in my opinion, no such departure. 298 His Honour clearly set out the structure of both [116] and [117] of the Statement of Claim at [1244]. He expressly upheld the reference to Mr Schneider's warning based on the First Quarter Highlights document in the third and fourth sentences of [1244]. In the first sentence of [1246] his Honour upheld the submission which his Honour set out at [1245]. This constituted an express finding about Mr Vines' knowledge of the significance of, and the uncertainty about, the American Re agreement, as pleaded in (c) and (d) of par [116] of the Statement of Claim and the equivalent part of par [117], being the words "in the absence of retrocession cover". 299 His Honour had rejected, after contested evidence, the knowledge alleged in par (b) of par [116] and the equivalent passage in par [117]. Nevertheless, there was no departure from the pleaded case in this respect. 300 Paragraphs [116] and [117] of the Statement of Claim, as with other paragraphs to be considered below, plead the case in the form of identifying a particular act which occurred when the Appellant had specific knowledge. The pleading does not purport to provide full particulars of all of the circumstances which, taken together, constitute the breach of duty. No doubt further particulars could have been sought. As far as the materials to which this Court's attention was directed indicates, they were not. Mr Robb so submitted without contradiction. 301 It does not constitute a departure from the pleaded case if his Honour identifies particulars of breach, unless they are relied upon as the equivalent of a particular of knowledge or, as discussed above, the extension is permissible in accordance with the requirements of procedural fairness. 302 His Honour accepted that the terms of the disclosure which ought to have been made by an officer complying with the duty of diligence would have included a statement about repayment in future years and Mr Vines' own belief in his unders and overs analysis. These findings did not depart in any way from the pleaded case. They were not particulars of knowledge. These were additional elements with respect to which particulars were never sought or supplied. 303 His Honour's declaration had to comply with s1317EA(2) of the Corporations Law and 'specify' the act or omission which constituted the contravention of the duty of care and diligence. That is what his Honour's declaration does. The "acts or omissions" so specified identify the breach. The pleaded case did not purport to specify every such matter. The pleaded case identified a specific act done with knowledge. His Honour did not go beyond the pleaded case in this regard. 304 The "acts and omissions" identified in the declaration were fully agitated in the trial and the Appellant had a full opportunity to deal with them. There was no denial of procedural fairness in this regard. 305 The Appellant's submissions also focused on the reference in (d) of par [116] to actual knowledge that, but for the American Re agreement, there would have been "a significant loss". It was submitted first that there was no finding to that effect and secondly that no such finding could be made because of Mr Vines' unders and overs analysis, especially the existence of a redundancy in MIPI. 306 This submission, in my opinion, misstates the pleading. The sting in the charge is making the statement about "a strong result" knowing, relevantly, that that result was prepared on a particular basis as set out. It is not an element of the pleading that there was no other way of reaching the same result. 307 The unders and overs analysis may have been material to other aspects of the alleged negligence. His Honour appropriately assessed that matter in his overall analysis. There was, however, no departure from the pleading. 308 Mr Oslington QC, who appeared for the Appellant on appeal, submitted that it is relevant to an assessment of negligence that Mr Vines had in mind his own unders and overs analysis at the time of the Second and Third Contraventions. That analysis was based in part on his own experience with professional indemnity insurance for accountants, a major component of MIPI. The idea that there was a substantial excess in the reserves for MIPI was to some degree supported by Mr Latham's report of August. Mr Vines' own calculation was in general terms supported by subsequent calculations of the excess. Furthermore at this time Mr Vines was, it was submitted, entitled to proceed on the basis that retrocession cover would be available to limit exposure to Hurricane Georges. In these circumstances, Mr Oslington submitted, it was not negligent for Mr Vines to believe in the integrity of the profit forecast. 309 In assessing whether Mr Vines contravened the requisite standard of care and diligence, considerable weight is to be given to the fact that the purpose of the report and the media release was to advise the market, by means of that release, in the midst of a takeover battle. Although this did not involve the high degree of formality associated with the Part B Statement itself, it was nevertheless information which existing shareholders would use in deciding whether or not to sell their shares on the market and, of course, by other participants in the market. The consequences of any breach of duty were much higher than the kind of internal communication which is the subject of the First and Third Contraventions. Accordingly, the risk to the company from any breach of statutory duty was also more significant. 310 The determination of whether a failure to make a full disclosure constitutes negligence of the requisite degree is always affected by the consequences of the act or omission. The consequences are always a material consideration when determining whether the conduct falls below the requisite standard of care. 311 In the circumstances as they existed as at 17 November 1998, on the findings of Austin J, Mr Vines had in mind two considerations, either of which could be such as to overcome the then known exposure to Hurricane Georges. The first was the state of Mr Vines' belief about the efficacy of the American Re Agreement. The second was his understanding that there was substantial excess reserves in the MIPI account. 312 As to the first matter his Honour made a finding that Mr Vines had a belief at that time that it was probable that the Am Re Agreement would be effective in accounting terms. Counter intuitive as it appears to be to accept that such treatment could be given to a contract of insurance entered into after the event to be insured against has occurred, nevertheless at least one major accounting firm had accepted it. 313 His Honour also made a finding that there was a level of uncertainty in Mr Vines' mind as to whether or not PwC would sign off on this approach and gave considerable weight to that element of uncertainty in determining that Mr Vines ought to have informed the directors of the full position prior to the media release being published. 314 The second element of Mr Vines' knowledge, i.e. that there was a substantial element of excess in the MIPI reserves, in the event, proved to be accurate. Nevertheless at this stage no formal process of revaluing the reserves had occurred. 315 In these circumstances Mr Vines had in his mind two matters either of which could support the relevant component part of the profit forecast. In neither respect was there a finding that the belief was negligently held. 316 I have found this matter difficult to determine. But in the event, on balance, I have concluded notwithstanding the significance of the media release, that Mr Vines' conduct did not fall below that to be expected of a person in his position at the relevant time. 317 Although market transactions would occur in the interim, the due diligence process which would resolve any such issues was well advanced. In the absence of a finding that either belief was negligently held, I do not think his omission to provide additional information at that stage, when detailed consideration of both matters was in process, constituted a contravention. 318 The appeal in this respect should be allowed. VIII THE THIRD CONTRAVENTION: THE EMAIL OF 22 NOVEMBER 1998 319 On 22 November 1998 the Appellant forwarded to members of the Due Diligence Committee an email entitled "Part B Forecast Clearance Commentary" which contained what was described as the "latest forecast". It projected a profit for both Reinsurance and Corporate of $69 million. That forecast was based on the original assumption of an $80 million profit by Reinsurance, which was offset by an $11 million loss in Corporate. The email concluded with a statement that Mr Vines regarded the forecast Group operating profit to be "reasonable". 320 The email of 22 November was prepared for a meeting of the DDC held on 23 November. As is clear from the minutes of that meeting, a range of matters required for the Part B Statement were still in the course of preparation. That included, relevantly, the profit forecast for the GIO Group, of which the $80 million forecast for GIO Re was a component. The matter found to constitute a contravention appeared in a table of profit figures for the respective divisions, introduced by the words "Latest forecast …" and concluding with: "Before settling the final forecast; the following matters require consideration by the Due Diligence Committee". 321 Under the relevant heading of "Inwards Reinsurance" the following appeared: "It is always worth bearing in mind the inescapable fact that the reserves for outstanding claims of $2.2 billion totally dominate any discussion on the reported profits of the Inwards Reinsurance division for any given reporting period. An adjustment of 5% to the claims reserves will impact the reported results by $110 million. No one can predict claims to that level of accuracy particularly when $1.4 billion of the liability is represented by an estimate of claims that are thought to have been incurred but have not yet been reported to us (IBNRs). Reinsurance is forecast to earn a profit of $80 million in 1999. Under our new accounting policy, no profit will be recognised on current year premiums that relate to the attritional portfolios. In other words this year's profit is expected to emerge from the release of profits on prior accident years based on our improved knowledge of the ultimate loss ratios that apply to those accident years. Profit expected to emerge from prior accident years in this financial year totals $31.8 m, a mere 1.4% of outstanding reserves. PwC have raised for debate whether or not the forecast results from the Catastrophe portfolio of $29.7 m and Space of $14.0 m are achievable given the high level of events that occurred in the first quarter. Frank Robertson has concluded we can reasonably expect better claims experience for the remainder of the year because the seasonal factors affecting the first quarter have abated and we expect to reduce our exposure to catastrophes through improved retrocessions and the shedding of unprofitable business in the January renewals process. Frank Robertson is of the view that Space will produce a business in the January renewals process. Frank Robertson is of the view that Space will produce a result of $6 m and that the shortfall will be made up from favourable development of the MIPI outstanding claims where for example, a favourable variance on claims paid in the first quarter of $6m was not released to profit." 322 As his Honour's reasons make clear, the reference to Mr Robertson constituted reliance on the 4 November memorandum, set out at [194] above. 323 The pleading relating to this contravention is as follows: "[117A] The First Defendant sent to members of the DDC the email pleaded in para 68 hereof containing the representations therein set out, well knowing that: (a) Mr Schneider had warned that the profit forecast should be reduced; (b) An analysis of GIO Re's reinsurance contracts had led to an estimate that Hurricane Georges would be a $100m type event; (c) GIO Re's model predicted that Hurricane Georges would cost the GIO $69m and that GIO had not obtained expert actuarial or accounting advice to the effect that the American Re agreement could be accounted for in the manner set out in para 113 hereof; (d) KPMG had advised that the American Re Agreement should be booked in a manner inconsistent with the manner set out in para 113 hereof, as pleaded in para 63A hereof." 324 Paragraph [68], containing the representations said to be made in the email, is as follows: "68 On or about 22 November 1998 the First Defendant emailed the members of the due diligence committee in relation to the forecast profit for the 1999 financial year in the proposed Part B Statement and made the following representations: (a) reinsurance was forecast to earn a profit of $80 million in the 1999 year; (b) while PwC Securities had questioned whether the forecast of $29.7 million for the catastrophe portfolio was achievable given the high level of events in the first quarter, the Second Defendant had concluded that GIO Re could reasonably expect better claims experience for the remainder of the year; and (c) while possible errors and omissions in the forecast suggested a net overstatement of profit of $4 million, this was immaterial and almost certainly not real given that it relied on an assumption made that retrocession costs would cost the same as for the 1998 financial year. Particulars Email from the First Defendant to the members of the due diligence committee sent 22 November 1998." 325 I have already set out par [113] of the Statement of Claim which is referred to in par 117A of the Statement of Claim. 326 Paragraph 63A, which is also referred to, is as follows: "63A On or about 20 November 1998, the First Defendant received a copy of a draft letter from KPMG which advised, inter alia, that the American Re agreement qualified as a split contract, with the reinsurance portion represented by the 'fee' of $7.2 million and the remainder being a deposit arrangement (as defined in the draft letter). Particulars Facsimile from Mr Schneider to the First Defendant dated 20 November 1998, attaching a draft letter from Mr Greig of KPMG to Mr Wright of GIO Insurance dated 20 November 1998." 327 In the Honesty Judgment, his Honour summarised his findings on this matter as follows: "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]). 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])." 328 Two declarations relating to this contravention were made as follows: "10 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation to disclose in his email to the DDC sent 22 November 1998 that the October results assumed that the American Re agreement would qualify as reinsurance and would effectively protect the results from adverse claims movement, his failure to disclose the doubt that existed about that matters, and his failure to disclose his own belief that if the American Re agreement were ineffective, redundancies would be available to compensate for it, which rendered the email materially misleading in those respects. 11 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited in that he endorsed, as officer of that corporation, the GIO Re profit forecast in his report to the DDC on 22 November 1998 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, which meant that the report was materially misleading in that respect." 329 Again, it is clear the declarations are based on the formulation in the Honesty Judgment. No challenge was made to the formulation of the declarations. 330 In the section of his judgment dealing with this contravention, Austin J commenced with the following statement: "[1247] Mr Vines' email to the DDC dated 22 November was an important document because it endeavoured to be 'the summation of the situation up to that point', written in preparation for the meeting the following morning … ASIC submitted … that the email ought to have disclosed a number of matters material to the forecast and was in terms misleading." 331 The first matter to which his Honour referred was the fact that the October results assumed the accounting efficacy of the American Re agreement. His Honour found that at the 23 November DDC meeting, for which the email of 22 November was a report, the DDC had no knowledge of this matter. (See at [798] and [1248].) This finding is challenged. 332 His Honour further held with respect to this factor: "[1249] As to the first matter, Mr Vines accepted that the October 1998 results had presumed that the American Re agreement would be entered into (T 3015). The presumption implied that the American Re agreement would qualify as reinsurance so that it would effectively protect the results from adverse claims movement, for if it were in truth a financial arrangement it would have no effect on the profit and loss account apart from American Re's fees. I have set out the evidence which shows that on 22 November (and before that time), Mr Vines realised there was an issue as to whether the American Re agreement was a true retrocession. Indeed, he had just received KPMG's draft advice, partly illegible, with a covering note from Mr Schneider to the effect that the response from Arthur Andersen was much better. In my view Mr Vines' e-mail of 22 November was, in these circumstances, misleading in omitting to disclose the extent to which maintenance of the profit forecast depended upon the efficacy of the American Re agreement, and in omitting to disclose the doubt that existed about that matter, to Mr Vines' knowledge. [1250] Mr Vines gave evidence (T 2707) that if the American Re agreement was ineffective, redundancies were available to compensate for it, particularly in the MIPI portfolio. In my opinion the presence of redundancies would not exonerate Mr Vines from disclosing the manner and extent to which the American Re agreement affected the calculation and forecast of profit. Redundancies, if they existed, were another matter for disclosure, rather than a matter that would justify non-disclosure of reliance on the American Re agreement and doubts about its efficacy." 333 His Honour's finding that "Mr Vines realised there was an issue" about the accounting treatment of the Am Re Agreement, drew on his Honour's earlier findings of fact. 334 His Honour discussed the relevant regulatory regime at [716]ff and explained the distinction between a retrocession agreement and a financial arrangement, as well as the accounting consequences of an agreement being classified as one or the other. His Honour noted that "It is plain from the evidence of the negotiations for the placement slip, to which I have referred, that the question of proper accounting treatment was identified as an issue by those negotiating on behalf of GIO Re, and acknowledged by the American Re negotiators" (at [725]). 335 On 13 November, the day that the Am Re slip was signed, GIO sought KPMG's opinion as to whether the arrangement would comply with regulatory requirements as far as risk transfer was concerned. A draft response was received from KPMG on 20 November indicating that in their opinion the transaction would not protect the profit forecast. 336 One factual issue was: when did Mr Vines read this draft advice, or the covering fax, which was faxed to him on 20 November in the evening (a Friday), but which he claimed not to have read as the document was obscured? Mr Vines was not given a fully legible version until 23 November, after he had sent the email to the DDC relevant to this contravention. 337 The covering memorandum from Mr Schneider, which was legible, upon which his Honour relied, stated: "Please find included some advice from KPMG. We have had a much better response from Arthur Andersen". 338 His Honour's finding appears at [733]: "[733] In my opinion I would not be justified in rejecting Mr Vines' evidence that he did not read the report. I do not find implausible that, important though he may have regarded it, Mr Vines might have put the facsimile to one side in frustration on the Friday evening, when he found that some parts of the draft opinion could not be read, without turning to the unobscured conclusion. However, it seems to me more likely than not that he would have read Mr Schneider's covering facsimile, which implied that KPMG's advice was less positive that Arthur Andersen's, and therefore that the proper accounting treatment of the American Re agreement was at least problematic or subject to doubt. I agree with ASIC that he understood, on 22 November, that there was a real issue as to whether reliance could be placed on the American Re agreement at all, as protection against adverse development in Hurricane Georges claims." 339 His Honour's finding that Mr Vines would have read the covering fax is challenged. 340 His Honour concluded: "[1252] My conclusion is that Mr Vines' e-mail of 22 November was materially misleading in omitting to refer to the assumed treatment of the American Re agreement inherent in the October results, and the doubts that had emerged about the efficacy of the agreement in an accounting sense. In my opinion a reasonable person in Mr Vines' position, acting carefully and diligently, would have realised the materiality of these matters to the GIO Re profit forecast, and would have recognised that the time had come to inform the DDC of the risk that the assumption of efficacy of the American Re agreement underlying the October results might not be made out." 341 His Honour held that two other matters had similarly not been drawn to the attention of the DDC, either before or at its 23 November meeting. First, that the debate between Mr Robertson and Mr Schneider about the appropriate reserve for Hurricane Georges had been resolved in Mr Schneider's favour. Secondly, that the catastrophe model was predicting that Georges would produce claims of $67 million . 342 In these respects, his Honour concluded: "[1253] As the second and third matters, it was clear from the evidence that on 11 November, Mr Vines was shown a catastrophe model that predicted the Hurricane Georges loss as $69 million (undiscounted) and $67 million (discounted). Mr Vines' evidence was that this catastrophe model had resolved the dispute between Mr Robertson and Mr Schneider in Mr Schneider's favour. He was therefore aware of these matters when he wrote his report to the DDC on 22 November. As I have explained, the new figures in the model implied that the view of Mr Robertson in his memorandum of 4 November, that $25 million was an adequate reserve for Hurricane Georges, was wrong, a proposition that Mr Vines accepted in cross-examination (T 3055). [1254] Mr Vines was not obliged, in his position at the Group level, to provide reports to the DDC on claims development for Hurricane Georges. He was entitled to assume that the reinsurance division was properly monitoring claims developments and would report to him any matters of significance. But the information from the catastrophe model had a particular significance for Mr Vines, because it signified to him the view Mr Schneider had expressed about Hurricane Georges in the first quarter highlights was being validated by other evidence, and Mr Robertson's view now appeared to be wrong. It had not been necessary to disclose the figures in his answers to the due diligence questionnaire, because it appears that he completed those answers on 10 November and he was given the figures on 11 November. But on 22 November, 11 days later, it was materially misleading for Mr Vines to endorse the $80 million profit forecast (subject to a net overstatement of $4 million) in his report to the DDC, by reiterating in substance Mr Robertson's views in his 4 November memorandum, without addressing the new ultimate loss figures which had invalidated Mr Robertson's view as to the adequacy of the $25 million reserve. The emergence of the $69 million estimate was a significant development that had occurred since Mr Robertson wrote his memorandum." 343 It is convenient to deal with the challenge to his Honour's factual finding with respect to the email of 22 November that Mr Vines had read the covering facsimile from Mr Schneider on the Friday evening prior to the email of 22 November. The submissions in this Court on behalf of Mr Vines, challenged his Honour's finding and particularly the basis of that finding which his Honour had set out at [731]: "Mr Vines gave evidence that he tried to read the draft advice late on 20 November, which was a Friday (T 3054), but it was illegible." 344 The basis of his Honour's finding in this respect was the passage in cross-examination of Mr Vines which included the following: "Q And when you read that, you saw that Mr Schneider had said: 'We have had a much better response from Arthur Anderson'. A Yes. … Q … What Mr Schneider had said in the covering facsimile caused you to try to read the draft advice you were given? A I started to, and it was late on the Friday evening, and I gave up." 345 Counsel for the Appellant placed particular reliance on the fact that in evidence in chief Mr Vines had said expressly that he was unable to recall whether he received the facsimile on the Friday. It was submitted that in that context the question and answer to which His Honour referred should be understood as meaning that "if the Appellant had received the facsimile on the Friday, that is an explanation why he did not read it on that day". 346 I do not see any reason why the clear answer should be understood in that manner. The statement explicitly refers to an attempt to read the document on the Friday evening. The cross-examiner had obtained an admission which went further than the Appellant's evidence in chief. This is not an unusual phenomenon. On the basis of this admission it was open for his Honour to infer that the covering memorandum, which had no difficulty with legibility, had in fact been read at that time. 347 The Appellant also challenged his Honour's finding that Mr Vines understood that the KPMG advice was not likely to be helpful. It is the case that Mr Vines did not acknowledge that proposition in cross-examination. However, his Honour was, in my opinion, entitled to draw the inference that Mr Vines did understand this. Two opinions were sought for the purpose of, at least, supporting the profit forecast. One of the opinions is described as "a much better response". The inference that the other is not helpful for the purpose was obvious to anyone who read the covering fax. 348 In written submissions, the Appellant accepted that it may be appropriate for a finding to be made of breach of the statutory duty of diligence and care on the basis that statements were made that were materially misleading by reason of the omission of material facts. He also submitted that it was necessary for the Court to be satisfied to the Briginshaw standard that the persons to whom the email were addressed did not know of the material fact in question. As noted above, the Appellant challenges the finding that members of the DDC were unaware that the October results assumed the efficacy of the Am Re agreement. 349 The Appellant relied on the fact that no member of the DDC was called to state that s/he was not aware of the matters said to have been required to be disclosed. He also relied on the fact that one of the members of the DDC was the auditor from PwC, who was considering the very matter. Another was Mr Lange, who had assumed particular responsibility as the managing director for this particular aspect of the profit forecast. The Appellant submitted that it was not adequate for his Honour to act on the basis of the fact that the minutes of the meetings of the DDC did not suggest that any such disclosure had occurred at such a meeting. The members of the DDC who did not already know, could have discovered the relevant facts from other kinds of communications. 350 His Honour noted that there was no reference in the minutes of 23 November 1998 to the October 1998 results for GIO Re, to the American Re agreement or to the estimate of Hurricane Georges losses contained in the catastrophe model. His Honour also said at [798]: "Mr Vines did not assert in evidence that he raised any of these matters at the DDC meeting. I infer that none of them were raised or discussed at the meeting." 351 Similarly, he noted that there was no such reference in the minutes and, after applying the Briginshaw standard, he concluded that the email itself together with the minutes were a proper basis for an inference that the DDC, as a whole, was not aware of the relevant matters at this time. 352 In my opinion, an inference of the character that his Honour drew was entirely appropriate in the circumstances. The DDC's principal focus of attention was upon the profit forecast. The accounting treatment of the American Re agreement was of significance. If doubt about that treatment had been raised for consideration one would have expected some reference in the minutes. 353 As I have indicated above, when dealing with the First Contravention, a finding of negligence must depend on the whole of the circumstances, particularly the stage that the profit forecast and associated documents had reached at the relevant time. In oral submissions the Appellant relied on this proposition to the effect that Mr Vines would have known that further steps were yet to be taken with respect to the profit forecast prior to its finalisation. 354 Nevertheless, the position had developed from that under consideration with respect to the first and second contraventions. Furthermore, the final Part B Statement was only a fortnight or so away. However, as Mr Oslington submitted, the Part B would not go ahead until the review by the auditors of GIO had been concluded. 355 I have set out the position with respect to the American Re agreement as at 17 November in my discussion of the Second Contravention above. The only material change relevant for present purposes is the finding of fact that Mr Vines had become aware, by reading Mr Schneider's covering memorandum on 20 November, that KPMG had cast doubt on the preferred accounting treatment. 356 I have concluded that the confidence Mr Vines attributed to the profit forecast at the time of the second contravention, based as it was on a level of uncertainty with respect to the purported retrocession agreement, was not negligent in the requisite sense at that time. Even though this third contravention focuses on a later point of time, it was put as a discreet contravention and must be considered as such. 357 With respect to the Am Re agreement Mr Vines did become apprised, between 17 November and 22 November, of a relevant additional fact, namely that the KPMG support for the strategy was doubtful. Nevertheless, the context in which his continued reliance on the October results, and his confidence in the profit forecast occurred, was one in which the very persons to whom he was reporting would, to his knowledge, in due course receive the PwC assessment about this very matter, before any action was taken. It is not suggested that any decision was to be taken at the meeting of 23 November which would have an effect of any kind prior to that assessment being available. 358 My mind has fluctuated as to whether or not it was a contravention of the requisite standard of care for Mr Vines to fail to acknowledge the somewhat precarious basis upon which the profit forecast was being put forward. The longer that GIO management, including Mr Vines, maintained their position of confidence in the forecast and in each of its component parts, the more difficult it would be for them, if the original assumption proved false, to review the matter with the degree of objectivity that the significance of the forecast required in the circumstances. The importance of this matter is made clear by his Honour's finding that the entire purpose of the American Re agreement was to prop up the particular figure that had earlier been resolved upon. 359 Nevertheless, the circumstance that the company's auditors were engaged in an exercise to check the validity of the basis upon which the October figures had been computed, and the profit forecast itself, is entitled to considerable weight. I do not believe it was negligent in the requisite sense for Mr Vines not to disclose, on 22 November, the assumptions on which the October figures were based. 360 Where the Board was taking a keen interest in the quality of the forecast as a whole, and had deputed individual members of the board to acquire the requisite degree of familiarity, of a character which normally only management would have, with the quality of each component part of the forecast (in the case of GIO Re, Mr Lange), Mr Vines' failure to fully apprise the DDC of the true basis of the evolving position, could be open to criticism. That does not, however, mean that it was in contravention of the requisite standard of care. With respect to the uncertainty surrounding the American Re agreement, in my opinion, the consequences of the representation made in the email of 22 November were not such as to require further disclosure pursuant to the duty of care and diligence. 361 The second matter upon which His Honour relied in this respect, and which led to a separate declaration, was the Appellant's continued reliance upon the analysis of Mr Robertson in the 4 November memorandum, when matters had changed in terms of the exposure to Hurricane Georges. This, of course, is not unrelated to the American Re agreement in that the intention of the agreement, if it was effective in the accounting sense, was to limit the size of the exposure consistently with the forecast. 362 The relevant passage of the 22 November email begins with the following: "It is always worth bearing in mind the inescapable fact that the reserves for outstanding claims of $2.2 billion totally dominate any discussion on the reported profits of the Inwards Reinsurance Division for any given reporting period." This, in itself, puts the position in a different perspective. 363 Furthermore, the paragraph in which the reliance on Mr Robertson's memorandum occurs, begins with the following: "PwC have raised for debate whether or not the forecast results from the catastrophe portfolio of $29.7 million and Space of $14 million are achievable given the high level of events that occurred in the first quarter." 364 This passage also indicates that the matter of the exposure in the catastrophe portfolio was one for "debate". This also was not a matter that had been resolved and it was still under consideration. 365 It is also relevant to note that the email concluded with the statement: "The forecast includes elements that are conservative and elements that are less conservative. On balance I believe the forecast pre tax operating profit is reasonable …" 366 As indicated, although the Part B was only two weeks away, in my opinion, the consequences of the failure to make the qualifications in this email, which Austin J held to be required, were not such as to require detailed exposition at this time. 367 The appeal in this regard should be allowed. IX DEVELOPMENTS BEFORE THE PART B 1 The Federal Court Judgment 368 On 25 November 1998, the Federal Court handed down judgment in the proceedings challenging the takeover. The effect of that judgment was that the Part B Statement had to be in the hands of shareholders by 16 December. Accordingly, allowing for printing and mailing, the Part B had to be finalised within a week or ten days (see at [805]). 2 The American Re Agreement 369 The DDC meeting held on 27 November is significant as at this meeting Hurricane Georges was discussed. His Honour said: "[815] The DDC met again on 27 November 1998 (draft minutes at PTB 1487; confirmation at PTB 1593). There was discussion of Hurricane Georges and the Committee passed a resolution on the basis that it was an event occurring in the normal course of GIO's reinsurance business of which account had already been taken in the four-monthly results to 31 October 1998, which had been released to the ASX on 17 November. Mr Vines tabled an amended draft of the profit forecast, forecasting operating profit, before abnormal items and tax, of $250 million (PTB 1373ff; T 2715). Mr McClintock of PwC reported that his firm was reviewing the October figures and had identified some issues in relation to reinsurance, which they were discussing with relevant personnel within GIO." 370 Amongst these issues was the accounting treatment of the Am Re agreement. PwC would soon conclude that that the Am Re agreement, on the basis of which the October results were computed, would not work. 371 His Honour considered at [657]ff the purposes of the Am Re agreement: "[657] In my opinion the terms of the placement slip and the evidence that I have set out show 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. Bearing in mind that a whole account protection cover was contemplated by Mr Steffey and Mr Fox for 1999 and subsequent years, and therefore that the placement slip was a temporary cover, there is no plausible basis for inferring that those who negotiated the placement slip on behalf of GIO Re were concerned to protect the company from the risk of a second US$10 billion Gulf of Mexico hurricane in any 12 month period. Plainly enough, that part of the transaction was included in order to give the transaction an appearance of genuine risk transfer, even though the real risk transfer was only very remote, so that it would pass muster with the auditors and the prudential regulator. The central part of the transaction represented by the placement slip was an arrangement, not involving any risk transfer, whereby American Re contracted to cover GIO Re for surplus Hurricane Georges claims above US$15 million (A$25 million) in exchange for GIO Re's promise to pay equivalent amounts in later years plus a substantial fee. This, it was hoped, would enable GIO Re to remove the surplus Hurricane Georges claims from its balance sheet at 30 June 1999 and therefore justify a profit forecast which disregarded those surplus claims." 372 The terms of the Am Re agreement negotiated by Fox and Schneider (after Mr Vines dropped out of negotiations on 6 November – see [586]) sought to add an element of risk to the transaction by adding to the agreement a second, unrelated, component providing cover against the possibility of a "defined event", being a second major hurricane in the Gulf of Mexico. 373 With respect to Mr Vines his Honour said: "[661] Mr Vines … did not have detailed understanding of the regulatory and accounting issues and looked to Mr Fox for expertise. Although he initiated negotiations, initially with Guy Carpenter, for a retrocession arrangement along the lines of what was eventually negotiated, he did not become involved in the details of the contract or the details of its accounting treatment before the placement slip was signed on 13 November. His evidence was that he relied on what he was told by Guy Carpenter and by Mr Fox as to the feasibility of obtaining retrocession cover that would protect the profit forecast from deterioration of Hurricane Georges claims." 374 His Honour set out in some detail the regulatory and accounting treatment of retrocession arrangements which it is unnecessary to repeat (see at [716]-[724]). For present purposes, however, the opinion of PwC was the opinion that mattered. PwC were the auditors of GIO and had to sign off on the Part B Statement. At a meeting between Mr Hammond and Mr Vines on 1 December, PwC informed Mr Vines that they did not think the contract would work. Mr Vines presented them with Arthur Andersen's contrary view, which they agreed to think about, but Mr Vines was not confident that they would change their mind (at [741]). 375 On 7 December, PwC gave its final opinion that the American Re agreement would not work [750]. The $80 million profit forecast for GIO Re could no longer be supported in this way. 3 Maintaining the Profit Forecast 376 The profit forecast was subject to a process of review, including by way of an "unders and overs" analysis. This required reassessment of existing provisions, relevantly for MIPI. It also required the latest information about the extent of exposure to Hurricane Georges to be taken into account. 377 His Honour found: "[742] It seems to me to follow from this evidence that up to 1 December 1998, Mr Vines believed it was probable that Hurricane Georges losses above $25 million would be covered by the American Re agreement, but from that date he understood that GIO Re would not be permitted to account for the agreement in a way that would protect the $80 million profit forecast from reduction by Hurricane Georges losses greater than $25 million. In cross-examination, Mr Vines agreed that 1 December 1998 was the first time he realised it would be necessary to investigate whether unders and overs existed. Any 'unders and overs' analysis at 1 December would have to come to grips with the fact that the then current estimate of ultimate gross claims for Hurricane Georges (as at 30 November 1998) had risen to $92.8 million discounted, having moved up from $67 million discounted as at the end of October." 378 At the meeting of 1 December, Mr Vines suggested that there were "redundancies", particularly within the MIPI reserve, and instructed Mr Latham to review the MIPI reserves (at [743]). 379 His Honour made the following findings about this review: "[748] On 3 or 4 December, and in any case before the DDC meeting on 6 December, Mr Hammond or Mr Murray informed Mr Vines that Mr Latham had undertaken a review of the MIPI reserves and had reported back that, in his opinion, there was a surplus of at least $34-35 million, but it would be necessary to have the agreement of GIO management that there was a redundancy in the MIPI reserve before it could be used to counteract the ineffectiveness of the American Re contract. Mr Vines said he was confident that this agreement would be forthcoming, believing that the people who would need to agree were Mr Fox and Mr Robertson. Mr Vines said that when he had this discussion, he still believed that the reinsurance profit forecast was achievable without reliance on the American Re contract, because in addition to the surplus identified by Mr Latham, which related to the early years of MIPI, Mr Vines believed from his experience in the accounting profession that there was a redundancy in respect of the later years of MIPI." 380 It is pertinent to note that at trial, and on appeal, ASIC accepted the validity of this general approach: "[455] ASIC concedes that it would be legitimate for GIO Re, in deciding whether to adhere to the A$80 million profit forecast, to take into account not only reductions in areas where it was no longer reasonable to expect that the forecast figures would be achieved, but also increases where it had become reasonable to believe that the forecast figures would be exceeded. The process of consideration which takes into account both shortfalls and excesses in reviewing a profit forecast was referred to in evidence as an 'unders and overs' exercise." 381 At [817] and following his Honour set out a process, initiated by Mr Vines around 2 December, aimed at locating areas of conservatism within the reinsurance figures. Mr Vines gave evidence, recorded at [817], that he initiated this process after he had been told that the Am Re agreement was unlikely to be effective. Mr Schneider prepared a document entitled "Particular areas of conservatism" which was sent to Mr Vines on 2 December (see at [818]-[819]). On 3 December Mr Latham, the GIO actuary, produced a report for PwC in which he expressed the opinion that there was a redundancy of $33 million in MIPI (at [821]). 382 The position at this point was summarised by his Honour: "[826] As I shall explain, at a meeting with representatives of PwC on 7 December 1998, Mr Fox said the ultimate net loss for Hurricane Georges would be $60-65 million. That meant that, taking the lower end of that range, the Hurricane Georges loss was an 'under' of A$35 million - that is, A$35 million in excess of the A$25 million reserve that had been made for the purposes of the profit forecast. If the American Re retrocession contract could not be relied on, it was necessary on Mr Fox's figures to find 'overs' of A$35 million in order to maintain the profit forecast at the same level." 4 DDC Meeting of 6 December 383 The Due Diligence Committee met again on 6 December and considered the draft Part B Statement and a DDC report dated 3 December. His Honour found: "[828] … They were also provided with another draft of PwC's report to the Committee reviewing the profit forecast, which had been altered to say (at PTB 1551) that the first-quarter result for the catastrophe portfolio had assumed that GIO's exposure to Hurricane Georges would be A$25 million, being 0.6% of a total market loss estimate of US$2.55 billion; but that up to 31 October 1998, claim notifications for Hurricane Georges had increased to $65 million, and this increase suggested that "the 33% profit assumption used for this portfolio is no longer appropriate". There was a notation after this sentence, indicating that this statement was to be discussed with the DDC on 6 December 1998." 384 Hurricane Georges was discussed at that meeting, and his Honour set out the matters raised at [832]: "[832] The second issue related to Hurricane Georges. Mr Hammond noted that the forecast had assumed that claims in respect of Hurricane Georges would not develop beyond $25 million. To the end of October 1998, claim notifications were approximately $20 million. He said that by comparison with prior catastrophes of the nature of Hurricane Georges, the current level of claims notifications indicated that claims in respect of Hurricane Georges could rise to the order of $60 million. According to the minutes, Mr Steffey commented that the existence of the AMP bid may have caused a number of entities to make early claim notifications to GIO. He also said that GIO had entered into a retrocession contract to protect it from claims in excess of $25 million." 385 This meeting of the DDC was also the first meeting at which the accounting treatment of the retrocession contract was raised. His Honour found: "[833] The minutes noted that a question had arisen as to the accounting treatment of the retrocession contract, as to whether the premium for that contract should be brought into account in the 1999 accounting year or in a subsequent year. This was apparently the first time that the committee was told there were doubts about the American Re contract. It was noted that PwC had requested GIO management sign-offs confirming the availability of a redundant provision in MIPI, and Mr Vines had advised that he was confident that these sign-offs would be forthcoming. Mr McClintock gave evidence (T 1628) that one of the PwC representatives said 'in words of one syllable that we wouldn't accept it [the American Re agreement] from the point of view of being reinsurance', and that one of the other members of the DDC, Marina Darling, said 'well, why did we enter into it if it's not going to be effective?' Later, Mr McClintock observed that PwC from time to time made inquiries of GIO's staff about claims notifications for Hurricane Georges (T 1638)." 386 On 6 and 7 December a conference of GIO management occurred at Terrigal. The ASIC case against Mr Vines relied on evidence by Mr Schneider that in conversation with the Appellant he again referred to his contract by contract analysis and his belief that Hurricane Georges was a $100 million event. Again his Honour refused to make that finding (at [852]). 5 Events of 7 December 387 His Honour set out the events of 7 December at [861] and following. The three defendants met with representatives of PwC at what was described by ASIC as the "final sign off meeting", although Mr Vines was not there for the whole meeting. His Honour accepted the version of the meeting as recorded by Mr Murray of PwC (summarised at [866] and following, finding at [898]). 388 Mr Fox told the meeting that notifications had reached $60-$65 million, albeit with some "precautionary" claims. However, after a "contract by contract" review the calculated maximum potential loss from Hurricane Georges was $105 million. However, Mr Schneider's contract by contract analysis computed a maximum of $211 million. 389 The Murray note, which Austin J found reported Mr Fox's comments in the presence of Mr Vines was, relevantly: "TF stated that a detailed review of GIO's Re's exposure, contract by contract, had indicated a maximum potential loss of $105 million. Notifications to date were $60-65 million, up from $27 million … While further developments cannot be ruled out, management's best estimate of the liability is of the order of $60-65 million." 390 According to Mr McClintock's unders and overs analysis, the profit forecast should be reduced by $14 million, but this was not material for the Part B Statement. 391 Mr Vines told the meeting that, in management's view, the American Re agreement would deliver the accounting outcomes sought (at [871]), and he confirmed he said this (at [886]). The basis for his belief in this statement was that the Agreement was under renegotiation. However, he said he was not relying on this agreement to support the forecast (at [886]). 392 Mr Vines said that this meeting was the first time he learned that Hurricane Georges had reached $60-$65 million, but accepted Mr Fox's estimate of ultimate exposure (at [872]). At [873] his Honour noted Mr Vines' evidence that had he known of the 39 percent increase in the Status of Registered Events concerning Hurricane Georges over the month of November, he would have required proof of Mr Fox's figure of $60-$65 million. 393 His Honour set out his findings concerning the 7 December meeting at [898] and following. He referred to earlier findings and had to interpret some of the entries in Mr Murray's notes. Relevantly, his Honour appears not to have resolved the tension between Mr McClintock's evidence that the exposure was computed as at 30 November, with his note that the computation was based on "notifications to date". 394 His Honour concluded: "[900] … The Hurricane Georges register for 30 November 1998 recorded property claims as $59.7 million (PTB 2881). According to the Georges register of 4 December (PTB 2496) the total gross claims for Hurricane Georges were $89.7 million on that day, and the figure had risen to $91.9 million by 7 December." (His Honour referred to Mr Schneider's analysis which suggested an exposure of $211 million, but found this was only shown to Mr Fox.) "[914] There is no evidence that Mr Vines saw the post-November figures before the meeting with PwC on 7 December. However, ASIC submitted that the court should find that he was aware that total gross claims for Hurricane Georges received to the end of November were approximately $85 million. ASIC submitted (written submissions, para 293) that when he chose to do so, Mr Vines had a close involvement in and control over GIO Re's financial affairs. ASIC instanced his role in the determination of the $105 million aviation reserve, his initiation of the increase in the GIO Re profit forecast by $30 million to $80 million, his participation in the meeting on 5 November with Mr Lange, his requests for information from Mr Driessen, and his role in the meeting on 11 November in causing the October profit figure to be uplifted by $15 million. [915] It seems to me that those events show Mr Vines had the capacity and inclination to intervene at the divisional level when he thought, from his perspective at the Group level, that intervention was needed. But the evidence does not establish that Mr Vines usurped the divisional role by directly monitoring the development of Hurricane Georges claims, and there is no proper basis for inferring, therefore, that he was made aware of the state of claims in early December. His own evidence was that as of 7 December, he had no up-to-date knowledge of the current estimate of Hurricane Georges losses, and the latest information he had in the estimate was the model as at 31 October. My conclusion is that on 7 December, Mr Vines did not have actual knowledge that the $60-65 million estimate was wrong. [916] I agree with ASIC's contention … that it must have been apparent to Mr Vines, on 7 December, that Mr Fox may have still been proceeding on the basis that the American Re agreement could be relied upon for accounting purposes, and that he would probably not have investigated alternative means of maintaining the profit forecast. Mr Fox was not present at the 1 December meeting between Mr Vines and Mr Hammond and Mr Murray. Therefore, when he heard Mr Fox's views at the meeting, it would not have been appropriate for Mr Vines to infer that Mr Fox was taking into account some 'unders and overs' process." 395 In addition to his Honour's conclusion concerning the meeting of 7 December, it is also pertinent to note his Honour's further findings of the position as at that date: "[1179] At the end of 7 December the ship was in an unsteady state. The position could be clarified by conducting further investigations, including investigations leading to some form of report on the unders and overs analysis as a whole (MIPI was already supported by Mr Latham's report). Alternatively, it would have been appropriate for Mr Vines, in my view, to present all of the facts to the DDC, and to see whether the problem might be accommodated by appropriate disclosure in the Part B statement. I am not able to say, on the evidence, whether the latter approach was feasible, but since the evidence has not ruled it out, I do not go as far as ASIC does in asserting that the making of further inquiries was necessary. But I do agree with ASIC that in the delicate circumstances that existed on 8 December, Mr Vines' duty of care and diligence should have precluded him from confirming 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." X THE PART B CONTRAVENTIONS 1 The Part B Statement 396 His Honour made findings concerning the Part B Statement at [954] and following. In particular, his Honour noted at [956] that the profit forecast was a fundamentally important component of the reasoning throughout the take-over documentation. 397 Appendix One of the Part B Statement is headed "1999 Forecast". That forecast for GIO is in the amount of $250 million. With respect to Operating Profit, the line item of "Inwards Reinsurance and Corporate Insurance" is stated to be $69 million. This amount is, as I have mentioned above, comprised of an $80 million profit forecast for Reinsurance offset by an $11 million loss for Corporate Insurance. 398 The Appendix also stated: "Proper care and attention has been given to the preparation of the Forecast and associated assumptions. However, forecasts by their very nature are subject to significant uncertainties and contingencies many of which are outside the control of GIO and not reliably predictable. Accordingly, the directors do not represent the GIO's actual results for the year ending 30 June 1999 will be represented by the Forecast and, indeed, actual results for the 1999 year may vary significantly from the Forecast … Price Waterhouse Coopers Securities Limited has reviewed the Forecast and the underlying assumptions and the report on that review is attached. The Forecast should be read in conjunction with the 'Risk Factors' outlined below." 399 Under the heading "Inwards Reinsurance and Corporate Insurance" Appendix One also stated: "There are inherent difficulties in forecasting the results of the Inwards Reinsurance Portfolio given that profits can be significantly influenced by relatively small variations between assumed and actual experience. Factors which can materially impact profits include actual versus expected development of long tailed classes of business and unpredictable events such as earthquakes, hurricanes, storms, freezes, floods, fires, tornadoes and other manmade or natural disasters." 400 The Appendix went onto refer to "significant assumptions used in the preparation of the Forecast" one of which was: "The performance of the catastrophe portfolio in the year to date has been adversely affected by Hurricane Georges. This adverse experience has been offset to a large extent by favourable experience in other classes in the year to date. For the remainder of the year it is assumed that the catastrophe portfolio will incur no further significant losses. The assumption is based on the fact that the Caribbean hurricane season has ended, that exposure to losses will be significantly reduced as a result of the non-renewal of certain contracts at 1 January 1999 and as a result of revisions to retrocession arrangements." 401 The Part B Statement was in final draft form when each of the four closely interrelated steps, which his Honour held to be contraventions, occurred on 8 December. The act of executing the "Management sign off", which I have designated the Fourth Contravention, encapsulates in a single culminating act each of the matters that have occurred by way of advice to the DDC (the Fifth Contravention) and the advice to the auditor (the Sixth Contravention). 2 The Position on 8 December 402 His Honour made findings that up to and including 7 December, Mr Vines was entitled to rely on those responsible for computing the extent of exposure to Hurricane Georges to make the calculations and to bring them to his attention. Accordingly, he was not required at the 7 December meeting to go behind Mr Fox's assertion that the extent of exposure was $60-$65 million. However, his Honour held, that changed on 8 December. 403 His Honour found: "[1144] In my opinion Mr Vines had no duty to "usurp the divisional role" by initiating his own inquiries as to the level of Hurricane Georges claims prior to the meeting on 7 December. He had had discussions with PwC and realised that the accounting treatment for the American Re retrocession agreement was in doubt, but he had put a case to PwC for treating the agreement as a true retrocession and the matter was unresolved. It was only at the meeting on 7 December that it became clear that his argument had not been accepted and that PwC would not agree to the American Re agreement being accounted for as a true retrocession agreement. Up until that point, he had no obligation to inform himself of the level of claims received. That was a matter on which he relied on the reinsurance executive director, Mr Fox." 404 His Honour also held: "[1183] Mr Vines' evidence was that he expected the reinsurance division to monitor Hurricane Georges in accordance with its usual practices and to report any material adverse development to him. In my opinion, while it was adequate for Mr Vines to assume that in Hurricane Georges would be monitored in the usual fashion at a divisional level up until 7 December, the situation changed after that day. PwC's decision not to accept the American Re agreement, and the reliance placed on a "tight" unders and overs analysis, made it urgently necessary for those with central responsibility to the parent entity for keeping the market informed during the currency of the bid to have a clear and up-to-the-minute understanding of the development of Hurricane Georges claims. Mr Vines was one of the executives who had that responsibility, because of his position in respect of the takeover defence and due diligence process, and in light of the impending board decision on the Part B statement and profit forecast. Once that decision was made, Mr Vines' duty to exercise care and diligence to facilitate the parent company's compliance with the continuous disclosure listing rule meant that it was necessary for him to be sure that the monitoring arrangements: upon which he had previously relied, were continuing in the new circumstances." 405 His Honour's reference to a "'tight' unders and overs analysis" was a reference to Mr Hogendijk's evidence considered at [1152]-[1155], referring to par [181] of his affidavit. This was Mr Hogendijk's characterisation of the result of Mr McClintock's unders and overs analysis. At [1152] his Honour accepted the evidence of Mr Hogendijk that: " … a competent CFO would have understood that the exercise was very tight and strongly depended on the reliability of the $60-65 million assessment of the ultimate Hurricane Georges' liability, and that the validity of the unders and overs exercise would have appeared to a competent CFO to be very sensitive to the accuracy of that estimate". 406 His Honour found at [942] that Mr McClintock's figures were "just above the minimum materiality threshold and well below the maximum materiality thresholds". This is a reference to the Materiality Guidelines applied by PwC which provided that an amount equal to or less than 5 percent was presumed not to be material, but an amount equal to or greater than 10 percent was presumed to be material. Mr McClintock's unders and overs analysis, taking into account the full range of matters impinging on the profit forecast and not just exposure to Hurricane Georges, produced a net negative adjustment of $15 million. This was, as his Honour found, in excess of the amount "presumed not to be material" namely, 5 percent of $250 million, being $12.5 million, but less than the amount presumed to be material namely, $25 million. This computation was based on the lower end of the range provided by Mr Fox on 7 December, i.e. the estimate of $60 million. If the top of the range had been taken then the negative adjustment taking into account all considerations would have been $20 million being 8 percent of the profit forecast of $250 million which could not be described as 'well below' the maximum materiality threshold. 407 It is convenient to deal at this point with the Appellant's submission that it was never put to him in cross-examination that anything changed in this respect on 8 December. This submission should be rejected. There was no denial of procedural fairness. 408 It was part of the ASIC case that Mr Vines knew, or ought to have known, of the extent of exposure to Hurricane Georges. The Appellant was successful, for example, in having his Honour reject the ASIC case that Mr Schneider had told him more than once that Georges was a $100 million event. The Appellant was also successful in having his Honour accept that he was entitled to rely on others to compute the exposure, albeit only up to a certain time. In this regard, his Honour relied on the evidence of Mr Vines adduced at trial without notice to ASIC. He also relied on the evidence of ASIC's expert, Mr Hogendijk. 409 Procedural fairness did not require that the cross-examination put, in the alternative, that should the ASIC case be rejected in some respects, that the position had changed as at a particular date. There were a number of variables, including factual disputes which needed to be resolved. A cross-examination which covered each possible contingency was not only impractical, any attempt to undertake such a task would have been oppressive. 410 In any event, it was in part the Appellant's own reliance on Mr Hogendijk's evidence, that led his Honour to reach the conclusion that he did. Mr Hogendijk said in cross-examination that such reliance was appropriate at the 7 December meeting, but not thereafter. The Appellant was on notice that he should, if he wished to, address this matter. 411 His Honour's conclusion that, on 8 December, Mr Vines could no longer rely on others to inform him of the extent of exposure to Hurricane Georges, is relevant to both the "tight" unders and overs analysis of Mr McClintock and to his own unders and overs analysis, on which reliance was placed both at trial and on appeal. The Appellant's own experience with professional indemnity insurance for accountants, which was a major component of MIPI, put him in a good position to make his own assessment of the adequacy of the reserves for MIPI. However, by 8 December that "over" had been computed by an actuary. In any event, the extent of exposure to Hurricane Georges was an essential component of any such analysis. 412 In my opinion, Austin J was too generous to the Appellant in concluding that his duty of care and diligence did not require a more proactive role until 8 December. The scope of his responsibilities which his Honour correctly found to be wide and which I have summarised at pars [162]-[165] above, were such that, in my opinion, he should have taken steps to satisfy himself that he was being kept informed of relevant matters when so critical a matter as the assumptions underlying the profit forecast in the Part B Statement were strained to the point of significant vulnerability. It is, however, sufficient for present purposes to confine the analysis to his Honour's conclusion, which I will set out below, that Mr Vines should have disclosed various matters to the directors. 413 December 8 was, in a sense, the last day on which any change was feasible. Many positions held by the interrelated parties – directors, managers, advisers, auditors, independent experts – were in a sense locked in by that time. The time to check facts or acquire further information was too short. I would have found that the level of diligence required of Mr Vines escalated shortly after the Federal Court judgment (handed down 25 November 1998) established a definite, and short, time period for the finalisation of the Part B. However, as there was no alleged contravention between that time and 8 December, nothing turns on this and ASIC did not challenge his Honour's finding. 6 The Appellant's Knowledge as at 8 December 414 I have set out above a number of factual findings which form the background to his Honour's analysis of the contraventions relating to the Part B Statement. 415 His Honour summarised his findings with respect to Mr Vines as at 8 December, before proceeding to deal with the allegations of contravention of that date: "[1155] It is appropriate to pause, before proceeding to the next group of pleadings, to consider the position Mr Vines was in at the beginning of 8 December. He had known since about 20 October that there was an issue as to whether there would be an adverse development in Hurricane Georges claims that would render inadequate the $25 million reserve that had been provided. The disagreement between Mr Robertson and Mr Schneider on that subject appeared to him to have been resolved in favour of Mr Schneider when the catastrophe claims model predicted as at 31 October that Hurricane Georges claims would be substantial. He had regarded the American Re agreement as a transaction that would protect the profit forecast from adverse Hurricane Georges claims movement, but he was concerned from the beginning of the negotiations that there would be insufficient risk transfer to make it a retrocession agreement acceptable to the auditors. It became evident early in December that his strategy for persuading PwC to accept the efficacy of the American Re agreement might not succeed, and he received confirmation of PwC's attitude on 7 December. These were issues that had been building up for some time. At the same meeting, in what must have been somewhat strained circumstances in view of the timetable for publication of the Part B statement, some 'unders and overs' were calculated that would just, but only just, be adequate to maintain the profit forecast within the materiality threshold of the Part B statement. But this calculation was, as Mr Hogendijk remarked, tight, and Mr Vines must have been aware that it depended crucially on the accuracy and reliability of Mr Fox's assessment of the Hurricane Georges liability. Questions accordingly arise as to what Mr Vines should have said and done from that time onwards." 416 This introductory finding should be taken as being incorporated as a finding in his Honour's analysis of what I have designated as the Fourth, Fifth and Sixth Contraventions. 417 Mr Oslington submitted that it was never put to Mr Vines that he had a "strategy for persuading PwC" about the American Re agreement. His Honour's reference in [1155] is clearly a reference back to his Honour's finding at [727]: "[727] … [M]y view is that, while Mr Vines received some encouragement from the opinions of Mr Fox and Mr Grove that contracts of the kind that had been entered into on 13 November would succeed as reinsurance contracts, there was an element of uncertainty in his mind, especially as to whether PwC would, as GIO's auditors, allow the proposed accounting treatment of the arrangement. It seems to me probable that he adopted the strategy that he would present PwC with a signed slip reinforced by opinions from other auditors, so as to create pressure at PwC to accept the arrangement, believing that if they did not, American Re would unwind the contract. Unfortunately for him, the strategy did not work because KPMG would not approve the arrangement." 418 In this Court, ASIC did not suggest that the existence of any such "strategy" to put pressure on PwC had been raised with Mr Vines. I have not been able to locate any such cross-examination. Mr Vines was asked why he had bothered to get these further opinions, which would seem to be redundant when the opinion that mattered, i.e. PwC's, was already in train. 419 This cross-examination can and does support his Honour's conclusion that Mr Vines manifested uncertainty about the likely accounting treatment of the Am Re agreement. It cannot, however, support a finding of a deliberate strategy to put pressure on PwC. 420 I have set out above the legal principles underlying the "rule" in Brown v Dunn. The suggestion of motive which, if not improper was, at least, inappropriate and manifesting a level of bias, is something which should, as a matter of fairness, have been put to Mr Vines. It was not. In my opinion, it was not open to his Honour to make such a finding. I will set out below his Honour's findings with respect to each of the remaining contraventions. There is no suggestion that his Honour's finding of motive played any role in the analysis. Nor did it play any role in the Honesty Judgment. XI THE FOURTH CONTRAVENTION: THE MANAGEMENT SIGN OFF AND DRAFT PART B 421 Included in the Part B Statement was a statement signed by the Appellant dated 8 December 1998 headed "Management Sign-Off": "Management Sign-Off I have reviewed the due diligence questionnaires completed by senior management and the statement of issues identified in responses to those questionnaires. To the best of my knowledge, information and belief the answers given to those questionnaires are true and correct in respect of that part of the GIO Group business and affairs for which I have responsibility. I have drawn the attention of the due diligence committee to any other matter of which I am aware which has occurred in the period since 1 July 1998 and which I consider may be material to a decision by a GIO Australia Holdings Limited shareholder whether or not to accept the takeover offer by AMP Insurance Investment Holdings Pty Limited. I am not aware of any other matter of such a nature which I have not already drawn to the attention of the due diligence committee or which is not contained in responses to the due diligence questionnaires." 422 The pleading with respect to this matter is par [126]: "[126] The First Defendant signed and delivered to the DDC the First Defendant's management sign-off, as pleaded in para 88 hereof, without advising the DDC that, by reason of the matters of which the First Defendant then knew, or ought to have known, it was improbable that GIO Re would achieve the $80m profit forecast in the 1999 financial year." 423 Paragraph [88] of the Statement of Claim referred to is a paraphrase of the document signed by the Appellant, which I have quoted above. 424 His Honour considered par [126] together with par [125]. However, on this appeal ASIC abandoned any reliance on [125] and it is unnecessary to set it out. 425 His Honour had found, with respect to the Management Sign-Off: "[925] Mr Vines completed a 'Management Sign-Off', dated 8 December 1998. His document certified to a review of the due diligence questionnaires completed by all senior management, as well as the statement of issues identified in responses to those questionnaires. He said that to the best of his knowledge, information and belief the answers given to those questionnaires were true and correct 'in respect of that part of the GIO Group business and affairs for which [he had] responsibility'. There was no definition of the part of the business for which Mr Vines had responsibility. I take it, however, that his area of responsibility was a large one, because his certification related to the answers to the questionnaires given by all senior management, and he was, under the planning memorandum, in a position of central responsibility, as I have explained. As in the case of the documents signed by Mr Robertson and Mr Fox, Mr Vines' document certified that he had drawn the attention of the DDC to any other material matters occurring since 1 July 1998, and said he was not aware of anything which he had not drawn to the attention of the DDC." 426 His Honour's findings with respect to the Fourth Contravention were as follows: "[1160] ASIC made three submissions about Mr Vines' management sign-off. One of them can be despatched summarily. ASIC submitted that Mr Vines should have told the DDC that according to Mr Schneider's opinion, based upon a contract-by-contract analysis, Hurricane Georges was likely to be a $100 million type event, and further, that claims to the end of November 1998 had reached $85 million. I do not accept this submission, because I have preferred Mr Vines' evidence to the evidence of Mr Schneider with respect to their relevant conversations. [1161] The first of the other two submissions was that Mr Vines ought to have formally advised the DDC that until 7 December, GIO Re had proceeded on the basis that the American Re agreement would effectively limit Hurricane Georges losses in the 1999 year to $25 million, but on that day PwC had refused to agree with the accounting treatment that would produce this result. ASIC said Mr Vines should have explained that the first four months' profit figures had been prepared on the basis of the same assumption. [1162] I agree with this submission, in the sense that this information should have been conveyed to the DDC either by addendum to the management sign-off, or in some other fashion before the sign-off was made operative. The management sign-off invited Mr Vines to consider whether the DDC had been told everything material for the purposes of the Part B statement, which included the profit forecast. While his certification of the accuracy of answers to the questionnaire was confined to the part of the GIO Group business for which Mr Vines was responsible, and the scope of that responsibility might have been open to interpretation, the second paragraph of the document related to all matters of which he was aware, whether within his field of responsibility or not. The question that he was required to address was whether he was aware of something not reported to the DDC which he considered might be material to a shareholder's decision whether or not to accept the AMP takeover offer. Information known to Mr Vines, going to the question, whether the American Re agreement protected GIO Re from Hurricane Georges losses in excess of $25 million, was obviously material in that sense, because if there was no protection, then the ultimate Hurricane Georges net loss would be likely to reduce the profit forecast, and hence the value of the shareholding, to a material degree. [1163] Secondly, ASIC submitted that Mr Vines should have told the DDC that on 7 December PwC had been given information concerning the effect of Hurricane Georges in circumstances where he had no evidence that the information had been supported by reasonably reliable investigations. I disagree with this submission, as framed, although in my view there was something else that should have been disclosed, in responding to the second paragraph of the sign-off document. [1164] The developments on 7 December had made the accuracy and reliability of Mr Fox's statements to PwC matters of crucial importance to maintaining the profit forecast, but it was not Mr Vines' role to accumulate evidence to support or undermine Mr Fox's statements. On the other hand, just as he ought to have told the DDC what he knew about the American Re agreement, he should also have told them that in the new circumstances, the accuracy and reliability of management's best estimate of the Hurricane Georges liability had become especially important. [1165] The presence of 'unders and overs' was also a material matter for disclosure. The fact that there were redundancies that might or would protect the profit forecast in the absence of the American Re agreement was no justification for non-disclosure of the material facts to the DDC. It was not appropriate for Mr Vines to deprive the DDC of the information necessary for it to make an informed decision as to whether to adhere to the profit forecast or alter the Part B disclosure, in light of the accounting treatment of the American Re agreement and the presence of unders and overs. [1166] Mr Hogendijk gave evidence to the same effect. He said (affidavit para 195) that a competent CFO in Mr Vines' position would have explicitly noted the basis upon which the profit forecast was maintained in the 8 December management sign-off. This was because a competent CFO would have understood that the makeup of the profit was very significant to the market, and investors were likely to be misled if they were allowed to believe that the GIO Re profit forecast was likely to be achieved on the basis upon which it was originally estimated as a result of the ordinary operations of the business. He said that a competent CFO would have regarded it as being part of his or her duty explicitly to bring the issue to the attention of the DDC and PwC Securities. I do not agree, as far as PwC Securities were concerned, because they were already aware of the relevant matters, but my view is that Mr Vines had a duty to inform the DDC regardless of what PwC said to them. [1167] A reasonable person in like position to Mr Vines in a corporation in GIO Australia Holdings' circumstances would have exercised care and diligence to ensure that the DDC was properly informed of all material aspects of the maintenance of the reinsurance profit forecast, before or in the course of giving the management sign-off. In terms of the pleading, such a person would have informed 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. [1168] A corollary to these findings is that a reasonable person in the position of Mr Vines would have drawn the attention of the DDC to those parts of the draft Part B statement that implied that the reinsurance profit forecast, as part of the Group forecast, would be achieved on the basis of assumptions that did not spell out the position known to Mr Vines. In other words, Mr Vines ought to have invited the DDC to consider some redrafting of the Part B statement in light of the matters of disclosure that he was obliged to bring to their attention. Mr Hogendijk reached a similar conclusion (affidavit para 192), drawing attention to a statement on page 14 of the booklet that spoke of GIO's 'strong performance' in the first four months, and said that the company was 'well on track to achieve a significant profit in the current year'. The booklet referred to 'key highlights' of the first four months' result, one of which was 'a solid profit achieved by GIO's reinsurance business as recent changes to personnel and management practices took effect …'. [1169] A reasonable person in the position of Mr Vines would not have relied upon Mr McClintock's presentation to the DDC as a means of discharging his or her duty of care and diligence. Mr Vines was personally required, by the terms of the management sign-off, to commit his name to the opinions that it contained. By that document the DDC looked to Mr Vines to take personal responsibility." 427 The reference to "Mr McClintock's presentation" is a reference to his "unders and overs analysis" that I have referred to above. 428 In the Honesty Judgment, his Honour summarised the aspects of this lengthy passage which relate directly to the Fourth Contravention as follows: "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])." 429 The declaration relevant to this contravention was: "1 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, to ensure that the Due Diligence Committee ('DDC') was properly informed of all material aspects of the maintenance of the reinsurance profit forecast in the course of giving his management sign-off on 8 December 1998, and failed to inform the DDC that the achievement of the $80 million profit forecast was improbable." 430 The focus of attention in [126], of the pleading as it is in [127] and [127A], which I call the Fifth and Sixth Contraventions, is on the improbability of the $80 million profit forecast being achieved. It states that by reason of certain matters that the Appellant knew or ought to have known, he should have advised DDC, before executing the Management Sign Off, "it was improbable that GIO Re would achieve the $80 million profit forecast". I deal first with the submission that his Honour went outside the pleaded case in this respect. 431 The Appellant advanced the proposition that pars [126], [127] and [127A] asserted that Mr Vines "knew or ought to have known that it was improbable that GIO Re would achieve the $80 million profit forecast". That is not what the paragraphs state. Paragraph [126] says that he ought to have advised the DDC that such achievement was improbable, "by reason of matters which Mr Vines knew or ought to have known". 432 The Appellant submitted that Austin J did not make a finding that Mr Vines knew that it was improbable that GIO Re would achieve the $80 million profit forecast. The reference to "knew" in this submission is, to say the least, ambiguous. An understanding or appreciation of improbability is implicit in the pleading. The Appellant's submission that the pleading required actual "knowledge" of improbability should be rejected. Indeed it is not a natural use of language to talk of "knowledge" of a statement of probability. In any event, the pleading cannot be so confined. It expressly extends to matters of which the Appellant "ought to have known". The pleading is that, in view of matters he knew, or ought to have known, he should have advised of such improbability before delivering his sign off letter. 433 In the second sentence of par [1167], his Honour expressly refers to the "terms of the pleading" and finds that a person in Mr Vines' position should have informed the DDC "that the achievement of the $80 million profit forecast was improbable". That is an accurate statement of the charge in par [126]. His Honour goes on, in that second sentence of par [1167], to identify facts and matters, or at least the most significant ones, which constituted the matters which the Appellant "then knew or ought to have known". There was no departure from the pleading. Paragraph [126], unlike other paragraphs, does not identify or confine the facts and matters to those of which Mr Vines had actual knowledge. 434 The first matter of knowledge to which his Honour referred was the unavailability of the American Re agreement. Retrocession cover had played an important role, indeed a determinative, role in the formulation of the profit forecast for most of the period that it was under consideration. Once it was removed as a pertinent factor, finally on 7 December, that was a matter appropriate to be considered as part of the knowledge of Mr Vines for the making of the judgment by his Honour contained in par [1167]. I have already set out the relevant findings by his Honour that identify this consideration. 435 The second matter to which his Honour referred in [1167] was the unders and overs analysis. This was a matter to which his Honour had expressly referred in par [1165] and which his Honour had found also required disclosure to the effect that a judgment had to be made that it had to be correct. 436 The third matter to which his Honour referred in [1167] was the enhanced significance of the extent of liability for Hurricane Georges, as estimated by Mr Fox, which his Honour mentioned in pars [1161], [1162] and [1164]. This drew on his Honour's analysis elsewhere in his judgment, particularly his further summary of his findings at par [1183]. There is a convincing basis for his Honour's finding that this was one of the matters of which Mr Vines had knowledge and was a reason for informing the directors that the achievement of the profit forecast was improbable unless the estimate was correct. 437 His Honour's reference to Mr Fox's estimate being correct is clearly a reference to the passage at par [1164], where his Honour indicates why it was that the accuracy and reliability of Mr Fox's statements were "matters of crucial importance to maintaining profit forecast". These estimates had, he said, "become especially important". His Honour's conclusion in this respect, in the context of a "tight" unders and overs analysis, was clearly correct. 438 What his Honour did in this passage was to express a conclusion, after having made many interrelated findings of fact and drawing inferences elsewhere in his judgment, that the Appellant should have informed the DDC that the $80 million profit forecast was "improbable". This was expressed in terms of the pleading in par [126], together with the reasons, or at least the ones his Honour regarded as critical, why that was so. 439 In this respect it does not appear, as expressed, that his Honour was relying upon his earlier finding at par [916] to the effect that Mr Vines ought to have understood at the meeting on 7 December that Mr Fox was proceeding on the basis that the American Re agreement could be relied upon and that he could not infer that Mr Fox was taking into account some kind of unders and overs analysis. This finding was challenged by the Appellant and relied upon by ASIC, but I do not need to deal with this challenge. Nor did his Honour rely on his finding that Mr Vines sought opinions from KPMG and Arthur Andersen as a strategy to put pressure on PwC. 440 One purpose of the management sign off was to enable the DDC and the Board to make a fully informed judgment with respect to the profit forecast. His Honour's analysis, in this respect, was expressed by reference to the particular assurances given by Mr Vines in the Management Sign Off that he had drawn the attention of the DDC to matters of which he was aware and which he considered material to a decision by a shareholder whether or not to accept the offer and the express statement that he was not aware of any such matter which had not been drawn to the attention of the DDC. 441 The submission of the Appellant that in some way Austin J had recast par [126] and answered a different question should be rejected. 442 With respect to the third matter identified in the passage, namely the significance of Mr Fox's estimate of exposure to Hurricane Georges, the Appellant relies on findings by his Honour in other passages of the judgment that held Mr Vines was entitled to rely upon the computations of exposure made by, in particular Mr Fox, by reason of the fact that these matters were not matters for which Mr Vines had direct responsibility. 443 The 8 December events constituted the final exchange of advice and opinions amongst and between the directors, senior management, the auditor and the independent expert. All of this was designed to finalise each component part of the Part B Statement. The consequences of any failure to comply with the duty of diligence and care were high, which his Honour set out and summarised metaphorically as "solemn circumstances" [1179]. The standard of care was at its height. 444 It was by reason of these circumstances that his Honour found that, as it had become clear that the American Re agreement was ineffective and the "unders and overs" produced a "tight" result, any increase in exposure to Hurricane Georges over $60 million must adversely impact on the profit forecast. For that reason, his Honour indicated, Mr Vines' duty of diligence and care required a different level of attention to that exposure on his part. 445 The Appellant's submission that Austin J did not provide adequate reasons for holding that Mr Vines could no longer rely on those with direct responsibility to bring the extent of exposure to his attention, should be rejected. 446 His Honour had summarised at [135] and [138], set out at [157] – [158] above and [914]-[915], set out at [394] above, the frequency with which Mr Vines had directly intervened in matters within the operational responsibility of Mr Fox at GIO Re, including increasing profit forecasts and determining profits or determining reserves. As his Honour concluded he "had the capacity and inclination to intervene at the divisional level when he thought, from his perspective at the Group level, that intervention was needed" [915]. (See his finding at [165], set out at [159] above). 447 I agree with Austin J, that such intervention was not only "needed" by 8 December, it was required by his responsibilities with respect to the Part B Statement. He could not simply accept Mr Fox's estimate of $60-65 million without further inquiry. In my opinion, his duty at that time was to be proactive. This was not an "operational" issue. By reason of the Part B Statement it was a Group issue and one for which he had express responsibility. 448 It was not, in my opinion, necessary for there to be any particular event indicating that Mr Fox's estimate should be checked. In any event, there were such matters – for example the past doubts expressed by Mr Schneider and the substantial increase in exposure over the month of November, reaching $60-65 million at sometime before the 7 December meeting [872]. Furthermore, as I have outlined in par [406] above, the negative adjustments required on the auditor's unders and overs analysis, taking into account the full range of matters required to be adjusted, was $15 million which was above the level of $12.5 million at or below which a variation in the profit forecast would be presumed not to be material. It was, however, below the amount of $25 million which was presumed to be material. That analysis was based on the lower of Mr Fox's estimated range of an exposure to Hurricane Georges of $60-65 million. If the top of the range, i.e. $65 million, was included then the negative adjustment of $15 million would increase to $20 million. This was high in the range where a decision had to be made about materiality. See also [539] and [863]-[874] below. 449 Whatever may have been Mr Vines' previous entitlement to rely on Mr Fox, his Honour's conclusion that the position had changed on 8 December was, in my opinion, open. Indeed, as indicated above, I would have concluded that it changed before that, but nothing turns on this. 450 If Mr Vines had instituted inquiries on 8 December as to the extent of exposure to Hurricane Georges, he would have discovered that the Register on 7 December already recorded claims at $91.9 million ($74 million net) [548]. (I do not suggest he had to personally inspect the Register.) He would also have discovered Mr Schneider's long held opinion that it was a $100 million event, and that he had conducted a contract by contract analysis to confirm his opinion. These were matters which, in my opinion, Mr Vines ought to have known. 451 His Honour was correct to conclude that Mr Vines' responsibility required him to be proactive, as he had been with other aspects of the accounts of GIO Re, as set out at [446] above, referring to [135]-[138] and [914]-[915] of his Honour's judgment set out at [157]-[158] and [394] above. As his Honour observed at [1085], set out at par [76] above, the due diligence process required the Appellant and others "to take particular care" and "that it would not be enough for them to confine their attention to what they knew, in circumstances where they could uncover material information by appropriate inquiry". 452 The Appellant's duties, particularly when the Board had directed a due diligence process occur, did not entitle him to fail to take the initiative unless some reason to do so had come to his attention. In any event, there were such reasons: exposure to Hurricane Georges had increased to $60-65 million in the month of November and there was no basis on which it could be assumed that the process had stopped. Indeed, as his Honour found at [241], set out at [180] above, as early as the First Quarter Highlights document: "reasonable persons in the shoes of those responsible for the profit forecast would have thereafter treated the development of the Hurricane Georges loss as a matter to be kept under particular review". 453 In the context of a "tight" unders and overs analysis the Appellant's responsibilities required him, in my opinion, to take steps to ensure that the monitoring process was continuing and was up-to-date. 454 With respect to the first and second matters to which his Honour referred, namely the unavailability of the American Re agreement and the unders and overs analysis, the Appellant challenges his Honour's conclusion that it was negligent of Mr Vines not to have advised the DDC, on the basis that the DDC was already aware of them. The Appellant submits that his Honour's conclusion was based on the false premise that the DDC did not know about the unavailability of the American Re agreement or of alternative unders and overs analysis, particularly Mr McClintock's exercise and in any event did know of the reserves available in MIPI. 455 This submission does not place sufficient weight upon his Honour's findings about the significance of Mr Vines' role, relevantly, in the Part B Statement process. That role went beyond the scope of the role of chief financial officer. The submission also does not give appropriate weight to the express assurances contained in the Management Sign Off which he had to execute, clearly of great significance to all of the other parties to the Part B Statement including the auditors, but most significantly, the directors. Furthermore, this submission ignores the finding of just how "tight" the profit estimate was at the end of the process. 456 That some of the directors may have had other sources of information with respect to the matters, which indicated that the profit forecast was improbable of achievement, did not absolve Mr Vines, in the exercise of due care and diligence, from adding the weight of his particular authority to the relevant proposition, even on the basis of facts that were known to others. What was involved was a matter of judgment that required a number of considerations to be balanced. The directors were not relying simply on Mr Vines to draw their attention to facts. The directors were entitled to expect a properly formed judgment, most relevantly about the enhanced significance of exposure to Hurricane Georges. 457 As his Honour put it at par [1169], Mr Vines was required by the terms of the Management Sign Off "to take personal responsibility". His role was such that he ought to have "drawn the attention of the DDC" to the fact that the reinsurance profit forecast had been made "on the basis of assumptions that did not spell out the position known to Mr Vines" (at [1168]). As his Honour further put it, that obligation was such that "Mr Vines ought to have invited the DDC to consider some redrafting of the Part B Statement" in the light of those matters of disclosure that he was obliged to bring to the attention of the committee (at [1168]). 458 These findings constitute a clear, and in my opinion justified, finding of contravention of the duty of care and diligence that does not turn on an assumption that the persons to whom such a statement was required to be made were unaware of the facts and matters upon which Mr Vines should have acted in order to discharge his own responsibility in this regard. 459 Obviously, there will be circumstances in which such knowledge has the result that the consequence of the relevant act or omission is not such as to constitute a breach. In view of Mr Vines' responsibilities that was not the case here. His opinion could, indeed it appears to be clear, would have influenced the directors' decision-making process. 460 For the reasons given by Austin J and the additional reasons outlined above, the Appellant contravened his statutory duty. The appeal from this contravention should be rejected. 461 In par [1168] of his judgment, set out above, his Honour set out what he described as a "corollary to" the findings in the preceding paragraphs. This passage was summarised, in the Honesty Judgment, as: "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])." 462 This formed the basis of the following declaration: "2 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure on 8 December 1998, as an officer of that corporation, to draw the attention of the DDC to those part 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 his failure to invite the DDC to consider some redrafting in light of the matters of disclosure that he was obliged to bring to their attention." 463 Paragraph [1168] and Declaration 2 make no reference to the management sign off. The declaration refers to advice to the DDC, but it is not dealt with as pertinent to par [127] of the pleadings, considered as the Sixth Contravention. 464 ASIC sought to support the declaration made as falling within [126], notwithstanding the absence of any of the language of that paragraph. This is a matter which also arises with respect to a number of the declarations made with regard to the Fifth Contravention. 465 In the case of Declaration 2, ASIC submitted that, as a "corollary" the finding in [1168] should be regarded as a natural consequence of the earlier analysis. 466 In my opinion, it is appropriate for a court, having found and declared there to have been a contravention in accordance with the pleaded case, as Declaration 1 does, to also make associated declarations which identify the conduct which, if it had occurred, would have ensured that there was no contravention. In any event, the Appellant did not separately challenge Declaration 2 or, indeed, the formulation of any declaration. XII THE FIFTH CONTRAVENTION: ADVICE TO THE DUE DILIGENCE COMMITTEE 467 As noted above Mr Vines advised the members of the Board, through the Due Diligence Committee, for the purpose of the directors performing their obligations with respect to the Part B Statement. 468 In the minutes of the meeting of the DDC of 8 December 1998 the following statement appeared: "In relation to the Forecast Nick Steffey and Geoff Vines confirmed to the meeting that each of them was comfortable with the integrity of the forecast result of $250 million as set out in the Forecast in the Draft Take-Over Response Booklet." 469 The relevant paragraph of the Statement of Claim with respect to this contravention is par [127] which provides: "[127] The First Defendant confirmed to the DDC, as pleaded in para 89 hereof, that he was comfortable with the integrity of the GIO Group forecast profit for the 1999 financial year of $250m, a component of which was the $80m profit forecast for GIO Re, when the First Defendant knew, or ought to have known, of matters which made it improbable that GIO Re would achieve the $80m profit forecast in the 1999 financial year." 470 Paragraph [89] in substance recites the extract from the minutes of the DDC which I have set out above. 471 The events of the final DDC meeting are set out by his Honour at [940] and following: "[940] The DDC met early in the morning on 8 December 1998. Mr Vines reported on the management sign-offs, copies of which were provided to the Committee. Both Mr Steffey and Mr Vines confirmed to the meeting that they were comfortable with the integrity of the forecast. Mr McClintock recommended that a new assumption in relation to the catastrophe portfolio be added to the Takeover Response Booklet, drafted with Mr Fox, Mr Robertson and Mr Vines, and that was approved (see also T 2749). The Committee recommended that the board should resolve to approve the Part B statement in principle and appoint a subcommittee to approve minor changes." 472 With respect to this contravention his Honour referred to par [127] of the Statement of Claim and to the ASIC submissions and concluded: "[1172] I partially agree with ASIC's submission. Mr Vines' responsibility, given his role in the due diligence process as well as his position as chief financial officer, and in circumstances where reliance on the American Re agreement was no longer possible, was to exercise care and diligence to the statutory standard, to ensure that on 8 December the DDC was informed of all matters material to the estimate of loss so that the committee could exercise its judgment as to the viability of the forecast and the disclosure to the shareholders that should be made. My view is that Mr Vines should have drawn 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. [1173] Secondly, ASIC criticised Mr Vines for confirming at the DDC meeting that he was comfortable with the integrity of the Group forecast. ASIC conceded that it might have been reasonable for Mr Vines to make such a statement if he had sound grounds for believing that the anticipated shortfall in reinsurance would be made up by greater than expected profit from other businesses. But in ASIC's submission, unless there was a sound basis for such a belief, Mr Vines should have declined to give the DDC such an assurance about the Group forecast, and should have told the committee about the doubts surrounding the ability of GIO Re to achieve its part of the forecast. [1174] In my opinion it is unnecessary to determine whether, by virtue of the unders and overs schedule or otherwise, Mr Vines had a sound basis for affirming the Group forecast notwithstanding doubts about the reinsurance forecast. My view is that a reasonable person in like position to Mr Vines, acting with care and diligence in a corporation in GIO Australia Holdings' circumstances, would not have given the kind of unqualified assurance about the Group forecast that was given by Mr Vines, in circumstances where real doubts had 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 forecast 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, the responsibility of Mr Vines was to ensure 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. [1175] The pleading alleges that Mr Vines knew, or ought to have known, of matters which made it improbable that GIO Re would achieve the $80 million profit forecast. Mr Vines knew of PwC's attitude to the American Re agreement, which was in terms a matter making it improbable that the profit forecast would be achieved, and therefore was disclosable. The fact that there were some other balancing matters that might have assisted the company to reach the profit forecast did not absolve Mr Vines from the obligation of disclosure, but added that obligation." 473 The Honesty Judgment summarises these findings as: "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]). 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]). 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])." 474 The declarations his Honour made were: "3 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, to ensure that at the meeting on 8 December 1998 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, and his failure to draw the DDC's attention to the fact that Mr McClintock's figures had been taken from Mr Fox's statement about managements 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." 4 The First Defendant contravened section 232(4) of the Corporations Law as carried into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his provision, as an officer of that corporation, of an unqualified assurance about the group forecast to the DDC meeting on 8 December 1998 without making accurate and complete disclosure of all material circumstances that led him to believe that on balance the group forecast could still be achieved and adopted, and his failure to ensure 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. 5 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure as an officer of that corporation, to disclose to the DDC on 8 December 1998 Price Waterhouse Coopers' ('PwC') negative attitude to the American Re agreement, which was in terms a matter making it improbable that the profit forecast would be achieved, and by his failure to disclose some other balancing matters that might have assisted the company to reach the profit forecast." 475 The Appellant submits that his Honour made findings outside the pleaded case. As in the case of the Fourth Contravention, he submitted that his Honour had to make a finding, which he did not make, that the Appellant had actual knowledge of the improbability that the $80 million profit forecast would be attained. 476 The pleading in [127] is in almost identical terms to the pleading in [126]. Each focuses upon Mr Vines knowing of matters which made it improbable that the $80 million profit forecast would be achieved. As in the case with respect to the same submission I have discussed under the Fourth Contravention, the Appellant's submissions misread the pleaded case. (See par [441] above.) 477 Paragraph [127], like par [126] does not assert that Mr Vines "knew" that it was improbable that the profit forecast would be achieved. The focus is on knowledge of facts and matters which make it improbable that the profit forecast would be achieved. When the language of probability is used, necessarily so in the case of estimates of such matters, it is the knowledge of the facts and matters rather than the inference of probability, which is appropriately the focus of attention. 478 Paragraphs [1174] and [1175] do, in my opinion, address the pleaded case. In par [1174] his Honour holds that a reasonable person in Mr Vines' position would not have made the unqualified statement about the integrity of the profit forecast in the circumstances his Honour sets out in that paragraph. His Honour then set out reasons why a person acting reasonably in all the circumstances would not have acted in that manner. His Honour then turns, in par [1175], to address the terms of the pleading just as he had done in the second sentence of par [1167], when dealing with the Fourth Contravention. With respect to that contravention his Honour had already held, of course, that Mr Vines ought to have informed the DDC that the achievement of the profit forecast was improbable. In par [1175] his Honour, on a proper reading, comes to the same conclusion in terms of the pleaded case in par [127] that Mr Vines knew of matters which made it improbable that the profit forecast would be achieved. 479 The Appellant also attacked the various findings of fact in [1174] and [1175] on the basis that they were not pleaded in par [127]. However, these various facts and matters are the matters said in [127] to have been known, or which ought to have been known, by the Appellant. Paragraph [127] does not restrict the lists of facts and matters in the same way as appears in other paragraphs e.g. par [114], [116], [117] and [125] discussed above. 480 Again, as with respect to the Fourth Contravention, reliance is placed on the proposition that members of the DDC were aware of certain matters, in particular the fact that the American Re agreement was no longer a basis for supporting the profit forecast. For the same reasons I have indicated at pars [350]-[352] above, I am of the opinion that his Honour was entitled to conclude that the unavailability of the American Re agreement was one of the matters to which Mr Vines should have had regard when advising the DDC in the terms of the pleading, namely that an unqualified assurance was negligent in the requisite sense when, for this and other reasons, the achievement of the profit forecast had become improbable. 481 What Austin J has done in this part of his reasoning is to indicate that a full disclosure of certain matters, including the American Re agreement, would in total have discharged Mr Vines' duty of diligence and care. That observation does not detract from the fact that his Honour also made a finding in terms of the pleaded case, identifying in the course of that finding the particular matters which were known to Mr Vines and which made it improbable that the profit forecast would be obtained, leading to the result that the actual assurance referred to in par [127] was negligently made. For the reasons I have already set out in the context of the Fourth Contravention, his Honour's analysis was correct. 482 His Honour goes on to make declarations both in terms of the pleaded case and in terms of the facts and matters which, if they had been disclosed, would have meant that no contravention would have occurred. 483 In par [1175], where his Honour states his conclusion in terms of the pleading his Honour refers to the American Re agreement as a matter that made the profit forecast improbable. It is not, however, appropriate to treat this reference as if it was the only such matter. The matters referred to in the immediately preceding paragraph were also clearly of this character. So were the matters set out by his Honour at par [1155], set out at [415] above, which were expressed by way of an introductory finding pertinent to each of the contraventions which his Honour went on to hold had occurred. 484 It is unnecessary for a judge, particularly in reasons of such length and complexity, to repeat himself or herself. It is quite apparent, on a full reading of the reasons, that his Honour held that there were a number of matters which were known to Mr Vines and which rendered the profit forecast improbable. 485 Declaration 5 is based, albeit not precisely, on [1175] in the form of the summary in the Honesty Judgment. It does, in my opinion, reflect the pleaded case with respect to one "matter" known to Mr Vines, as pleaded. 486 The Appellant did not challenge the formulation of the declarations. The Appellant did not submit that Declarations 3 and 4 are not within the pleaded case. They reflect his Honour's reasons in pars [1164], [1165] and [1173] (Declaration 3); and [1174] (Declaration 4), in each case as summarised in the Honesty Judgment. 487 As I have indicated above, the Appellant did not seek full particulars of breach. With respect to these findings the case was not relevantly confined by the pleadings. The matters which are the subject of the declarations were fully considered at trial. There was no denial of procedural fairness. 488 As with Declaration 2 dismissed above, where a declaration is made within the scope of the pleaded case, subject to issues of procedural fairness, it is appropriate for a court to make ancillary declarations identifying conduct which would have meant there was no contravention. 489 I have already discussed, particularly in the context of the closely related Fourth Contravention, the reasons why the Appellant's conduct fell below the requisite standard of care and diligence. 490 For the reasons given by Austin J, and for the above additional reasons, this contravention has been established. 491 The appeal from this finding of contravention should be dismissed. XIII THE SIXTH CONTRAVENTION: ADVICE TO THE AUDITOR 492 In a document signed by the Appellant in the first position, as Chief Financial Officer, and also signed by Mr Steffey, as Chief Executive Officer and by Mr David Mortimer as Chairman, for an on behalf of the Board, the following statements were made to Price Waterhouse Coopers Securities: "PROFIT FORECAST 1999 1 In relation to the prospective profit and loss financial information for the year ending 30 June 1999 ('the Forecast') to be included in the Part B Statement prepared in response to the takeover offer of GIO Australia Holdings Limited ('GIO') by AMP Insurance Investment Holdings Pty Limited we make the following representations. Responsibility for preparation 2 Responsibility for the preparation and presentation of the Forecast, including the assumptions on which the Forecast is based and the related risk factors which have been disclosed in the Part B statement, is that of the GIO. Statements 3 We confirm to the best of our knowledge and belief, and having made appropriate enquiries of other Directors and officers of GIO the following information and representations given in connection with your engagement. (a) we are not aware of any event which has occurred which would lead us to believe that the Forecast for the twelve months ending 30 June 1999, and provided to you is incorrect or misleading in any material respect or contains any material omission. (b) full disclosure has been made to you of all materials transactions as they relate to the Forecast. (c) we are not aware of any material information in the Forecast, assumptions and risk factors which is materially false, misleading or deceptive, or which is likely to mislead or deceive. (d) the Forecasts have been prepared on a basis consistent with accounting policies adopted and used by the GIO in the preparation of its accounts for the year ended 30 June 1998, Accounting Standards and other mandatory professional requirements. (e) the forecast has been properly compiled on the basis of the underlying assumptions the most material of which have been detailed in the Part B Statement. The Directors have considered each of the assumptions underlying the Forecast and believe them to be appropriate in all the circumstances. Specifically the Directors believe that, notwithstanding the position with respect to Hurricane Georges, no adjustment to the Forecast result for the reinsurance division is required. …" There are additional paragraphs that do not need to be set out. 493 Following the board meeting, PwC Securities delivered a report dated 9 December on the profit forecast. His Honour set out the portion concerning Hurricane Georges at [949]: "[949] Under the heading "Matters for consideration by the Due Diligence Committee", the report said: 76 We consider that the full year budget for the space portfolio will be difficult to achieve given the prior period error of $ 8.1 million recognised in the first quarter. Further, the first quarter results for the catastrophe portfolio assumed that GIO's exposure to Hurricane Georges would be 0.6% of the then market loss estimate of US$2.55 billion, i.e. $25 million. To 30 November 1998, we understand that claim notifications for Hurricane Georges have increased to $60-65 million and that the ultimate expected loss falls within this range. The increase in notifications with respect to Hurricane Georges suggests that the 33% profit assumption used for the catastrophe portfolio is no longer appropriate. 77 Management have advised us that losses on Hurricane Georges in excess of $15 million (up to $55 million) are protected by a retrocession policy entered into in November 1998 with American Re. Our review of this contract however has led us to conclude that, amongst other things, whilst the policy will allow GIO to claim for Hurricane Georges, additional premiums payable under the policy for claims experience mean that no benefit from the policy can be recognised in the Forecast. 78 Whilst management have not accepted his view, they point to positive development in the MIPI contracts in the period to date in 1999 to demonstrate that no adjustment to the Forecast is required. Our report to the Board Audit Committee for the 1998 year highlighted potential overstatements of provisions for MIPI and positive experience in this account since 1 July 1998 would support management's view that the Forecast is still achievable. 79 We also acknowledge, that: the attritional property book has performed well in the first quarter 1999 changes in retrocession arrangements under consideration could alter the risk profile of the business at lower cost given the current 'soft' market." 494 This report was published, as was intended and known to all, in the Part B Statement. 495 The allegation in the Statement of Claim with respect to this matter was par [127A] which in turn referred to par [90A] of the Statement of Claim: "[127A] The First Defendant advised PwC Securities of the matters pleaded in para 90A hereof, but failed to advise them that by reason of the matters then known to the First Defendant, or which ought to have been known, it was improbable that GIO Re would achieve the $80m profit forecast in the financial year." "[90A] On or about 8 December 1998 the First Defendant informed PwC Securities that, to the best of his knowledge and belief, and having made appropriate enquiries, nothing had occurred which would lead him to believe that the forecast profit by GIO Australia for the 1999 financial year for inclusion in the Part B Statement was misleading, and that, notwithstanding the position with respect to Hurricane Georges, no adjustment to the forecast result for the reinsurance division was required. Particulars Letter from the First Defendant, Mr Steffey and Mr Mortimer to PwC Securities dated 8 December 1998." 496 Extensive particulars were given of par [127A], they do not need to be set out in full. 497 In that part of the Contraventions Judgment where his Honour summarised his findings with respect to this contravention, his Honour said: "[1176] Para 127A pleads that Mr Vines signed the letter of representation to PwC securities dated 8 December 1998 but failed to advise that by reason of the matters known to him or which ought to have been known, it was improbable that GIO Re would achieve the $80 million profit forecast. There are very lengthy particulars setting out the matters alleged by ASIC to have been known to Mr Vines. [1177] ASIC submitted (written submissions, paras 322-324) that in spite of the representation to the contrary in his letter to PwC (PTB 1662), Mr Vines did not carry out any "appropriate inquiries" with directors or officials of GIO at any time after 11 November. ASIC contended that Mr Vines either realised or ought to have realised that PwC's decision not to accept the American Re agreement had changed everything, and after that decision there needed to be an inquiry and investigation into the profit forecast of a kind that did not take place. Mr Vines accepted in cross-examination ( T 3012; T 3089-90) that he understood that the schedule of catastrophe model movements sent to him by Mr Driessen on 11 November (PTB 0976A) was a monthly process, and that he could have requested the equivalent November information at some point after 30 November, but he did not do so. He said his expectation was that if there was any adverse movement he would have been told about it. [1178] I partially agree with ASIC's submission. I have said that in my opinion, Mr Vines did not have any obligation to make direct inquiries as to the development of Hurricane Georges claims and was entitled to rely on the reinsurance division to inform him of any adverse claims movement. But the decision by PwC not to accept the American Re agreement had a significant effect. It was made just before the finalisation of the due diligence process, a process for which Mr Vines had central responsibility, and at a time when 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. PwC's decision had put the profit forecast directly under threat, and the defendants' response had been to develop an unders and overs analysis, in the course of the same meeting, which was acceptable to PwC. [1179] At the end of 7 December the ship was in an unsteady state. The position could be clarified by conducting further investigations, including investigations leading to some form of report on the unders and overs analysis as a whole (MIPI was already supported by Mr Latham's report). Alternatively, it would have been appropriate for Mr Vines, in my view, to present all of the facts to the DDC, and to see whether the problem might be accommodated by appropriate disclosure in the Part B statement. I am not able to say, on the evidence, whether the latter approach was feasible, but since the evidence has not ruled it out, I do not go as far as ASIC does in asserting that the making of further inquiries was necessary. But I do agree with ASIC that in the delicate circumstances that existed on 8 December, Mr Vines' duty of care and diligence should have precluded him from confirming 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." 498 In this part of his reasons his Honour does not restate, in the way he did in his reasons with respect to pars [126] and [127] of the Statement of Claim, his findings in the express terms of the pleadings. There is nothing in [1179] equivalent to the second sentence of [1167] or to [1175]. It was not, in my opinion, incumbent upon his Honour to do so. His Honour had made a clear finding, on two separate occasions, that Mr Vines knew of facts and matters which made it improbable that the $80 million profit forecast would be attained. His Honour repeated in par [1178] the findings that such facts were known to Mr Vines. 499 Paragraph [1179] is, as is the case for earlier paragraphs relevant to other contraventions, a statement of the steps which would, if they had been taken, have meant that the conduct complained of, namely the failure to advise that attaining the profit forecast was improbable, would not have been a contravention. 500 The summary of this contravention in the Honesty Judgment is: "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])." 501 The declaration relating to this contravention was declaration 6: "6 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Insurance Limited by confirming, as an officer of that corporation, to ('PwC') on 8 December 1998 that 'appropriate enquiries of other directors and officials of GIO' had been made." 502 The particulars that follow par [127A] are said to be inclusive. They are in any event wide ranging and make reference to most of the matters to which regard was had by his Honour, including the extent of exposure to Hurricane Georges, the absence of retrocession cover and the ability of the American Re agreement to remedy the situation. Reference is made in these particulars to the evidence that will be adduced at the trial. This only confirms what is implicit in the inclusive nature of the particulars provided. A number of the asserted particulars were rejected in his Honour's reasons. Some were upheld, sometimes in slightly different form, based on the evidence in the trial. 503 His Honour in par [1179] focused on one aspect of the letter to which par [127A] referred, namely that aspect which asserted that appropriate inquiries had been made. Nevertheless, par [127A] did, as the Respondent submitted in this Court, plead the matters advised to PwC, by reason of the reference to s90A. 504 The Respondent also identified in par [134] of its written submissions to this Court a range of particulars about which his Honour had earlier made findings, again with the suggestion that it was unnecessary for them to be repeated in the context of dealing with this specific contravention. This is particularly true by reason of the general terms of par [1155] which I have set out at par [415] above that serves as an introductory paragraph for all of the 8 December contraventions. 505 Nevertheless, there is force in the contention of the Appellant that the pleaded allegation was not, in terms, an allegation of a failure to make appropriate inquiries of other directors and officers, contrary to the representation that such had been made. It does appear from the declaration that was actually made in this respect that his Honour regarded that as the relevant contravention. 506 Originally the Respondent did seek, by way of cross-appeal, relief which would have entitled this Court to substitute a declaration of contravention in terms of the pleading that was actually made. However, that cross-appeal was abandoned. In the circumstances, in my opinion, this is a case in which a declaration in accordance with the terms of a pleading could have been, but was not, made. In view of the abandonment of the cross-appeal, this Court cannot make the declaration in accordance with the terms in which it should have been made. 507 His Honour's finding of contravention in this respect can only be supported if during the course of the trial the parties had "deliberately chosen" to fight the case on a basis different to that pleaded as discussed in pars [32]-[59] above. As I have noted, ASIC submitted that there was no denial of procedural fairness, largely because of the evidence of Mr Hogendijk. 508 As ASIC submitted, neither in the course of objecting to Mr Hogendijk's evidence, nor in the final submissions, did the Appellant ever contend that his evidence fell outside the pleaded case. 509 With respect to the statement in the letter to PwC, Mr Hogendijk said: "In my opinion Mr Vines as CFO did not make appropriate inquiries, because he did not require the difference of opinion between Mr Robertson and Mr Schneider to be properly resolved when it came to his attention. As I understand the assumptions, Mr Vines effectively accepted Mr Robertson's opinion without proper verification." 510 His Honour's analysis of the "appropriate inquiries" representation did not turn on the disagreement between Mr Robertson and Mr Schneider. Indeed, his Honour had found at [1155], to repeat: "The disagreement between Mr Robertson and Mr Schneider on that subject appears to him to have resolved in favour of Mr Schneider when the catastrophe claims model predicted as at 31 October that Hurricane Georges' claims would be substantial". That was why the Am Re arrangement and the MIPI reserves adjustment were required. 511 ASIC drew this Court's attention to the extensive cross-examination of Mr Hogendijk by counsel for the Appellant. It did not suggest that that cross-examination extended to the advice to PwC. I have not been able to identify any such cross-examination. 512 In the ASIC submissions to Austin J it stated: "[323] In ASIC's submissions nothing occurred after 11 November 1998 which qualified as an 'appropriate enquir(y)'. In particular, Mr Vines either realized, or clearly ought to have realized, at the moment PwC declined to accept the American Re agreement, that that changed everything. That called for enquiry and investigation which, to Mr Vines' knowledge, did not take place. [324] While Mr Vines gave evidence that he understood that the schedule of catastrophe model movements Mr Driessen sent him on 11 November 1998, which particularized the increase in catastrophe claims during the month of October 1998, was a monthly process, and that he could have requested the November information shortly after 30 November 1998 and been provided with it, he admitted that he took no such steps." 513 It is to this submission that Austin J was referring at [1179] when he said "I do not go as far as ASIC does in asserting that the making of further inquiries was necessary". It is, however, significant, that this submission did not rely on Mr Hogendijk's evidence to which I have referred. 514 In his written submissions to Austin J, the Appellant addressed the pleadings and particulars in terms. In oral submissions, reference was made to the ASIC written submissions, but not to the passage I have quoted. Although the submission was made that another statement in this section of ASIC's submissions was outside the pleaded case, there is no such express statement with respect to pars [323] and [324]. 515 Notwithstanding this omission I am not prepared, in the context of civil penalty proceedings, to conclude that the tests set out in Mount Oxide Mines supra and Dare v Pulham supra have been met. 516 In this respect, the appeal should be allowed. XIV THE SEVENTH CONTRAVENTION: CONDUCT AFTER 8 DECEMBER 1998 517 On 9 December AMP announced that it was increasing its bid (at [952]). As the takeover battle for GIO proceeded no correction to the profit forecast made in the Part B Statement was made. 518 The relevant pleading in the Statement of Claim was par [128] as follows: "[128] The First Defendant failed after the date of publication of the Part B Statement and before the end of the period in which the takeover offer remained open to have any, or any adequate, regard to the available evidence concerning whether it was likely that GIO Re would achieve the $80m profit forecast." 519 The takeover offer closed on 4 January. 520 The key finding with respect to this contravention occurs at [966] where his Honour said: '[966] It does not appear, on the evidence, that Mr Vines did anything after 8 December to monitor the continuing development of Hurricane Georges, or to ascertain whether the representations he and other GIO Re executives had made concerning the maintenance of the profit forecasts had been eroded by later events." 521 In that part of his Honour's judgment were he summarised the evidence and outlined his conclusion with respect to this contravention his Honour commenced with a detailed subheading paraphrasing the terms of par [128]. I will set this out, in view of the reliance placed on this matter in the Appellant's submissions to the effect that this was not the pleaded allegation. The passage is as follows: " SASC, para 128 - after 8 December 1998, Mr Vines did not ensure that investigations were carried out to determine whether the statements in the Part B statement remained correct [1180] The allegation in para 128 is that Mr Vines failed after the publication of the Part B statement and before the end of the period to have any, or any adequate, regard to the available evidence concerning whether it was likely that GIO Re would achieve the $80 million profit forecast." 522 Despite the terms of the subheading, the immediately succeeding par [1180] does set out the pleaded allegation. The submission that the subheading itself established that his Honour went outside the pleaded case should be rejected. 523 His Honour went on to make the following findings: "[1181] Mr Hogendijk expressed the opinion (affidavit, paras 197-8) that a competent chief financial officer would have understood that he was under a continuing obligation to be satisfied that later financial results did not undercut any statements to the market made in the Part B statement, or any aspect of the process leading up to the Part B statement, and in the circumstances the competent chief financial officer would at least have called for the November results and any development in Hurricane Georges claims. [1182] In December 1998 there was no express statutory obligation for the target company to update its Part B statement so as to disclose material new circumstances (cf Corporations Act 2001, s 644(1)(c)). However, there was a 'continuous disclosure' statutory obligation for listed entities, not to intentionally, recklessly or negligently fail to comply with stock exchange listing rules concerning timely disclosure of material information to the market (Corporations Law, s 1001A). As chief financial officer, Mr Vines had a duty to exercise care and diligence to facilitate the listed entity's compliance with these requirements as regards financial matters. In circumstances where the company had announced to the market a profit forecast which was highly material to the impending decision of shareholders whether to accept the AMP bid, and it had become clear that adverse development in Hurricane Georges might impact on the profit forecast in the absence of protection by the American Re agreement, notwithstanding an unders and overs analysis, Mr Vines had a duty to exercise care and diligence to the statutory standard, to ensure that the development of Hurricane Georges was monitored during December 1998 (cf Mr Hogendijk, affidavit para 202). [1183] Mr Vines' evidence was that he expected the reinsurance division to monitor Hurricane Georges in accordance with its usual practices and to report any material adverse development to him. In my opinion, while it was adequate for Mr Vines to assume that in Hurricane Georges would be monitored in the usual fashion at a divisional level up until 7 December, the situation changed after that day. PwC's decision not to accept the American Re agreement, and the reliance placed on a 'tight' unders and overs analysis, made it urgently necessary for those with central responsibility to the parent entity for keeping the market informed during the currency of the bid to have a clear and up-to-the-minute understanding of the development of Hurricane Georges claims. Mr Vines was one of the executives who had that responsibility, because of his position in respect of the takeover defence and due diligence process, and in light of the impending board decision on the Part B statement and profit forecast. Once that decision was made, Mr Vines' duty to exercise care and diligence to facilitate the parent company's compliance with the continuous disclosure listing rule meant that it was necessary for him to be sure that the monitoring arrangements: upon which he had previously relied, were continuing in the new circumstances. [1184] That did not mean it was necessary for him personally to review the Hurricane Georges register or any other such information. But it was necessary for him to take care to give directions to ensure that the work was done at the divisional level, and that its results were brought forward promptly to the appropriate senior corporate officer so that an assessment could be made about further disclosure." 524 His Honour summarised these findings in the Honesty Judgment: "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])." 525 This contravention was the subject of declaration 7 as follows: "7 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, after 8 December 1998 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." 526 His Honour had already set out the evidence as to what would have been discovered about exposure to Hurricane Georges if monitoring had occurred. 527 The starting point was his Honour's finding relating to the availability of information: "[557] Mr Fricke gave affidavit evidence that if he had been asked, in early November 1998, to obtain up-to-date information about the level of Hurricane Georges' claims that had been received, he would have entered the registered event numbers for Hurricane Georges into COGEN, which would have displayed the claims paid and outstanding, together with a list identifying contract numbers and the number of cedants. The entire process would have taken a matter of minutes. All claims department staff had access to this function of COGEN, and they could obtain such information provided they knew the relevant event numbers. The information would, of course, be confined to registered claims." 528 COGEN was the claims recording system used by GIO Re (see [67]), and was used by Mr Fricke for preparing Management Committee reports, and for updating the Hurricane Georges Register, which was sent on a daily basis after 9 November to, inter alios, Mr Fox and Mr Schneider (see at [534]). 529 The evidence of the increasing size of Hurricane Georges liability was as follows: · 25 November – Management Committee. Mr Fricke presented report in which he noted that claims for Hurricane Georges at that time totalled $57 million for property and $25 million for marine ([526]); · 4 December – Hurricane Georges Register recorded total claims at $89.6 million ($72 million net) ([548]); · 7 December – Hurricane Georges Register recorded total claims at $91.9 million ($74 million net) ([548]); · 8 December – Hurricane Georges Register recorded total claims at $92.4 million ([549]); · 16 December – Management Committee. Mr Fricke commented that Hurricane Georges losses on property claims had increased considerably. The status on 10 December was $65.1 million property claims incurred, $25.7 million incurred loss ([527]); · 17 December – Mr Fricke's email to Mr Fox noting that further claims had been reported and that his "market losses" assessment showed GIO Re's share of the market losses for Hurricane Georges was three times the average of all events listed in his report ([550]); · 23 December – Mr Fricke's email to Mr Fox stating that "unfortunately, 'Georges' is stubbornly moving up'" ([550]). 530 As appears most clearly from par [1183] of his Honour's reasons, this finding of contravention is based on his Honour's earlier finding that Mr Vines' responsibilities changed on 8 December. The Appellant's submissions on this contravention reiterated the proposition that there was no such change. I have rejected this submission at par [407] above. 531 I have also rejected at par [409] above, the proposition that it was incumbent to cross-examine Mr Vines to the effect that something had changed in this regard. 532 In this regard the Appellant relied on evidence given by Mr Hogendijk that, in his opinion, Mr Vines was entitled to expect that others would properly monitor and assess the exposure to Hurricane Georges. However, his Honour was not obliged to accept this evidence. He gave reasons why he formed the view that, relevantly, the position had changed as set out above. 533 The Appellant relied on his submissions to Austin J that the pleading in [128] did not identify the "available evidence" referred to. That was a matter for particulars before trial, which were not, it appears, sought. 534 The Appellant also submitted that the finding at [1184] repeated in the Honesty Judgment and reflected in Declaration 7, was outside the pleaded case. The sting in [128] is that Mr Vines failed to avail himself of such information as may exist within GIO about the continued validity of the profit forecast. 535 In my opinion the finding and declaration identify the steps that would have been sufficient, if taken, for Mr Vines to avail himself of whatever information existed within GIO to that effect. This falls within the pleaded case. 536 His Honour concluded that the duty to do this, in view of the continuous disclosure requirement, involved the same high standard of care as was involved in the formulation of the Part B Statement. 537 I have already set out the reasons of Austin J, with additional observations of my own, which justify his Honour's conclusion that the Appellant contravened his duty of care and diligence as at 8 December because, on the basis of facts he knew or ought to have known, the achievement of the $80 million profit forecast was improbable. As Austin J emphasised, in the context of a "tight" unders and overs analysis, the extent of exposure to Hurricane Georges had become, and remained, of critical significance. For those reasons, although the, in part, self imposed "due diligence" standard, may no longer have been operative in terms, the position on 8 December required particular attention be given to the extent of exposure to Hurricane Georges for the period the takeover process continued. It was not given. 538 In my opinion, his Honour was correct to conclude that there was a contravention for the reasons he gave and the additional reasons set out above, including with respect to the earlier contraventions. The appeal should be dismissed in this respect. XV REASONS OF IPP JA 539 Since writing the above, I have read the judgment of Ipp JA in draft. I agree with his Honour's additional observations. XVI THE HONESTY DEFENCE 540 As I have noted above Austin J rejected the Appellant's claim for relief from liability under s1317JA and s1318 of the Corporations Law with respect to each of the contraventions that his Honour found to have occurred. Although his Honour dealt with the matters compendiously, it was not suggested that his analysis did not apply to each contravention considered separately. 541 It is necessary for this Court to consider the Appellant's appeal from Austin J's Honesty Judgment with respect to each of the contraventions that this Court has upheld, namely: Contraventions 4, 5 and 7. 542 Austin J did not doubt that Mr Vines had acted honestly throughout. Nevertheless his Honour found that the discretion in the two statutory provisions should not be exercised in his favour. To summarise briefly s1317JA(2) empowers the court, relevantly, "having regard to all the circumstances of the case … the person ought fairly to be excused for the contravention … the court may relieve the person … from a liability …." and s1318(1) similarly empowers the Court, relevantly, when "the person … having regard to all the circumstances of the case … ought fairly to be excused for the negligence default or breach, the court may relieve the person … from liability". 543 His Honour, having found that Mr Vines acted honestly, posed the test for himself in that manner (at [83]). (This and subsequent references are to the Honesty Judgment.) His Honour noted: "[84] There was no finding that he obtained personal gain or benefit from his contraventions, or that any of his contraventions was 'flagrant', or that he engaged in impropriety or deceptiveness, or that he was conscious of impropriety on the part of others." 544 His Honour went on to consider "the nature and seriousness of the contraventions" (at [86]) and said (noting that "item 7" refers to the post Part B contravention): "[87] Except for item (7), my findings of contravention were failures to exercise due care and diligence by misleading or inadequate disclosure of material information to the board of directors or the DDC. The defective disclosures 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. [88] The elements of materiality, knowledge and reliance make it difficult, per se , to present a case for excusing the contraventions which have those ingredients. These elements also make it difficult to argue that Mr Vines' conduct was in any meaningful sense "reasonable" or (given the finding of failure to meet the standard of reasonable care and diligence) 'unreasonable only on balance'. In respect of the contraventions other than item (7), Mr Vines was aware of material information that he ought to have presented to the board or the DDC, which (as he knew) were relying on him to present them with financial information material to their decisions on important matters relating to disclosure to investors, and he did not do so. That is unreasonable conduct. As regards item (7) of the contraventions, it was also unreasonable for Mr Vines not to take appropriate steps to ensure that the monitoring arrangements in respect of Hurricane Georges claims continued after publication of the Part B statement, so that an assessment could be made at a senior level about further disclosure to the market, given his knowledge by 8 December of the progress of Hurricane Georges claims. [89] Further, I agree with ASIC (written submissions at [89]) that the contraventions are not eleven separate, isolated incidents. One can perceive in them a continuity and a pattern. Considered together, the contraventions paint 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 the profit forecast. Rather than discharging that responsibility, 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. To the extent that he decided not to give the board information on certain material matters, he effectively substituted his own decisions for board decisions. The seriousness of the contraventions [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." 545 Thereafter his Honour gave detailed consideration to the case made by Mr Vines which emphasised the considerably expanded nature of his responsibilities as at the relevant dates and the pressures under which he was acting. Save in one respect, with respect to the email of 22 November 1998 which is no longer pertinent, his Honour accepted that he had made no express findings that Mr Vines "gave conscious consideration to whether material matters ought to be disclosed" ([98]). 546 Nevertheless his Honour found: "[98] … More importantly and generally, in respect of all of the contraventions the findings implied that Mr Vines ought to have considered whether to disclose material information of which he was aware. And the findings show that in each case, he acted in a manner having the effect of excluding disclosure of material information although he was aware of it." 547 His Honour went on to hold: "[99] … The matters not conveyed were material to the important decisions of the board and its committee with respect to the Part B statement and its profit forecast. If disclosed, they would have qualified or clarified what Mr Vines actually conveyed, but they were much more than mere qualifications or clarifications. Mr Vines' failure to provide the directors with that material information left them to make their decisions, one each occasion of contravention, on the basis of a significantly incomplete factual matrix." 548 His Honour went on to emphasise his findings as to the scope of the responsibilities which Mr Vines had been given, particularly the "special responsibilities in relation to the Part B statement" and that his duty of care and diligence had to have regard to these matters ([100]). 549 His Honour concluded: "[101] Mr Vines' heavy responsibilities and workload, and the associated pressure, would not be a sufficient general excuse for failing to discharge his statutory duties. The relevance of workload and pressure is more at the margins. If, hypothetically, the question was whether Mr Vines should have undertaken some additional investigations or should have obtained some additional level of expertise in a reinsurance matter beyond the scope of his normal Group responsibilities, it would be relevant to have regard to his workload as an impediment to his doing so. But by and large, the contraventions found against Mr Vines related to the inadequacy of his disclosure to the board and the DDC of matters within his knowledge, contraventions for which workload and pressure would not be persuasive excuses." 550 In this regard, it is pertinent to note that the Fourth and Fifth Contraventions which, in my opinion, this Court should uphold, are expressed in terms of what the Appellant "knew or ought to have known". Austin J's analysis in this regard, directed as it was to allegations of both actual and constructive knowledge, remain pertinent when restricted to matters of which Mr Vines "ought to have known". Nevertheless, it does appear that his Honour did not expressly consider the "ought to have known" considerations separately. 551 His Honour went on to rely on his Honour's own findings which uphold Mr Vines' version of the events and his state of knowledge and belief. It is unnecessary to set this out. His Honour correctly concluded that, but for these findings, the contraventions would have been even more serious than in fact they were. 552 Austin J then dealt with a submission that there had been no loss to the company. His Honour rejected that submission as follows: "[111] To say that Mr Vines' breaches did not cause any loss to the company involves reaching the conclusions that amongst the various inputs the DDC received, it was the adjustment to the MIPI reserve that persuaded the committee to go ahead, and the same decision would have been taken by the DDC and the board, and consequently the Part B statement would have been published without proper disclosure of the magnitude of GIO Re's exposure to Hurricane Georges (see Mr Vines' written submissions at [34]), if Mr Vines had made full disclosure, on 8 December and on earlier occasions, of the information on which I found his disclosure to be deficient." 553 His Honour went on to deal with the risk that had arisen that the published Part B Statement would not comply with the disclosure obligations of the company. He concluded: "[112] … There is a plausible contention that target shareholders who did not accept AMP's bid relied on the board's advice in doing so, given a Part B statement that laid emphasis on the profit forecast as a reason for rejecting the bid … Any such shareholder losses may have been recoverable against the company because of the defective disclosure. If such losses occurred, the risk against which the corporations legislation and the due diligence process were designed to give protection may have materialised …". 554 His Honour also dealt with the submission that an ASIC media release which had referred to claims of dishonesty and propriety, a case which ASIC later abandoned, had caused the Appellant damage. The Appellant had also relied on the extent of his success in litigation after a long hearing. "[121] Doing my best to weigh up the discretionary considerations put before me in favour of and against granting relief to Mr Vines, as reviewed above, I have decided that this is not an appropriate case in which to grant relief, wholly or in part. The considerations pointing against relief, including the importance of the contraventions, and their nature (suggesting a continuity and pattern of defective disclosure), are matters of substantial significance, whereas the contentions in favour of granting relief, to the extent that they have some validity, are of less weight and are generally matters that may be addressed in the exercise of the court's discretion as to the appropriate orders to be made." 555 In this Court the Appellant's submissions reiterated the matters on which he had relied before Austin J. He submitted that this was a clear case for the exercise of the discretion and the trial judge ought to have done so. He also submitted that his Honour's assessment was vitiated "by his assessment of the seriousness of the contraventions found", particularly with respect to those contraventions about which the Appellant had not had an opportunity to defend himself. For reasons I have indicated above, save in the respect that the Appellant's submissions has been accepted, there was no denial of procedural fairness by his Honour. Nor in any relevant respect was there a finding outside the pleaded cases. 556 In the case of each of s1317JA and s1318 there are words of discretion: "may relieve". Insofar as his Honour's conclusion turned on the exercise of such a discretion, there are well-known restraints on an appellate court. No basis has been suggested of a character that would justify interfering with a discretionary judgment. Indeed, no appellable error has been identified in the submissions to this Court. 557 In the Appellant's submissions the primary error is said to be his Honour's finding of "the seriousness of the contraventions found". This does not involve a basis for appellate intervention. This was a matter of fact and degree for Austin J to assess. 558 Although not the subject of any submission, another approach may be available. By reason of the inclusion of the words "may relieve … from liability", the judgment appealed from in this respect involves the exercise of a discretion. However, there is, in the case of each statutory provision, a prior judgment expressed in terms of a finding that "having regard to all the circumstances … the person ought fairly to be excused for" the contravention. This calls for the formation of a value judgment not the exercise of a discretion. Not every broadly based value judgment can be described as discretionary. (C/f Norbis v Norbis (1986) 161 CLR 513 at 518; Singer v Berghouse (1994) 181 CLR 207 at 210-212; Coal and Allied Operations Pty Ltd v AIRC (2000) 203 CLR 194 at [19]-[21]; Russo v Aiello (2003) 215 CLR 643 at 27; Buller v Black (2003) 56 NSWLR 425 at [37]-[38]; Blackburn v Allianz Australia Insurance Ltd (2004) 61 NSWLR 632 at [2]-[4]; Figliuzzi v Yonan [2005] NSWCA 290 at [31]-[36], [67]-[68] and the analysis of the authorities in Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 at [31]-[41], [106], [109]-[111]; Murphy v Overton Investments Pty Ltd [2002] FCAFC 129 at [104]-[109]; and AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236 at [22]-[28].) 559 In such a case this Court may invoke the principles reflected in Warren v Coombes (1979) 142 CLR 531, rather than those in House v The King (1936) 55 CLR 499. 560 Insofar as the House v The King approach is appropriate, no suggestion has been put forward that his Honour's exercise of discretion failed in any relevant sense. 561 If the test for appellate intervention is less restrictive, I would still refuse to intervene. The judgment that his Honour made with respect to the seriousness of the contraventions was not only open to him, in my opinion it was the correct judgment. For the reasons his Honour gave in his Contraventions Judgment and to which he referred in his Honesty Judgment and which, with some elaboration I have accepted, these contraventions were contraventions of a high level of significance. I include in that conclusion particular reference to his Honour's findings (and my own conclusions) about the matters of which the Appellant ought to have known at or about the time of the three contraventions which I would uphold. 562 The obligation upon directors with respect to the making of profit forecasts, particularly in the context of a Part B Statement in a contested takeover, are of considerable significance for a fully informed market. The Board adopted, in the present case, an entirely appropriate and high level "due diligence" standard for the formulation of the profit forecast. The Board depended to a substantial degree upon the performance by Mr Vines of the responsibilities it conferred upon him for the preparation of the forecast. 563 In the period prior to the finalisation of the Part B documentation not, in my opinion, restricted to the last day as Austin J does (but nothing turns on that and there was no challenge to the finding) those responsibilities required Mr Vines to be proactive. I would myself, if it were open to do so, have gone beyond the findings of Austin J in terms of what was required on the part of Mr Vines at that time. Not least, although not only, by reason of the final "tight" unders and overs analysis, Mr Vines was, in my opinion, obliged to ensure that the most up-to-date information with respect to the extent of exposure to Hurricane Georges was obtained and, by reason of the particular responsibilities imposed upon him, it was not sufficient for him to act on the assumption that he had in fact been given the most up-to-date information, unless he had expressly put in place reporting arrangements that ensured that he had. He had not. 564 His Honour's analysis was open to him. Indeed I would have gone further as indicated. 565 Mr Vines' responsibilities continued in the period after the Part B Statement was issued, at least for such time as the takeover was proceeding on the basis of the information contained in the Part B Statement. 566 In the case of projected profits, particularly with respect to profits of an insurance company, there is a wide range of legitimate opinion that can be held by directors with respect to the component parts of a profit, many of which involve matters of judgment. Nevertheless, it is the task of the directors, particularly in a context such as the Part B Statement, to formulate a profit forecast which they regarded as appropriate. However, it is not correct for directors to maximise forecast profits. Directors are obliged to produce forecasts which they regard as appropriate. Senior management are expected to assist directors in carrying out this task. 567 Santow JA correctly draws attention in his judgment, which I have read in draft, to the proposition that there are risks involved in directors under-estimating profits as well as risks involved in over-estimating profits. 568 In my opinion, the appeal from the Honesty Judgment should be dismissed for the reasons given by Austin J, which are sufficient to dispose of this appeal although, as indicated, there are additional reasons. 569 Although I would, in any event, come to the same conclusion, I wish to add some observations about the circumstances in which the profit projection was determined in the present case. 570 As Mr Vines candidly admitted in evidence, management had determined upon a profit forecast of significant size. Thereafter an objective of the exercise was not to determine what an appropriate profit projection was, but to "protect" the original projection. The entire flirtation with retrocession cover, as Mr Vines himself said, was designed to "protect the projected profit of "$80 million". (See Austin J's judgment at [572], [657] and [658] referred to above at pars [207], [270] and [271].) 571 No matter how counter intuitive the idea might be of obtaining insurance for an event that has already happened, which could be treated in the accounts to postpone recognition of the loss from the year in which it occurred, Mr Vines has the advantage of favourable findings in this regard. Although this has not been in issue on the appeal, I would not have been so charitable. Directors, and especially a chief financial officer with high level accounting qualifications and experience, cannot engage in manipulation of the accounts so long as an auditor is prepared to sign off on the process. A person in such a position should be satisfied that the accounting treatment is appropriate, not just permissible. However, this matter was not the subject of evidence or submissions, and I do not determine the defence on this basis. 572 Nevertheless, irrespective of the disappointed expectation that the auditor would support this kind of treatment for accounting purposes, the process of seeking to engage in an accounting exercise of this character in order to "protect" a profit previously arrived at, is a circumstance which, in my opinion, supports the refusal by Austin J to find that the contravention should be excused. This is not conduct which the Court should accept, let alone encourage. 573 In my opinion, for these reasons this Court should not conclude that the Appellant "ought fairly to be excused" within the meaning of either s1317JA(2) or s1318(1). Nor should the discretion to grant relief be exercised in his favour. 574 The appeal from the Honesty Judgment should be dismissed. XVII PENALTY: APPEAL AND CROSS-APPEAL 575 Detailed submissions were made with respect to penalty both by way of appeal and by way of cross-appeal. Necessarily, this will be affected by the outcome of the appeal from the Contraventions Judgment. 576 It is appropriate that the parties be given an opportunity to file additional written submissions taking into account the outcome of the appeal. It does not appear to me to be necessary for the matter to be placed in the list for further oral hearing. However, if the parties wish to do so they should approach one of the judges of this bench to fix a date. It is appropriate that directions be made for further written submissions on the issue of penalty. XVIII ORDERS 577 In the event, the Appellant has succeeded in part and failed in part, more or less in equal measure. Each party should bear its own costs of the appeal. 578 The orders I propose are: 1 Appeal from the judgment of Austin J, being ASIC v Vines [2005] NSWSC 738, allowed in part. 2 Declarations 6, 8, 9, 10 and 11 set aside. 3 Appeal dismissed with respect to Declarations 1, 2, 3, 4, 5 and 7. 4 Appeal from the judgment of Austin J, being ASIC v Vines [2005] NSWSC 1349, dismissed. 5 Direct each party to file further submissions on the issue of penalty within three weeks of the date hereof. 6 No order as to the costs of the appeal. 579 SANTOW JA: XIX INTRODUCTION This appeal concerns the statutory duty of care and diligence under s232(4) of the Corporations Law as applicable to a senior executive officer of a corporation who was not a director. That duty applied to the appellant Mr Vines as Chief Financial Officer of GIO Australia Holdings Limited ("GIO") and of the GIO corporate group. The GIO group carried on insurance business including reinsurance through GIO Re, the reinsurance division of GIO's subsidiary, GIO Insurance Ltd. 580 It is an important case for a number of reasons including the following. First, it is a rare instance of a senior executive officer being held to account who is not a director, for what was said to be a failure in the degree of care and diligence required, and implicitly skill, under the statutory standard. Second, this was a case where the executive officer concerned was held to account principally, though not only, for relying on another senior executive to report to him on a critical financial matter where that other officer had operational responsibility with respect to the particular subject matter of his reporting. Third, there was no suggestion of dishonesty on the part of the chief financial officer though on one view an error of judgment in continuing to rely upon the other officer concerned to provide critical financial information for a profit forecast undertaken as part of a defence to a hostile takeover. Finally, this was a case where shareholders were seeking to be informed as to the choice they make whether or not to accept a takeover offer and did not want to be forced to sell on the cheap. In those circumstances, the statutory duty of care and diligence needs to be accommodated to the duty to act in the interests of the company as a whole so these do not produce an inconsistent outcome. 581 The events in question began with a hostile bid for GIO announced by AMP Limited on 25 August 1998. The seven contraventions of s232(4) found by Austin J against Mr Vines relate directly or indirectly to the reinsurance component ($80 million) of a profit forecast of $250 million later to be incorporated in GIO's bid response to the AMP's bid contained in its Part B Statement. That $80 million forecast was finalised around 23 September 1998. Contemporaneously, between 21 and 28 September 1998 Hurricane Georges struck Puerto Rico and the United States, generating reinsurance claims against GIO Re, whose amount increased over the time in question. The Part B Statement with the profit forecast and accompanying auditor's report was finalised by 8 December 1998 and was sent by GIO to its shareholders on 16 December 1998. The offer closed on 4 January 1999. At the close of that day AMP had received acceptances from shareholders representing 57% of the shares; see Contraventions Judgment at [967]. The then increased bid price, for a bid described by the GIO Board as (still) inadequate was $5.35 in cash (increased from $4.75) or one AMP share for four GIO shares (Contraventions Judgment [952]). These events therefore cover that span of time. 582 The conduct of Mr Vines found to have contravened s232(4) of the Corporations Law concerned in the main, what in that evolving state of affairs, Mr Vines conveyed or failed to convey about the profit forecast to GIO's Due Diligence Committee ("DDC") and what he should have conveyed. It was formed to perform the functions, inter alia, of the audit committee of the Board with respect to the Part B Statement, where Mr Vines played a co-ordinating role. However, the second contravention concerned what it is said Mr Vines conveyed or failed to convey to GIO's Board preparatory to a media release of 17 November 1998 concerning GIO Re's October quarterly profit report. The seventh contravention concerned what it was said Mr Vines failed to do by way of direction with regard to monitoring the loss from Hurricane Georges. 583 That the $80 million forecast proved later to be an overestimate is not of itself pleaded as the basis for breach. In relation to contraventions on 8 December 1998 (but not before) the forecast's "improbability" is pleaded, but by reference to a failure to disclose certain matters. The ultimate question in this appeal is whether the Chief Financial Officer Mr Vines, as ASIC alleged, breached s232(4) of the Corporations Law in the exercise of his powers and the discharge of his duties in GIO's circumstances, in or in connection with that profit forecast. That focuses attention on GIO's circumstances, what Mr Vines' powers and duties were in the position he occupied, taking into account his legal duties to GIO and its shareholders as they affected his executive responsibilities. The standard to be applied is objective; that applicable to a reasonable person in Mr Vines' position. 584 The trial judge imposed civil penalties on Mr Vines consisting of disqualification from acting as a director for three years and a fine of $100,000. Mr Vines appeals against all seven contraventions and the civil penalties imposed. 585 I have had the advantage of reading Spigelman CJ's judgment in draft. The Chief Justice sets out in comprehensive detail both the relevant events which form the background to this appeal and the issues which arise from the twenty-four separate grounds of appeal. In the reasons which follow, I will not traverse in detail that factual background, save where closer consideration is necessary to explain the conclusions I have reached. It is however necessary to look more closely at the primary evidence, when it comes to considering Mr Vines' reliance on a senior executive (Mr Fox) who was charged with the responsibility of quantifying the loss from Hurricane Georges and reporting on it to Mr Vines. I shall, like the Chief Justice, refer to the seven contraventions found by the trial judge by reference to their chronological date order, rather than as pleaded. I shall likewise refer to the judgments of the trial judge by the same abbreviation (Contraventions Judgment, Honesty Judgment). Where such reference is omitted, it can be taken to refer to the Contraventions Judgment. 586 I agree with the chief justice that six of the seven contraventions found fell sufficiently within ASIC's pleaded case. Accordingly, I too would not uphold any of the appeals so far as reliant on that ground, except as to the sixth contravention where I would agree with the Chief Justice that the appeal should be upheld. 587 I also agree with the Chief Justice that the fact that the statutory standard of care and diligence is sanctioned by civil penalty does not require ASIC to demonstrate any greater deficiency of care and diligence than would have been the case without there being such a civil penalty sanction. I agree with the Chief Justice that this follows as a matter of statutory construction from the relevant provisions of the Corporations Law, in particular those applying the civil penalty (s1317EA(4) and (5)). In my view, that gradation only comes into play when it comes to determining whether to apply a civil penalty following the finding of a contravention, not at the anterior step of declaring a contravention to have occurred. However, as the trial judge recognised, in weighing the evidence, the Briginshaw standard must still be applied (Judgment [89]). 588 I agree with the Chief Justice that the following matters arising from the appellant's further Amended Notice of Appeal should be resolved against the appellant: (a) that there was any denial of procedural fairness by the making of findings outside of the pleaded case; (b) that there was any denial of procedural fairness by the failure to put matters to the appellant by way of cross-examination; (c) what were said to be the effects of the sixteen months delay in delivery of the Contraventions Judgment; (d) what was said to be the trial judge's failure to deal with the full range of submissions made on behalf of the appellant; (e) the appellant's challenges to findings of fact including assertions that the findings were not supported by the evidence, that the findings were not made on constituent elements and the implications of the rejection of constituent elements together with specific error and a finding in the judgment at [916]. 589 The Chief Justice would uphold the appeal, but not on those two rejected grounds, in the case of the first, second, third and sixth contraventions. I respectfully agree. My reasons for doing so largely though not entirely accord with those of the Chief Justice. The Chief Justice would dismiss the appeal with respect to the remaining contraventions, namely the fourth, fifth and seventh contraventions. For reasons I will explain I respectfully differ and would uphold those appeals. 590 That difference ultimately turns on whether Mr Vines was in breach of the statutory standard of care and diligence in continuing to rely on Mr Fox on and from 7 December 1998 to quantify the loss from Hurricane Georges and report on it to Mr Vines; the Chief Justice and the trial judge conclude that Mr Vines, in the circumstances then prevailing, should have taken more proactive steps himself to ascertain the position. I respectfully conclude to the contrary. This is for reasons elaborated under the heading "Fourth Contravention" and in particular the sub-heading "Reliance by Mr Vines on Mr Fox", where I undertake a closer look at the primary evidence. Reference should also be made to what I say more generally under the heading "The Contraventions as a whole – a Perspective" with its "Summation" at the end. I also conclude that, even if I were wrong in that result, Mr Vines, under the applicable statutory provisions, "ought fairly to be excused" for the balance of only three contraventions found on appeal. XX THE STATUTORY DUTY OF CARE AND DILIGENCE IN ITS BROAD APPLICATION 591 I first set out s232 and the relevant definition of "executive officer". SECT 232 Duty and liability of officer of corporation (1) In this section: officer , in relation to a corporation, means: (a) a director, secretary or executive officer of the corporation; (b) a receiver, or receiver and manager, of property of the corporation, or any other authorised person who enters into possession or assumes control of property of the corporation for the purpose of enforcing any charge; (c) an administrator of the corporation; (ca) an administrator of a deed of company arrangement executed by the corporation; (d) a liquidator of the corporation; and (e) a trustee or other person administering a compromise or arrangement made between the corporation and another person or other persons. (2) An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office. (4) In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances. … … (5) An officer or employee of a corporation, or a former officer or employee of a corporation, must not, in relevant circumstances, make improper use of information acquired by virtue of his or her position as such an officer or employee to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation. … … (6B) Subsections (2), (4), (5) and (6) are civil penalty provisions as defined by section 1317DA, so Part 9.4B provides for civil and criminal consequences of contravening any of them, or of being involved in a contravention of any of them. (11) This section has effect in addition to, and not in derogation of, any rule of law relating to the duty or liability of a person by reason of the person's office or employment in relation to a corporation and does not prevent the institution of any civil proceedings in respect of a breach of such a duty or in respect of such a liability. 592 In s9 of the Corporations Law, executive officer of a body corporate is defined as meaning "a person who is concerned in, or takes part in, the management of the body (regardless of the person's designation and whether or not the person is a director of the body". Section 232(4) therefore applies to Mr Vines in relation to GIO though not a director. 593 Section 232(4) of the Corporations Law applies an objective standard of care, diligence and, implicitly, skill by reference to: (a) what a reasonable person would have done in Mr Vines' position with his ongoing responsibilities as Chief Financial Officer and with his additional responsibilities in relation to GIO's response to the contested takeover, particularly the profit forecast; (b) GIO's circumstances in being required to respond to a hostile bid where that response had as a key element GIO's profit forecast made at a time of escalating reinsurance claims from Hurricane Georges; and (c) the powers to be exercised and the duties to be discharged in that position by Mr Vines, recognising that these powers and duties must be accommodated to, and are themselves regulated, by what the law, statute and general law, allows or requires of an executive officer of a company; I refer here not only to the statutory duty of care and diligence but other legal duties to be read in harmony and in particular the duty to act in good faith in the interests of the company as a whole. 594 At [142] of his reasons the Chief Justice observes: 142 As a starting point I would accept that Parliament, when it used language, albeit in a slightly modified form, plainly derived from the civil case law had in mind a standard of care of a similar character. Nevertheless, Parliament must be taken to have acted on the basis that the law of statutory interpretation will be applied. That may lead to a different conclusion. 595 There are indeed differences in the structure and terms of s232(4) that lead to potential differences in its application, as compared to civil liability in negligence. The first of these differences relates to the absence of any express reference to detriment, harm or damage in s232(4). 596 In Vrisakis v Australian Securities Commission (1993) 11 ACSR 162 at 212 Ipp J (as he then was, with Malcolm CJ agreeing at 182, Rowland J not dealing with merit appeal issues) observed in relation to the earlier criminal penalty version of s232: Under s229(2), however, there is no reference to damage suffered by the company, and an offence may notionally be committed under that section without any damage having been sustained. The question is merely whether the defendant director has exercised a reasonable degree of care and diligence in the exercise of his powers in the discharge of his duties. 597 He concluded that "a criminal offence will not have been committed if an omission to take care did not carry with it a foreseeable risk of harm to the company" and that "no act of commission or omission is capable of constituting a failure to exercise care and diligence under s229(2) [now s232(4) with civil penalty] unless at the time thereof it was reasonably foreseeable that harm to the interests of the company might be caused thereby" [emphasis added]. That conclusion was based on the proposition that the "duty of a director to exercise a reasonable degree of care and diligence cannot be defined without reference to the nature and extent of foreseeable risk of harm to the company that would otherwise arise". 598 His Honour then adds this caveat: "Further, the mere fact that a director participates in conduct that carries with it a foreseeable risk of harm to the interests of the company will not necessarily mean that he has failed to exercise a reasonable degree of care and diligence in the discharge of his duties. The management and direction of companies involve taking decisions and embarking upon actions which may promise much, on the one hand, but which are, at the same time, fraught with risk on the other. That is inherent in the life of industry and commerce. The legislature undoubtedly did not intend by s 229(2) to dampen business enterprise and penalise legitimate but unsuccessful entrepreneurial activity. Accordingly, the question whether a director has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question." 599 That observation is apposite here. First, there was always the risk to shareholders of GIO as the trial judge recognised (at [1077]), that a profit forecast, capable as it is of being affected by variation in inputs such as the affect of Hurricane Georges, might turn out to be wrong. Second, a target's profit forecast, especially in a contested or hostile takeover, as here, is directed to securing the benefit for all GIO shareholders of not being forced to sell for less than their shares were worth in prospect and so that their decision whether or not to sell is informed and not forced. 600 In balancing reasonably foreseeable risk of harm against potential benefits, the starting point is to identify the powers being exercised and the duties being discharged by the officer concerned in the context of the corporation's circumstances. 601 The powers here being exercised by Mr Vines were those of a group chief financial officer, one who was not a director of GIO but in a senior executive position just below that of Mr Steffey, the Managing Director. Mr Vines had extensive responsibilities for group financial affairs as well as for the specific takeover related responsibilities that he assumed over the period of time spanned by the contraventions. Mr Vines was therefore required to continue to exercise overall supervisory responsibility for financial operations across the divisions of the group along with his additional workload. This was itself an onerous responsibility requiring that he leave operational matters to others, unless he had sufficient cause to intervene. In addition, he was exercising the central co-ordinating role for the takeover response process. That included but was not limited to the group profit forecast. As a practical matter, his onerous and extensive supervisory responsibilities meant he had to rely on those with operational responsibility for assessing matters such as the anticipated loss from Hurricane Georges, again unless he had sufficient cause to intervene at the divisional level. 602 The reinsurance operation was but one important element of the forecast, though as events turned out it became the crucial element. The profit forecast added a critical dimension to what care and diligence required of Mr Vines in his position and in GIO's circumstances. In exercising care and diligence Mr Vines was also required to act in good faith in the best interests of the company GIO as a whole; that is to say, having regard to the interests of its shareholders present and future. The two sets of duties, referred to as they are in related subsections of s232, and not expressed to be subordinate one to the other, clearly have to be read in that context and in harmony with each other; see for one authority among many Barwick CJ in Taylor v Public Service Board (1976) 137 CLR 208 at 213. It could not be expected that the statutory duty to act with care and diligence, referring as it does to the discharge of the officer's duties, would call for a course of action that conflicted with the duty to act honestly in the interests of the company as a whole; see s232(2) and s232(11) preserving duties of officers at general law. 603 The Corporations Law imposed specific obligations on GIO and its officers to ensure that its takeover response did not include misstatements or contain omissions (s670A of the Corporations Law). Also that its public statements to its shareholders were not misleading or deceptive (s995) or in breach of GIO's continuous disclosure obligations (s1001A). I have referred already to the overarching legal obligation on Mr Vines to act honestly and in the interests of GIO's shareholders present and future. 604 In the reasoning of the trial judge the danger to be provided against, or the risk to be minimised, under what is loosely sometimes called the Shirt calculus (Mason J in Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47) was to avoid unjustified maintenance of a favourable profit forecast for fear that, so misled, shareholders would hold back from accepting and risk being locked in (Judgment [1074]). I quote: "[1074] In the present case the danger to be provided against was that the GIO shareholders might be left in a position of making their decision whether to accept or reject the AMP takeover bid on the basis of inaccurate or incomplete information, if the defendants or any of them failed to discharge their statutory duty of care and diligence. If, in consequence of the defendants (or any of them) breaching their duty by conduct which allowed too high a profit forecast to be published, GIO shareholders were to decide not to accept the takeover offer, the risk to them would be that they would find themselves locked into a minority position in a company, management control of which had passed under the bid. Without, at this stage, making any findings about causality or remoteness of damage, the court can infer that this risk was a substantial one, because the liquidity of the market for a listed target company's shares, and the share price, will ordinarily be adversely affected once control has passed and any control premium has evaporated. 605 I point out here that the countervailing risk should not however be overlooked that the profit forecast might be unnecessarily conservative, in circumstances where a less conservative approach was properly justified in terms of what was known or reasonably ascertainable at the time. 606 In the events that happened as at the close of its offer on 4 January 1999, AMP had received acceptances from GIO shareholders representing 57% of the shares [967] so the risk did come home for the 43%. Subsequent events in September 1999 do not form part of the evidence in this case; see GPG (Australia) Pty Ltd v GIO Australia Holdings Ltd (2002) 40 ACSR 252. They reveal that GIO shareholders were finally bought out at a significantly lower price by a scheme of arrangement. By then, according to the evidence in the present case the profit forecast had been long revealed as wrong (Contraventions Judgment [985]). Thus by 5 March 1999, GIO Re's results as announced 5 March 1999 had reported a loss for GIO Re in the half year ended 31 December 1998 of $19.6 million as against the earlier forecast profit for GIO Re for the full year of $80 million [985]-[986]. 607 I discuss the implications of this, insofar as bearing upon damage and detriment under the later heading "The Contraventions as a Whole – a Perspective". 608 Consider the reality of the risk of being locked in. If AMP were by reason of shareholders holding back from accepting only to acquire less than the threshold percentage for compulsory acquisition, AMP would have been able either to waive its minimum acceptance condition or alternatively invoke its minimum acceptance condition and withdraw. AMP did the former, by declaring its offer unconditional [952]. 609 A countervailing shareholder risk, against which a chief financial officer with Mr Vines' responsibilities had no less to guard against, would be for future profit to be understated when a higher profit estimate could be properly justified on reasonable grounds, here judged by what was known, or should have been known, to a reasonable person in Mr Vines' position. Thus if the profit forecast were less favourable than so justified the share price could collapse, particularly if the offer were withdrawn, with shareholders forced to sell for less than their shares were truly worth. In a hostile takeover, that latter risk is at least as great as the risk of being locked in as a minority. Here some 57% of shareholders got the higher price; the rest were left for the time being as minority shareholders, AMP was left with a company (GIO) it could not consolidate as minority shareholders remained. 610 Suppose Mr Vines had overlooked GIO's legitimate capacity to support the profit forecast by adjusting for its over-provision for PI claims; the so-called "MIPI redundancy" of $35 million. The resultant lower profit forecast could be expected to have led shareholders to rush to accept AMP's offer, removing any pressure on AMP to increase its offer, as it later did and forcing shareholders to sell when otherwise they might not. Mr Vines would not then have acted in the best interests of shareholders, in being able to maximise the value of their shares. I emphasise that this is only so long as that favourable dimension of the forecast was considered appropriate and could be properly justified on reasonable grounds, judged by what was known, or should have been known, to a reasonable person in Mr Vines' position. 611 As we know in retrospect, the profit forecast of $80 million could not be properly justified, because the ultimate loss from Hurricane Georges was later found to far exceed $65 million. But if, looking at matters at the time, Mr Vines had been justified in relying on the assurance he received from the executive director of GIO Re Mr Fox to the effect that the likely loss was $65 million, then had he failed to support the profit forecast using the MIPI redundancy, Mr Vines could have been justifiably held to account by GIO's shareholders for failing properly to take into account their interests in not being forced sellers at a price which did not properly take into account their company's prospects. This invokes Mr Vines' overarching legal duty to act in the interests of the company as a whole and to which the statutory duty of care and diligence must be accommodated. It is not in dispute that Mr Vines acted honestly throughout. 612 It must be emphasised that a profit forecast is a matter of opinion and judgment. There can be a range of reasonably based outcomes, as recognised by the trial judge at [1077]: "[1077] … Forecasting in a reinsurance business is a difficult and uncertain process, where there is much room for differences of opinion and even small variations of input can produce widely different outcomes (see section 1.2). The issue under s232(4) is not whether the defendants made mistakes during the course of the due diligence process, but whether they failed to meet the standard of care and diligence that the statute lays down. The statutory standard, like the general law, permits the court to take into account the circumstances of the particular case, and requires the standard to be applied to those circumstances as they existed at the relevant time, without the benefit of hindsight." 613 Section 670A(2) of the Corporations Law recognises that concept of reasonableness when, under the heading "Forecasts and other forward-looking statements" the criterion for a misleading statement in takeover documents about "a future matter" is whether the person concerned has "reasonable grounds for making the statement". There can be a spectrum of legitimate forecast profit outcomes, from the pessimistic to the optimistic, capable of being justified on reasonable grounds. In a contested takeover, the bidder will naturally focus on the lower end of that spectrum while the target will focus on the upper end. In my judgment provided Mr Vines made a genuine assessment of whether the profit forecast was the appropriate one and so concluded on objective grounds, it was not unreasonable for Mr Vines, in GIO's circumstances, to do what he legitimately could thereafter to maintain the profit forecast at its upper end having regard to the interests of GIO's shareholders to optimise their share price. But, importantly, it would cease to be legitimate if reasonable care and diligence would have revealed to Mr Vines that the profit forecast could no longer be properly justified, judging that by reference to what a reasonable person would do in his position in the company's circumstances. I emphasise that it is still incumbent on an executive officer in Mr Vines' position to exercise judgment on the relevant components of the profit forecast, and to support that forecast which he genuinely regarded as appropriate. Moreover, such an officer must not blindly choose a forecast at the upper end of the spectrum merely to maximise the bid price. I here respectfully agree with the judgment of the Chief Justice at [566]. 614 To appraise Mr Vines' conduct said to constitute each contravention, the focus is on what Mr Vines knew at each relevant time and, where so pleaded in relation to the later contraventions of 8 December 1998, what he ought to have known, the latter by reference to a reasonable person in Mr Vines' position in GIO's circumstances. The latter concerns those contraventions which have as an element Mr Vines' reliance upon Mr Fox, the executive director of GIO Re. Mr Fox had the responsibility for calculating the reinsurance loss from Hurricane Georges, as it emerged as new claims were recorded on Hurricane Georges' Claims Register. 615 It is important to emphasise that the trial judge found that Mr Vines' reliance on Mr Fox was justified but only until 7 December 1998. The trial judge concluded that Mr Vines' reliance on Mr Fox ceased to be so justified when, by 7 December 1998, the profit forecast was no longer able to be supported in PwC's view as auditor by retrocession cover from Am Re, though it could be still properly supported by the so-called MIPI redundancy. This was always so long as the Hurricane Georges loss did not exceed $65 million. At that point, and the Chief Justice would suggest even earlier by 1 December 1998, Mr Vines was no longer entitled to rely on Mr Fox's assessment of loss from Hurricane Georges. Instead he was required to take proactive steps to ascertain the position for himself. If this was not to be by direct inspection of Hurricane Georges' Claims Register, then it would presumably require enquiries of others than Mr Fox. Indeed the difficulty of determining what "proactive" steps mean reinforces my conclusion, based on an analysis of the evidence, that Mr Vines remained entitled to rely on Mr Fox's assurance as to the level of loss from Hurricane Georges, as I explain under the heading "The Fourth Contravention". 616 In the events that happened, the loss from Hurricane Georges was significantly underestimated by Mr Fox at $60-$65 million when, as of 4 December 1998 and again at 7 December 1998 the Hurricane Georges' Claims Register revealed it to be significantly higher and rising. It was this that rendered the profit forecast wrong when the profit forecast with the Part B Statement was signed off on 8 December 1998. The Hurricane Georges' Claims Register as at the end of November 1998 appeared still to support Mr Fox's estimate of $65 million. I should emphasise here that the profit forecast, and Part B Statement, were, in my opinion reasonably, based on the end of October monthly management figures, as there was insufficient time to review the November ones, including by the auditor; see below under "The Fourth Contravention". 617 At no time, as the trial judge found, was Mr Vines aware of this. In relation to each of the contraventions including those that rely on what he ought to have known the principal question is this. Was Mr Vines in breach of his statutory duty of care and diligence on each occasion by failing to look beyond Mr Fox's assurances and taking proactive steps such as to view for himself Hurricane Georges' Claims Register? 618 That with the other matters pleaded in relation to each contravention bears upon whether Mr Vines: (a) should have communicated as he did to the Due Diligence Committee or (in the case of the second contravention) the board of GIO as described in the pleading of the relevant contraventions up to and including 8 December 1998 (contraventions 1 to 6); and (b) after 8 December 1998 should have given "directions to ensure that monitoring arrangements were continuing at the divisional level [as to the loss from Hurricane Georges] and that the results were brought forward promptly to the appropriate senior corporate officer" (contravention 7). 619 Finally, it must be borne in mind that it was always the GIO's formal response to the takeover in its Part B Statement, not what preceded, that would be understood as constituting the definitive statement to shareholders in assessing whether to accept the offer, taking into account the profit forecast it contained. Shareholders of GIO before that time would naturally appraise what was said by the company as to its current and future prospects with the knowledge that the Part B Statement had still to come. This has a bearing on contravention 2, insofar as in a media release GIO asserted by reference to its October quarterly results, that "GIO Re's insurance business achieved a sound profit despite exposure to events such as the Swiss Air crash and Hurricane Georges". As events turned out, this was wrong. But the question is to be judged not by that retrospective knowledge. Rather it is to be judged by what Mr Vines knew at the time and what a reasonable person in his position should have been led to conclude, exercising that degree of care and diligence, and implicitly skill, required by s232(4) in GIO's circumstances, when such a person was exercising Mr Vines' powers and discharging Mr Vines' duties, including to shareholders as a whole. 1 Elaboration of the Role and Responsibilities of Mr Vines 620 The Chief Justice sets out the role and responsibilities of Mr Vines along with the other key executives at paras [152] to [167]. Read with that fuller description, this allows me to distil what I consider to be the key matters. (a) Mr Vines' background and thus the expertise that he brought to the position he occupied of Chief Financial Officer of GIO was that of a retired accountant and auditor, albeit one who had retired four years earlier from his previous firm of PwC in 1995. As an auditor of GIO in that earlier role, he would have acquired a broad familiarity with GIO's business including its reinsurance business; (b) On 5 November 1998, Mr Fox, the third defendant before the trial judge, was appointed to the position of Executive Director of the relevant subsidiary in which the reinsurance business was carried on, GIO Insurance. Mr Vines relied on Mr Fox in that role throughout; (c) Other executives playing a relevant role in relation to the profit forecast for the Part B Statement were, Mr Robertson, the second defendant in the trial proceedings, who was Executive Director of GIO Insurance until displaced by Mr Fox on 5 November 1998. Mr Robertson thereafter retained a diminished role, relevantly with respect to the profit forecast. (d) The third executive so involved was Mr Schneider, an employee of GIO Insurance with a background in actuarial valuation in the reinsurance industry. 621 The trial judge observed that, arising out of an earlier actuarial valuation of aviation losses, there were some tensions between Mr Robertson and Mr Schneider. 622 Turning to Mr Vines' role after July 1998 and during the period of the contraventions, his duties remained supervisory so far as the divisional level was concerned rather than operational. They covered not just GIO insurance but the overall responsibilities of a chief financial officer in that context. Superimposed upon those extensive duties were "substantial additions" to these functions (trial judge at [34]) in the second half of 1998 particularly after AMP's takeover bid was announced (on 25 August 1998). These substantial additional duties, in the words of the trial judge, left "Mr Vines with a very heavy workload" encompassing the following: · he attended meetings of the takeover response committee and the Part B working group as well as the DDC, where he had a co- ordinating role; · he was in very frequent contact with the advisers, including Macquarie Bank, Chase, PwC and the lawyers; · he met with Mr Steffey and Macquarie Bank every day, often for hours on end; · he participated in meetings organised by Macquarie Bank with institutional shareholders, and had discussions with rating agencies (T 2565) and brokers; · he devoted substantial time to discussions with McKinseys in relation to their strategic review and with Trowbridge in respect of the capital adequacy study; · there was additional work for him in the area of commentary on monthly management reporting, and in · redefining the delegation authorities to executive directors consequent upon Mr Steffey's revised board structure; · he was required to supervise projects which involved restating GIO's accounts under United States Generally Accepted Accounting Principles; · he supervised the outsourcing of the internal audit function, a task involving a tendering process by external accountants who were briefed by Mr Vines; · he reviewed the tax and accounting implications of various senior management employment incentive programs formulated by the new general manager of human resources hired by Mr Steffey, Stuart Yoland; · he and his team continued their responsibilities for capital management, tax compliance and tax planning." [References removed]" 623 In elaboration of Mr Vines' duties with respect to the above, the trial judge made a number of non-contentious findings of fact recorded by the Chief Justice at [165] in his judgment which I quote below: "(1) A Part B working group was formed responsible for putting together what was descried as the "selling document" that was to appear at the front of the Part B Statement. The working group included a number of the company's advisors as well as Mr Vines. [181] (2) Under the direction of Mr Vines, a sub-committee was established to review drafts of the profit forecast which would then be considered by the auditor of GIO. [182] (3) The board of GIO established a Due Diligence Committee, referred to in the proceedings as "DDC", comprising five non-executive directors, Mr Vines, a representative of the company's solicitors, and a representative of the merchant bank advising the company. That committee performed the functions, inter alia, of the audit committee of the Board with respect to the Part B Statement. [183] (4) In a document described as a planning memorandum, the DDC made it clear that Mr Vines had the central executive role in the due diligence process including, relevantly, with respect to changes in the financial position of the GIO group and the financial forecast. [185] (5) Individual directors were deputed to become familiar with specific components of the profit forecast relevantly, in the case of Reinsurance, Mr Lange. Mr Vines was to conduct and support each director in this task. Mr Vines himself described his role as "the arms and legs of the non-executive directors". [186] (6) A formal due diligence and verification procedure, of the kind usually adopted for prospectuses, was adopted, on Mr Vines' recommendation, for the Part B Statement. (7) Pursuant to the DDC planning memorandum, senior management, including Mr Vines, filled out due diligence questionnaires and, in due course "representations letters" which provided express assurances as to the accuracy and completeness of the process in which they had engaged including, relevantly, the profit forecast. [190] (8) The company's auditors, when preparing a report for the Part B Statement, forwarded to Mr Vines on 23 October 1998 a draft including a review of the 1999 profit forecasts, which draft had added to it a comment: "consider Georges disclosure". [282] (9) On 29 October 1998 Mr Vines had a meeting with a number of other officers, including representatives of PwC, which made certain observations concerning the exposure to Hurricane Georges. [287] (10) His Honour concluded, in a finding that is not contested, that by the end October Mr Vines knew that PwC was concerned about the catastrophe component of the profit forecast. [290]" 624 It should be emphasised that the due diligence committee ("DDC") comprised, apart from Mr Vines, five non-executive directors, a representative of the company's solicitors and a representative of the merchant bank advising the company. It was therefore a committee not lacking in financial sophistication or access to it. The DDC made it clear "that Mr Vines had the central executive role in the due diligence process including, relevantly, with respect to changes in the financial position of the GIO group and the financial forecast". Moreover, individual directors were deputed to become familiar with specific components of the profit forecast being relevantly in the case of reinsurance, Mr Lange, with Mr Vines having to conduct and support each director in their specific task. Mr Vines described his role as "the arms and legs of the non-executive directors". 625 In appraising the extent of Mr Vines' involvement in the preparation of the Part B Statement on behalf of the board of GIO, it should be emphasised that he was not only charged with that intense and time-consuming collection of takeover-related tasks but retained the extensive role summarised by the trial judge at [32] with its attendant responsibility as Chief Financial Officer for the financial integrity of the group. "[32] … Mr Vines' role thereafter put him in closer contact with financial matters at a divisional level, though in a supervisory role. Mr Vines agreed in cross-examination that his role as chief financial officer required him to satisfy himself that such matters as budgets were properly and reasonably formulated, and that it was his function to investigate what was reported to him in order to satisfy himself, through his own inquiry, that it was essentially valid. As regards financial accounts and reporting, he agreed that as chief financial officer of a substantial company group, he had the following responsibilities: · to review financial information on a consolidated basis; · to respond to issues raised by management or auditors at the subsidiary level; · to ensure that the financial statements of the Group as a whole and its divisions reflected compliance with Australian accounting standards, and to give advice to the management and the board to ensure that this happened; · to ensure that accurate information about the company's financial position was prepared and provided to management and the board of directors; · to ensure that the information that was supplied to the stock exchange in the investment community was accurate and meaningful; and · to intervene if he became aware of some deficiency in a division's financial statements that was not being dealt with." [emphasis added] 626 I particularly emphasise the words "if he became aware". Mr Vines' responsibilities as chief financial officer for the group did not call for his intervention by "usurping the divisional role" [1144] unless he became aware of some deficiencies requiring this. As the trial judge noted, there had been one or two occasions where matters coming to his notice which did cause him to intervene. The question remains whether in the present instance he should have done so, rather than rely on Mr Fox, when it came to assessing the anticipated loss from Hurricane Georges. 627 The trial judge at [1127] appeared to accept, as I would, that a chief financial officer, as such, is not subject to a special responsibility in respect of a profit forecast issued by the company group, as opposed to financial statements and other historical financial information. The trial judge so concluded, based on ASIC'S expert Mr Hogendijk and Mr Vines' own evidence. Nonetheless, as the trial judge concluded at [1128], Mr Vines was given and assumed special responsibility with respect to the integrity of the profit forecast. 2 Outline of Salient Events with Commentary 628 In what follows, I shall provide an outline and commentary upon the salient events, their fuller elaboration being found in the reasons of the Chief Justice. 629 The $80 million forecast for the reinsurance division originated from work done by Mr Schneider in the period from 26 August to 23 September 1998, Hurricane Georges struck in the period 21 to 28 September 1998 only days after the finalisation of the $80 million profit forecast. However, the document entitled "First Quarter Highlights", containing reference to the anticipated cost of Hurricane Georges at A$25 million, only came to Mr Vines' attention on 19 or 20 October 1998. Passing over the other preparatory events, the first contravention was said to have occurred on 9 November 1998. It, with each subsequent contravention, directly or indirectly concerned the profit forecast culminating in its inclusion in the Part B Statement finalised on 8 December 1998. The period thereafter to 4 January 1999 is relevant only to the seventh contravention. It is the period during which the Part B Statement with the unaltered profit forecast was issued and at the end of which AMP's increased offer closed. 630 The insurance division's profit for 1998-1999 as forecast was derived from a base of $50 million. To it, a further $30 million was then to be added representing 33% of catastrophe premiums. That addition was intended to be included as profit. 631 This addition to profit was expressly based upon the assumption that no major catastrophe occurred; see judgment of the trial judge at [200]. 632 The trial judge appears to accept the evidence of Mr Vines in cross-examination that (a) his involvement in the formulation of the profit forecast was part of his role as chief financial officer, but (b) "he would not have proceeded with the forecast if it did not meet with the approval of the Executive Director", being Mr Fox; judgment at [202]. 633 An earlier memorandum from both Mr Robertson and Mr Schneider contained words to the effect "if there are no catastrophes, business profits will be $85 million higher than shown above", being the $50 million. It should not therefore be assumed that were a major catastrophe to occur, this automatically would have cancelled out the whole of the additional $30 million of profit. 634 Hurricane Georges struck Puerto Rico and the United States in the period 21 to 28 September 1998, only days after the finalisation of the $80 million profit forecast. While GIO Re had issued reinsurance contracts under which claims would be made in respect of Hurricane Georges, it did have pre-existing retrocession protection but only against marine losses. This cover was limited to marine losses up to A$80 million in aggregate. But GIO Re did not have retrocession protection in respect of property claims at the level they were likely to be made; judgment at [209]. 635 It is not in dispute that maintenance of the profit forecast depended upon the outcome of the following interrelated and overlapping elements, given there was only a $25 million provision for property losses in relation to Hurricane Georges. I set these out below: (a) the size of GIO exposure to Hurricane Georges and the anticipated loss thereof, beyond the $25 million provision; this I shall describe as " the excess loss "; (b) GIO's ability to preserve the estimated profit by a retrocession policy covering what it anticipated to be the excess loss, it being essential for its effectiveness to preserve the estimated profit that it be accepted by PwC as GIO's auditor as effective for this purpose; I shall refer to cover satisfying this requirement as "effective retrocession cover"; (c) GIO's ability, assuming management's willingness to do so, to release reserves from over-provision or redundancy in reserves, in its professional indemnity cover ("MIPI") by a proper unders and overs process acceptable to PwC as auditor; this I shall refer to as "the MIPI redundancy". It was not in issue that management would have been willing to make such a release. 636 As the Chief Justice observed in his judgment, the significance of these elements turn on what Mr Vines knew, or in the case of those contraventions so pleaded (fourth, fifth and sixth contraventions), ought to have known. It also turns upon the actual state of affairs. Here one must recognise that the state of affairs changed over time and Mr Vines' position must be examined accordingly. 637 Mr Vines at no stage throughout the relevant period actually anticipated, or was ever aware, that the excess loss would exceed a sum of the order of $60-$65 million from Hurricane Georges. This was the estimate of Mr Fox. It was the subject of a catastrophe claims spreadsheet forwarded to Mr Vines on 11 November 1998. That document showed undiscounted claims for Hurricane Georges as at 31 October 1998 to be $69.06 million, an increase of $44 million from 30 September 1998, the document having been created in the first week of November. 638 The trial judge accepted Mr Vines' evidence that had he been told in the period 9 through 13 November that Hurricane Georges' losses were expected to be $100 million on the basis of a contract by contract analysis that statement would have prompted action, and he would not have agreed to the profit forecast going forward (Judgment [616]. His reasons for accepting that evidence are to be found at [617] – [619]). 639 The trial judge also accepted that on 7 December 1998 Mr Vines still did not have actual knowledge that the $60-$65 million estimate was wrong; judgment at [915]. Mr Vines' understanding and belief was that this estimate was correct, based on what Mr Fox had advised. That advice was repeated as recently as a meeting of 7 December 1998 with the representatives of PwC and again accepted by Mr Vines. This was described as the "final sign-off meeting" on the profit forecast for incorporation in the Part B Statement. As found by the trial judge, the Hurricane Georges' register for 30 November 1998 still recorded property claims as $59.7 million. It was according to the Georges' register of 4 December 1998 that the total gross claims for Hurricane Georges were $89.6 million on that day though it was the net loss figure which is significant; it stood at $72 million net [548]. The loss figures subsequently rose to $91.9 million gross and $74 million net by 7 December 1998; judgment [548]. There was a further increase as at 8 December (total claims $92.4 million [549]), and as at 16 December (when losses had increased considerably according to Mr Fricke). That strongly suggests that the register did not show significant change between the end of October 1998 and the end of November 1998 though that position changed by 4 December 1998. But Mr Vines was not aware of this then or throughout the period to 4 January 1999. The question is, should he have been? That is significant for all contraventions, but particularly for the three contraventions (fourth, fifth and sixth) said to have occurred on 8 December 1998. 640 Mr Vines from 3 November 1998 to 1 December 1998 but not beyond that, believed that cover for $100 million taken out with Am Re would provide effective retrocession cover and, here subject in his mind to some uncertainty, would be acceptable to PwC as GIO's auditors to protect the profit forecast. From 1 December 1998 Mr Vines was on notice that PwC would probably not accept retrocession cover as being effective in that sense and by 6 December 1998 was told again emphatically. 641 Mr Vines justifiably believed throughout that there was redundancy in reserves for MIPI claims (MIPI redundancy), estimated by Mr Vines at between $30 million to $35 million. 642 That MIPI redundancy was subsequently confirmed at that figure by PwC at the beginning of December 1998, subject only to the formality of management concurring in the release of the redundancy amount from reserves, so as to be available to offset any excess loss up to an equivalent amount. 643 There was a further tolerance under adopted guidelines of up to 10% in the profit forecast by reason of the materiality threshold applicable to it; a variance below 5% in the after-tax forecast profit being presumptively immaterial and above 10% being presumptively material, in each case subject to evidence or convincing argument to the contrary (Blue, 236). 644 Mr Vines estimate of a MIPI redundancy of $30 million to $35 million was based on his "unders and overs" analysis that was accepted by PwC in signing off on the Part B Statement. It was maintained throughout the relevant period up to and beyond the Part B Statement. Mr Vines' belief was that, if the Am Re agreement were ineffective or not accepted by the auditor to be effective, the MIPI redundancy amount remained available to the extent of $35 million. Hence, based on Mr Vines' acceptance of Mr Fox's estimate of the ultimate loss from Hurricane Georges at approximately $65 million, he believed that the profit forecast could still be maintained. 645 I have explained earlier the importance of maintaining the profit forecast if it could be properly justified, for GIO shareholders. I consider that for them, the risk of being locked in as minority shareholders was a lesser one compared to the risk of being forced to sell their shares too cheaply during a hostile bid. That explains Mr Vines and the DDC's desire to preserve the perceived benefit to shareholders of the favourable profit forecast, especially when faced with a hostile bid, so long as it could be properly justified. A reasonable person in Mr Vines' position could have been expected to appreciate this in weighing risk and benefit for shareholders. 646 The trial judge did not impugn the reasonableness of Mr Vines' belief as such; namely that the MIPI redundancy was available in an amount of $35 million as an offset against the excess loss. What the trial judge did impugn was Mr Vines' failure to advise the Due Diligence Committee of the basis for that belief. This was both (a) when the Am Re retrocession agreement was still thought to be effective (in the sense of being acceptable to PwC as effective to protect the profit forecast) (second and third contraventions) and (b) when the Am Re cover was no longer thought to be effective (fourth, fifth and sixth contraventions and implicitly the seventh contravention) rendering, according to the trial judge, achievement of the proper forecast improbable. 647 The trial judge did not accept that these contraventions were obviated by the Due Diligence Committee being aware of (a) the Am Re cover; (b) the MIPI redundancy; and (c) that only the MIPI redundancy could after 1 December 1998 be relied upon as the auditors would not accept the Am Re retrocession cover was effective to protect the profit forecast. Indeed the Part B Statement made (a), (b) and (c) perfectly clear to GIO shareholders, as I later show. 648 Essentially the trial judge's conclusion is that from 7 December 1998 the profit forecast was tight and highly vulnerable. His Honour concluded that this carried the consequence that, though Mr Vines could rely on Mr Fox's estimate of the loss from Hurricane Georges up to 7 December 1998, Mr Vines could not do so after that, and was required to investigate that for himself. 649 The seventh contravention deals with the period after the Part B Statement as finalised (8 December 1998) up to 4 January 1999 when the AMP's takeover offer closed. It is based on the finding that Mr Vines "failed after the date of publication of the Part B statement and before the end of the period in which the takeover offer remained open to have any, or any adequate, regard to the available evidence concerning whether it was likely that GIO Re would achieve the $80M profit forecast" 650 In the foregoing summation, I have not singled out the specific events of the first, second and third contraventions which occurred respectively on 9 November 1998 (profit forecast made at a board meeting), 17 November 1998 (report to the Board and consequent media release) and 22 November 1998 (email to members of the DDC). Each of these events of November 1998 are dealt with later under the heading "Alleged Contraventions". 651 I will refer briefly to what is described by the Chief Justice as a single course of conduct on 8 December 1998 constituted by a series of discrete acts in their connected sequence: (a) execution by Mr Vines of the document headed "Management Sign-off" for purposes of inclusion in the Part B Statement (the subject of the fourth contravention); (b) advice to the DDC for purposes of Board approval of the Part B Statement (subject of the fifth contravention); and (c) advice to PwC for the purposes of that company's report to be included in the Part B Statement (the subject of the sixth contravention). 652 What is important as bearing directly upon the events of 8 December 1998 is that in a series of meetings on 1st, 6th and 7th December 1998 PwC made clear not only to Mr Vines but also to the DDC, in the latter case "in words of one syllable" that PwC would not accept the Am Re agreement as reinsurance (judgment [833]). Thus insofar as it is said that Mr Vines should have informed the DDC of that position taken by PwC, it is clear that before the Part B Statement was finalised, the DDC as of 6 December 1998 were emphatically informed of that salient fact. 653 I do not consider that the DDC needed further reminder from Mr Vines of the obvious. The DDC were a sophisticated group, with financial advisers and auditor present. It is clear that in the DDC the focus by then shifted from use of the retrocession contract to preserve the profit forecast, to use of the MIPI redundancy to do so. This is recorded by the trial judge at [833] quoted below: "[833] The minutes noted that a question had arisen as to the accounting treatment of the retrocession contract, as to whether the premium for that contract should be brought into account in the 1999 accounting year or in a subsequent year. This was apparently the first time that the committee was told there were doubts about the American Re contract. It was noted that PwC had requested GIO management sign-offs confirming the availability of a redundant provision in MIPI, and Mr Vines had advised that he was confident that these sign-offs would be forthcoming. Mr McClintock gave evidence (T 1628) that one of the PwC representatives said 'in words of one syllable that we wouldn't accept it [the American Re agreement] from the point of view of being reinsurance', and that one of the other members of the DDC, Marina Darling, said 'well, why did we enter into it if it's not going to be effective?' Later, Mr McClintock observed that PwC from time to time made inquiries of GIO's staff about claims notifications for Hurricane Georges (T 1638)." 654 PwC's representatives on 7 December 1998, met Mr Vines, Mr Fox and Mr Robertson for a "final sign-off meeting". Mr Vines was there for part but not the whole of the meeting. At that meeting PwC gave its final opinion that the retrocession agreement would not work (judgment [750]) having already foreshadowed this on 1 December and told the DDC emphatically so on 6 December. Importantly, Mr Fox reiterated his estimate to Mr Vines of the ultimate exposure as between $60 million - $65 million. The trial judge found Mr Vines accepted Mr Fox's estimate of that ultimate exposure (judgment [872]). 655 At [873] the trial judge noted Mr Vines' evidence that had he known of the 39% increase in the Status of Register Events concerning Hurricane Georges over the month of November, he would have required proof of Mr Fox's figure of $60 million - $65 million. The evidence is in fact that over the month of November there was no significant increase recorded on the Register. That recorded increase took place rather in the first week of December. So the trial judge found at [900], quoted below: "Hurricane Georges register for 30 November 1998 recorded property claims as $59.7m (PTB 2881). According to the Georges register of 4 December (PTB 2496) the total gross claims for Hurricane Georges were $89.7m on that day, and the figure had risen to $91.9m by 7 December (PTB 2499)." 656 The trial judge concluded that on 7 December Mr Vines did not have actual knowledge that the $60 million - $65 million estimate was wrong (judgment [915]). I do not consider that conclusion is altered by the trial judge's acceptance that (a) it must have been apparent to Mr Vines on 7 December 1998 that Mr Fox "may" have still been proceeding on the basis that the American Re agreement could be relied upon for accounting purposes, and (b) Mr Fox would probably not have investigated alternative means of maintaining the profit forecast, namely via the MIPI redundancy; judgment [916]. 657 I have referred earlier to the shift from reliance on the Am Re retrocession agreement to reliance on the MIPI redundancy. It is important to emphasise that as from 3 December 1998, the MIPI redundancy was actually verified at $30 million by Mr Latham, an actuary of PwC. That MIPI redundancy amount was not disputed by ASIC and was accepted by the trial judge. Moreover at the final DDC meeting of 8 December 1998 Mr McClintock of PwC produced his own unders and overs schedule for the group and observed with reference to that unders and overs schedule that the profit forecast of $250 million was justified. 658 It is important to record that PwC Securities actually gave a report in the Part B Statement which the trial judge quoted concerning Hurricane Georges at [949]. This report, to Mr Vines' knowledge, did fully reveal to shareholders the actual basis for the profit forecast. The report in particular made clear the following: (a) to 30 November 1998, PwC records its understanding that claim notifications for Hurricane Georges " have increased to 60-65 million and that the ultimate expected loss falls within this range " suggesting that " the increase in notifications with respect to Hurricane Georges suggests that the 33% profit assumption used for the catastrophe portfolio is no longer appropriate "; (b) notwithstanding management's quoted view that losses in excess of $15 million up to $55 million would be protected by the Am Re retrocession policy, the auditors' review of the contract has "led us to conclude that … whilst the policy will allow GIO to claim for Hurricane Georges, additional premiums payable under the policy for claims experience means that no benefit from the policy can be recognised in the forecast", (c) the auditors quote management's view that "positive development in MIPI contracts in the period to date in 1999 to demonstrate that no adjustment to the forecast is required", the auditors concluding that "positive experience in this account since 1 July 1998 would support management's view that the forecast is still achievable". 659 The significance I attach to that auditor's report within the Part B Statement supporting the profit forecast is that it makes clear to all GIO shareholders deciding whether or not to accept the AMP offer that no reliance could be placed on the auditors accepting the efficacy of the retrocession agreement but that reliance could be placed on the MIPI redundancy, to maintain the profit forecast. This was so, always provided there was no material increase in Hurricane Georges' claim notifications beyond $60-65 million. This throws into relief what was now the only critical question, discussed under the Fourth Contravention below. Was Mr Vines on 8 December 1998 in breach of the statutory standard of care and diligence by continuing to accept Mr Fox's estimate of Hurricane Georges' claim notifications at $60-65 million, without himself making a direct examination of the facts such as by checking the Hurricane Georges' Claims Register for himself? 660 Finally, as regards the events after 8 December 1998 to 4 January 1999 relevant to the seventh contravention, it is clear that Mr Fricke (who maintained the Claims Register) did inform Mr Fox but not it appears Mr Vines as to the increase in Hurricane Georges' losses on property claims. This is clear from Mr Fricke's email to Mr Fox on 17 December 1998 noting that further claims had been reported and that his "market losses" assessment showed GIO Re's share of the market losses for Hurricane Georges was three times the average of all events listed in his report (judgment [550]). There is also his further email of 23 December 1999 to Mr Fox stating that "unfortunately, Georges is stubbornly moving up" (judgment [550]). 3 Summing Up 661 I would particularly emphasise the following by way of summing up: (a) Mr Vines had a supervisory rather than operational role, insofar as the reinsurance division was concerned; (b) Mr Vines was placed in a position where he not only had to carry out his ongoing supervisory obligations as Chief Financial Officer in relation to the GIO group of companies as a whole but had specific, onerous and pressing duties related to the Part B Statement and the integrity of its financial information. Those duties were carried out under considerable pressure with frequent meetings; (c) This clearly placed practical limits on the extent to which it was appropriate or feasible for Mr Vines to intervene at the divisional level, despite that he had on occasion in the past done so where he considered no doubt exceptional the circumstances warranted this; (d) The integrity of the profit forecast was an important additional responsibility that he had undertaken. In the circumstances I have described, to be able to carry it out he necessarily had to rely upon financial information obtained from the relevant divisions; in particular he necessarily relied upon information concerning Hurricane Georges from the reinsurance division and its chief executive Mr Fox. Mr Fox had operational responsibility in contrast to Mr Vines' supervisory responsibility. Mr Vines specifically relied on Mr Fox as to the quantum of claims and consequently the likely ultimate loss from Hurricane Georges; (e) The trial judge was satisfied that at no time did Mr Vines have actual knowledge that the likely loss from Hurricane Georges would exceed $65 million. The trial judge was satisfied that Mr Vines was not aware of Mr Schneider's view that it was "a $100 million event". Nor was he aware that for the first time on 4 December 1998 Hurricane Georges' Register recorded total claims at above $65 million, namely $89.6 million ($72 million net) and as of 7 December recorded total claims at $91.9 million ($74 million net) and as of 8 December recorded total claims at $92.4 million with subsequent increases as claims moved up (judgment [548], [549], [527] and [550]; (f) He knew by 1 December 1998 that the Am Re retrocession agreement was likely to prove unacceptable to PwC and he with the DDC received subsequent emphatic confirmation of PwC's position on 6 December 1998 and again on 7 December 1999 at the sign-off meeting. (g) The emphasis had by then shifted, as the DDC knew, from reliance upon an effective retrocession policy to reliance upon the MIPI redundancy, accepted by the auditor as available in the amount of $35 million, and so found as properly available to support the profit forecast to that amount, there being a tolerance for materiality of up to 10% (see Blue, 236); (h) This position was fully revealed in the auditors' report in the Part B Statement accompanying the profit forecast (though still on the basis of a loss of $65 million from Hurricane Georges) as would have been anticipated by Mr Vines and the DDC; (i) The critical consideration in terms of whether the profit forecast could properly be supported became after 1 December 1998 not the retrocession policy which was unavailable in any effective sense nor the MIPI redundancy which was accepted as available in the amount of $35 million but rather the justification for Mr Vines continuing to accept Mr Fox's continued and unaltered assurance as to the $65 million anticipated, without making a further inquiry himself; (j) After the Part B Statement was finalised on 8 December 1998, itself understood by all as containing the most definitive statement of the profit forecast, and up to 4 January 1999, the focus turns to the continuous disclosure obligations. The question is then whether Mr Vines should have given directions to ensure that monitoring arrangements (of Hurricane Georges' claims) were continuing at the divisional level and the results brought forward to the appropriate senior corporate officer so that an assessment could be made about further disclosure on the market. Mr Vines' submission, rejected by the trial judge, is that such monitoring arrangements were continuing at the divisional level; Mr Fricke reported to Mr Fox as the appropriate senior corporate officer. 662 I turn now to each specific contravention in their chronological order. XXI THE CONTRAVENTIONS 1 The First Contravention: The profit forecast of 9 November 1998 663 I set out a description of the contravention as found by the trial judge in greater detail than the later ones, as it sets the scene for what follows. 664 On 9 November 1998 at a meeting of the directors of GIO, the Appellant tabled a report entitled "Quarterly Results ended 30 September 1998"). The report set out the results for the GIO group including a distinct section "Reinsurance". In that section the following statement appeared: "Claims arising out of Hurricane Georges have been assumed to be $25 million based on our average historical market share of such catastrophe. Management remains confident the full year forecast business profit of $80 million can be met." 665 The pleading was as follows: "[114] The 1st Defendant [Mr Vines] advised the board of GIO Australia as pleaded in para 64 hereof that the management of GIO Re remained confident that the $80m profit forecast could be met, knowing full well that: (a) Mr Schneider had warned that the profit forecast should be reduced; (b) An analysis of GIO Re's reinsurance contracts had led to an estimate that Hurricane Georges would be a $100m type event; (c) PwC Securities had warned that GIO's exposure to Hurricane Georges could be as high as $178m, as pleaded in para 27 hereof; and (d) He had not sought to obtain external advice as to whether the views of the 2nd Defendant in relation to the $80m profit forecast, as pleaded in para 31 hereof, were reasonable and ought to be preferred to the views of Mr Schneider, as pleaded in para 21 hereof." 666 The cross-reference to paragraphs from the Statement of Claim and the associated Particulars are quoted below: "64. On 9 November 1998 at a meeting of the Directors of GIO Australia, the First Defendant tabled a paper entitled "Quarterly Results Ended 30 September 1998", which stated, inter alia, that for that quarter: (a) GIO Re's catastrophe book produced a profit of $7 million against a budget of $20 million; (b) the below budget result for the catastrophe book was caused by the very high level of events in the quarter, including Hurricane Georges; (c) claims arising out of Hurricane Georges were assumed to be $25 million based on GIO Re's average historical market share of such catastrophes; and (d) management remained confident the full year forecast business profit of $80 million could be met. Particulars Board papers headed 'Quarterly Results ended 30 September 1998'. 27. On or about 23 October 1998 the First Defendant and the Second Defendant received a draft letter from PwC addressed to the board of directors of GIO Australia (but not sent by PwC) which, inter alia, stated that: (a) a reserve of $25 million had been established for GIO Re's exposure to Hurricane Georges on the basis of an estimated market share of 0.6% of the current market loss estimate of US$2.556 billion; (b) if GIO Re's market share of Hurricane Georges' losses were 0.2%, the loss to GIO Re would be $9 million and $178 million respectively, before reinstatement premiums; and (c) GIO Re's exposure could be significantly more than the $25 million currently reserved. Particulars The draft letter was delivered by PwC at a meeting between Mr Patrick Murray of PwC and the First Defendant. 31. On or about 4 November 1998 the Second Defendant [Mr Robertson] informed the First Defendant [Mr Vines] that: (a) nothing that had occurred in the first quarter of the 1999 financial year persuaded him that the forecast ought to be altered and that the forecast overall business profit remained reasonable; and (b) if Hurricane Georges should prove much more expensive than the $25 million allowed, it would affect the attainment of the $80 million profit forecast. Particulars Memorandum from the Second Defendant to the First Defendant dated 4 November 1998. 21. On or about 19 October 1998 Mr Schneider, together with Mr Driessen, prepared a report summarizing GIO Re's results for the period 1 July 1998 to 30 September 1998 (' the First Quarter Highlights '). Particulars GIO Reinsurance First Quarter 1999 Result Highlights prepared by Mr Schneider and Mr Driessen dated 19 October 1998." 667 It will be apparent from the above pleadings that the essence of the contravention is not a failure by Mr Vines to make enquiry. Nor is it what ought to have been known to Mr Vines. Rather it concerns the making of representations "well knowing" the matters specified. 668 In his Honesty Judgment the trial judge summarised his reasoning as follows: "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 [1234]-[1237]." 669 The relevant declaration made by the trial judge was as follows: "8 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited, by his provision to the Board, as an officer of that corporation, of an unqualified assertion of management's confidence that the GIO Re profit forecast could be met on 9 November 1998, a statement which 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." 670 I agree with the conclusion reached by the Chief Justice, that the appeal against this finding of contravention should be allowed. I agree with the reasons he states for so concluding at [241] to [249]. However, I should make clear my own view on one particular matter. 671 The Chief Justice at [248] gives as an additional reason for his conclusion that no conduct based on the profit forecast was likely to occur, in particular via the issuance of the Part B Statement. The latter was not issued until some four weeks later. However, even were the timing closer to the date that the profit forecast was to be issued, I would not consider that there was any requirement to disclose the existence of divergent views within management when the predominant view was that the $80m profit forecast could be met, being thought to be protected on two bases; the efficacy of the retrocession agreement and the unders and overs schedule. 672 I have earlier indicated why I consider that the document that mattered most to GIO shareholders in deciding whether or not to accept the AMP offer was the Part B Statement still to be sent. It was not the earlier quarterly results for the period ending 30 September 1998 or, as I explain, the later press release of 17 November 1998. The Part B Statement was the definitive statement of the profit forecast, and was likely to be so viewed by the market. This is relevant to the second contravention to which I now turn. 2 The Second Contravention: The report and media release of 17 November 1998. 673 The description of the second contravention is fully set out in the Chief Justice's judgment at [280] to [296] to which further reference should be made. ASIC made clear on appeal that it was no longer relying upon para (b) of the pleading at para (113), namely that Mr Vines well knew that "an analysis of GIO Re's reinsurance contracts had led to an estimate that Hurricane Georges would be a $100m type event". 674 ASIC accepted that Mr Vines was not aware of that matter, as found by the trial judge at [756]. 675 There was a statement made in a media release issued by the Board of GIO on 17 November 1998 with the concurrence of Mr Vines. It was made in the middle of a hostile takeover battle. The statement read: "GIO Re's insurance business achieved a sound profit despite exposure to events such as the Swiss Air crash and Hurricane Georges. 676 In his Honesty Judgment the trial judge summarised his findings as follows: "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])." 677 The declaration of contravention relating to the advice and Media Release of 17 November 1998 is in the following terms: "9 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, on 17 November 1998 to disclose to the Board before the media release of that date was approved and issued the following matters: (i) that the October results had been supported by the American Re agreement; (ii) that the American Re agreement had not been approved by APRA or the auditors; (iii) that 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; (iv) that 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 (v) that he believed that there would be sufficient redundancy in his unders and overs analysis to protect the forecast." 678 The Chief Justice concluded that the appeal with respect to this contravention should be allowed. 679 I agree with the Chief Justice and for the reasons he gives that there was no departure from the pleaded case such as would justify an appeal succeeding on that basis. However I also agree that the appeal should be allowed in relation to this second contravention. I set out my own reasons below for considering this appeal should be upheld. 680 This second contravention is again based on Mr Vines "well knowing" certain specified matters. The contravention is therefore not based upon what Mr Vines ought to have known. 681 The trial judge records that Mr Vines did clearly know that Mr Schneider had warned that the profit forecast should be reduced, as this was in the First Quarter Highlights; judgment [1244]. However, the trial judge also concluded in Mr Vines' favour that he was not aware that Mr Schneider had warned that "an analysis of the insurance contract had led to an estimate that Hurricane Georges would be a $100 million type event"; judgment [1244]. 682 The third and last matter of knowledge referred to by the trial judge at [1244] is that "the October results had shown that GIO Re would suffer the loss of $29.7 million in October 1998 in the absence of retrocession cover to limit total claims resulting from Hurricane Georges payable by GIO Re to $25m". 683 The finding of knowledge that Mr Schneider had warned that the profit forecast should be reduced was not mentioned by the trial judge in [1246] of his judgment as something either giving rise, to or contributing to, the contravention. The trial judge had earlier found at [241] and [280] that the warning was unreasoned and speculative. Moreover, the trial judge accepted Mr Vines' evidence that, when he was shown the October management accounts on 11 November 1998, he formed the belief that there was no longer any disagreement between Mr Robertson and Mr Schneider; at [488] and [1210]. 684 That leaves the only non-disclosure to the Board of a matter within the actual knowledge of Mr Vines, the matters pertaining to the American Re Agreement. This is referred to above in the Honesty Judgment and again in the declaration of contravention. 685 The difficulty with holding that there was an absence of the necessary degree of care and diligence by Mr Vines in these circumstances is that the board meeting which took place on 11 November 1998 had as one of its purposes to consider the October results. Moreover, those October management accounts actually recorded the retrocession cover. The question then becomes why the Board needed to be told something which was self-evident from the accounts, namely that there would be a loss but for the retrocession cover recorded in the accounts. I do not consider that Mr Vines' failure to state the obvious to the DDC, a financially sophisticated group, breached Mr Vines' statutory standard of care. Mr Vines' reasons for confidence in the Am Re agreement did have a reasonable basis at that time. He had been told by Mr Guy Carpenter the insurance broker, that two other reputable insurers had taken out the kind of retrocession cover in question and which had been approved by KPMG and Arthur Anderson (judgment [578]). As found by the trial judge, Mr Vines was told by Mr Fox, whom Mr Vines was reasonably entitled to believe was experienced in the field, that retrocession of that kind was available (judgment [572]). Mr Vines was not himself an expert on retrocession agreements and the technicalities of their accounting treatment, despite his financial expertise. Nor did he hold himself out to be such an expert. I would not myself criticise Mr Vines too strongly for failing to appreciate their ineffectiveness in accounting terms, remembering this was as of 1998. The HIH Royal Commission came only later, highlighting their artificiality; in any event they ceased to be relevant. 686 The trial judge found that Mr Vines believed that the Am Re retrocession agreement would be effective. "[727] … [M]y view is that, while Mr Vines received some encouragement from the opinions of Mr Fox and Mr Grove that contracts of the kind that had been entered into on 13 November would succeed as reinsurance contracts, there was an element of uncertainty in his mind, especially as to whether PwC would, as GIO's auditors, allow the proposed accounting treatment of the arrangement. It seems to me probable that he adopted the strategy that he would present PwC with a signed slip reinforced by opinions from other auditors, so as to create pressure at PwC to accept the arrangement, believing that if they did not, American Re would unwind the contract. Unfortunately for him, the strategy did not work because KPMG would not approve the arrangement." 687 I agree with the Chief Justice's qualification concerning that finding as to pressure at [419] quoted below: "[419] This cross-examination can and does support his Honour's conclusion that Mr Vines manifested uncertainty about the likely accounting treatment of the Am Re agreement. It cannot, however, support a finding of a deliberate strategy to put pressure on PwC." 688 Even though the Am Re retrocession agreement was not finally accepted by the auditors as effective, Mr Vines' unders and overs analysis led him to believe that the redundancy in MIPI by itself would suffice to underpin the profit forecast. As we know, the analysis made by PwC of the MIPI redundancy confirmed Mr Vines' view was correct, insofar as it was of profit support in the amount of $30-$35 million. (There is at this point of time, no finding that Mr Vines should have looked behind Mr Fox's estimate of $60-$65 million from Hurricane Georges.) 689 Against this it is said that notwithstanding that there would be sufficient redundancy in the unders and overs analysis to protect the forecast were the Am Re agreement not accepted by the auditor or, contrary to Mr Vines' genuine belief, ineffective for its intended purpose, nonetheless Mr Vines should have disclosed not only the uncertainty regarding the Am Re agreement but also, to the extent relied upon as justification for not disclosing that uncertainty should have expressly disclosed reliance upon the MIPI redundancy by way of the unders and overs analysis; judgment [1246]. 690 These were extraordinarily pressured times, when the company was resisting a hostile takeover offer and when Mr Vines himself had not only his ordinary duties as chief financial officer but also the specific additional duties under the stress of that takeover offer. In those circumstances, while it may have been better in hindsight for Mr Vines to have stated the matters in question to the board so bringing to bear his authority as Chief Financial Officer, the fact remains that (a) the board and DDC was fully cognisant of the Am Re retrocession agreement; (b) Mr Vines was not in doubt as to the efficacy of the retrocession agreement but had only manifested some uncertainty as to whether or not PwC as auditor would accept it; (c) he had a reasonable basis for his confidence in the Am Re agreement based on the assurances he had received; and (d) he believed on strong grounds that the unders and overs offered sufficient underpinning should the agreement not eventually satisfy PwC; that was later confirmed by PwC. a Conclusion 691 I do not consider in relation to the press release of 17 November 1998 concerning the October quarterly profit, that a reasonable person in the position of Mr Vines would, in relation to a company in the circumstances of GIO, be failing to exercise the necessary degree of care and diligence by omitting to make the additional disclosure in question. I do not consider that the press release, itself secondary in importance to the later anticipated Part B Statement, justifies any different conclusion, despite it being a communication to shareholders but prior to the Part B Statement. 3 The Third Contravention: The email of 22 November 1998. 692 This contravention occurred only five days later. Again the relevant background to this contravention is sufficiently set out by the Chief Justice at [319] and following. So too is the relevant pleading relating to this contravention. It is convenient however that I set out the summarised findings in relation to this contravention from the Honesty Judgment as well as the two declarations relating to this contravention. "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]). 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])." 693 Two declarations relating to this contravention based on the formulation in the Honesty Judgment above, were made as follows: "10 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation to disclose in his email to the DDC sent 22 November 1998 that the October results assumed that the American Re agreement would qualify as reinsurance and would effectively protect the results from adverse claims movement, his failure to disclose the doubt that existed about that matters, and his failure to disclose his own belief that if the American Re agreement were ineffective, redundancies would be available to compensate for it, which rendered the email materially misleading in those respects. 11 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited in that he endorsed, an officer of that corporation, the GIO Re profit forecast in his report to the DDC on 22 November 1998 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, which meant that the report was materially misleading in that respect." 694 Again the focus is here upon the Am Re agreement, in circumstances where the relevant email concluded with the statement that Mr Vines regarded the forecast group operating profit to be "reasonable". That email of 22 November was prepared for a meeting of the DDC held on 23 November 1998. 695 Again the complaint is based upon Mr Vines' actual knowledge. One may disregard the matters pleaded in para [117(a)] insofar as they do not deal with Am Re. 696 I agree with the Chief Justice that, as in the case of the first contravention, the conduct in the third contravention is far removed from the interest of GIO shareholders in need of protection, being still some two weeks before the Part B Statement would be issued. 697 But to my mind a sufficient further reason for not finding a contravention to be here made out is that Mr Vines was not in breach of the statutory standard of care in the circumstances in failing fully to state to the DDC the underpinning or true basis for the evolving position regarding the projected profit. The DDC well knew the position. And Mr Vines had a genuine belief, reasonably based, that even if the Am Re agreement proved not to be effective, contrary to his expectation that it would be, the MIPI redundancy still underpinned the profit forecast. I have set out my reasons under the second contravention for so concluding. 698 Moreover, as the Chief Justice points out, there is a relevant passage in the email of 22 November 1998 which begins with the following, "it is always worth bearing in mind the inescapable fact that the reserves from outstanding claims of $2.2 billion totally dominate any discussion on the reported profits of the Inwards Reinsurance Division for any given reporting period". 699 I also agree with the Chief Justice that it is irrelevant to note that the email concluded with this statement, "the forecast includes elements that are conservative and elements that are less conservative. On balance I believe the forecast pre-tax operating profit is reasonable …". 700 Accordingly, and agreeing also in the reasons stated by the Chief Justice, I conclude that the appeal in this regard should be allowed. 4 The Fourth Contravention: The management sign-off. 701 This is the first of three contraventions said to have occurred on 8 December 1998. The management sign-off is described by the trial judge in these terms: "[925] Mr Vines completed a 'Management Sign-Off', dated 8 December 1998. His document certified to a review of the due diligence questionnaires completed by all senior management, as well as the statement of issues identified in responses to those questionnaires. He said that to the best of his knowledge, information and belief the answers given to those questionnaires were true and correct 'in respect of that part of the GIO Group business and affairs for which [he had] responsibility'. There was no definition of the part of the business for which Mr Vines had responsibility. I take it, however, that his area of responsibility was a large one, because his certification related to the answers to the questionnaires given by all senior management, and he was, under the planning memorandum, in a position of central responsibility, as I have explained. As in the case of the documents signed by Mr Robertson and Mr Fox, Mr Vines' document certified that he had drawn the attention of the DDC to any other material matters occurring since 1 July 1998, and said he was not aware of anything which he had not drawn to the attention of the DDC." The other details of the contravention can be found in the judgment of the Chief Justice at [421] and following. 702 Here, unlike the previous contraventions, the pleaded contravention is for the first time predicated upon what Mr Vines "knew or ought to have known". 703 Without reference to the extensive pleading, the contravention found by the trial judge is sufficiently summarised in the Honesty Judgment as follows, with the declaration being likewise as quoted below. "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])." 704 The declaration relevant to this contravention was: "1 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, to ensure that the Due Diligence Committee ('DDC') was properly informed of all material aspects of the maintenance of the reinsurance profit forecast in the course of giving his management sign-off on 8 December 1998, and failed to inform the DDC that the achievement of the $80 million profit forecast was improbable." 705 The Chief Justice summarises the focus of attention in the pleaded case culminating in the above declaration, as being on the improbability of the $80 million profit forecast being achieved. The pleaded case states that by reason of certain matters that Mr Vines knew, or ought to have known, he ought to have advised DDC, before executing the Management Sign Off, that "it was improbable that GIO Re would achieve the $80 million profit forecast". 706 I agree with the Chief Justice's conclusions and with the reasons he gives ([407] to [420]) for rejecting the submission that the trial judge in the above respect went outside the pleaded case or had failed to make the findings necessary for the conclusion reached. 707 The Chief Justice deals with the other challenges made by Mr Vines to the trial judge's conclusion that it was negligent of Mr Vines not to have advised the DDC on the two matters of the unavailability of the American Re Agreement and the unders and overs analysis. Those challenges, which the Chief Justice did not uphold, were essentially on the basis that the DDC was already aware of these matters. For convenience, I quote the relevant passages from the Chief Justice's judgment: "454 … The Appellant submits that his Honour's conclusion was based on the false premise that the DDC did not know about the unavailability of the American Re agreement or of alternative unders and overs analysis, particularly Mr McClintock's exercise, but in any event knew of the reserves available in MIPI. 455 This submission does not place sufficient weight upon his Honour's findings of the significance of Mr Vines' role, relevantly, in the Part B Statement process. That role went beyond the scope of the role of chief financial officer. The submission also does not give appropriate weight to the express assurances contained in the Management Sign Off which he had to execute, clearly of great significance to all of the other parties to the Part B Statement including the auditors, but most significantly, the directors. 456 That some of the directors may have had other sources of information with respect to the matters which indicated that the profit forecast was improbable of achievement, did not absolve Mr Vines, in the exercise of due care and diligence, from adding the weight of his particular authority to the proposition, even on the basis of facts that were known to others. 457 As his Honour put it at par [1169], Mr Vines was required by the terms of the Management Sign Off "to take personal responsibility". His role was such that he ought to have "drawn the attention of the DDC" to the fact that the reinsurance profit forecast had been made "on the basis of assumptions that did not spell out the position known to Mr Vines" (at [1168]). As his Honour further put it, that obligation was such that "Mr Vines ought to have invited the DDC to consider some redrafting of the Part B Statement" in the light of those matters of disclosure that he was obliged to bring to the attention of the committee [1168]. 458 These findings constitute a clear, and in my opinion justified, finding of contravention of the duty of care and diligence that does not turn on an assumption that the persons to whom such a statement was required to be made, were unaware of the facts and matters upon which Mr Vines should have acted in order to discharge his own responsibility in this regard. 708 The Chief Justice, while accepting that para [1168] of the Contraventions Judgment and the further "declaration 2" quoted below made no mention of management sign-off, concluded that the declaration was properly capable of being regarded as a "corollary" of the finding at [1168]. 709 Declaration 2 is as follows: "2 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure on 8 December 1998, as an officer of that corporation, to draw the attention of the DDC to those part 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 his failure to invite the DDC to consider some redrafting in light of the matters of disclosure that he was obliged to bring to their attention." 710 Para [1168] of the Contraventions Judgment states: [1168] A corollary to these findings is that a reasonable person in the position of Mr Vines would have drawn the attention of the DDC to those parts of the draft Part B statement that implied that the reinsurance profit forecast, as part of the Group forecast, would be achieved on the basis of assumptions that did not spell out the position known to Mr Vines. In other words, Mr Vines ought to have invited the DDC to consider some redrafting of the Part B statement in light of the matters of disclosure that he was obliged to bring to their attention. Mr Hogendijk reached a similar conclusion (affidavit para 192), drawing attention to a statement on page 14 of the booklet that spoke of GIO's 'strong performance' in the first four months, and said that the company was 'well on track to achieve a significant profit in the current year'. The booklet referred to 'key highlights' of the first four months' result, one of which was 'a solid profit achieved by GIO's reinsurance business as recent changes to personnel and management practices took effect …'. 711 I agree with the Chief Justice that an ancillary declaration could be made if the primary declaration were properly made. However, I respectfully differ that the first of the two declarations could properly be made as I conclude that there was not a failure to comply with the statutory standard of care in this instance, for the following reasons. 712 First, the DDC itself included not only non-executive directors of GIO but also its key executives including Mr Lyons and, importantly, Messrs McClintock and Hammond from PwC. There was also a representative from Macquarie Bank. There was thus no lack of commercial expertise on the DDC as I have earlier pointed out. 713 Second, it is apparent that the DDC had been told by PwC (Mr McClintock) "in words of one syllable" that it would not accept the Am Re Agreement as reinsurance, this having occurred two days earlier on 6 December 1998; judgment [833]. That was reinforced on 7 December 1998 at a meeting of the three defendants (Messrs Fox, Vines and Robinson) with representatives of PwC. That was the meeting described by ASIC as "the final sign-off meeting" for the Part B Statement, when PwC (Mr McClintock) gave its final opinion that the Am Re Agreement would not work; judgment [750]. 714 Given that PwC were represented on the DDC by Messrs McClintock and Hammond, the DDC hardly needed Mr Vines to bring to bear his authority as Chief Financial Officer to tell it what the DDC already well knew. It was abundantly clear that the Am Re Agreement was not accepted by PwC as effective to maintain the profit forecast in relation to Hurricane Georges' losses. That was repeated in the Part B itself, so GIO shareholders were fully informed of that. 715 The DDC were similarly fully cognizant of the GIO's reliance upon the redundancy of $35 million in MIPI. Thus the minutes of the DDC meeting held on 6 December 1998 (on a Sunday showing the urgency and time-pressure under which matters were proceeding) included the statement that "PriceWaterhouseCoopers have requested GIO management sign-offs confirming the availability of the redundant provision in MIPI and Geoff Vines advised that he was confident that that would be forthcoming"; Blue, 194K. 716 This followed reference to the question having arisen as to the accounting treatment of the retrocession contract in relation to whether the premium for that contract should be brought to account in the 1999 accounting year or in a subsequent year. That matter was fully resolved before 8 December against the effectiveness of the retrocession contract of Am Re, as all on the DDC knew. I should note here the trial judge's finding that "Mr Vines … did not have detailed understanding of the regulatory and accounting issues and looked to Mr Fox for expertise"; judgment [661]. 717 Thus with the rejection by PwC of the efficacy of the Am Re Agreement but with PwC's confirmation of the MIPI redundancy at $35 million, the salient question was whether Mr Vines' could, without contravening s232(4), continue to rely on Mr Fox's assessment, repeated as recently as 7 December 1998, that the estimated loss from Hurricane Georges would be $65 million. 718 Importantly, so far as disclosure to GIO shareholders deciding whether or not to accept AMP's offer, the actual Part B Statement contained the PwC report to which I have just made reference. It makes crystal clear to shareholders the basis of the calculation; judgment at [949]. What made the profit forecast improbable of achievement was not known to Mr Vines, who relied on Mr Fox, namely the under-estimation of Hurricane Georges' ultimate loss. 719 The Honesty Judgment summarises the trial judge's findings in these terms: "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]). 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]). 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])." 720 Indeed had Mr Vines made his own direct investigation of the Claims Register it would only have been if he had done so after the end of November 1998, and possibly only on or after 4 December 1998, that it would have contradicted what Mr Fox had been telling him. It was, on the evidence on 4 December 1998 that the Hurricane Georges' Claims Register records total claims at $89.6 million ($72 million net). On 7 December 1998 that climbed to total claims of $92.9 million ($74 million net). One needs to relate this to the materiality threshold as appears in Appendix B to the Part B Statement (Blue, 236) earlier adopted by the DDC stating the guidelines to determine materiality. Under the quantitative portion of those guidelines, an amount less than 5% of the appropriate base being post-tax forecast profit of $160 million ($8 million) is presumed not to be material unless there is evidence or convincing argument to the contrary whilst an amount equal to or greater than 10% of $160 million ($16 million) is presumed to be material unless there is evidence or convincing argument to the contrary. Thus $65 million net loss from Hurricane Georges represents $5 million over and above $60 million (being the lower end of the $60-65 million estimate). In percentage terms this is approximately 3% so significantly below the materiality threshold. On the other hand $72 million net as of 4 December 1998 climbing to $74 million net as of 7 December 1998 represents an excess of $12-14 million over and above the $60 million. In percentage terms it is 7.5% and 8.75% respectively so within a 10% threshold but with no presumption of materiality either way. 721 Since dictating the above I have read what the Chief Justice says at [444], [445] and [448] of his judgment. The $15 million calculated by Mr McClintock was taken into account in an unders and overs analysis and the result still deemed by the auditor not to be material. Moreover the auditors were given a range of an additional $35 million to $40 million (corresponding to a range of $60 million to $65 million loss after adding back the $25 million reserve) on 7 December 1998, as was accepted by the trial judge as relevantly an accurate record of what occurred [898] and as was confirmed by Mr Murray's memo (Blue, 208-9). It is only if Mr McClintock assumed an ultimate loss estimate of $60 million (as against $65 million) that the extra $5 million (in substituting $65 million) would be added to the $15 million though still not material in the auditor's estimation. There is nothing in the unders and overs schedule (at Blue, 197) to bear out that Mr McClintock did assume $60 million, though the trial judge at [942] cites his transcript of evidence (T, 1554-5) as his having so assumed. It would be unsafe to make that assumption given the earlier evidence referred to, including Mr Murray's memorandum. Finally, as to tax, while the materiality guidelines make the base for calculation of materiality post-tax profit, it should be borne in mind, as indeed the under and overs schedule demonstrates (at Blue 197N), that any loss from Hurricane Georges should be deductible for tax purposes. Therefore calculating materiality as a percentage can be done consistently by either having the post-tax forecast profit related to the post-tax adjustment for loss, or pre-tax forecast profit related to the pre-tax adjustment for loss. It appears that the pre-tax calculation was used consistently in the present case. 722 The trend however would have been of real concern. It would if known probably have led to a qualification of the profit forecast and quite possibly its reduction; certainly there would have been redrafting required to the Part B Statement. It was on 8 December 1998, the day of the management sign-off (Blue, 214) that total claims reached $92.4 million (Judgment [549]). We do not know the net figure but it was hardly likely to differ much from $74 million. a Reliance by Mr Vines on Mr Fox 723 Where such information was in existence well capable of seriously affecting the accuracy of the profit forecast, the critical question is this. What should a reasonable person in Mr Vines' position, and in similar circumstances, have done at the time (the first week of December 1998) to establish what the position was regarding Hurricane Georges losses? In particular: (a) should Mr Vines have made further enquiry or taken further proactive steps to investigate the position in relation to Hurricane Georges claims, rather than merely rely on Mr Fox, and if so (b) what enquiry should he have made or caused to be made and what proactive steps should he have taken? 724 The answer to these questions depends, in my view, upon an understanding of (i) what exactly Mr Vines knew during the relevant period concerning the progress of Hurricane Georges claims, (ii) the nature of the role played by Mr Vines both generally and within GIO Re as I have described it earlier, (iii) the basis for his reliance upon Mr Fox, and (iv) what a reasonable person in Mr Vines' position should have appreciated concerning the profit forecast and its probability of achievement based on what he knew or ought to have known about its key parameter, once it became, by 1 December 1998, that key parameter being now the likely net loss from Hurricane Georges, with retrocession cover then known to all to be ineffective to support the profit forecast. 725 The following emerges over the span of time from September 1998 onwards, taken from the transcript of Mr Vines' evidence in relation to his knowledge of Hurricane Georges, the claims stemming from it, and the trial judge's findings: (a) Mr Vines suspected that he had heard about Hurricane Georges a short time after it had occurred (hence towards the end of September 1998), probably from Mr Robertson. He recalled Mr Robertson's broad description of the event as it stood at that time, namely that Hurricane Georges had not affected greatly the east coast of the United States, and as such the general view was that it was likely to be a non-event and would probably be absorbed within the attritional book, not qualifying as a catastrophe as such (T, 2573). (b) As at 30 September 1998, Mr Vines relates that he and others had no real idea what Hurricane Georges was actually going to cost, and that for the purposes of the then profit projection an assumption had been made about its cost and that assumption incorporated into results (T, 2576-2577). (c) Mr Vines' first knowledge of a figure attached to Hurricane Georges claims, being $25 million, was stated to be through his perusal of the GIO Re Result Highlights as at 30 September 1998, the document itself being dated 19 October 1998 (T, 2901 and 2905). (d) Mr Vines discussed during examination-in-chief the meeting with PwC on 23 October 1998, his recollection of the meeting being that a statement was made at the meeting to the effect that it was too early to call what the cost of Hurricane Georges would be, that the approach adopted in the first quarter (September) results was a good one. Mr Vines recalled thinking that PwC had done independent work on the outlying ranges of possible claims levels for Hurricane Georges, reaching a similar result ($25 million) to that of Mr Schneider (presumably referring to the $25M in the September results) (T, 2597). (e) In response to questions in his examination-in-chief regarding events during the period between the end of October 1998 and the release of the October results, Mr Vines related that he had no belief as to the likelihood of Hurricane Georges claims exceeding the $25 million level reached by the end of September, and understood nothing to suggest that the figure would eventually be higher or lower than $25 million (see T, 2616 and T, 2609-2611 respectively). (f) The first change from the $25 million figure of which Mr Vines became aware appears to have been through the release of the October results at the start of November (see T, 3022). He was informed at the meeting of 11 November in relation to the October results that the gross estimate for Hurricane Georges losses was $69 million, the net figure being $67 million. These figures still incorporated a substantial proportion of IBNR (unnotified) claims, in the order of $42 million (gross) and $41 million (net). Mr Vines stated that he only became aware of actual claims notifications being $60-65 million at the meeting of 7 December (T, 2743). He gave evidence that the increased notifications had seemed to him to be broadly in accordance with the ultimate loss estimated in October (T, 2743). (g) From the time of the release of the September results, there was also an issue, the subject of an extensive line of questioning, put to Mr Vines, concerning the mention of the $100M figure by Mr Schneider in the first quarter highlights. Mr Vines asserted in his answers, and the trial judge accepted in his judgment at [1213], that it was never expressed to Mr Vines by Mr Schneider (including as late as the Terrigal meeting of 6 December 1998) that Mr Schneider actually believed, on the basis of a contract-by-contract analysis process, that Hurricane Georges would be "a $100 million-type event". That finding should be accepted. (h) Mr Vines did not seek to investigate personally and directly the claims levels in relation to Hurricane Georges at any stage. The trial judge accepted at [915] that, "… the evidence does not establish that Mr Vines usurped the divisional role by directly monitoring the development of Hurricane Georges claims, and there is no proper basis for inferring, therefore, that he was made aware of the state of claims in early December." (i) The expression "usurp" the divisional role is significant. It implies a boundary line that Mr Vines, at least ordinarily, respected; that line being between Mr Vines' supervisory role as chief financial officer in relation to a large and complex group, and the operational role played by Mr Fox, itself a very senior one. When he did usurp the role it can be inferred that he needed to perceive good reason; see judgment [914]-[915]. (j) Significance was attached in questions put to Mr Vines during cross-examination (see T, 2912-2913) to the possibility for him to have inferred from prior experience that a contract-by-contract claims analysis process was available to GIO Re and that it was possible to implement such a process in the case of Hurricane Georges, as "one way of trying to come to grips with [its] probable effect." I here emphasise "one way". There was no evidence that this was the only way, or that Mr Vines assumed Mr Fox used that particular method or some other method to ascertain the net loss. (k) Mr Vines' explanation for Mr Vines himself not pursuing the possibility of there being a contract-by-contract analysis on foot which might have yielded information concerning the development of Hurricane Georges claims, was that it was not necessary for him to do so. He said that he expected to be informed of any adverse developments, as revealed by whatever process was being conducted (T, 2584). It was put directly to Mr Vines towards the conclusion of his cross-examination, that if he had wanted an updated figure for Hurricane Georges claims as at 7 December 1998, he merely had to ask for it and it would have been provided (see T, 3090). His response (T, 3090.9-.26) can be accurately summarised as follows. His expectation was that he would be informed, but on a monthly basis, of any adverse development in claims levels; otherwise after 30 November he could request an update, not instantly but at some point. (l) Mr Vines states at one point during cross-examination that his belief was in fact that "the form of investigation was to monitor the claims that came in" (T, 2923). But he expresses earlier a more general satisfaction at the time with the monthly accounting processes and the involvement of PwC as being adequate to ensure the eventual sufficiency of Hurricane Georges investigations (T, 2915). (m) In relation to the availability of the November results prior to the meeting of 7 December 1998 and the events of 8 December 1998, Mr Vines gave evidence concerning the DDC meeting of 6 December 1998. At that meeting it was stated that the November results were not going to be available in time for the Part B timetable at the start of December, and certainly not in what Mr Vines considered to be a suitably reviewed form (T, 2733). As the trial judge accepted at [831], the DDC meeting therefore resolved to rely instead on the October figures in relation to the Part B Statement. (n) That is of significance. I consider the decision to rely on the October figures rather than the unreviewed November ones, was not unreasonable. It was based on the need to proceed from an accounting date that was as recent as possible but compatible with there being sufficient time for a suitable review of that month's accounting figures. There would have been a week or less to review the November figures, clearly not sufficient. The risk of so doing had therefore to be balanced against the risk of a November figure change – which could go either way in terms of whether favourable – affecting the profit forecast. Hurricane Georges was regarded as needing to be appraised within the same monthly accounting figures as any other item. The reasonableness of so doing is supported by the Murray file note referred to in (o) below. (o) The trial judge concluded that up until and including 7 December 1998, Mr Vines had no actual knowledge of the inaccuracy in the $65 million that emerged over that period (see [915]). Mr Murray's file note of 8 December 1998 in relation to the 7 December 1998 meeting (which the trial judge preferred at [913] to rely upon as evidence of the meeting's proceedings) relates the discussion as to Hurricane Georges claims in the following terms: "TF (Tim Fox) stated that a detailed review of GIO Re's exposure, contract by contract, had indicated a maximum potential loss of $105 million. Notifications to date were $60-$65 million, up from $27m. Management is firmly of the view that the impending renewal season (at 1 January) and the uncertainty surrounding GIO following the AMP takeover offer (including AMP's stated intention of reassessing the future of GIO Re in the event their offer is successful) is prompting cedants [the insurer who cedes risk to the reinsurer] to notify claims early and on a precautionary basis . While further development cannot be ruled out, management's best estimate of the liability is of the order of $60-$65 million ." [emphasis added] (p) The inaccuracy of Mr Fox's statement as to the figure for notifications to date as of 7 December 1998 ($60-65 million as opposed to the true position on the claims register of $91.9M on that date) was thought by the trial judge to be of greater significance for Mr Fox's position rather than Mr Vines' (see at [913]). I agree but would add this. Mr Vines had received from Mr Fox as recently as the day before finalisation of the Part B Statement with its profit forecast both an up-to-date assessment " management's best estimate " of the net loss of $65 million and a plausible explanation for the rapid rise in claims; namely as Mr Murray's file note makes clear, an understandable tendency for cedants to notify their claims early and on a precautionary basis given AMP's stated intentions. That if anything indicated November's figures would simply continue that trend, justifying use of October's figures consistently for all financial information bearing on the forecast, including the net loss from Hurricane Georges. (q) In relation to Mr Vines' knowledge from 7 December onwards, Mr Vines related in examination-in-chief that, on his recollection, he learned only at a meeting on 7 January 1999 that Hurricane Georges claims had escalated and were "up to about $100M", and that before that time he had not received any information of that kind (see T, 2673-2674). (r) Additionally, Mr Vines had received no information before that time that would have served to undermine the statements by Mr McClintock of PwC at the DDC meeting of 8 December 1998, that the claims figures for Hurricane Georges were not of concern in relation to the materiality threshold. At that meeting Mr McClintock was reported to have stated the position in the following terms: "With respect to the PricewaterhouseCoopers report on the Forecast, Steve McClintock confirmed that the increase in the claims notified in respect of Hurricane Georges, which on present estimates may increase to an additional $35 to $40 million over that provided for and the good performance on MIPI of $35 million had been included in the unders and overs schedule with the total on the schedule now approximately $14 million, (subsequently revised to $15 million) and this amount is not material." (Blue 211) With (i) the claims figures thus apparently being stable at $60 to $65 million (corresponding to the additional $35 to 40 million over and above the $25 million provision) until the 7 January 1999 update, and (ii) given the materiality threshold being comfortably satisfied at 3% even at $65 million, there was in my view no reason to disturb the auditors' findings as to materiality and hence the forecast, based on what was known. b Recapitulation 726 Recapitulating, what emerges from the foregoing so far is as follows: (a) Mr Vines' only actual knowledge of the level of Hurricane Georges claims were the $25 million figure (from the time of release of the September results), the $67 million net estimates (from the time of release of the October results), the $60-65 million claims notification as at the meeting of 7 December 1998 and the $100 million figure (but only as at 7 January 1999). (b) Mr Vines' most up-to-date awareness of the actual figures as shown on the Hurricane Georges' register came through the 7 December meeting. He did not receive another update, though he thought he had arrangements in place to ensure that he would until 7 January 1999. In my view he had no sufficient reason for doubting that he was not being kept up-to-date. (c) He and the DDC, without demur from the auditors, based the profit forecast on the October monthly figures; these were able to be reviewed in time, rather than the November monthly figures which were not, there being but a week to finalise the profit forecast and Part B Statement. As it happens it was not till early December that the Hurricane Georges' register showed a higher claims loss than the $65 million assumed. (d) Mr Vines did not take steps at any stage to go behind the figures he received from time to time from Mr Fox, nor did he turn his mind to the precise method by which those figures were being calculated, accepting as he did that this was an operational matter for Mr Fox. (e) Mr Vines believed that any adverse development in Hurricane Georges claims levels that would affect the profit forecast, would be notified to him. (f) Mr Vines relied throughout upon the information provided by Mr Fox, who had operational responsibility in this reinsurance area, for the accuracy of Mr Vines' own understanding of Hurricane Georges claims as at 7 December 1998; that understanding was only corrected on 7 January 1999 with his learning of the escalation to approximately $100 million. 727 I have earlier set out the basis for Mr Vines' reliance upon Mr Fox. Put shortly, Mr Vines' had a supervisory role, not an operational role, so far as the reinsurance division was concerned. His duties were onerous and he had no reason to have any suspicion that Mr Fox, as executive director of GIO Re, had failed in his responsibility to provide a proper estimation of the extent of loss from Hurricane Georges. 728 I return now to the questions posed above. In relation to the primary question, as to whether Mr Vines should have made further enquiries or taken further steps to investigate the Hurricane Georges claims position, it would appear that, as Mr Vines saw the situation, there was simply no need to make further personal investigations. He was relying on Mr Fox to report to him any important information as and when it appeared and assumed in the meantime that whatever process had been adopted to analyse Hurricane Georges claims, would proceed without his involvement. Those figures which were in fact provided to him prior to the Part B Statement (being the $25 million and the $65 million figures, the latter only a day prior to finalising the Part B and the accompanying profit forecasts) would not, in my opinion, have been such as to put Mr Vines on notice that further investigation was required. They did not reveal an escalation in claims levels that would have been alarming to the extent that closer monitoring by Mr Vines personally could have been expected, in particular where that would involve a usurpation of the divisional role without apparent good reason and where cedants were apparently acting in a conservative and precautionary way in notifying claims. 729 In the event, I am of the opinion that Mr Vines' continuing to rely on Mr Fox was justified. I have earlier set out the basis for Mr Vines' reliance upon Mr Fox. He had no reason to have any suspicion that Mr Fox, as executive director of GIO Re, had failed in his responsibility to provide a proper estimation of the extent of loss from Hurricane Georges. 730 The cases concerning the capacity of officers to rely on others have principally concerned those officers who were directors of the company and within that class those who were non-executive directors. Observations in cases such as Daniels v Anderson (1995) 37 NSWLR 438 are primarily directed to non-executive directors. Indeed those considered observations by Clarke and Sheller JJA raise the standard for non-executive directors, so it is closer to those of executive directors. While not directly applicable to Mr Vines as a senior executive who was not a director, they carry some force by analogy to his supervisory role in the financial sphere in which he exercised it. 731 The degree of an officer's permissible reliance on others will turn on similar considerations as those that determine the overall standard of care for an individual director. They focus particularly on the characteristics of the company, the skills and experience of the officer concerned and the delegate, and the reasonably anticipated risks entailed in so doing. What is expected here is a level of scrutiny as befits supervision, not the detailed direct involvement that is associated with operational responsibility. Where there is no cause for suspicion nor circumstances demanding critical and detailed attention, it is reasonable for an officer to rely on advice, without independently verifying the information or scrutinising the data or circumstances upon which that advice is based (see Re HIH Insurance Ltd (in prov. liq); ASIC v Adler (2002) 41 ACSR 72 at 166–167). 732 In the present case, Mr Vines was an executive officer at a senior level rather than a company director. The difference in position raises the question, to what extent can the position of Mr Vines be compared to a director, for the purposes of determining the scope for reliance within the applicable duty of care? And second, did the appellant meet this standard? 733 As Chief Financial Officer Mr Vines was clearly operating on the higher plane of corporate strategy and managerial direction with functional responsibility for financial matters. He was not engaged in operations. 734 In my view, absent circumstances warranting intervention being brought to his attention, Mr Vines was in the position he occupied justified in relying upon Mr Fox to provide him with up-to-date information on the likely loss from Hurricane Georges. In that sense, he was not unlike a non-executive director. Nothing Mr Fox had done was such as should have excited the suspicion of a reasonably prudent chief financial officer in a similar position to Mr Vines' in GIO's circumstances. Nor do I consider that anything in Mr Vines' own responsibilities or skills should have given him any heightened sense that Mr Fox was misinforming him. There is nothing in the evidence to suggest he was or should have been on notice of any lack of competence on Mr Fox's part. 735 Did the position differ by 7 December 1998 so as to require proactive steps from Mr Vines and a cessation of sole reliance on Mr Fox? Here, one must grapple with what was said to be the significantly changed circumstances that attended the abandonment of any reliance upon the retrocession agreement, as a way of maintaining the profit forecast once PwC made clear in the first week of December 1998 that PwC would not accept that it was effective for this purpose. The trial judge, and ASIC's expert Mr Hogendijk, referred to this as giving rise to a "tight" unders and overs analysis with the MIPI redundancy being now the sole basis for supporting the $80 million profit forecast. It moreover depended, indeed crucially, on the $65 million loss estimate for Hurricane Georges remaining valid. With the retrocession agreement with Am Re no longer effective, the MIPI redundancy was no longer merely back-up but directly relied upon to support the profit forecast. 736 To conclude the position did differ so as to require Mr Fox to be bypassed by Mr Vines, is to my mind, judging matters in hindsight and with a counsel of perfection. I so conclude, taking into account what a reasonable person should have done in Mr Vines' position in GIO's circumstances. It should be remembered that at the end of November 1998 the Hurricane Georges' Claims Register would still have shown a potential loss of $60-$65 million; indeed the trial judge records (at [900] that "the Hurricane Georges register for 30 November 1998 recorded property claims as $59.7 million". It was only in the first week of December leading to finalising the Part B on 8 December 1998 that the register would have revealed a significantly worse position and trend though still, as I have earlier explained within the materiality threshold for the forecast. But on 7 December 1998 Mr Vines received the same assurance from Mr Fox as he had earlier received and with a plausible explanation for the acceleration in claims. In giving the management sign-off that was the subject of the fourth contravention, Mr Vines could fairly be said to have made all due inquiry, insofar as he again had Mr Fox's assurance. 737 Concededly the fact that the profit forecast was now based upon a tight situation would have justified Mr Vines looking himself at the Hurricane Georges' Claim Register, so far as the prospective loss from Hurricane Georges was concerned. But it does not follow that he was in breach of his statutory duty of care and diligence in failing to do so. That duty looks to a sufficient degree of care and diligence; it does not assume absence of any room for error of judgment. This step (of looking himself) would have meant what in practice? We are not told. But presumably it would mean Mr Vines bypassing Mr Fox and Mr Vines himself viewing the Register. It is unclear whether he would have also had to look at the relevant contracts and claims that had come in or whether there he could still rely on Mr Fox. Mr Vines, not himself an expert on reinsurance, would then really be usurping the divisional role. Mr Vines, while unaware of precisely how Mr Fox verified the state of claims, it must be remembered, had from Mr Murray's file note confirmation, from Mr Fox that notifications were $60-65 million. He also however had been given a plausible reason for the acceleration in claims, namely AMP's stated intention to review GIO's reinsurance business prompting cedants to notify early and on a precautionary basis. I discuss the implications of "proactive" steps below. 738 That the profit forecast now depended on a tight unders and overs analysis, itself confirmed by the auditors as correct and with still a 10% materiality threshold, does not to my mind tip the balance in favour of Mr Vines being in breach of his statutory duty of care and diligence unless he took proactive steps to verify Mr Fox's reasoned estimate of $65 million. The fact remained he had no reason to doubt Mr Fox's estimate even with its enhanced importance. Mr Vines having a dog on the job, did not need to bark as well, unless he had reason to believe the dog was asleep on the job. I conclude he did not. 739 The cases do not take matters much further. In Gould v Mt Oxide Mines Ltd (1916) 22 CLR 490 directors empowered a person who was not a director, officer or shareholder to draw cheques from the company's bank account and were subsequently held liable for losses arising through that person drawing a cheque for an unauthorised purpose. One need only state those facts to distinguish Mr Vines' position vis-à-vis Mr Fox from the directors in Gould (supra) who had clearly made an arrangement that was obviously imprudent and verging on improper; it therefore called for proper supervision. 740 That case may be compared to Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051. It was held that there was no breach of the corresponding provision of the Corporations Law. There a director had relied on another director who subsequently committed fraud. In that case the pair had previously worked together, there were no grounds for suspicion, a mutual contact had expressed no reservations about the other director and the defendant knew that the other director worked for a prominent commercial company. 741 In Daniels v Anderson (supra), grounds for suspicion are considered in similar terms. Clarke and Sheller JJA refer to a subset of that category akin to wilful blindness, where directors have been satisfied with superficial or inadequate answers on important issues that they have failed then to investigate further. They observe (at 502) that: "the law of negligence can accommodate different degrees of duty owed by people with different skills but that does not mean that a director can safely proceed on the basis that ignorance and a failure to inquire are a protection against liability for negligence". 742 Similarly in Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109 Ipp J (as he then was) emphasised that it was not permissible for a director to avoid responsibility by burying his head in the sand (at 159-161). In that case there were particular circumstances arousing suspicion that required the managing director in question to adopt a more inquisitive approach, and not simply rely on company officers. 743 The enquiry that is required to be made is what is adequate in the circumstances. It must necessarily take into account whether the officer concerned has been put on enquiry or should have been, as well as the risk involved in the transaction and its nature and the known competence of the officer relied on; compare Re HIH Insurance Ltd (in prov. liq); ASIC v Adler (supra) at 167-8. 744 Summing up: taking account of the nature of the transaction, Mr Vines did not cease to be justified in relying upon Mr Fox by reason of the criticality of the key parameter of the profit forecast as it had emerged by 8 December 1998 namely the loss from Hurricane Georges. The position was that if the loss from Hurricane Georges exceeded the estimated figure by an amount in excess of the materiality threshold, the profit forecast would need to have been adjusted downwards. But otherwise there was no call to do so, as PwC had confirmed that the MIPI redundancy was effective to maintain the profit forecast, even though it had become tight. 745 Having so concluded, it follows that the second question posed above in relation to what sort of enquiry and steps Mr Vines should have taken, had there been a requirement found for him to do so, becomes largely redundant. This is save perhaps to test whether further enquiry was required to avoid breach. In that regard, I ask what precisely Mr Vines would have been called upon to do in the event of a finding that further action was required. His Honour (with whom the Chief Justice agreed at [451]-[455] of his judgment) described a general responsibility for Mr Vines to have been "proactive" in taking steps to ensure that the monitoring process was continuing and was up-to-date. What that entailed is not stated. It presumably meant more than asking Mr Fox was he sure of his estimate, or how he had precisely made it. Neither would have likely led to a different result, or be calculated to do so. To insist on viewing the Hurricane Georges claims register, or the actual contract by contract claims, would be a far cry from the supervisory role properly exercised by a reasonable person in Mr Vines' position. It really would have "usurped" the divisional role. 746 The Chief Justice refers in his judgment at [452] to the fact that "exposure to Hurricane Georges had increased to $60-65 million in the month of November, that there was no basis on which it could be assured that the process had stopped" and that in the "tight" unders and overs context, Mr Vines was required to take proactive personal action. He further refers to the trial judge's comments at [241] of the trial judgment that "reasonable persons in the shoes of those responsible for the profit forecast would have [after the First Quarter Highlights] treated the development of the Hurricane Georges Loss as a matter to be kept under particular review". 747 However the trial judge took a more favourable view, though he is here dealing with the position pre-December 1998, namely as to the adequacy or otherwise of the arrangements between Mr Vines and Mr Fox after the First Quarter Highlights. I quote: "[1211] Mr Vines was entitled to assume, in the absence of some ground for thinking otherwise, that GIO Re had in place adequate arrangements for monitoring catastrophe claims experience and that those arrangements would apply to Hurricane Georges. He was also entitled to assume, in the same way, that any deficiencies in the monitoring arrangements would be addressed by the executive director. According to Mr Vines' evidence, which I accept, he believed adequate arrangements were in place and would be implemented. It follows that nothing had been brought to his attention that would require his intervention. [1212] Consequently ASIC's criticism of Mr Vines on the ground that he did not personally make enquiries, or personally ensure that inquiries were made, to obtain information about the development of Hurricane Georges claims, is misguided, For example, Mr Vines' evidence that he made no inquiry as to the claims position at the end of November … although he understood that later claims development might alter the assessment of ultimate loss … is consistent with the proposition that those updating inquiries were the primary responsibility of the executive director operating at the divisional level rather than the chief financial officer operating at group level." 748 This is an important conclusion. To my mind it remained no less valid throughout December 1998 and to 4 January 1999 when AMP's offer closed. That conclusion states in clear terms the trial judge's acceptance in principle of the arrangement between Mr Vines and Mr Fox as a reasonable one for a chief financial officer in Mr Vines' position to make. The circumstances of the company GIO did not so change as to alter that conclusion. The only change was the withdrawal of one of the two supports for the profit forecast, namely the auditor accepting the retrocession agreement as effective for the purpose. Though no longer with belt and braces, there was the now actuarially confirmed MIPI redundancy. That was sufficient, so long as the $65 million estimate held good (with the 10% materiality threshold tolerance). It is a view of the arrangement that I believe should be applied to the relevant period as a whole. The adequacy of the arrangement in place regarding the division of roles between Mr Vines and Mr Fox, and the consequent relationship of reliance by Mr Vines on Mr Fox for information related to Hurricane Georges, remained in my opinion reasonable. It meant that it was acceptable for Mr Vines to conclude as he did, that the likely loss remained $65 million. 749 There was nothing to suggest that salient information would not flow from Mr Fox to Mr Vines under that arrangement or that Mr Vines was no longer entitled to rely on Mr Fox in December to provide that information. The status of Hurricane Georges claims levels was, as far as Mr Vines knew, not predicted to shift so as to affect adversely the profit forecast. Hence no basis existed for Mr Vines necessarily to be unduly concerned, believing as he did that he would be informed of developments that were of concern. Likewise, the general conduct by Mr Fox of his operational role revealed no reasons for Mr Vines to entertain doubts as to whatever analysis process was on foot. That too, therefore, provided no basis for Mr Vines to be alerted to the need to usurp the divisional role in this case. 750 If one returns to the fundamental underpinning to the fourth contravention, paragraph 125 of the Statement of Claim alleges that Mr Vines "knew, or ought to have known" that "the assumption that Hurricane Georges' claims on GIO Re would be in the order of $60-$65 m, and that GIO Re's attritional portfolio did not show accelerated loss developments were false". 751 As I have sought to demonstrate, I do not consider that underpinning has been made out. In particular I do not consider that Mr Vines "ought to have known" that the estimated loss on Hurricane Georges' claims exceeded $60-$65 m, as he was entitled to rely on the assurances he had received in that regard from Mr Fox. 752 The essence of the declaration of contravention, as earlier quoted, is Mr Vines' "failure … to ensure that the Due Diligence Committee … was properly informed of all material aspects of the maintenance of the reinsurance profit forecast in the course of giving his management sign-off on 8 December 1998, and failed to inform the DDC that the achievement of the $80 million profit forecast was improbable". 753 The three factors entering into the profit forecast were first the unavailability of the American Re agreement, a matter known to all on the DDC. The second factor concerned the unders and overs analysis that had been confirmed by PwC and which was again known to the DDC as the basis for maintaining the profit forecast. None of this needed any reinforcement from Mr Vines. 754 The third factor entering into the profit forecast was that (in the words of the Honesty Judgment), "the estimate of Hurricane Georges' liability made by Mr Fox [was] correct". Again there could be no doubt that the DDC understood that factor. For reasons earlier stated, I consider that Mr Vines was not required by his duty of care and diligence to look behind Mr Fox's assurance on that matter. This is so even though, with the wisdom of hindsight, we know that Mr Fox's assurance was wrong. 755 The DDC clearly knew of the three factors upon which the profit forecast depended and were a sophisticated audience who did not need them repeated by Mr Vines. Equally important the Part B Statement again made clear that dependence. 756 The declaration of contravention is expressed in terms of the $80 million profit forecast being "improbable". It is not stated as a matter of Mr Vines' knowledge. He genuinely believed in the forecast as the trial judge found. Moreover, that conclusion of improbability is immediately qualified in the declaration by the words "unless the unders and overs analysis that has been considered at the PwC meeting and the estimate of the Hurricane Georges' liability made by Mr Fox were correct". The unders and overs analysis had been considered at the PwC meeting. Mr Vines was entitled to assume knowledge on DDC's part of the unavailability of the American Re agreement and had good cause to accept that the unders and overs analysis was correct, as subsequent events have confirmed. He had accepted Mr Fox's assurance of Hurricane Georges' loss level at $65 million. I do not consider he was required to inform the DDC in those terms that achievement of the profit forecast was improbable, with or without such qualification. The simple fact was that at the time he had reason to believe in the forecast as did the auditors, and did so. 757 One may accept that management sign-off made no specific mention of these matters. But for the reasons I have stated I do not consider that Mr Vines was in breach of his duty of care and diligence in failing to so state them in the circumstances. 758 Finally, in terms of the overriding duty to act in the interests of the company as a whole and by reference to the interests of shareholders present and future, accepting that Mr Vines had a reasonable basis for considering that the profit forecast would be maintained, there was no obligation upon him (a) to advise the DDC of its improbability, or (b) qualify further the statement of the basis for that profit forecast in any greater detail than was already stated in the Part B Statement. 759 I have referred earlier to the concern of shareholders during a hostile bid that the profit forecast should not be unjustifiably low. Hence the likely tendency of a profit forecast in these circumstances is to be at the higher end of the spectrum, though it must be genuinely accepted as appropriate and the law still requires that it must not contain misstatements or be without reasonable basis. We know in retrospect that this profit forecast was incorrect, but the question is still whether there was a reasonable basis for it. I discuss later the question of the significance of potentially unlawful conduct under the heading "The Contraventions as a Whole – a Perspective". c Conclusion 760 I conclude that the fourth contravention was not made out with respect to what was said by way of management sign-off by Mr Vines. 5 The Fifth Contravention: Advice to the Due Diligence Committee on 8 December 1998 761 The Chief Justice sets out the details of this contravention at [467] and following. I have under the fourth contravention set out the relevant portion of the Honesty Judgment summarising the trial judge's findings which underpin his conclusion. The declarations His Honour made are set out below. "3 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, to ensure that at the meeting on 8 December 1998 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, and his failure to draw the DDC's attention to the fact that Mr McClintock's figures had been taken from Mr Fox's statement about managements 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." 4 The First Defendant contravened section 232(4) of the Corporations Law as carried into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his provision, as an officer of that corporation, of an unqualified assurance about the group forecast to the DDC meeting on 8 December 1998 without making accurate and complete disclosure of all material circumstances that led him to believe that on balance the group forecast could still be achieved and adopted, and his failure to ensure 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. 5 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure as an officer of that corporation, to disclose to the DDC on 8 December 1998 Price Waterhouse Coopers' ('PwC') negative attitude to the American Re agreement, which was in terms a matter making it improbable that the profit forecast would be achieved, and by his failure to disclose some other balancing matters that might have assisted the company to reach the profit forecast." 762 I agree with the Chief Justice's rejection of the appellant's submission that the trial judge made findings outside the pleaded case or otherwise made findings of fact that were not pleaded. I also agree as to the relevant pleading (para (127)). It, like para (126) focuses upon whether Mr Vines knew of matters, or ought to have known of matters, which (objectively) made it improbable that the $80 million profit forecast would be achieved, yet made a statement to the DDC that he was comfortable with the integrity of the GIO Group forecast profit for the 1999 financial year. 763 However, I respectfully disagree that Mr Vines was in breach of that statutory duty of care, in failing to disclose those matters to the DDC. They were: (a) matters material to the estimate of loss from Hurricane Georges (the trial judge accepting his actual knowledge at 8 December 1998 was that it was between $60 million to $65 million); (b) inferentially, the MIPI redundancy amount; and (c) PwC's negative attitude to the Am Re agreement. 764 The trial judge in his reasoning indicates that a full disclosure of those matters, including the Am Re agreement, would in total have discharged Mr Vines' statutory duty of care. I disagree, essentially for the reasons I gave earlier in relation to the fourth contravention, including Mr Vines' entitlement to rely on Mr Fox as of 8 December 1998 without contravening s232(4). 6 The Sixth Contravention: Advice to the Auditor 8 December 1998 765 The Chief Justice sets out the details of this contravention at [492] and following. 766 The summary of this contravention in the Honesty Judgment is: "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])." 767 The declaration relating to this contravention is: "6 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Insurance Limited by confirming, as an officer of that corporation, to ('PwC') on 8 December 1998 that 'appropriate enquiries of other directors and officials of GIO' had been made." 768 I agree with the Chief Justice and with his reasons for allowing the appeal in relation to this contravention. I have earlier concluded, though here respectfully differing from the Chief Justice and the trial judge, that Mr Vines was entitled to rely on Mr Fox as of 8 December 1999 without contravening s232(4) as regards the anticipated loss from Hurricane Georges at $60 million to $65 million. 7 The Seventh Contravention: Conduct after 8 December 1998 769 The Chief Justice sets out the details of this contravention at [517] and following. 770 The summary of this contravention in the Honesty Judgment is: "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])." 771 The declaration relating to this contravention is: "7 The First Defendant contravened section 232(4) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) in relation to GIO Australia Holdings Limited by his failure, as an officer of that corporation, after 8 December 1998 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." 772 The trial judge's reasoning in finding a contravention made out, I quote below: "[1181] Mr Hogendijk expressed the opinion (affidavit, paras 197-8) that a competent chief financial officer would have understood that he was under a continuing obligation to be satisfied that later financial results did not undercut any statements to the market made in the Part B statement, or any aspect of the process leading up to the Part B statement, and in the circumstances the competent chief financial officer would least have called for the November results and any development in Hurricane Georges claims. [1182] In December 1998 there was no express statutory obligation for the target company to update its Part B statement so as to disclose material new circumstances (cf Corporations Act 2001, s 644(1)(c)). However, there was a 'continuous disclosure' statutory obligation for listed entities, not to intentionally, recklessly or negligently fail to comply with stock exchange listing rules concerning timely disclosure of material information to the market (Corporations Law, s 1001A). As chief financial officer, Mr Vines had a duty to exercise care and diligence to facilitate the listed entity's compliance with these requirements as regards financial matters. In circumstances where the company had announced to the market a profit forecast which was highly material to the impending decision of shareholders whether to accept the AMP bid, and it had become clear that adverse development in Hurricane Georges might impact on the profit forecast in the absence of protection by the American Re agreement, notwithstanding an unders and overs analysis, Mr Vines had a duty to exercise care and diligence to the statutory standard, to ensure that the development of Hurricane Georges was monitored during December 1998 (cf Mr Hogendijk, affidavit para 202). [1183] Mr Vines' evidence was that he expected the reinsurance division to monitor Hurricane Georges in accordance with its usual practices and to report any material adverse development to him. In my opinion, while it was adequate for Mr Vines to assume that in Hurricane Georges would be monitored in the usual fashion at a divisional level up until 7 December, the situation changed after that day. PwC's decision not to accept the American Re agreement, and the reliance placed on a 'tight' unders and overs analysis, made it urgently necessary for those with central responsibility to the parent entity for keeping the market informed during the currency of the bid to have a clear and up-to-the-minute understanding of the development of Hurricane Georges claims. Mr Vines was one of the executives who had that responsibility, because of his position in respect of the takeover defence and due diligence process, and in light of the impending board decision on the Part B statement and profit forecast. Once that decision was made, Mr Vines' duty to exercise care and diligence to facilitate the parent company's compliance with the continuous disclosure listing rule meant that it was necessary for him to be sure that the monitoring arrangements: upon which he had previously relied, were continuing in the new circumstances. [1184] That did not mean it was necessary for him personally to review the Hurricane Georges register or any other such information. But it was necessary for him to take care to give directions to ensure that the work was done at the divisional level, and that its results were brought forward promptly to the appropriate senior corporate officer so that an assessment could be made about further disclosure." 773 I agree with the Chief Justice and with his reasons in rejecting the grounds of appeal relating to sufficiency of particulars and to the findings at [1184] being outside the pleaded case. 774 I respectfully differ from the Chief Justice that Mr Vines was in breach of his statutory duty of care in the respect set out in the declaration. My reasons are these. 775 First, it is clear that no direction was needed from Mr Vines to ensure monitoring arrangements were continuing at the divisional level. We know from Mr Fricke's evidence that they were continuing; see [527] to [538] of the Chief Justice's judgment. That such direction should also have required that the results be brought forward promptly to the appropriate senior corporate officer so that an assessment could be made about further disclosure to the market would only be made out if it could be shown that Mr Vines should have been that officer, rather than Mr Fox. 776 But to my mind Mr Fox, to whom those results had in fact been brought, was the appropriate senior corporate officer, being the chief executive of GIO Re. Mr Vines' responsibilities, as I have said, were supervisory not operational. He was not a director including of GIO Re. His responsibilities were those of a heavily burdened group Chief Financial Officer, and did not require him to receive such divisional information. He was entitled, without beaching the statutory standard of care, to continue to rely on Mr Fox informing him should a greater Hurricane Georges' loss emerge than his estimate, made again most recently at 7 December 1998, at $60-$65 million. Indeed ASIC's expert Mr Hogendijk accepted that Mr Vines could reasonably expect to be informed by Mr Fox (or Mr Schneider or somebody else in the reinsurance division) if Hurricane Georges started to blow out after 8 December 1998 (Black, 151R-152S). I respectfully consider that the trial judge was in error in not accepting that assessment. 777 That there was a continuing disclosure obligation on GIO does not to my mind alter the position so as to render Mr Vines in breach of the statutory standard of care. Nor was it altered by the unavailability, in the view of the auditors, of Am Re as effective retrocession cover. Thus I do not accept that Mr Vines' responsibilities fundamentally changed on 8 December 1998 just because (a) finalisation of the Part B Statement was occurring, (b) the profit forecast was now wholly reliant on the MIPI redundancy, and (c) it was tight. The fact remained that had the $60-$65 million estimate held good, the profit forecast could be maintained. That indeed was PwC's view, as reported in the Part B Statement disclosed to all shareholders in the careful manner I have described. 8 The Contraventions as a whole – a Perspective 778 Appeal ground 3 is as follows: "The trial judge erred in failing to hold that, in the context of statutory provisions capable of attracting consequences so blameworthy as to be punishable by the civil penalty orders including disqualification from acting as a director or officer of a corporation, the standard of care and diligence by reference to which a director or officer's conduct fell to be assessed was no different than in the case of a common law negligence claim against a director or officer (see principal judgment at [1086]-[1096])." (appeal ground 3) 779 I have earlier agreed with the Chief Justice that the fact that the statutory duty is attended by civil penalty does not require ASIC to demonstrate any greater deficiency of care and diligence than would have been the case without civil penalty. However, there are some other significant differences, as well as substantial equivalence, when it comes to comparing the common law of negligence to the statutory standard of care and diligence. Those differences can have a significant effect in turn on the result in a particular case, as here. First , the essential starting point in determining whether there has been breach of the statutory standard of care and diligence is to identify what powers are being exercised and what duties discharged. I mean here both legal duties and executive duties assumed. Duties assumed are necessarily shaped by an officer's on-going legal duties; it would be artificial in the extreme to separate them. Legal duties necessarily encompass the fundamental duty to act in good faith in the interests of the company under its traditional formulation of shareholders, present and future. For Mr Vines, as an executive officer with fiduciary obligations, in the words of Cardozo CJ, acting honestly in dealing with GIO and its shareholders was necessary but not enough ( Mernhard v Salmon 249 NY 458 (1928); 164 NE 545). But beyond that, Mr Vines was required to act with care and diligence, that duty necessarily to be accommodated to acting in the interests of the company as a whole. The latter places primary emphasis on the interests of existing shareholders who have risked their capital in the hope of gain, with a proper balancing between short and longer term. That for the present context may properly justify a takeover defence pursued in good faith, directed to achieving the best possible outcome in the interests of shareholders of GIO, as understood at the time; compare Darvall v North Sydney Brick & Tile Co Ltd (1987) 16 NSWLR 212. That consideration necessarily enters into the court's appraisal of the conduct said to be in breach of the statutory standard. Second, unlike the tort of negligence whose gist is damage, detriment does not need to be shown though its absence in a successful prosecution would be rare indeed; see Vrisakis (supra) per Ipp J at 213. Detriment is connected to the officer's overarching duty to act in the interests of the company, and to balance reasonably foreseeable risk of harm to the company against potential benefits to the company. That this detriment was at risk of occurring or indeed did eventuate, does not of itself establish breach of that officer's duty: (a) to act in the interests of the company and its shareholders, or (b) to exercise the statutory standard of care and diligence. Rather that question is answered by reference to what was in the circumstances reasonably foreseeable at the time in order to determine without retrospective hindsight what could reasonably be viewed as a reasonable balance between risk and benefit in the company's circumstances. Third, it must not be overlooked that exposure to risk is a concomitant of business activity aimed at securing benefit for the company and its shareholders, present and future. 780 What is here unusual about the contraventions as found, whether considered singly or in combination, is fourfold: First : (i) Detriment on one view of matters was suffered by the holders of 43% of the shares in GIO who did not accept the AMP offer insofar as they, did not accept the offer but remained as minority shareholders. (ii) there is also a possible countervailing detriment both they and the remaining 57% who sold would have suffered if the error in the profit forecast had been picked up in time and the profit forecast adjusted significantly down. What follows is on that hypothesis. It is possible that AMP might have sought to withdraw, or reduce its bid, based on the true facts revealed by the corrected forecast. This would be either by invoking ASIC's discretion to permit withdrawal under s653-4 of the Corporations Law or, if a condition in the bid (such as material adverse change to GIO's financial condition permitted this, invoking that condition or minimum acceptance condition). (iii) I consider withdrawal first. Withdrawal, which would have required ASIC's consent, is the subject of ASIC Guideline PN 59. It, while making clear ASIC requires exceptional circumstances, identifies a further class of case that ASIC will consider. This is where, though there be no express condition to that effect, there is such a change in commercial circumstances which make it unreasonable to require the bidder to proceed; see Renard and Santamaria "Takeovers and Reconstructions in Australia" at [917]. If that case were based principally on the falsity of the profit forecast, as repeated in the Part B it would face the difficulty that the bid, though not its increase on 9 December 1998, pre-dated the forecast. If a material adverse change of circumstances were relied upon, an obvious response is that this could have been protected against by a condition in the bid, if indeed there were such a condition. Hence ASIC's likelihood of consent to total withdrawal is a matter of speculation, there being no evidence on the matter. However, the case would have been considerably stronger, if the only thing sought to withdraw was the bid increase as it was made only after the Part B statement and the profit forecast. (iv) Alternatively, if the bid had a condition which AMP could rely upon based upon a material adverse change in GIO's financial condition or, as is likely minimum acceptance, that would be expected to be invoked by AMP had it learned of the erroneous profit forecast in time. (v) But for all shareholders revision downwards of the profit forecast would as a matter of common sense lead to an at least corresponding reduction in the share price save to the extent underpinned by AMP's bid, that underpinning being dependent on the bid not being capable of withdrawal or being terminated by invoking a condition permitting this; the bid increase would almost certainly not have occurred or remained. Second : GIO itself as an ongoing commercial entity, though it remained at the time only a partly- owned subsidiary of AMP under a hostile takeover, did not suffer any identified detriment. Indeed no case was sought to be made out that Mr Vines' action caused any loss to GIO or GIO Re. Third: So far as Mr Vines was concerned, as emerges from the Honesty Judgment, there was no deliberate unlawful conduct found but rather there was a finding that Mr Vines acted honestly, the non-disclosures were not made with any intention to deceive and were not flagrant. Moreover, Mr Vines did not obtain any personal gain from the contraventions and was not conscious of any impropriety on the part of others. Fourth: It is true that the Part B Statement was found in retrospect to have over-stated the future profit of GIO Re by reason of the failure by the DDC and GIO's board to appreciate the likely level of loss from Hurricane Georges was not as represented by Mr Fox but much higher. But it does not follow that this gave rise to any corporate breach for example of s670A(2) requiring "reasonable grounds for making the [forward-looking] statement". 781 The question is whether Mr Vines, in maintaining the profit forecast despite what Hurricane Georges portended, failed properly to balance "the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question" (Vrisakis at 212-3 per Ipp J). This must be judged by what Mr Vines knew, or reasonably should have known, at the time, not with the wisdom of hindsight, but by reference to a reasonable person in his position and in GIO's circumstances. 782 The reasonably foreseeable risk of harm identified by the trial judge (at [1074]) so far as shareholders of GIO were concerned, was that, by being left in a position of "making their decision whether to accept or reject the AMP takeover bid on the basis of inaccurate or incomplete information", some might decide not to accept the takeover offer. The risk to them, his Honour found was "that they would find themselves locked in a minority position" in GIO after "management control has passed under the bid". That occurred, with the consequences I have earlier described. 783 The countervailing risk from the profit forecast collapsing was as I have described above. At the least, accepting shareholders would likely not have received the increase in their bid, if the profit forecast had been adjusted downwards before the bid's increase on 9 December 1998. They also would have faced a significant reduction, at the least, in their share price, depending on whether AMP could have withdrawn its bid with ASIC consent (see above) or invoked a bid condition. That only 57% accepted suggests that the standard minimum acceptance condition could have been invoked unless of course the hypothesised correction downwards of the profit forecast led to a stampede to accept before the offer closed. 784 The fundamental point is that one cannot consider detriment without also considering what would have happened had the steps been taken that would have led to the profit forecast being adjusted downwards. This is from the viewpoint both of those who accepted the AMP offer (57%) as well as those who did not (the remaining 43%). So viewed, detriment is by no means clear-cut. To the extent detriment is relevant, it must be established by reference to the Briginshaw standard and in my opinion it was not clearly established. Indubitably some shareholders (43%) suffered by not selling into the bid, but the degree of their detriment is unclear once one hypothesises correction to the forecast. 785 In speaking of the interests of shareholders present and future, I have so far directed attention to the existing shareholders of GIO, whose board was faced with a hostile takeover. Could it be said that the interests of the AMP should be taken into account as a future shareholder, with as events occurred, 57% of GIO when the offer closed? 786 The short answer is that considering the interests of future shareholders in my opinion means no more than considering the long-term interests of the company; see the discussion by Renard in Finn (ed) "Equity and Commercial Relationships" (1987) at 138; Gower (1955) 68 Harv Rev 1176 at 1184 and Ford's "Principles of Corporations Law" at 8.095. 787 But even if the position were otherwise (compare Helsham J in Provident International Corporation v International Leasing Corporation [1969] 1 NSWLR 424 at 440), AMP's interest as a future shareholder was at the time contingent only; its bid might not succeed. Moreover, AMP's interest was a conflicting one. It was to purchase the company GIO as cheaply as possible so paying the existing shareholders no more than was needed to succeed. Whereas, the existing shareholders of GIO would have wanted the opposite by way of benefit; to be in a position to have the benefit of maximising their sale price, should they elect to sell or be forced to sell under compulsory acquisition. Even if they elected to retain their shares they would not want the share price to collapse. However, in any of these contingencies their legitimate expectation was to have a profit forecast that (a) did not understate the profit forecast, but (b) was fairly justified on reasonable grounds based on the known facts. 788 Where the interests of existing and future shareholders are in that kind of conflict, I do not accept that the interests of a contingent future shareholder should prevail over the interests of existing shareholders who have already risked their capital in GIO. I shall return below to the question of lawfulness, merely noting that so far as concerns the AMP as a future shareholder, and as a bidder in a hostile takeover, it may well have had remedies should the profit forecast in the Part B Statement have breached the law in terms of disclosure. 789 But as against those risks actual and theoretical from maintaining the profit forecast, there was the undoubted risk that, if the forecast had to be adjusted downwards, shareholders at the least would not have received the increase in AMP's offer depending on whether this occurred before or after the increased bid was announced (9 December 1999). Shareholders might well have faced other adverse consequences based on a lower price for their shares. The potential benefit to GIO and its shareholders was the reciprocal of that, namely maximising the price from AMP and saving shareholders from being forced sellers or having to sell for less. That readily explains why Mr Vines, the DDC and GIO's Board all sought to maintain the profit forecast, first by a retrocession agreement and then when it proved ineffective, by utilising the MIPI redundancy to maintain the profit forecast. There was no evidence that Mr Vines did not genuinely believe the profit forecast was other than appropriate, in an objective sense. 790 I would not accept that Mr Vines deliberately shut his eyes to the scale of anticipated loss from Hurricane Georges, or that he accepted Mr Fox's assurance because he did not himself want to look too closely. As I have earlier explained, under the heading "The Fourth Contravention", the evidence does not support a conclusion that he had grounds for suspicion. Nor, for the reasons there explained, do I consider that a reasonable person in Mr Vines' position should not have relied on Mr Fox, but taken proactive steps, whatever they were, to ascertain the Hurricane Georges' loss position for himself. Thus in my judgment he was not required to look behind Mr Fox's assurances from the first week in December 1998 by the way the profit forecast came no longer to be supported by the Am Re retrocession agreement but only by the MIPI redundancy, and was tight. That we know in retrospect that the profit forecast was unjustified does not alter the fact that Mr Vines did not know that its key parameter, the likely loss from Hurricane Georges, was not as he was assured by Mr Fox. Nor does the evidence support the conclusion that a reasonable person in his position in GIO's circumstances should have known otherwise. 791 But I should here make one thing emphatically clear. That benefit of a forecast at the upper end of the spectrum does not justify supporting a forecast not genuinely believed in as appropriate. Nor would it have justified Mr Vines deliberately putting GIO at risk of prosecution if he knew or had reason to believe there was: (a) a misstatement in the Part B Statement, or (b) there were lacking in a forward looking statement reasonable grounds for the forecast, or (c) a failure to comply with continuous disclosure requirements, or (d) otherwise, no sufficient objective basis for the profit forecast. The evidence falls short, arguably well short, of establishing any of the above. Nor is there any evidence that he acted simply to frustrate the AMP takeover whether to preserve his own position or for any other improper reason. There has been no prosecution of GIO itself revealed by the evidence, nor of its directors. The evidence does not establish Mr Vines deliberately set about putting GIO, its directors or himself at risk from a course of unlawful conduct or had no sufficient regard for the legal obligations attendant on publishing the profit forecast or not correcting it after 8 December 1998. Had it been otherwise Mr Vines could not have been excused by any motive of securing a higher bid for shareholders or maintaining the current bid. Applying as one must the objective test of a reasonable person in Mr Vines' position in GIO's circumstances does not to my mind yield any different result. 792 By reference to what a reasonable person would have done in the circumstances, even if Mr Vines arguably may have made errors of judgment in maintaining the profit forecast, or in not looking behind Mr Fox's assurance, to my mind is not enough to establish breach of the statutory standard of care and diligence, or indeed skill. If errors there were, they were not to my mind of that order. I accept that skill is to be implied and takes its content "from the standard of proficiency that could be expected from persons undertaking such work"; being here that of a chief financial officer (Daniels v Anderson at 455). I have applied that standard here in reaching the conclusions I have. 793 I need here to refer to the way the trial judge expressed the standard of care and diligence. While I agree with it in the broad, in terms of what the situation called for, I consider the primary emphasis should not be to "protect those involved in the [due diligence] process from liability should a defect later be discovered in the document". Rather the imperative was to further the interests of the company, taking into account the interests of shareholders as they arose "in GIO's circumstances". Those circumstances were a hostile takeover evoking the shareholder concerns that I have earlier described but with a proper care to act lawfully. The latter necessarily encompassed endeavouring to put out a profit forecast that complied with the law in terms not only of not being misleading, but as genuinely considered appropriate on objective grounds. I quote what the trial judge said below: "[1084] It was plain to anyone who read those documents, and must have been plain to the defendants, that the information given to the DDC would be considered for inclusion in the Pt B statement. The same is true of information given to PwC, since it was well-known that PwC Securities was preparing a report upon which the DDC and the board of directors of GIO Australia Holdings would rely for the purposes of the Pt B statement. The criterion to be applied in deciding whether the information that filtered up through the due diligence process would be included in the Pt B statement was whether the information was material to the decision of GIO shareholders whether to accept or reject the AMP bid. Clearly matters significantly affecting the profit forecast would meet that materiality standard. [1085] In my opinion, consistently with the case law on the general law of torts to which I have referred (such as Mercer v Commissioner for Road Transport and Tramways (NSW)), the matters that I have described affected the standard of care and diligence to be met by the three defendants. When they provided information for the purposes of the Pt B statement, either to the DDC or to PwC, their standard of care and diligence was influenced by the circumstance that the information was provided within the framework of a due diligence process that was designed to ensure adequate and materially complete disclosure to GIO shareholders in compliance with the law and in a fashion that would protect those involved in the process from liability should a defect later be discovered in the document. These circumstances made it necessary for the defendants to take particular care in providing information. Moreover it was or should have been clear from the questionnaire that it would not be enough for them to confine their attention to what they knew, in circumstances where they could uncover material information by appropriate inquiries. It was apparent that the DDC was relying on senior executives including the three defendants to give their conscientious and careful attention to the documents they were asked to complete and to the information they were to provide in other contexts, such as in discussions with PwC." 794 Risk is entailed in making and maintaining a profit forecast in the first place. But as Ipp J said in Vrisakis, the management and direction of companies involves taking decisions and embarking upon actions which may promise much, but can be fraught with risk. 9 Summation 795 (i) I consider that, though detriment of itself need not be shown for breach of s232(4) though usually a feature, there was in the conduct of Mr Vines no such imbalance between reasonably foreseeable risk and benefit as to constitute such a breach. I refer here on the one hand to the foreseeable risk Mr Vines incurred in his maintaining the profit forecast (and the earlier media release) relying on Mr Fox as he did throughout as to loss from Hurricane Georges and on the other, the potential benefits to shareholders from so doing. This supports a conclusion that none of the seven contraventions were made out. (ii) I say "supports a conclusion" because that conclusion also crucially depends upon whether, in the discharge of Mr Vines' duties both at law and specifically imposed in relation to the due diligence aspects of GIO's takeover defence, a reasonable person in his position could (not would) have held back from taking any " proactive " steps beyond continuing to rely upon Mr Fox to give him updated information on the net loss from Hurricane Georges. This is in Mr Vines communicating to the due diligence committee for the purpose of finalising the profit forecast in the Part B Statement. (iii) For reasons I have earlier elaborated under the Fourth Contravention, a close analysis of the evidence supports a conclusion in favour of Mr Vines on reliance, including the fact that, as minuted by Mr Murray, there was a plausible explanation for the sharp rise in claims based on a perception of cedants that AMP would take a different approach to reinsurance claims, so accelerating the recording of possible claims as a precautionary measure. (iv) Other factors include the enormous work load that Mr Vines was carrying, his supervisory rather than operational role and the fact that nothing had emerged which would have given ground for suspicion that Mr Fox was not telling him accurately what the claims register would have revealed. (v) The mere fact that as at 7 December 1998 the retrocession agreement had ceased to be available as a support for the profit forecast, leaving it supported, albeit with less tolerance for error by an unders and overs analysis does not to my mind justify a different conclusion as to the reasonableness of Mr Vines' reliance on Mr Fox. The fact remains that the auditors were satisfied that the so-called "tight" unders and overs analysis was correct and within the materiality threshold, so allowing the profit forecast to be maintained. This was so stated in the Part B Statement along with appropriate cautions to those reading it concerning this profit forecast and profit forecasts generally. That level of "tightness" was not to my mind a clear enough call to Mr Vines to usurp Mr Fox's role with proactive intervention of his own. (vi) Even if there was error of judgment in not taking proactive steps, there still remains the question what would have sufficed by way of proactive steps. There is the fundamental point that a mere error of judgment does not of itself connote a breach of the statutory standard of care and diligence. The error must reflect such a degree of lack of care and diligence as to breach the statutory standard. (vii) It should be borne in mind that the conclusions above do not mean that there is no sheeting home of responsibility on anyone within the corporate hierarchy from director to those involved in the operations. Rather it reflects a conclusion that the responsibility should here be sheeted home to those responsible in operations for assessing the loss from Hurricane Georges at a time when that was the crucial variable behind the $80 million element of the profit forecast. (viii) It is, with respect, simplistic to view the failure to take proactive steps here as a failure to carry out Mr Vines' duties to ensure that shareholders receive accurate information to enable them to decide whether or not to accept what was viewed by GIO's board as a hostile bid. First : it ignores the fundamental duty that Mr Vines had to act in the best interests of the company and its shareholders, present and future, with particular reference to ensuring that existing shareholders were not left with an unjustifiably depressed share price at a time when they were most vulnerable to having their shares acquired for less than their proper price. While there was a countervailing interest in making sure that shareholders did not hold on to their shares when objective circumstances would have justified selling, it is simplistic to elevate the latter concern over the former or to ignore the effect of adjusting the profit forecast downwards. Second: it must be remembered that this was a hostile bid where the board had taken the view, rightly or wrongly, that GIO's offer was too low; there is however no suggestion that that view was not genuinely held and was the context in which Mr Vines himself was called upon to exercise his powers as well as discharge his duties. While there is no suggestion that he was so acting to protect his position post takeover, a defence based upon a genuinely held view that the offer price was too low, necessarily would have led to a concern to maintain the profit forecast for so long as it was genuinely held as being the appropriate measure of GIO's prospects. Again, there is no suggestion that Mr Vines was other than honest, even if in retrospect mistaken, as to his assessment of those prospects. (ix) In sum, and with due respect to those holding a different view, I consider that Mr Vines did bring to bear the degree of care and diligence, and implicitly skill, called for from a reasonable person in his position, in the circumstances in which GIO found itself. Section 232(4) does not call for perfection, still less judged retrospectively. Nor does it preclude errors of judgment, though their appraisal depends, inter alia , on the seriousness of their potential consequences for the company. But not just for the company. Under the parallel duty to act honestly in the interests of the company as a whole, consideration must also be given to the interests of GIO's shareholders, present and future. That overarching duty must be accommodated in considering the scope of duty of care and diligence owed to the company. Though it could have been otherwise, no adverse consequences befell GIO, whilst the majority of its shareholders were better off. However, a minority did not accept the bid when they might have done with a less optimistic forecast – but only so long as the bid had remained on foot. On any view if the profit forecast had been withdrawn the bid would not have been increased and might conceivably have been withdrawn altogether though there is no definitive evidence on this. What is called for is a fair appreciation of what constituted reasonable conduct in the prevailing circumstances of a hostile bid, where Mr Vines and the board's intention as well as fiduciary duty was to get the best possible outcome for shareholders endeavouring at all times to act within the law. I consider Mr Vines sufficiently satisfied the statutory standard even if it could be said with the wisdom of hindsight that he committed an error of judgment in not checking the position for himself and continuing to rely on Mr Fox. XXII OUGHT MR VINES FAIRLY TO BE EXCUSED? 796 I consider that this appeal should succeed and would so order with the respondent to pay the appellant's costs. But were I wrong in concluding that no contraventions occurred I would myself conclude in favour of the appellant in his application for relief from liability under s1317JA and s1318 of the Corporations Act, and thus uphold the appeal from the Honesty Judgment. 797 The trial judge concluded that Mr Vines acted honestly. The contraventions found against Mr Vines, on this assumption, are on appeal only the fourth, fifth and seventh. The statement by the trial judge at [87] to [93] in the Honesty Judgment, particularly [89] needs to be read now with that important qualification, which weakens the conclusion as to their cumulative seriousness. I quote: "[87] Except for item (7), my findings of contravention were failures to exercise due care and diligence by misleading or inadequate disclosure of material information to the board of directors or the DDC. The defective disclosures 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. [88] The elements of materiality, knowledge and reliance make it difficult, per se, to present a case for excusing the contraventions which have those ingredients. These elements also make it difficult to argue that Mr Vines' conduct was in any meaningful sense "reasonable" or (given the finding of failure to meet the standard of reasonable care and diligence) "unreasonable only on balance". In respect of the contraventions other than item (7), Mr Vines was aware of material information that he ought to have presented to the board or the DDC, which (as he knew) were relying on him to present them with financial information material to their decisions on important matters relating to disclosure to investors, and he did not do so. That is unreasonable conduct. As regards item (7) of the contraventions, it was also unreasonable for Mr Vines not to take appropriate steps to ensure that the monitoring arrangements in respect of Hurricane Georges claims continued after publication of the Pt B statement, so that an assessment could be made at a senior level about further disclosure to the market, given his knowledge by 8 December of the progress of Hurricane Georges claims. [89] Further, I agree with ASIC (written submissions at [89]) that the contraventions are not eleven separate, isolated incidents. One can perceive in them a continuity and a pattern. Considered together, the contraventions paint 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 Pt B statement and the profit forecast. Rather than discharging that responsibility, 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. To the extent that he decided not to give the board information on certain material matters, he effectively substituted his own decisions for board decisions. The seriousness of the contraventions . [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 Pt 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 Pt 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." 798 Insofar as the fourth, fifth and seventh contraventions have as their core element, Mr Vines' continued reliance on Mr Fox, the assumption that I now make that he was in breach in doing so, presupposes not dishonesty or any improper motive, but a reliance on Mr Fox that, as from 7 December 1998, was unjustified. That invoked for the first time a finding of deficiency in the degree of care and diligence required of Mr Vines' under the statutory standard. 799 On the assumption I now make (of contraventions 4, 5 and 7 being made out but no others), Mr Vines was guilty of a failure to appreciate that the "tightness" of the unders and overs analysis, no longer supported by an effective retrocession agreement, required him to take proactive steps to ascertain the loss from Hurricane Georges. He failed to do so. There is no dishonesty. It follows in my view that he continued to believe in the profit forecast, rather than that he thought it improbable. 800 His shortcoming on the assumption I now make was an error of judgment, albeit leading to the profit forecast being maintained by the directors, with adverse consequences for those shareholders who did not accept AMP's offer, relying on a profit forecast that proved far too optimistic. The majority and GIO itself, suffered no detriment though the minority did, in failing to accept the bid. What that detriment would ultimately have become if the profit forecast had been corrected downwards does however need to be considered. There is little doubt that there would have been detriment in that circumstance also. To the extent the degree of detriment overall is relevant to whether an officer ought fairly to be excused, I do not find a high degree of it here. 801 It has not moreover been established that Mr Vines thereby led GIO, or its directors, to be in breach of the law, and in particular the Corporations Law, though the profit forecast insofar as based on a $65 million loss, was indubitably wrong. The most that could be said is these events put GIO and its directors at risk of breaching the law, though I emphasise, with no suggestion of dishonesty on Mr Vines' part. 802 In all the circumstances, I would conclude that Mr Vines ought fairly to be excused under the relevant provisions of the Corporations Act, recognising that I am here, as the Chief Justice explains, invoking the principles reflected in Warren v Coombes (1979) 142 CLR 531 rather than in House v The King (1936) 55 CLR 499, in relation to what is a broadly based value judgment under appeal. 803 However, on the assumption of contraventions 4, 5 and 7 being upheld and no relief being allowed, I would agree with the Chief Justice that detailed submissions need to be made with respect to penalty, affected as it is by the outcome of this appeal from the contraventions judgment. XXIII OVERALL CONCLUSION 804 I would propose orders as follows: (1) Appeal allowed. (2) Respondent to pay appellant's costs at trial and on appeal. (3) Set aside the orders made by Austin J on 9 August 2006 including the declarations made by Austin J in those orders. (4) Declare the appellant did not contravene the Corporations Act as alleged by the respondent. IPP JA: XXIV THE ISSUE ADDRESSED IN THESE REASONS 805 I have had the considerable benefit of reading the reasons to be published by Spigelman CJ and Santow JA. Their Honours agree in respect of contraventions 1, 2, 3 and 6. The Chief Justice would dismiss the appeals in respect of the fourth, fifth and seventh contraventions. I agree with the reasons of the Chief Justice and the orders proposed by him. 806 The difference between the Chief Justice and Santow JA "ultimately turns on whether Mr Vines was in breach of the statutory standard of care and diligence in continuing to rely on Mr Fox on and from 7 December 1998" (see Santow JA at [590]). Mr Vines' reliance on Mr Fox, that is in issue in regard to the fourth, fifth and seventh contraventions, concerns the estimated loss from Hurricane Georges and the profit forecast published in the Part B statement (and elsewhere). The principal question that arises is whether Mr Vines breached his statutory duty by not taking appropriate steps to assess the reliability of that estimate and forecast. 807 The issues that have given rise to this difference are fundamental to the determination of the appeal in regard to the fourth and fifth contraventions and bear to a significant degree on the seventh contravention. In view of their importance, I shall set out, in my own words, why I have concluded that Mr Vines contravened 232(4) of the Corporations Law in the respects I have indicated. XXV THE RELEVANCE OF BRIGINSHAW 808 Before coming to grips with the relevant factual issues, I propose to deal with some questions of law that bear on the issues for determination. The first is the relevance of the remarks of Dixon CJ in Briginshaw v Briginshaw (1938) 60 CLR 336. 809 Throughout these proceedings, reference has been made to the Briginshaw test and the Briginshaw standard. But, in my view, Briginshaw is of limited assistance. 810 Dixon CJ said in that case at 361 to 362: "Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences". 811 Nothing in Briginshaw detracts from the proposition that a serious allegation might be proved by "circumstantial evidentiary facts" and "inference and circumstance" (see Dixon CJ at 366). 812 A more recent decision by the High Court on the same issue is Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992) 67 ALJR 170 where Mason CJ, Brennan, Deane and Gaudron JJ said at 171: "[T]he strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct". 813 In Palmer v Dolman [2005] NSWCA 361, with the agreement of Tobias JA and Basten JA, I said at [47]: "The more recent authorities to which I have referred, and s 140 of the Evidence Act 1995 (NSW) make it plain that there are no hard and fast rules by which serious allegations might be proved from circumstantial evidence. The inquiry is simply, taking due account of what was said in Neat Holdings Pty Limited v Karajan Holdings Pty Limited , has the allegation been proved on a balance of probabilities". XXVI THE POTENTIAL HARM TO GIO ARISING FROM MISLEADING PROFIT FORECASTS AND ITS RELEVANCE TO MR VINES' DUTY 814 In Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449 to 450, I expressed the view that no act or omission is capable of constituting a failure to exercise care and diligence unless at the time it was reasonably foreseeable that harm to the interests of the company might be caused thereby. I expressed the view that the duty of a director to exercise a reasonable degree of care and diligence cannot be defined without reference to the nature and extent of foreseeable risk of harm to the company that would otherwise arise. I pointed out that the question whether a director has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question. 815 GIO's profit forecasts were made in connection with AMP's hostile takeover bid for the shares in GIO. The profit forecasts were not made in the course of the ordinary trading business of GIO; that is, in the course of its insurance business. They were made in the course of the management of GIO attempting to discharge their statutory obligations arising out of the fact of the takeover bid. This context is relevant to the assessment of whether Mr Vines exercised a reasonable degree of care and diligence in the discharge of his duties. 816 Management's involvement (and that of Mr Vines) in estimating and publishing profit forecasts in the course of defending AMP's hostile takeover bid gave rise to only one potential benefit to GIO, namely, due compliance by the company with its statutory obligations. 817 On the other hand, the foreseeable risk of harm to the company, should its profit forecasts be wrong and misleading, were grave. I refer in this regard to ss 670A, 995 and 1001A of the Corporations Law. 818 Section 670A, if contravened, gives rise to criminal offences. Section 670A(1) provides, in effect, that a person must not "give" a misleading or deceptive statement in a Part B statement. A person is taken to make a misleading statement about a future matter "if they do not have reasonable grounds for making the statement". Under the Corporations Law (s 85A), a reference to a "person" includes a reference to a body corporate. By Schedule 3 to the Corporations Law, the penalty for contravening s 670A is fifty penalty units (or imprisonment for 1 year, or both). 819 Section 995, if contravened, gives rise to a civil penalty. Section 995 provides that a person shall not, in, or in connection with, the making of, or the making of an evaluation of, or of a recommendation in relation to, offers under a takeover bid, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Conduct that contravenes s 670A does not contravene s 995(2). Conduct that contravenes s 995 could give rise to any or all of the various civil consequences of contravening civil penalty provisions as laid down in Pt 9.4B of the Corporations Law (ss 1317E to 1317S). Such consequences include declarations of contravention, pecuniary penalty orders of up to $200,000.00 and compensation orders. 820 Section 1001A of the Corporations Law might also be relevant. This section deals with the continuous disclosure requirements of a listed disclosing entity. Sections 1001A(2) and (3) provide for an offence if the disclosing entity, amongst other things, recklessly fails to notify a security exchange of information that is not generally available and that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of "ED [enhanced disclosure] securities" of the entity. The penalty for contravening s 1001A(2) is two hundred penalty units (or imprisonment for 5 years, or both). 821 In addition to the penalties that would follow should a contravention of one or more of ss 670A, 995 and 1001A be established, there would be substantial prejudicial flow-on effects. These could include substantial claims by misled or deceived shareholders and public opprobrium and loss of goodwill that could cause incalculable harm to an insurer such as GIO. 822 Of course, a profit forecast may be inaccurate and misleading not only because it is too high; it may also be inaccurate and misleading because it is too low. Santow JA has pointed to the potentially grave consequences in estimating and publishing a misleading profit forecast that is too low. 823 Undoubtedly, for Mr Vines and the management of GIO, there was a narrow channel of accuracy and reliability through which they were required to pass. If they drifted too far from the Scylla of an over-estimation of profits, an underestimation could result in them being trapped in the whirlpool of Charybdis. But the existence of possibly fatal consequences on each side of the safe channel of accuracy did not justify a lessening of the standard of care required in order to navigate the channel properly. XXVII HOW THE PROFIT FORECAST IN THE PART B STATEMENT WAS ARRIVED AT 824 The overall profit forecast of GIO in the Part B Statement was $250 million. Of the $250 million, $80 million represented reinsurance profits. The $80 million was derived from a base of $50 million that constituted ordinary business profits. Management regarded it to be reasonable to add $30 million to the $50 million. The $30 million represented 33% of catastrophe premiums (which were estimated to constitute profits). The $50 million plus the $30 million made the estimate of $80 million. 825 During 21 to 28 September 1998, Hurricane Georges struck Puerto Rico and the United States. Management thereupon provided a reserve of $25 million for losses from Hurricane Georges. 826 Until 1 December 1998, Mr Vines believed that cover for $100 million taken out with American Re would appropriately protect the $80 million profit forecast from reduction by Hurricane Georges losses greater than $25 million (that is, up to $100 million). 827 As from 1 December 1998, Mr Vines believed that the American Re cover was not effective. It would not protect the $80 million profit forecast. 828 On 7 December 1998, at a meeting at which, for part of the time, Mr Vines was present, Mr Fox stated that Hurricane Georges claim notifications had reached $60 to $65 million, albeit with some precautionary claims. According to Mr Fox, while further developments could not be ruled out, management's best estimate of the liabilities from Hurricane Georges was of the order of $60 to $65 million. 829 As at 7 December 1998, taking into account the original reserve of $25 million, the estimated liabilities from Hurricane Georges (being of the order of $60 to 65 million) meant that the profit forecast of $80 million was $35 to $40 million short. 830 At the meeting of 7 December 1998, Mr Fox said that, taking the lower end of the range of $60 to $65 million ($60 million), the Hurricane Georges' loss would be $35 million in excess of the $25 million reserve that had been made. 831 On 8 December 1998, at a meeting of the GIO Due Diligence Committee ("the DDC"), Mr McClintock (a partner of Price Waterhouse having partial responsibility for verifying the profit forecast) produced a revised version of an "unders and overs schedule" which showed a positive adjustment for MIPI of $35 million. Mr McClintock's schedule also showed a negative adjustment for catastrophe adverse performance (that is, the effect of Hurricane Georges) of $35 million. Mr McClintock said that the $35 million was based on the ultimate loss estimate of $60 million (that is, the figure provided by Mr Fox at the meeting on 7 December). The $35 million represented the difference between the estimate of $60 million and the reserve of $25 million. 832 It is necessary to say something about the involvement of Price Waterhouse. They were auditors to GIO Australia Holdings Limited and GIO Insurance Limited. They had been instructed to prepare a review of the financial forecast information that was to be included in the Part B statement. Mr Hammond led the Price Waterhouse team for that purpose and the work was co-ordinated by Mr McClintock. Mr Murray was responsible for the review of two entities within the GIO Group. 833 On the basis of what had been said at the meeting of 7 December, Mr Vines accepted that the $80 million profit forecast was reasonable. To summarise, it was made up of $50 million ordinary business profits, plus $30 million representing 33% of catastrophe premiums; it took into account the reserve of $25 million, the "overs" reported by Mr McClintock of $35 million, and the expected losses of $60 million from Hurricane Georges. The expected losses from Hurricane Georges of $60 million (being the bottom of the range of $60 to 65 million) would be covered by the reserve of $25 million plus the "overs" reported by Mr McClintock of $35 million. 834 On this calculation (and subject to the materiality threshold in Appendix B to the Part B statement referred to by Santow JA at [720]), there was no margin for error. What is more, its accuracy depended on the legitimacy of taking the losses from Hurricane Georges as being at the bottom of the range. Subject to the materiality threshold, any increase in GIO's exposure to liability from Hurricane Georges claims over and above the estimated $60 million would render the $80 million profit forecast (and hence the $250 million profit forecast in the Part B statement) inaccurate. The greater the increase in net liability over $60 million, the greater the reduction in the Part B profit forecast. XXVIII MR VINES' RESPONSIBILITY FOR THE PROFIT FORECAST 835 In determining whether Mr Vines exercised the requisite degree of care and diligence, regard must be had to the position he held in GIO. 836 Mr Vines agreed in cross-examination that his role as chief financial officer required him to satisfy himself that such matters as budgets were properly and reasonably formulated, and that it was his function to investigate what was reported to him in order to satisfy himself, through his own inquiry, that it was essentially valid. He agreed that he had, generally speaking, a supervisory role in relation to the financial affairs of the group and he had responsibility for the financial integrity of the group. 837 Mr Vines had the central executive role in the due diligence process relating to the Part B statement in general and the profit forecast in particular. He supported the individual directors who had deputed to become familiar with the specific components of the profit forecast. He described himself as "the arms and legs of the non-executive directors". Austin J found that "Mr Vines was given an assumed special responsibility with respect to the integrity of the profit forecast. It was a responsibility the same as, or closely similar to, his responsibility as chief financial officer for the financial integrity of the Group. That encompassed a responsibility (the equivalent to the one he acknowledged to exist in respect of financial accounts: T 2890) to exercise care and diligence to the statutory standard, to ensure that accurate information about the profit forecast was prepared and provided to management and the board of directors" (at [1128]). 838 There is no doubt, as Santow JA points out, that Mr Vines had substantial additional duties, described by Austin J as "a very heavy workload". Santow JA states at [626], "Mr Vines' responsibility as chief financial officer for the group did not call for his intervention by 'usurping the divisional role' [1144] unless he became aware of some deficiencies requiring this". Santow JA bases his judgment, in particular, on the role played by Mr Fox who, on 5 November 1998, was appointed as executive director of the GIO subsidiary in which the reinsurance business of the group was carried on. As Santow JA points out [620], Mr Vines relied on Mr Fox in that role throughout. XXIX FACTS KNOWN BY MR VINES RELATING TO THE ACCURACY OF THE FORECAST 839 On 19 or 20 October 1998, Mr Vines had obtained the First Quarter Highlights and studied this document. Austin J (at [241]) said that the overall effect of the First Quarter Highlights "was to draw attention to the risk of loss from Hurricane Georges in such a fashion that reasonable persons in the shoes of those responsible for the profit forecast would have thereafter treated the development of Hurricane Georges' loss as a matter to be kept under particular review". 840 In the two days after 20 October 1998, Mr Vines received emails that recorded claims of $24.9 million for the July-September 1998 quarter in respect of Hurricane Georges. 841 According to Mr Murray, on 23 October he had a discussion with Mr Vines in which it was mentioned that it was extremely difficult to form a view about Hurricane Georges, given it had occurred only four weeks beforehand. There was a considerable degree of uncertainty involved (T 1437). 842 On 23 October, Price Waterhouse forwarded Mr Vines a draft report for the Part B statement that included a review of the 1999 profit forecasts. The draft contained the comment, "consider Georges disclosure". 843 On 27 October, Mr Vines understood that Price Waterhouse had some concern about the 33% profit assumption (on reinsurance premiums) but were not, at that stage, recommending any change. 844 By the end of October 1998, Mr Vines knew that Price Waterhouse was concerned about the catastrophe component of the profit forecast. 845 By 5 November, Mr Vines understood that retrocession cover was being sought against the possibility that Hurricane Georges would give rise to losses of more than $25 million. 846 On 10 November, Mr Vines knew that, if the ultimate loss to GIO for Hurricane Georges exceeded the reserve of $25 million, the $80 million profit forecast could not be achieved unless the shortfall could be made up in other areas of GIO's business. 847 On 11 November, Mr Vines was forwarded a catastrophe claims spreadsheet that showed undiscounted claims for Hurricane Georges as at 31 October 1998 to be $69.06 million, an increase of $44 million from 30 September 1998. On the same date, Mr Vines was shown the October results and attended a meeting to discuss the October figures. 848 On 13 November, the American Re agreement was signed and provided retrocession cover for losses in respect of Hurricane Georges in excess of $25 million to US$100 million. 849 On 22 November 1998, Mr Vines sent members of the DDC an email referring to the "latest forecast" which projected a profit for both "Reinsurance" and "Corporate" of $69 million. This was based on the original assumption of an $80 million profit by Reinsurance, which was offset by an $11 million loss in Corporate. Mr Vines regarded this forecast operating profit to be "reasonable". Mr Vines noted that Price Waterhouse had questioned whether the forecast of $29.7 million for the catastrophe portfolio (that is, based on 33% of catastrophe premiums) was achievable given the "high level of events in the first quarter". He noted that Mr Robertson had concluded that GIO could reasonably expect better claims experience for the remainder of the year. 850 On 25 November 1998, by reason of the Federal Court's judgment in the proceedings challenging the takeover, the Part B statement had to be in the hands of shareholders by 16 December. That meant, in practice, that the Part B statement had to be finalised within a week or ten days. 851 On 1 December 1998, Mr Vines understood that the retrocession cover (that is, from American Re) could not be regarded as effective. 852 Between 3 and 6 December, Mr Vines was informed that Mr Latham had undertaken a review of the MIPI reserves and had reported that in his opinion there was a surplus of at least $34 to $35 million. 853 According to Hurricane Georges' register of 4 December, the total gross claims for Hurricane Georges were $89.7 million on that day and had risen to $91.9 million by 7 December. Mr Vines did not know of these facts when the contraventions were committed. 854 On 6 December, the DDC met and considered the Part B statement and its own report dated 3 December. The DDC was also provided with a draft report from Price Waterhouse which had been altered to say that the first quarter result for the catastrophe portfolio had assumed the GIO's exposure to Hurricane Georges would be A$25 million, being 0.6% of a total market loss estimate of US$2.45 billion; but that up to 31 October 1998, claim notifications for Hurricane Georges had increased to $65 million and this increase suggested that "'the 33% profit assumption used for this portfolio is no longer appropriate'". 855 According to the minutes of the DDC meeting of 6 December 1998, Mr Hammond stated that the profit forecast had assumed that claims in respect of Hurricane Georges would not develop beyond $25 million and to the end of October 1998, claim notifications were approximately $20 million. This is to be contrasted with the Price Waterhouse report that stated that, up to 31 October 1998, claims notifications had increased to $65 million. Mr Hammond went on to express the opinion that the current level of claims notifications indicated that claims in respect of Hurricane Georges could rise to the order of $60 million. 856 On 7 December, Messrs Vines, Robertson and Fox met with Messrs Hammond, McClintock and Murray. Austin J accepted the version of the meeting as recorded by Mr Murray. It is to be borne in mind, however, that Mr Murray's note, according to his evidence, was not a word for word account of what took place on that day (T 1514). 857 Mr Murray's note recorded that Mr Fox had stated that a detailed review of GIO's exposure to Hurricane Georges claims, contract by contract, had indicated a maximum potential loss of $105 million. It recorded that notifications of claims "to date" were $60 to $65 million, that is, up from $27 million. It recorded that management's best estimate of GIO's exposure to liability was of the order of $60 to $65 million. 858 Although the Murray note recorded that Mr Fox had referred to claims notifications "to date", Mr McClintock testified that the claims notifications at the meeting were expressed to be up to 30 November 1998. He said that the statement in the Murray note about notifications to date being $60 million to $65 million should read as notifications to the end of November 1998 (T 1641). Austin J said in this regard at [900]: "I find that evidence [of McClintock] to be inconsistent with the words of the notes itself, which speaks of notifications 'to date'. This is a matter of some significance". His Honour, however, does not resolve the issue. 859 In my opinion, Mr McClintock's evidence should be accepted. Price Waterhouse delivered a report dated 9 December on the profit forecast. The report stated: "To 30 November 1998, we understand that claim notifications for Hurricane Georges have increased to $60 to $65 million and that the ultimate expected loss was within this range. The increase in notifications with respect to Hurricane Georges suggests that the 33% profit assumption used for the catastrophe portfolio is no longer appropriate". This report is confirmatory of Mr McClintock's evidence that, at the meeting of 7 December 1998, claims' notifications for Hurricane Georges were expressed to be as at 30 November 1998. Moreover, as Santow JA notes at [616], the Hurricane Georges' claims register as at the end of November 1998 appeared still to support the estimate of $65 million, although that was not the case by 4 December. 860 According to Mr McClintock, the $105 million maximum potential loss to which Mr Fox had referred at the meeting of 7 December was based on a contract-by-contract review. 861 On 8 December, the DDC met. Mr McClintock said that claims notified in respect of Hurricane Georges might increase to an additional $35 to $40 million over the amount that had been provided for. He said, however, that good performance in MIPI of $35 million had been included in an under and overs schedule, which showed a pre-tax shortfall of approximately $14 million which was not material. 862 Later that day the board considered the DDC report and authorised the signing of the Part B statement. XXX WARNING SIGNALS 863 In my opinion, the above facts revealed several important warning signals that, as at 8 December 1998, would have led a reasonable person in Mr Vines' position to take steps to verify Mr Fox's advice that GIO's exposure to liability for claims in respect of Hurricane Georges would be of the order of $60 to $65 million. These signals did not produce appropriate reactions. 864 The fundamental importance of the importance of the profit forecast in the context of the Part B statement was fully understood by Mr Vines. Great care had to be taken in arriving at a reliable figure. Sensible inferences had to be drawn from known facts. Speculation was to be avoided. It seems that the profit forecast, at least on 8 December 1998, was based to a significant degree on material that was not substantiated or verified as at that date. Mr Vines should have ensured that no decision as to the publication of a profit forecast would be taken without regard to the most recent information available. 865 The exercise of estimating the profit became unusually difficult once Hurricane Georges began to have an impact. The ultimate liability from Hurricane Georges depended on several factors and was difficult to predict (T 1607). In the time available, it was not possible to do the usual kind of analysis to assess GIO's liability (T 1608). This meant that even more attention than usual had to be focused on those matters that were known. One of those matters was the extent of claims notified from Hurricane Georges. As Austin J observed at [241], the development of Hurricane Georges' loss was a matter to be kept under particular review. It would not have been difficult to obtain, each day, an updated report on claims notified. Austin J observed in this regard (at [557]): "Mr Fricke gave affidavit evidence that if he had been asked, in early November 1998, to obtain up to date information about the level of Hurricane Georges' claims that had been received, he would have entered the registered event numbers for Hurricane Georges in COGEN, which would have displayed the claims paid and outstanding, together with a list identifying contract numbers and the number of cedants. The entire process would have taken a number of minutes. All claims department staff had access to this function of COGEN, and they could obtain such information provided they knew the relevant event numbers". Mr Vines made no attempt, between 1 December and 8 December, to ascertain whether the Hurricane Georges' claims were being kept under review. He did not bother to find out from the register whether there had been an increase in claims as from 31 October. 866 Price Waterhouse had on more than one occasion warned that attention had to be given to the extent of potential liability for Hurricane Georges losses. This emphasised the need for current information, where that was available, to be considered. It was Mr Vines' duty to ensure that this occurred. He did not fulfil this duty. 867 As I have explained, there was little margin of error in the profit estimate calculations. The comments I have made in the previous paragraph apply. 868 On 11 November 1998, Mr Vines learned that undiscounted claims for Hurricane Georges as at 31 October 1998 were $69.06 million, an increase of $44 million from 30 September 1998. As Spigelman CJ notes, "[t]his increase does indicate a significant adverse development". The trend was obvious. As it was put by Mr McClintock, at the end of September GIO's exposure was seen as being $25 million and by the beginning of December it was seen as being between $60 to $65 million "and during the period between those two dates it changed a number of times, as the notifications arrived" (T 1601). These developments were compelling reasons to have the claims register checked during the period 1 December to 8 December; but Mr Vines made no request for this to be done. 869 The figures Mr Vines was given on 11 November implied that the view of Mr Robertson that $25 million was an adequate reserve for Hurricane Georges was wrong. Mr Vines accepted this proposition in cross-examination (T 3055). This, alone, called for a revision of the profit estimate. It was the responsibility of Mr Vines to call for this to be done. 870 There seemed to be some confusion about Hurricane Georges losses amongst those at the meeting of the DDC on 6 December. The Price Waterhouse report, tabled at the meeting, stated that, as at 31 October, claim notifications for Hurricane Georges had increased to $65 million, whereas Mr Hammond stated that, as at the end of October, claim notifications were approximately $20 million. This, alone, called for investigation. It was Mr Vines' responsibility to require this to be done. 871 The profit forecast was known to depend for its accuracy on the lower extreme of the range of Hurricane Georges' losses ($60 million) being achieved. On 6 December, the Price Waterhouse report considered at the DDC meeting on that date stated that claim notifications for Hurricane Georges had increased to $65 million. Mr Fox's statement at the meeting of 7 December that notifications of claims were $60 to $65 million had to be assessed against the information that Price Waterhouse had given. The uncertainty that had arisen was another reason to have the claims register checked before the sign-off. This was a matter that Mr Vines should have insisted upon. 872 By 7 December, management was not relying on the 33% profit assumption in respect of catastrophe premiums and that assumption had been removed from the Part B statement (T 1484). This made the original estimate of $80 million highly problematic. It is not clear how the $30 million estimate of profits from catastrophe premiums could be maintained and, if not, how the profit estimate of $80 million was in fact maintained. 873 The opinion expressed by Mr Fox at the meeting of 7 December, that the maximum potential loss, calculated on a contract-by-contract basis was $105 million, was an additional important reason, once uncertainty had arisen, to double check the register on an ongoing basis, and particularly before the sign-off. Mr Vines should have requested that this be done. 874 All the factors I have mentioned, when taken as a whole, meant that the profit forecast was fraught with uncertainty. The inference is that reasonable care required the DDC and, arguably the Price Waterhouse representatives, to consider all the up-to-date information and then to attempt to arrive at an overall consensus as to the likely losses from Hurricane Georges. It was dangerous, in the circumstances, to do otherwise. What in fact occurred was that there was a discussion involving DDC and Price Waterhouse, but not on up-to-date information. Mr Vines has to carry the ultimate responsibility for this. XXXI CONCLUSION 875 For the reasons I have expressed (and those stated by Spigelman CJ), I consider that Mr Vines contravened s 223(4) of the Corporations Law. As I have said, I agree with the orders proposed by the Chief Justice. ********** 07/10/2009 - typographical error in s 232(4) "in" should be "and"omission of "and" in s 1317JA(2) (a) - Paragraph(s) [3], [7] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.