[2009] ALMD 5385 27 ACLC 522 71 ACSR 368 Reported Decision : 256 ALR 199 230 FLR 1 256 ALR 199 230 FLR 1 New South Wales Supreme Court CITATION : Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 HEARING DATE(S) : 29, 30 September 2008; 1, 2, 3, 7, 8, 13, 14, 15, 20, 21, 22, 23, 24, 28 October 2008; 3, 4, 6, 10, 11, 12, 13, 14 Nov 2008; 4, 5, 8, 9, 10, 11, 12 15, 16, 17, 18, 19 December 2008; 2, 3, 4, 5, 9, 10, 11, 12 February 2009; 2 March 2009 JUDGMENT DATE : 23 April 2009 JUDGMENT OF : Gzell J DECISION : See summary at [1269] and following. CATCHWORDS : CORPORATIONS - Supervision, Regulation and Correction - Civil penalty proceedings - Whether announcement to the ASX approved at directors' meeting - Whether minute to that effect subject to statutory presumption under s 251A or s 1305 of the Corporations Law - Whether false or misleading - Whether directors and senior executives acted in breach of s 180(1) of the Corporations Law - Whether in failing to disclose information with respect to a deed of covenant and indemnity (DOCI) there was a breach of Listing Rule 3.1 and s 1001A(2) of the Corporations Law - Whether the directors who executed the DOCI were in breach of s 180(1) - Whether the chief executive officer approved the release of the ASX Announcement and breached s 180(1) - Whether the company breached s 995(2) of the Corporations Law - Whether the company breached s 999 of the Corporations Law - Whether the CEO was in breach of s 180(1) for statements made at a press conference - Whether he was he breach of s 181 of the Corporations Law - Whether the company was in breach of s 995(2) and s 999 - Whether there were breaches of s 180(1), s 181, s995(2) and s 999 for statements made in two subsequent ASX Announcements - Whether the directors were in breach of s 180(1) of the Corporations Act in approving a draft information memorandum to be used in a members' scheme of arrangement - Whether the CEO and secretary and general counsel were in breach of s 180(1) in approving the draft IM and authorising a letter to be sent to the Court - Whether the company was in breach of s 995(2) and s 999 of the Corporations Act - Whether the CEO was in breach of s 180(1) and s 181 of the Corporations Act for statements made in United Kingdom and slides lodged with the ASX - Whether the company was in breach of s 1041E and s 1041H of the Corporations Act - Whether the company was in breach of Listing Rule 3.1 and s 674(2) of the Corporations Act for failing to disclose a restructure of the James Hardie group Corporations Law (Cth) Corporations Act 2001 (Cth) LEGISLATION CITED : Trade Practices Act 1974 (Cth) Companies Code Evidence Act 1995 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 Australian Securities and Investments Commission v Rich [2005] NSWSC 417; (2005) 34 ACSR 752 Claremont Petroleum NL v Cummings (1992) 110 ALR 239 Galladin Pty Ltd v Aimnorth Pty Ltd (1993) 11 ACSR 23 Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 Silver v Dome Resources NL [2007] NSWSC 455; (2007) 62 ACSR 539 Dome Resources NL v Silver [2008] NSWCA 322; (2008) 68 ACSR 458 Repatriation Commission v Gordon (1990) 26 FCR 569 Hughes v R (1983) 49 ALR 110 Foster v R (1982) 38 ALR 599 Hodgson v Hart District Council [1986] 1 All ER 400 Re Wayne Myer & Son Family Butchery Pty Ltd [1998] QSC 2 Damaso v The Queen [2002] NTCCA 2; (2002) 168 FLR 103 Singh v The Queen WACCA, unreported, 18 September 1985 Abbott v Western Australia (2005) 152 A Crim R 186 R v Phillips [1991] 3 NZLR 175 Hanson v R [2005] NZCA 220 R v Hanson [2007] NZSC 7; [2007] NZLR 1 Sheldrake v Director of Public Prosecutions [2005] 1 ALL ER 237 McLean Bros & Rigg Pty Ltd v Grice (1906) 4 CLR 835 Briginshaw v Briginshaw (1938) 60 CLR 336 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 CEPU v Australian Competition and Consumer Commission [2007] FCAFC 132, (2007) 162 FCR 466 Trade Practices Commission v Allied Mills Industries Pty Ltd (No 4) (1981) 37 ALR 225 Cook's Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559 Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224; (2008) 69 ACSR 1 Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 62 ACSR 1 Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) 174 FLR 128 Australian Securities and Investments Commission v Vines [2005] NSWSC 738; (2005) 55 ACSR 617 AWA Ltd v Daniels (1992) 7 ACSR 759 Daniels v Anderson (1995) 37 NSWLR 438 Overend & Gurney Co v Gibb (1872) LR 5 HL 480 Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22 Vrisakis v Australian Securities Commission (1993) 9 WAR 395 Permanent Building Society v Wheeler (1994) 11 WAR 187 National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 252 ALR 659 Milwell v Olympic Amusements Pty Ltd [1999] FCA 63; (1999) 85 FCR 436 CASES CITED : Commissioner for Corporate Affairs v Bracht [1989] VR 821 Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 657 James Hardie & Co Pty Ltd v Hall (1998) 43 NSWLR 554 CSR Ltd v Wren (1997) 44 NSWLR 463 The Trustee for the Estate of the Late AW Furse No 5 Will Trust v Federal Commissioner of Taxation 91 ATC 4007 Granby Pty Ltd v Federal Commissioner of Taxation 95 ATC 4240 Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211 Australian Securities Commission v McLeod [2000] WASCA 101; (2000) 34 ACSR 135 Macleod v Australian Securities and Investments Commission [2002] HCA 37; (2002) 211 CLR 287 Marchesi v Barnes [1970] VR 434 Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574 Chew v R (1991) 4 WAR 21 Chew v R (1991-1992) 173 CLR 626 Lloyd v R (1995) 15 WAR 117 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 39 NSWLR 214 Cackett v Keswick [1902] 2 Ch 456 Australian Consolidated Investments Limited v Rossington Holdings Pty Limited (1992) 35 FCR 226 Re HIH Casualty and General Insurance Ltd [2006] NSWSC 485, (2006) 57 ACSR 791 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1,005 Watson v Foxman (1995) 49 NSWLR 315 Australian Woollen Mills Ltd v FS Walton & Co Ltd (1937) 58 CLR 641 Boughey v R (1986) 161 CLR 10 Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332 Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331 R v Firns [2001] NSWCCA 191; (2001) 51 NSWLR 548 Australian Securities and Investments Commission v Southcorp Ltd [2003] FCA 1369; (2003) 130 FCR 406 Exicom Pty Ltd v Futuris Corporation Ltd (1995) 123 FLR 394 Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129 Re Chameq Ltd; Australian Securities and Investments Commission v Chemeq Ltd [2006] FCA 936; (2006) 234 ALR 511 Jones v Dunkel (1959) 101 CLR 298 Manly Council v Byrne and Anor [2004] NSWCA 123 Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 Payne v Parker (1976) 1 NSWLR 191 Harmony Shipping Co SA v Saudi Europe Line Ltd [1979] 1 WLR 1380 Australian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169 Australian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175 Australian Securities and Investments Commission v Macdonald (No 10) [2009] NSWSC 53 Browne v Dunn (1894) 6 R 67 James Hardie Industries NV v Australian Securities and Investments Commission [2009] NSWCA 18 Phipson on Evidence, 16th ed (2005) Sweet & Maxwell, London TEXTS CITED : Ford's Principles of Corporation Law, 13th ed (2007) LexisNexis Butterworths, Australia Cross on Evidence, Australian ed, Butterworths Australian Securities and Investments Commission (Plaintiff) Peter Donald Macdonald (First Defendant) Peter James Shafron (Second Defendant) Phillip Graham Morley (Third Defendant) Michael Robert Brown (Fourth Defendant) Michael John Gillfillan (Fifth Defendant) PARTIES : Meredith Hellicar (Sixth Defendant) Martin Koffel (Seventh Defendant) Geoffrey Frederick O'Brien (Eighth Defendant) Gregory James Terry (Ninth Defendant) Peter John Willcox (Tenth Defendant) ABN 60 Pty Ltd (Eleventh Defendant) James Hardie Industries NV (Twelfth Defendant) FILE NUMBER(S) : SC 1490/07 Mr A Bannon SC/ Mr R Beech-Jones SC/ Ms D Hogan-Doran/ Ms S Pritchard / Ms J Single/ Mr A Kuklik (Plaintiff) Mr S Finch SC/ Mr D Studdy SC/ Mr D Mackay (First Defendant) Mr B Walker SC/ Mr M Holmes QC/ Mr R Lancaster/ Mr N Owens (Second Defendant) Mr B Oslington QC/ Mr R Dick/ Mr N Bender (Third Defendant) COUNSEL : Mr T Bathurst QC/ Mr R Whitington QC/ Mr R Hollo/ Mr R Hardcastle/ Mr I Colquhoun (Fourth to Seventh Defendants) Mr P Wood/ Mr M Henry (Eighth Defendant) Mr R McHugh SC/ Mr S Nixon (Ninth Defendant) Mr T Jucovic QC/ Mr R Scruby (Tenth Defendant) Mr I Pike (Eleventh Defendant) Mr A Meagher SC/ Ms K Morgan (Twelfth Defendant) Clayton Utz (Plaintiff) Minter Ellison (First Defendant) Middletons (Second Defendant) Henry Davis York (Third Defendant) SOLICITORS : Atanaskovic Hartnell (Fourth to Seventh Defendants) Arnold Bloch Leibler (Eighth Defendant) Blake Dawson (Ninth Defendant) Kemp Strang (Tenth Defendant) Baker & McKenzie (Eleventh Defendant) Mallesons Stephen Jaques (Twelfth Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J 23 APRIL 2009 1490/07 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v MACDONALD (NO 11) JUDGMENT 1 Introduction 1 Companies in the James Hardie group manufactured and sold asbestos products. They became subject to damages claims for asbestos related diseases sustained from exposure to asbestos (Asbestos Claims). 2 James Hardie Industries Limited (JHIL), the eleventh defendant, was the holding company of the James Hardie group. Under its former name it manufactured and sold asbestos products until 1937. From 1937 to 1987, James Hardie & Coy Pty Limited (Coy), a wholly owned subsidiary of JHIL, manufactured and sold asbestos products and became subject to Asbestos Claims. From 1978 to 1987, another wholly owned subsidiary of JHIL, Jsekarb Pty Ltd (Jsekarb), manufactured and sold asbestos products under former names and became subject to Asbestos Claims. Coy and Jsekarb were the main recipients of Asbestos Claims within the James Hardie group. 3 Consequent upon decisions made at a meeting of the board of directors of JHIL on 15 February 2001 (15 February 2001 Meeting), Medical Research and Compensation Foundation Ltd was constituted trustee of the Medical Research and Compensation Foundation (Foundation) and JHIL, in effect, made a gift of its shares in Coy and Jsekarb to the Foundation. In addition to the assets of Coy and Jsekarb, the Foundation received $3m for medical research. The Foundation was to manage and pay out Asbestos Claims against members of the James Hardie group. 4 On the pleadings, the following issues arise. 1.1 Draft ASX Announcement 5 The plaintiff, the Australian Securities and Investments Commission (ASIC), alleges that a draft announcement to the Australian Stock Exchange (ASX) of the formation of the Foundation (Draft ASX Announcement) was considered and approved by the JHIL board at the 15 February 2001 Meeting. The Draft ASX Announcement that ASIC contends was before the meeting stated that the Foundation would commence operations with assets of $284m and contained a number of statements to the effect that the Foundation would have sufficient funds to meet all legitimate Asbestos Claims, that it was fully funded and provided certainty for people with legitimate Asbestos Claims. ASIC alleges that those statements were false or misleading and in breach of provisions of the Corporations Law (Cth). 6 Michael Robert Brown, the fourth defendant; Michael John Gillfillan, the fifth defendant; Meredith Hellicar, the sixth defendant; Martin Koffel, the seventh defendant; Geoffrey Frederick O'Brien, the eighth defendant; Gregory James Terry, the ninth defendant; and Peter John Willcox, the tenth defendant, were non-executive directors of JHIL. ASIC alleges that they approved the Draft ASX Announcement at the 15 February 2001 Meeting and in doing so they contravened s 180(1) of the Corporations Law as carried over into the Corporations Act 2001 (Cth) (Section 180(1)) in that, on the material provided to them, they could not have been satisfied that JHIL had a proper basis for making the assertions of sufficient funding. 7 Section 180(1) was in the following terms in February 2001: "A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer." 8 Peter Donald Macdonald, the first defendant, was chief executive officer and a director of JHIL. ASIC alleges he voted in favour of the Draft ASX Announcement at the 15 February 2001 Meeting and in doing so he contravened Section 180(1) in that he failed to enquire of the other directors whether they had formed the opinion that it was certain that the Foundation was sufficiently funded; he failed to advise the board that the Draft ASX Announcement was expressed in too emphatic terms; and he failed to advise the board that the Draft ASX Announcement was false or misleading in these respects. 9 The board had before it at the 15 February 2001 Meeting a cashflow exercise (Cashflow Model). It had been the subject of limited review by PricewaterhouseCoopers (PwC) and Access Economics Pty Ltd (Access Economics). ASIC alleges that Mr Macdonald was in breach of Section 180(1) in failing to advise the board of the limited nature of these reviews. 10 JHIL had retained the services of Trowbridge Deloitte Limited (Trowbridge), a firm of actuaries. They had provided a number of reports over the years including a schedule forwarded on 9 February 2001 containing updated estimates over 50 years (Trowbridge 50 Year Estimate) and a report of 13 February 2001 with an updated estimate over 20 years (February 2001 Trowbridge Report). ASIC alleges that Mr Macdonald failed to advise the board at the 15 February 2001 Meeting that the best estimate contained in the February 2001 Trowbridge Report and in the Trowbridge 50 Year Estimate was too uncertain to be used as a basis to assess the adequacy of funding of the Foundation; had not taken into account superimposed inflation as a prudent estimate would; and had only a 50% probability of being achieved. ASIC alleges that these failures constituted breaches of Section 180(1). 11 Peter James Shafron, the second defendant, was secretary and general counsel of JHIL. In terms similar to those pleaded against Mr Macdonald, ASIC alleges that Mr Shafron contravened Section 180(1) at the 15 February 2001 Meeting in failing to enquire of the directors whether they had formed an opinion that it was certain that the amount of funds made available to the Foundation would be sufficient; in failing to advise the board that the Draft ASX Announcement was expressed in too emphatic terms; and in failing to advise the board that the Draft ASX Announcement was false or misleading in these respects. Similarly, it is alleged against Mr Shafron that he failed to advise the limited nature of the review of the Cashflow Model by PwC and Access Economics; he failed to advise that the best estimate contained in the February 2001 Trowbridge Report and in the Trowbridge 50 Year Estimate was too uncertain to be used as a basis to assess the adequacy of funding of the Foundation; it had not taken into account superimposed inflation as a prudent estimate would; and it had only a 50% probability of being achieved. 12 Phillip Graham Morley was the chief financial officer of JHIL. ASIC alleges, in similar terms to the allegations raised against Mr Macdonald and Mr Shafron, that Mr Morley contravened Section 180(1) in failing to advise the board of the limited nature of the review of the Cashflow Model by PwC and Access Economics; and in failing to advise that the best estimate contained in the February 2001 Trowbridge Report and in the Trowbridge 50 Year Estimate was too uncertain to be used as a basis to assess the adequacy of funding of the Foundation; it had not taken into account superimposed inflation as a prudent estimate would; and it had only a 50% probability of being achieved. 1.2 DOCI disclosure 13 At the 15 February 2001 Meeting if was resolved to execute a deed of covenant and indemnity (DOCI). ASIC alleges that there was an obligation to disclose information in relation to the DOCI (DOCI Information) to the ASX as at 15 February 2001. It is alleged that in failing to disclose the DOCI Information to the ASX, JHIL was in breach of ASX Listing Rule 3.1 (Listing Rule 3.1) and s 1001A(2) of the Corporations Law as carried over into the Corporations Act (Section 1001A(2)). In February 2001, s 1001A(1) and Section 1001A(2) were in the following terms: "(1) This section applies to a listed disclosing entity if provisions of the listing rules of a securities exchange: (a) apply to the entity; and (b) require the entity to notify the securities exchange of information about specified events or matters as they arise for the purpose of the securities exchange making that information available to a stock market conducted by the securities exchange. (2) The disclosing entity must not contravene those provisions by intentionally, recklessly or negligently failing to notify the securities exchange of information: (a) that is not generally available; and (b) that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity." 14 In February 2001, s 111AE(1) of the Corporations Law as carried over into the Corporations Act provided that securities in a class of securities of a body were ED securities if securities in that class were quoted on a stock market of a securities exchange. The shares of JHIL were ED securities. 15 In February 2001, Listing Rule 3.1 provided: "Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information. "Information" includes information a reasonable person would expect an entity to give ASX to prevent a false market in the entity's securities. This rule does not apply to particular information while each of the following applies: 3.1.1 A reasonable person would not expect the information to be disclosed 3.1.2 The information is confidential 3.1.3 One or more of the following applies. (a) It would be a breach of law to disclose the information (b) The information concerns an incomplete proposal or negotiation (c) The information comprises matters of supposition or is insufficiently definite to warrant disclosure (d) The information is generated for the internal management purposes of the entity (e) The information is a trade secret." 16 It is alleged against Mr Macdonald that he knew or ought to have known when he attended the 15 February 2001 Meeting that if the board authorised the execution of the DOCI without disclosing the DOCI Information to the ASX it would be harmful, or potentially harmful, to JHIL in that JHIL risked contravening Section 1001A(2). It is alleged that in failing to advise the chairman of the board as to whether or not the DOCI Information was required to be disclosed to the ASX; in failing to seek and consider advice as to whether the DOCI Information was required to be disclosed; in failing to resolve or determine that JHIL would disclose the DOCI Information, or in failing to raise with the chairman that they needed to consider and determine whether or not to disclose the DOCI Information; Mr Macdonald failed to discharge his duties to JHIL and thereby breached Section 180(1). 17 Similar allegations are made against Mr Shafron. It is alleged that in failing to advise the chief executive officer or the board that it needed to consider whether JHIL was required to disclose the DOCI Information to the ASX; in failing to obtain advice for the chief executive officer or the board, or in failing to provide his own advice as to whether there was a requirement to disclose the DOCI Information; and in failing to advise the chief executive officer or the board to resolve or determine that JHIL would disclose the DOCI Information; Mr Shafron failed to discharge his duties to JHIL and thereby breached Section 180(1). 1.3 DOCI execution 18 The DOCI was executed by Mr Morley in the early morning of 16 February 2001. In brief, Coy and Jsekarb covenanted that they would not make any claim against JHIL arising from, or incidental to, the manufacture and sale of asbestos products, they would indemnify JHIL against all claims or losses suffered or incurred arising from, or incidental to, the manufacture and sale of asbestos products, and Coy gave a covenant to the sole registered shareholder of JHIL to acquire all of the shares of JHIL (Put Option). In consideration, JHIL undertook to make annual payments to Coy and Jsekarb until 2042. 19 Donald Ewen Cameron was James Hardie group treasurer and joint company secretary of JHIL with Mr Shafron. He and Mr Morley were the two directors of Coy and Jsekarb and they executed the DOCI on their behalf. Blake Dawson Waldron (BDW) were retained to advise Mr Morley and Mr Donald Cameron of their duties in considering whether Coy and Jsekarb should enter into the DOCI. ASIC alleges that they advised Mr Morley and Mr Donald Cameron to seek from Trowbridge advice on the quantification of the liabilities that were to be assumed under the DOCI. 20 It is alleged against Mr Morley that he failed to obtain the information and advice recommended by BDW; he failed to negotiate to obtain additional funds for Coy and Jsekarb; and he failed to inquire or obtain advice as to the Put Option and when it might be exercised. It is alleged that in failing to discharge his duty to Coy and Jsekarb when he executed the DOCI on their behalf, Mr Morley contravened Section 180(1). 1.4 Final ASX Announcement 21 With some variations from the Draft ASX Announcement, and in particular the introduction of the word "anticipated" in relation to Asbestos Claims, an announcement was forwarded to the ASX on 16 February 2001 (Final ASX Announcement). ASIC alleges that Mr Macdonald approved its release. ASIC alleges that it contained false or misleading statements as to the sufficiency of funding of the Foundation. It is alleged that Mr Macdonald failed to advise that the Final ASX Announcement should not be released or that it should be amended to remove the matters that were false or misleading and those failures constituted a breach of Section 180(1). 1.5 Press Conference Statements 22 ASIC alleges that similar false or misleading statements as to the sufficiency of funding of the Foundation to meet all legitimate future Asbestos Claims were made at a press conference convened by Mr Macdonald on 16 February 2001 (Press Conference Statements). It is alleged against Mr Macdonald that the Press Conference Statements included assertions that it was certain that the funds would be sufficient; that Mr Macdonald believed it was certain the funding would be sufficient; and that PwC and Access Economics had provided advice that supported the assertion that it was certain that the funding would be sufficient. It is alleged that those assertions were false or misleading and in breach of Section 180(1). 23 In addition, ASIC alleges that the Press Conference Statements conveyed, or were capable of conveying, that JHIL did not have any potential claims on the assets of Coy and Jsekarb and that was false or misleading and in breach of Section 180(1). 1.6 23 February 2001 ASX Announcement 24 ASIC alleges that Mr Macdonald approved for release to the ASX an announcement of 23 February 2001 (23 February 2001 ASX Announcement). It is alleged against Mr Macdonald that it conveyed, or was capable of conveying, that it was certain the funding would be sufficient to meet all legitimate present and future Asbestos Claims, Mr Macdonald believed this and that the material available to JHIL provided a reasonable basis for that assertion. It is alleged that those representations were false or misleading and in breach of Section 180(1). 1.7 21 March 2001 ASX Announcement 25 ASIC alleges that Mr Macdonald approved for release to the ASX a further announcement of 21 March 2001 (21 March 2001 ASX Announcement). In similar terms to the allegations with respect to the 23 February ASX Announcement, it is alleged that Mr Macdonald was in breach of Section 180(1) in that the 21 March 2001 ASX Announcement conveyed, or was capable of conveying, that the material available to JHIL provided a reasonable basis for the assertion that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims, and that was false or misleading. 26 ASIC also alleges against Mr Macdonald that in making the Press Conference Statements, the 23 February 2001 ASX Announcement and the 21 March 2001 ASX Announcement, Mr Macdonald contravened s 181(1) of the Corporations Law as carried over into the Corporations Act (Section 181(1)). In February and March 2001 that provision was as follows: "A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose." 27 It is alleged that Mr Macdonald knew, or was reckless as to the truth, that if he made the above statements on behalf of JHIL that were false or misleading, that was harmful, or potentially harmful, to JHIL in that it might contravene, or risk contravening, s 995(2) (Section 995(2)) and s 999 (Section 999) of the Corporations Law as carried over into the Corporations Act and s 52 (Section 52) of the Trade Practices Act 1974 (Cth). In February and March 2001, Section 995(2) was in the following terms: "A person shall not, in or in connection with: (a) any dealing in securities; or (b) without limiting the generality of paragraph (a): (i) the allotment or issue of securities; (ii) a notice published in relation to securities; (iii) the making of, or the making of an evaluation of, or of a recommendation in relation to, offers under a takeover bid; (iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in sub paragraph (i), (ii) or (iii); engage in conduct that is misleading or deceptive or is likely to mislead or deceive." Section 999 was in the following terms: "A person must not make a statement, or disseminate information, that is false in a material particular or materially misleading and: (aa) is likely to induce other persons to subscribe for securities; or (a) is likely to induce the sale or purchase of securities by other persons; or (b) is likely to have the effect of increasing, reducing, maintaining or stabilising the market price of securities; if, when the person makes the statement or disseminates the information: (c) the person does not care whether the statement or information is true or false; or (d) the person knows or ought reasonably to have known that the statement or information is false in a material particular or materially misleading." 28 ASIC alleges that the Final ASX Announcement, the Press Conference Statements, the 23 February 2001 ASX Announcement and the 21 March 2001 Announcement were misleading or deceptive in the respects indicated above and by reason of their publication, JHIL contravened Section 995(2). ASIC contends that each of the Final ASX Announcement, the 23 February 2001 ASX Announcement and the 21 March 2001 ASX Announcement were notices published in relation to securities, namely JHIL shares, and that the Press Conference Statements were made in, or in connection with, dealings with securities, namely, JHIL shares. 29 ASIC also contends that the Final ASX Announcement, the Press Conference Statements, the 23 February 2001 ASX Announcement and the 21 March 2001 Announcement were false in a material particular or were materially misleading in the respects indicated above and by their publication, JHIL contravened Section 999. It is alleged that each constituted a statement or information that was likely to induce other persons to sell or purchase securities, namely the shares of JHIL, or likely to have the effect of increasing, reducing, maintaining or stabilizing the market price of securities, namely shares of JHIL. 1.8 Scheme of Arrangement 30 A restructure of the James Hardie group was effected by means of a members' scheme of arrangement (Scheme) under s 411 of the Corporations Act (Section 411). It involved the creation of a new holding company of the group, James Hardie Industries NV (JHINV), a company incorporated in the Netherlands. Part of the arrangement involved JHIL issuing to JHINV 100,000 partly paid shares at a cost $50 each with an uncalled amount on each share of $19,603.62 giving a total uncalled capital of $1.96 billion. 31 At the board meeting of JHIL on 23 July 2001 (23 July 2001 Meeting) it is alleged that Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox approved a draft of an information memorandum to be sent to members of JHIL as part of the Scheme (Draft IM). 32 The Draft IM contained statements to the effect that the partly paid shares would enable JHIL to call upon JHINV to pay if it was required to meet any liabilities of JHIL. ASIC alleges that that was false or misleading because JHIL could cancel the partly paid shares at any time in the future and management had proposed to the board that after the completion of the restructure the Put Option should be exercised; the partly paid shares should be cancelled; the shares should be transferred to another trust; or JHIL should be liquidated. It is alleged that the members of the board had either endorsed the proposals and intended that the steps be taken, or had assumed they would occur. ASIC alleges that the steps necessarily involved, or most likely required, the cancellation of the partly paid shares, or the putting of them to Coy under the Put Option. It is alleged that in approving the Draft IM, Mr Brown, Mr Gillfillan, Ms Hellicar, Mr ellicarHKoffel and Mr Willcox failed to discharge their duties to JHIL and thereby contravened s 180(1) of the Corporations Act which was then in identical terms to Section 180(1). 33 In August 2001, JHIL commenced proceedings in this Court seeking approval of the Scheme. The proceedings were listed before the late Justice Santow who was provided with a later version of the Draft IM. Allens Arthur Robinson (Allens) drafted a letter to be sent to Santow J's Associate (Draft Court Letter). It advised that JHIL proposed to impose a condition on its ability to call the partly paid shares: a call could only be made if the directors formed the view that it was necessary to ensure that JHIL was able to pay its debts as and when they fell due and in such amount as the directors believed was necessary to ensure that JHIL remained solvent. The Draft Court Letter contained a statement to the effect that JHIL would have, through existing reserves and access to funding in the form of the partly paid shares, the means to meet liabilities that it might incur in the future whether in relation to Asbestos Claims or otherwise. 34 The letter was settled and sent to his Honour's Associate (Final Court Letter). It contained a statement with respect to the partly paid shares to similar effect. On 23 August 2001, Santow J ordered the dispatch of an approved, amended and finalised information memorandum (Final IM) to the shareholders of JHIL and the convening of a meeting of members. JHIL caused copies of the Final IM to be sent to its members and lodged a copy with ASIC. The Final IM contained the same statements with respect to the partly paid shares. The Scheme was approved by Santow J on 11 October 2001. ASIC alleges that the statements with respect to the partly paid shares in the Final IM, in the Draft Court Letter and in the Final Court Letter were for the above reasons false, misleading or deceptive. 35 ASIC alleges against JHIL that by issuing the Final IM to its members, JHIL engaged in conduct that was misleading or deceptive, or likely to mislead or deceive in contravention of s 995(2) of the Corporations Act. It was then in terms similar to Section 995(2). It was as follows: "A person must not, in or in connection with: (a) any dealing in securities; or (b) without limiting the generality of paragraph (a): (i) the allotment or issue of securities; or (ii) a notice published in relation to securities; or (iii) the making of, or the making of an evaluation of, or of a recommendation in relation to, offers under a takeover bid; or (iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in subparagraph (i), (ii) or (iii); engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 36 ASIC also alleges that in issuing the Final IM, JHIL contravened s 999 of the Corporations Act that was then in identical terms to Section 999. 37 For the same reasons, ASIC alleges against Mr Macdonald that he failed to discharge his duties to JHIL and thereby breached s 180(1) of the Corporations Act in approving the Draft IM; in failing to advise the other directors of its false or misleading aspects; in instructing Allens to send the Final Court Letter, or in failing to correct the Draft Court Letter. 38 Against Mr Shafron, ASIC alleges that in failing to ensure that the board was advised that the Draft IM was false or misleading and in instructing Allens to issue the Final Court Letter, or in failing to correct the contents of the Draft Court Letter, Mr Shafron failed to discharge his duties to JHIL and thereby breached s 180(1) of the Corporations Act. 1.9 Roadshow Presentations 39 In June 2002, Mr Macdonald made representations (Edinburgh Representations) with respect to JHINV at a function in Edinburgh attended by Alistair James Thompson who was employed by Edinburgh First Managers as head of Asia Pacific, excluding Japan, and as portfolio manger for a range of funds and a leading investment trust (Edinburgh Roadshow). 40 That was followed by representations (London Representations) with respect to JHINV made in London to Paul Joseph Simons who was employed by Pyford International plc as a senior research analyst responsible for stock selection recommendations in Australia (London Roadshow). 41 The slides for these presentations (UK Slides) were lodged with the ASX (ASX Representations). ASIC alleges that in the Edinburgh Representations and in the London Representations, Mr Macdonald said that the Foundation was fully funded and this was stated in the ASX Representations. ASIC alleges that the statements were false in a material particular or were materially misleading and in making them JHINV contravened s 1041E of the Corporations Act (Section 1041E). In June 2002 Section 1041E(1) was in the following terms: "A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if: (a) the statement or information is false in a material particular or is materially misleading; and (b) the statement or information is likely: (i) to induce persons in this jurisdiction to apply for financial products; or (ii) to induce persons in this jurisdiction to dispose of or acquire financial products; or (iii) to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and (c) when the person makes the statement, or disseminates the information: (i) the person does not care whether the statement or information is true or false; or (ii) the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading." 42 ASIC also alleges that in making the ASX Representations, JHINV engaged in conduct in this jurisdiction in relation to financial products, namely shares of JHINV, which was misleading or deceptive, or was likely to mislead or deceive, contrary to s 1041H of the Corporations Act (Section 1041H). In June 2002, Section 1041H(1) was in the following terms: "A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive." 43 ASIC alleges against Mr Macdonald that in making the assertions as to full funding in the Edinburgh Representations and in the London Representations and in approving the provision of the UK Slides to the ASX, or in failing to advise that the ASX Representations should not be made, or should be amended to remove matters that were false or misleading, Mr Macdonald failed to discharge his duties to JHINV and thereby contravened s 180(1) of the Corporations Act. 44 It is further alleged against Mr Macdonald that in making the assertions as to full funding in the Edinburgh Representations, the London Representations and in the ASX Representations, Mr Macdonald knew, or was reckless as to whether, they were false or misleading. It is alleged that in making such public statements on behalf of JHINV, or in failing to take steps to prevent such statements being made, Mr Macdonald knew or was reckless as to whether it would be harmful, or potentially harmful, to JHINV in that JHINV would contravene, or risk contravening, Section 1041E and Section 1041H and Section 52. ASIC alleges that in consequence Mr Macdonald contravened s 181(1) of the Corporations Act. In June 2002 it was in identical terms to Section 181(1). 1.10 Cancellation of the partly paid shares 45 JHINV was in March 2003 a listed disclosing entity for the purposes of s 674(2) of the Corporations Act (Section 674(2)). Section 674(1) and Section 674(2) were then in the following terms: "(1) Subsection (2) applies to a listed disclosing entity if provisions of the listing rules of a listing market in relation to that entity require the entity to notify the market operator of information about specified events or matters as they arise for the purpose of the operator making that information available to participants in the market. (2) If: (a) this subsection applies to a listed disclosing entity; and (b) the entity has information that those provisions require the entity to notify to the market operator; and (c) that information: (i) is not generally available; and (ii) is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity; the entity must notify the market operator of that information in accordance with those provisions." 46 In March 2003, Listing Rule 3.1 provided: "Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information." 47 Negotiations took place between JHINV and the Foundation during March 2003 with a view to the exercise of the Put Option in relation to the one JHIL share that JHINV held. JHINV was advised that Coy would not accept the transfer of the JHIL share and would oppose any attempted exercise of the Put Option. 48 JHIL had changed its name to ABN 60 000 009 263 Pty Ltd (ABN 60) by March 2003. 49 At the meeting of the board of directors of JHINV on 25 March 2003 (25 March 2003 Meeting), it was resolved that JHINV execute a trust deed and settle a sum upon the trustee to create a new trust (ABN 60 Foundation); that it approve a $1.5m capital reduction by JHIL by payment to it of $1.5m; that it request JHIL to issue 1,000 shares to the ABN 60 Foundation; and that the cancellation by JHIL for no consideration of the one fully paid ordinary share held by JHINV was in its best interests. It was further resolved to enter into a deed of covenant, indemnity and access (DOCIA) with JHIL. Under the DOCIA JHIL agreed to make regular payments to Coy and Jsekarb in accordance with the DOCI; subject to exceptions, JHIL covenanted not to claim against JHINV; subject to conditions, JHIL provided an indemnity not to make a claim against JHINV in relation to acts occurring before JHIL's transfer to the ABN 60 Foundation; and subject to conditions, JHINV provided an indemnity to JHIL in relation to acts occurring before JHIL's transfer to the ABN 60 Foundation. 50 On 31 March 2003, JHIL reduced capital by $1.5m by transferring that amount to JHINV; JHINV executed the ABN 60 Foundation trust deed and the DOCIA; and JHIL issued 1,000 shares to the ABN 60 Foundation and resolved to cancel the one fully paid ordinary share owned by JHINV for no consideration. On 14 April 2003 that share was cancelled. 51 ASIC alleges that the resolutions passed at the 25 March 2003 Meeting required it to disclose the proposed events, as they were then sufficiently certain to take place. ASIC alleges that in failing to notify the ASX of this information, JHINV contravened Section 674(2). 2 Draft ASX Announcement issue 52 The first question that arises under this issue is whether a document incorporating a draft announcement to be made to the ASX about the formation of the Foundation was before the board of JHIL at the 15 February 2001 Meeting. 2.1 Minutes of 15 February 2001 Meeting 53 The minutes of the meeting of the board of JHIL at the 15 February 2001 Meeting were signed as a correct record by the chairman, the late Alan Gordon McGregor, at the next meeting of the board on 4 April 2001. They contained the following entry: " ASX Announcement The Chairman tabled an announcement to the ASX whereby the Company explains the effect of the resolutions passed at this meeting and the terms of the Foundation (ASX Announcement). Resolved that: (a) the Company approve the ASX Announcement; and (b) the ASX Announcement be executed by the Company and sent to the ASX." 54 ASIC submits that the minutes have the benefit of a statutory presumption in s 251A of the Corporations Law as carried over into the Corporations Act (Section 251A). The section was as follows: "(1) A company must keep minute books in which it records within 1 month: (a) proceedings and resolutions of meetings of the company's members; and (b) proceedings and resolutions of directors' meetings (including meetings of a committee of directors); and (c) resolutions passed by members without a meeting; and (d) resolutions passed by directors without a meeting; and (e) if the company is a proprietary company with only 1 director—the making of declarations by the director. (2) The company must ensure that minutes of a meeting are signed within a reasonable time after the meeting by 1 of the following: (a) the chair of the meeting; (b) the chair of the next meeting. (3) The company must ensure that minutes of the passing of a resolution without a meeting are signed by a director within a reasonable time after the resolution is passed. (4) The director of a proprietary company with only 1 director must sign the minutes of the making of a declaration by the director within a reasonable time after the declaration is made. (5) A company must keep its minute books at: (a) its registered office; or (b) its principal place of business in this jurisdiction; or (c) another place in this jurisdiction approved by ASIC. (5A) An offence based on subsection (1), (2), (3), (4) or (5) is an offence of strict liability. (6) A minute that is so recorded and signed is evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved." 55 ASIC submits that the defendants must prove the contrary of the stated fact that an announcement to the ASX was approved by the board of JHIL at the 15 February 2001 Meeting and it says they have not done so. 56 There appears to have been a failure to comply with Section 251A(1) in the sense that the minutes were not recorded in a minute book within a month of the meeting. There is in evidence an email from the late Alan Thornton Kneeshaw, a former manager secretarial services of the James Hardie group of 5 April 2001 noting that the last minutes in the JHIL directors' minute book were those of the 15 November 2000 meeting. This drew a response from Mr Shafron on 7 April 2001 enclosing the minutes of the January and February 2001 board meetings. The earliest date upon which it appears to have been possible for the minutes of the 15 February 2001 Meeting to be recorded in a minute book was 7 April 2001, well outside the one month period. 57 ASIC points to the definition of "books" in s 9 of the Corporations Law as carried over into the Corporations Act as including a document and submits that all that is required under Section 251A(1) is that within a month a company keep a draft minute document recording the proceedings and resolutions of directors' meetings. But Section 251A(1) draws a distinction between a record of the proceedings and resolutions and a book in which the record is kept. 58 ASIC refers to s 1306(1) of the Corporations Law as preserved in the Corporations Act (Section 1306(1)) which was in the following terms: "A book that is required by this Act to be kept or prepared may be kept or prepared: (a) by making entries in a bound or looseleaf book; or (b) by recording or storing the matters concerned by means of a mechanical, electronic or other device; or (c) in any other manner approved by ASIC." 59 ASIC submits that a draft minute document kept by a company electronically or in paper satisfies the statutory requirement in Section 251A(1). But a document that satisfies Section 251A(1) must also be capable of being signed in order to satisfy Section 251A(2) and, so far as a paper version is concerned, the submission suffers the same problem that Section 1306(1)(a) draws a distinction between the record and the book in which it is stored. In any event, JHIL chose to maintain bound books in which it recorded the minutes of meetings of its directors. 60 ASIC points to s 1305 of the Corporations Law as preserved in the Corporations Act (Section 1305). Section 1305(1) and Section 1305(2) were in the following terms: "(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book. (2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1)." 61 ASIC submits that a draft minute document recording the proceedings and resolutions of directors' meetings electronically or in paper is prima facie evidence of the matters stated or recorded therein. But Section 1305(1) only applies if a book is required to be kept under the Act and the relevant requirement is Section 251A(1). The general provision in Section 1305(2) must give way to the specific provision in Section 251A(1). In that way the provisions operate harmoniously (Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [69]-[70]). 62 ASIC relied upon Australian Securities and Investments Commission v Rich [2005] NSWSC 417; (2005) 34 ACSR 752 at [281] where Austin J said of Section 1305(2): "The presumption created by subs (2) can be rebutted by proof to the contrary. If it appears, having regard to the nature of any particular document, that there is no requirement of the Corporations legislation for such a document to be kept by a body corporate, the presumption is rebutted." 63 In my view, his Honour was stating one way in which the presumption in Section 1305(2) could be rebutted. He was not concerned with the interaction of that provision and Section 251A(1). 64 Section 253 of the Companies Code (Section 253) was a forerunner of Section 251A. It was in the following terms: "(1) A company shall: (a) cause minutes of all proceedings of general meetings and of meetings of its directors to be entered, within one month after the relevant meeting is held, in books kept for that purpose; and (b) except in the case of documents that are deemed to constitute minutes by virtue of section 250, cause those minutes to be signed by the chairman of the meeting at which the proceedings took place or by the chairman of the next succeeding meeting. (2) Any minute that is so entered and, in a case to which paragraph (1)(b) applies, purports to be signed as provided by that paragraph is prima facie evidence of the proceedings to which it relates. (3) Where minutes have been so entered and, in a case to which paragraph (1)(b) applies, signed, then, unless the contrary is proved: (a) the meeting shall be deemed to have been duly held and convened; (b) all proceedings that are recorded in the minutes as having taken place at the meeting shall be deemed to have duly taken place; and (c) all appointments of officers or auditors that are recorded in the minutes as having been made at the meeting shall be deemed to have been validly made. (4) If a company fails to comply with this section, the company and any officer of the company who is in default are each guilty of an offence. Penalty: $1,000 or imprisonment for 3 months, or both." 65 This provision was considered by Wilcox J in Claremont Petroleum NL v Cummings (1992) 110 ALR 239. A minute initialled by the chairman of the board was not entered in a minute book within one month. At 258 his Honour said that if the minute had been entered within a month the section would apply creating a presumption that the recorded proceedings took place, a presumption rebuttable by proof to the contrary. His Honour went on to say: "The condition that a minute be entered within one month, if it is to be regarded as prima facie evidence of the proceedings at a meeting, should be strictly applied. A minute prepared and signed soon after a meeting is likely to be more reliable than one prepared long afterwards when memories have dimmed and, perhaps, other interests intruded." 66 There was a distinction in Section 253 between a minute as prima facie evidence of the proceedings at a meeting and a minute as deemed proof of the proceedings unless the contrary was proved. The latter reversed the onus of proof: the former did not. That dichotomy does not appear in Section 251A. But since it was to the former that Wilcox J addressed his remark of strict compliance, it has relevance to the interpretation of Section 251A(6) which, although in different terms, is not on its face a deeming provision of the type in Section 253(3). 67 At a time when s 258 of the Corporations Law was in identical terms to Section 253, Perry J in Galladin Pty Ltd v Aimnorth Pty Ltd (1993) 11 ACSR 23 at 44 endorsed the remark of Wilcox J in Claremont. 68 In Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 at [19], Barrett J extended the effect of a failure to comply with Section 251A(1) to a non-entitlement to the benefit of Section 1305. His Honour held that a copy of a minute that did not form part of a minute book in accordance with Section 251A(1) did not derive evidentiary value from Section 1305(2). To construe Section 1305(2) as ASIC submits would circumvent the purpose of Section 251A(1) and its forerunner Section 253. 69 I see no reason why the observation of Wilcox J should not apply to Section 251A(6). One thing that has emerged clearly in this case is that recollection is fallible. If a minute is to be given evidentiary value, it ought to be a contemporaneous document, for then it is more likely to be an accurate reflection of the proceedings of the meeting rather than a reconstruction of them. 70 When the legislature created the requirement of one month in Section 251A(1) it did so with the object of restricting the benefit of the section to reasonably contemporaneous documents. Hence the need for strict compliance. 71 As a matter of construction, only documents recorded in a minute book within one month of a meeting are accorded the evidentiary value specified in Section 251A(6). This is apparent from the use of the words "so recorded and signed" in the sub-section. They refer back to the earlier provisions of the section. A minute is "so signed" if it is signed in accordance with Section 251A(2), Section 251A(3) or Section 251A(4) as they are the only provisions within the section that require a signature. Likewise, a minute is "so recorded" if it is recorded in a minute book within a month of the meeting as provided in Section 251A(1) for that is the only provision within the section that requires recording. 72 Since the minutes of the 15 February 2001 Meeting were not recorded in a minute book within one month, it follows that Section 251A(6) was not engaged and the minutes have no special evidentiary value. 73 In light of that finding, the question whether Section 251A(6) gives rise to a reversal of the onus of proof need not be decided. But in view of the submissions of most parties on the issue, I set out my view of the matter. 74 ASIC contends that Section 251A(6) contains the sort of deeming that Section 253(3) had. But Section 251A(6) does not say that the minute is conclusive evidence of happenings at a meeting unless the contrary is proved. It does not state, as Section 253(3) stated, that the events recorded in the minute are deemed to have happened. It says the minute is evidence of the events unless the contrary is proved. And whether the contrary is proved must be judged on the whole of the evidence. If the evidence establishes that an event recorded in a minute did not occur, the fact of its recording in the minute has no effect. 75 Hamilton J adopted this approach of judging whether the contrary had been proved by surveying the whole of the evidence in Silver v Dome Resources NL [2007] NSWSC 455; (2007) 62 ACSR 539 at [61]-[63] where, having referred to a minute to which Section 251A(6) applied, his Honour considered the evidence as a whole and concluded that the evidence against the holding of the meeting should be rejected. In so doing his Honour attributed no special weight to the minute. The Court of Appeal affirmed the decision but did not address Section 251A(6) in Dome Resources NL v Silver [2008] NSWCA 322; (2008) 68 ACSR 458. 76 ASIC relies on a number of cases that discuss the phrase "unless the contrary is proved" and like phrases. Such phrases will vary in meaning depending upon their context. In the cases relied upon by ASIC, the context is one that specifies that a certain state of affairs is deemed, or presumed, or taken to exist. That is the context of Section 253(3). It is not the context of Section 251A. 77 Thus in Repatriation Commission v Gordon (1990) 26 FCR 569 Spender J considered s 29 of the Acts Interpretation Act 1901 (Cth) in which service is deemed to be effected by properly addressing, prepaying and posting a document, and, unless the contrary is proved, is deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post (see also Hughes v R (1983) 49 ALR 110, Foster v R (1982) 38 ALR 599, Hodgson v Hart District Council [1986] 1 All ER 400, Re Wayne Myer & Son Family Butchery Pty Ltd [1998] QSC 2, Damaso v The Queen [2002] NTCCA 2; (2002) 168 FLR 103, Singh v The Queen WACCA, unreported, 18 September 1985, Abbott v Western Australia (2005) 152 A Crim R 186, R v Phillips [1991] 3 NZLR 175, Hanson v R [2005] NZCA 220, R v Hanson [2007] NZSC 7; [2007] NZLR 1, Sheldrake v Director of Public Prosecutions [2005] 1 ALL ER 237 and McLean Bros & Rigg Pty Ltd v Grice (1906) 4 CLR 835). 78 These cases do not bear on the interpretation of Section 215A(6) in my view. It requires a weighing up of the evidence for and against the happening of the events recorded in a minute entered in a minute book within one month. If that weighing favours the recorded events, the contrary is not proved. If it favours evidence against the happening of the event, the contrary is proved. There is no shift in the onus of proof to the party asserting that the event did not happen. 79 In my view, therefore, the minutes of the 15 February 2001 Meeting do not fall within Section 251A(6) and, in any event, that provision does not create any statutory presumption in favour of the events recorded in the minute. 2.2 Some matters leading up to the 15 February 2001 Meeting 80 JHIL had given a deal of consideration to the restructure of the James Hardie group prior to the 15 February 2001 Meeting. One object was to separate from the James Hardie group in whole or in part those companies with a risk of receiving Asbestos Claims (Separation Proposals). Another object was to achieve a better worldwide income tax position. In July 1998 it issued an announcement to the ASX of its intention to form a wholly owned company in the Netherlands, James Hardie NV (JHNV), which would acquire all the operating companies in the group. JHIL planned to sell down about 15% of JHNV by an initial public offering (IPO) in the United States of America (US) and to list the shares on the New York Stock Exchange (NYSE). This was expected to occur in October 1998. The plan was referred to internally as Project Chelsea. Because of unfavourable equity market conditions in the US, the IPO was abandoned. 81 As a result of this restructure, Coy and Jsekarb and other non-operating entities remained subsidiaries of JHIL but the operating entities within the James Hardie group were owned by JHNV which was wholly owned by JHIL. 82 In December 1999, Mr Morley circulated a paper entitled "Potential Separation Structure Outline". A working party was established to consider this proposal further. The proposal became known internally as Project Green. 83 Board packs containing board papers were distributed to the directors of JHIL prior to each meeting of the board. Throughout the balance of 2000 and into 2001 the board packs contained board papers discussing Project Green. 84 On 13 December 2000 Mr Macdonald sent a project Green update memorandum to members of the board of JHIL foreshadowing that management would seek board approval in January 2001 to establish a trust over the shares in Coy thereby deconsolidating it from the James Hardie group. 85 The memorandum discussed Australian and US generally accepted accounting principles (GAAP) and noted that a proposed Australian accounting exposure draft – ED 88 (ED 88) might amend the accounting standards under which JHIL accounted for long tail liabilities including Asbestos Claims. The memorandum contained a recommendation for the transfer of the shares in Coy to a corporate trustee, a new subsidiary of JHIL. The memorandum stated that the value of the total assets available for creditors and potential claimants including asbestos costs was $217m. 86 The board papers for the 17 January 2001 board meeting included a paper entitled "Proposed Trust Structure Update". It considered the establishment of a stand-alone trust company to manage the asbestos liabilities in the James Hardie group. This Separation Proposal involved the incorporation of a company limited by guarantee to act as trustee of a trust, the object of which was to fund medical and scientific research into asbestos related and other lung diseases. JHIL would make a gift to the trust of its shares in Coy and Jsekarb and a cash gift of $2m for research. Under the proposal the assets of Coy and Jsekarb could not be used for research nor could any profits be distributed to the trustee by way of dividends. Instead they would be dedicated to meeting existing and future Asbestos Claims. The paper stated: "The Trust concept would ensure that approximately $214m in cash, receivables and assets, plus earnings from those assets, are earmarked solely for creditors of JH & Coy and Jsekarb, including the funding of future asbestos related claims. Ultimately any surplus funds would be available for the charitable purposes of the Trust, being asbestos and lung disease research. In addition to the shares in JH & Coy and Jsekarb, JHIL also could also provide a grant of approximately $2 million directly to the Trust to enable it to support current and ongoing research into asbestos related and other lung disease from the time of its establishment." 87 Mr Macdonald's memorandum of 13 December 2000 stated that press releases would explain the creation of the trust as providing certainty for creditors and potential claimants that the assets of Coy were irrevocably secured for their benefit. A draft announcement to the ASX was contained in the board papers for the January 2001 meeting. The board papers also contained a series of recommendations on communications strategy. 88 The Separation Proposal contained in the board papers was discussed at the JHIL board meeting on 17 January 2001. A feature of this Separation Proposal was that only the net assets of Coy and Jsekarb would be made available to meet present and future Asbestos Claims (Net Assets Model). The board papers stated: "Under current Australian law, the maximum quantum of funds available to Australian asbestos claimants is the existing net assets of JH & Coy and Jsekarb, the two legal entities which have been found legally liable to compensate asbestos victims. Apart from minimal exposure in JHIL to pre 1937 manufacturing of asbestos containing products and some minor NZ exposure described above, there are no other James Hardie companies with asbestos exposure. There is no sound rationale for increasing the net assets of JH & Coy and Jsekarb and thereby expanding this quantum of funds available to claimants…." 89 The board rejected the Net Assets Model on 17 January 2001 and management was sent away to do more work on the Separation Proposal to ensure sufficient funds were available to meet all present and future Asbestos Claims. 90 By 15 February 2001 the Separation Proposal had been refined. The board papers for the 15 February 2001 Meeting contained a paper entitled "Project Green Board Paper" produced by Mr Macdonald. The management suggestion was that additional annual payments should be made to the Foundation by JHIL in consideration for the benefits that came to be included in the DOCI. Under a heading "Separation from legacy issues" it was stated: "James Hardie Industries Limited (JHIL) does not have legal liability for the obligations of its former asbestos producing subsidiaries. In particular, James Hardie and Coy Pty Ltd and Jsekarb Pty Ltd, two subsidiaries which formerly produced asbestos bearing products and are currently subject to plaintiffs actions on account of injuries caused by asbestos, have current and potential liabilities that have the potential to exceed their net worth. This does not create an obligation for JHIL to meet any shortfall. It is recommended that the shares of these two companies be vested to a Foundation to manage the companies' assets in the interests of current and future creditors. It is also proposed that an additional sum be paid over time (NPV $70M) to JH & Coy in return for an indemnity and covenant not to sue JHIL and an agreement to take JHIL if it is put to it in the future with no subsidiary companies. Upon the vesting of the shares and additional sums, the vesting of an additional $3M to support the Foundation in ongoing research into asbestos related diseases, and other establishment costs, JHIL will recognise an extraordinary write off of around $256M. We are also recommending that JHIL make a direct $1M once off commitment to support a proposed Asbestos Diseases Research Institute. The gross assets in the companies amount to around $284M before asbestos related liabilities. The creation of a Foundation as recommended will largely remove asbestos related issues from JHIL and the ongoing James Hardie Group. A separate paper detailing the separation process is included as Attachment A. Communications strategies have been well developed and a paper on communications is included as Attachment B." 91 Unlike the board papers for the January 2001 meeting, the board papers for the 15 February 2001 Meeting did not contain a draft press release. Nor was there any reference to a draft press release in the agenda for that meeting. In Attachment B, dealing with communications strategy, there was no discussion of the specific terms of an announcement to the ASX. The first page of the communications strategy contained the following statement: "Our central communications conundrum is that we will not be able to provide key external stakeholders with any certainty that the funds set aside to compensate victims of asbestos diseases will be sufficient to meet all future claims." 92 The board papers contained a statement that work was being done on announcements as further work on the sufficiency of funding was being undertaken. The board was also informed that the proposed meeting date was 15 February 2001 with the announcement of separation, if approved, scheduled for 16 February 2001. The board papers also recommended that the board agree to the creation of the Foundation at its 15 February 2001 Meeting for announcement together with JHIL third quarter (Q3) results on Friday 16 February 2001. 93 The February 2001 board papers did not contain draft minutes of the detailed resolutions that were to be put to the meeting. Attachment A on the separation process under the heading "JHIL Board Resolutions" stated: "JHIL is required to resolve the following matters: 1. establish a trust (on terms outlined below); 2. settle $3M on the trust for research purposes; 3. agree payments to JH & Coy; 4. allow the allotment of shares in JH & Coy and Jsekarb to the trust for nil consideration and reduce capital in JH & Coy for nil consideration (the transfer mechanism)." There was no mention of a resolution to approve an announcement to the ASX. 94 Gavin Anderson & Company (Gavin Anderson) provided public affairs and financial relations advice to corporate clients. They were retained by JHIL. Gregory John Baxter was the senior vice-president of corporate affairs of JHIL. His chief point of contact was with Jane Alison Sarah Rotsey who was employed part time by Gavin Anderson as chief operating officer. Stephen Gregory Ashe was vice-president public affairs of JHIL. He reported to Mr Baxter. 95 On 7 February 2007, Mr Baxter and Mr Ashe met with Ms Rotsey and Bryan Tyson, the head of Gavin Anderson's Sydney office. One of the tasks to be addressed by Gavin Anderson and Tony Park, a consultant to Gavin Anderson, was to revise and finalise a James Hardie media release, a Foundation media release, key messages and question and answer (Q&A) documents. 96 On 9 February 2001, Mr Macdonald, Mr Shafron and Mr Ashe met with Mr Steven Loosley of PwC's strategic advice and public policy group. He advised them to attempt to get independent verification of the funding outcomes they had modelled. 97 On 10 February 2001, Mr Macdonald sent an email to Mr Baxter with copies to Mr Shafron and Mr Morley amongst others. Under a heading "4. Funding- will it be enough? and independent verification" it was stated: "Stephen felt the new numbers put us in a very powerful position. We should attempt to get independent verification of the funding outcomes we had modeled (Access Economics, Grant Samuel, PwC were suggestions) so that funding outcomes were not solely on our say so. For example….") 98 Melissa Maree Wheeler was project coordinator in corporate affairs of JHIL and an executive assistant to Mr Baxter. On 13 February 2001 she sent an email to Ms Rotsey, Mr Tyson, Mr Baxter and Mr Ashe calling an "all hands on deck" meeting for the afternoon of Wednesday 14 February 2001. Action points from that meeting prepared by Ms Wheeler indicated that the tasks of revising for comment the media release of JHIL, the media release of the Foundation, the key messages and the Q&A had not been completed. A deadline for their completion that day was set. 99 On 14 February 2001, Mr Shafron sent an email to Mr Macdonald, Mr Baxter and Mr Ashe with a copy to Mr Morley amongst others in which he said: "I think you know that we really should get express permission from our experts before mentioning them publicly. As for Trowbridge, they have yet to give that permission. If we do intend to refer to them in public documents or discourse then please let me know what we intend to say and I will try to clear it with David Minty. Same will apply to Access and PwC." 100 David Julian Minty was an actuarial consultant at Trowbridge and a partner of Deloitte Touche Tohmatsu. 101 Mr Baxter responded to Mr Shafron's email as follows: "you will get to see all the documents to be released and this will be the final form of approval we need – if we can find out in advance what they are prepared for us to say that might save time later broadly we expect to refer to people like Trowbridge, Access etc as having reviewed and verified the legitimacy of our modelling/projections on which we determined the quantum of assets transferred to the foundation. this was an important point for the govt yesterday so I would be potentially very uncomfortable if we were not able to reference the experts in a reasonably unequivocal fashion please alert me as early as possible fi ( sic ) this sounds like it could be a last minute issue." 102 As well as the all hands on deck meeting with Gavin Anderson staff, there was a Project Green board meeting run through session on the afternoon of 14 February 2001. Prior to that meeting, Andrew Cowper of UBS distributed slide presentations to, amongst others, Mr Macdonald, Mr Baxter, Mr Shafron and Mr Morley and indicated that slides prepared by Mr Baxter were being formatted and would be brought to the meeting. 2.3 7.28 pm Draft Announcement 103 At 7.28 pm on 14 February 2001, Ms Rotsey sent an email to Mr Baxter and others attaching the work of Mr Park, Mr Tyson and Ms Rotsey being the JHIL release, the Foundation release, the JHIL Q&A, the Foundation Q&A and key messages. 104 In the documents forwarded by Ms Rotsey, were statements to the effect that the Foundation would have sufficient funds to meet all future Asbestos Claims and the words "fully funded" appeared. In the Foundation release there was the following: "A new, fully-funded organisation, the Medical Research and Compensation Foundation (MRCF) has been established to handle asbestos-related claims against former James Hardie companies, and to fund medical research." 105 In the JHIL Q&A material there was a statement: "We have established a fully–funded Medical Research and Compensation Foundation which provides much greater security than ever before for people with legitimate asbestos-related claims against James Hardie, and for James Hardie shareholders." 106 The key messages document contained the following: "As a fully-funded Foundation, the MRCF provides certainty for claimants injured by asbestos that there will be sufficient funds to meet all legitimate compensation claims." 107 The JHIL release (7.28 pm Draft Announcement) also contained such statements. It was as follows: " Legally privileged and confidential – for legal advice only Draft news release 14 February 2001 James Hardie resolves its Asbestos Liability Favourably for Claimants and Shareholders James Hardie Industries Limited (JHIL) announced today that it had established a foundation to compensate sufferers of asbestos-related diseases with claims against the company and fund medical research aimed at finding cures for these diseases. The Medical Research and Compensation Foundation (Foundation), to be chaired by Sir Llewellyn Edwards, will be completely independent of JHIL and will commence operation with assets of $284million. The Foundation's purpose is to manage all future litigation arising from the past manufacturing of asbestos-containing products by two former subsidiaries of JHIL and fund legitimate compensation claims. JHIL CEO, Mr Peter MacDonald said that the establishment of a fully-funded Foundation provided the best resolution for all stakeholders "The establishment of the Medical Research and Compensation Foundation provides certainty for people with a legitimate claim against the former James Hardie companies which manufactured asbestos products," Mr MacDonald said. "It also resolves James Hardie's asbestos liability and allows it to pursue its very exciting growth prospects for the benefit of shareholders." A separate fund of $3 million has also been set aside scientific and medical research aimed at finding treatments and cures for asbestos diseases. The $284 million vested into the Foundation includes portfolios of commonly traded shares, a substantial cash reserve, properties which earn rent and insurance policies which cover workers compensation claims. Fund manager, Towers Perrin has been appointed to manage the Foundation's investments, which will generate investment income and capital growth. In establishing the Foundation, James Hardie sought information from a range of specialist advisors. It also has many years of experience in managing this issue and has formed a very well rounded view of the funding required to meet current and future claims "The directors of James Hardie are satisfied that the Foundation will have sufficient funds to meet all future claims," Mr MacDonald said. The initial $3 million for medical research will enable the Foundation to continue work on existing programs established by James Hardie as well as launch new programs. When all future claims have been concluded, the Foundation will convert any remaining assets to cash and these surplus funds will be donated to a reputable medical and or scientific research organisation involved in work on lung diseases. Mr MacDonald said, Sir Llewellyn Edwards, who had resigned as a director of James Hardie Industries Limited to take up his new appointment as chairman of the Foundation has enjoyed a long and distinguished career in medicine, politics and business. He is a director of a number of organizations including Westpac Banking Corporation and is also Chancellor of the University of Queensland. The other Foundation directors include Mr Michael Gill, Mr Peter Jollie and Mr Dennis Cooper. -ends- For further information: Greg Baxter Bus: Mob:" 108 Stephen Edward Harman was financial controller of JHIL. He reported to Mr Morley. At 12.33 am on 15 February 2001 Mr Harman sent by email to Mr Koffel and Mr Gillfillan with copies to Mr Macdonald, Mr Shafron and Mr Morley amongst others, board meeting material including the slide presentation "Project Green Board Presentation" and a number of documents constituting the Cashflow Model. The documents did not include the draft of any announcement to the ASX. 2.4 7.24 am Draft Announcement 109 At 6.57 am on 15 February 2001 (the email states the time wrongly at 7.57 am) Mr Baxter sent an email to Ms Rotsey returning the documents she had sent the previous evening with his amendments. The email stated: "some comments and changes and so on. I don't think there are any major issues and I don't think it is particularly productive to agonise over these documents much longer. if possible, can you have these amended and back to Melissa by 10am so that she can bring me a fresh set to the Bd meeting. If not, can you let me know that before 9.30am please hope you enjoyed your evening after a hectic day. see you later; we could be back in the office by about 2pm - are you planning to be here or there?" 110 Mr Baxter sent a further email to Ms Rotsey at 7.24 am attaching his revised changes to the draft announcement to the ASX (7.24 am Draft Announcement). He said: "here are my comments on the news release – no doubt we can refine further later today – this is the version I will take to the Bd meeting." 111 The attached revised draft announcement was in the same terms as the Draft ASX Announcement except that it contained boxes explaining Mr Baxter's deletions. Without the boxes, the 7.24 am Draft Announcement was as follows: " Legally privileged and confidential – for legal advice only Draft news release 14 February 2001 James Hardie resolves its Asbestos Liability Favourably for Claimants and Shareholders James Hardie Industries Limited (JHIL) announced today that it had established a foundation to compensate sufferers of asbestos-related diseases with claims against the company and fund medical research aimed at finding cures for these diseases. The Medical Research and Compensation Foundation (Foundation), to be chaired by Sir Llewellyn Edwards, will be completely independent of JHIL and will commence operation with assets of $284million. The Foundation will have sufficient funds to meet all legitimate compensation claims from people injured by asbestos products manufactured in the past by two former subsidiaries of JHIL. JHIL CEO, Mr Peter Macdonald said that the establishment of a fully-funded Foundation provided the best resolution for all stakeholders "The establishment of the Medical Research and Compensation Foundation provides certainty for people with a legitimate claim against the former James Hardie companies which manufactured asbestos products," Mr Macdonald said. "The Foundation will concentrate solely on asbestos for the benefit of claimants allowing James Hardie to pursue its very exciting growth prospects for the benefit of shareholders." A separate fund of $3 million has also been set aside for scientific and medical research aimed at finding treatments and cures for asbestos diseases. The $284 million vested into the Foundation includes portfolios of commonly traded shares, a substantial cash reserve, properties which earn rent and insurance policies which cover workers compensation claims. Fund manager, Towers Perrin has been appointed to manage the Foundation's investments, which will generate investment income and capital growth. In establishing the Foundation, James Hardie sought expert advice from a number of firms, including actuaries Trowbridge, Access Economics and PricewaterhouseCoopers. This advice supplemented the company's long experience in the area of asbestos and formed the basis of determining the level of funding required to meet all future claims. "The directors of James Hardie are satisfied that the Foundation will have sufficient funds to meet all future claims," Mr Macdonald said. The initial $3 million for medical research will enable the Foundation to continue work on existing programs established by James Hardie as well as launch new programs. When all future claims have been concluded, the Foundation will convert any remaining assets to cash and these surplus funds will be donated to a reputable medical and or scientific research organisation involved in work on lung diseases. Mr Macdonald said, Sir Llewellyn Edwards, who had resigned as a director of James Hardie Industries Limited to take up his new appointment as chairman of the Foundation has enjoyed a long and distinguished career in medicine, politics and business. He is a director of a number of organizations including Westpac Banking Corporation and is also Chancellor of the University of Queensland. The other Foundation directors include Mr Michael Gill, Mr Peter Jollie and Mr Dennis Cooper. -ends- For further information: Greg Baxter Bus: Mob:" 2.5 9.35 am Draft Announcement 112 At 9.35 am on 15 February 2001, Ms Rotsey sent an email to Mr Baxter stating: "Please find revised material". The revised material was a second draft of the news release and was dated 15 February 2001 (9.35 am Draft Announcement). It made an inaccurate alteration to the sixth paragraph of the 7.24 am Draft Announcement and contained the remnant of one of Mr Baxter's boxes in relation to the 3rd paragraph containing the word "Deleted:" but without Mr Baxter's explanation which had been "'s purpose is to". Apart from the remnant box, the 9.35 am Draft Announcement was in the following terms: " Legally privileged and confidential – for legal advice only Draft 2 news release 15 February 2001 James Hardie resolves its Asbestos Liability Favourably for Claimants and Shareholders James Hardie Industries Limited (JHIL) announced today that it had established a foundation to compensate sufferers of asbestos-related diseases with claims against the company and fund medical research aimed at finding cures for these diseases. The Medical Research and Compensation Foundation (Foundation), to be chaired by Sir Llewellyn Edwards, will be completely independent of JHIL and will commence operation with assets of $284million. The Foundation will have sufficient funds to meet all legitimate compensation claims from people injured by asbestos products manufactured in the past by two former subsidiaries of JHIL. JHIL CEO, Mr Peter Macdonald said that the establishment of a fully-funded Foundation provided the best resolution for all stakeholders "The establishment of the Medical Research and Compensation Foundation provides certainty for people with a legitimate claim against the former James Hardie companies which manufactured asbestos products," Mr Macdonald said. "The Foundation will concentrate solely meeting the needs of and allowing James Hardie to pursue its very exciting growth prospects for the benefit of shareholders." A separate fund of $3 million has also been set aside for scientific and medical research aimed at finding treatments and cures for asbestos diseases. The $284 million vested into the Foundation includes portfolios of commonly traded shares, a substantial cash reserve, properties which earn rent and insurance policies which cover workers compensation claims. Fund manager, Towers Perrin has been appointed to manage the Foundation's investments, which will generate investment income and capital growth. In establishing the Foundation, James Hardie sought expert advice from a number of firms, including actuaries Trowbridge, Access Economics and PricewaterhouseCoopers. This advice supplemented the company's long experience in the area of asbestos and formed the basis of determining the level of funding required to meet all future claims. "The directors of James Hardie are satisfied that the Foundation will have sufficient funds to meet all future claims," Mr Macdonald said. The initial $3 million for medical research will enable the Foundation to continue work on existing programs established by James Hardie as well as launch new programs. When all future claims have been concluded, the Foundation will convert any remaining assets to cash and these surplus funds will be donated to a reputable medical and or scientific research organisation involved in work on lung diseases. Mr Macdonald said, Sir Llewellyn Edwards, who had resigned as a director of James Hardie Industries Limited to take up his new appointment as chairman of the Foundation has enjoyed a long and distinguished career in medicine, politics and business. He is a director of a number of organizations including Westpac Banking Corporation and is also Chancellor of the University of Queensland. The other Foundation directors include Mr Michael Gill, Mr Peter Jollie and Mr Dennis Cooper. -ends- For further information: Greg Baxter Bus: Mob:" 113 At 1.11 pm on 15 February 2001, Ms Wheeler sent an email to Mr Ashe attaching a copy of the 9.35 am Draft Announcement. 114 At 2.46 pm on 15 February 2001, Mr Harman sent an email to David Walter Brett enclosing a copy of the 9.35 am Draft Announcement from which had been deleted the remnant of Mr Baxter's boxes. Mr Brett was a director in the economic studies and strategies unit of PwC. 2.6 7.42 pm Final Draft Announcement 115 On 15 February at 7.42 pm Mr Baxter sent an email to Ms Wheeler attaching a final draft of the announcement to the ASX (7.42 pm Final Draft Announcement). It was also entitled "Legally Privileged and Confidential – For Legal Advice Only", was described as final in the heading and was dated 15 February 2001. It made many changes to the 9.35 am Draft Announcement the most significant of which were the increase in the amount of the assets to $285m; the substitution of "certainty for both claimants and shareholders" for "the best resolution for all stakeholders" in paragraph 4 and the introduction of the word "anticipated" in paragraphs 3 and 11. It was as follows: " Legally privileged and confidential – for legal advice only Final 15 February 2001 James Hardie resolves its Asbestos Liability Favourably for Claimants and Shareholders James Hardie Industries Limited (JHIL) announced today that it had established a foundation to compensate sufferers of asbestos-related diseases with claims against two former James Hardie subsidiaries and fund medical research aimed at finding cures for these diseases. The Medical Research and Compensation Foundation (Foundation), to be chaired by Sir Llewellyn Edwards, will be completely independent of JHIL and will commence operation with assets of $285 million. The Foundation has sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products that were manufactured in the past by two former subsidiaries of JHIL. JHIL CEO, Mr Peter Macdonald said that the establishment of a fully-funded Foundation provided certainty for both claimants and shareholders. "The establishment of the Medical Research and Compensation Foundation provides certainty for people with a legitimate claim against the former James Hardie companies which manufactured asbestos products," Mr Macdonald said. "The Foundation will concentrate on managing its substantial assets for the benefit of claimants. Its establishment has effectively resolved James Hardie's asbestos liability and this will allow management to focus entirely on growing the company for the benefit of all shareholders." A separate fund of $3 million has also been granted to the Foundation for scientific and medical research aimed at finding treatments and cures for asbestos diseases. The $285 million assets of the Foundation include a portfolio of long term securities, a substantial cash reserve, properties which earn rent and insurance policies which cover various types of claims, including all workers compensation claims. Towers Perrin has been appointed to advise the Foundation on its investments, which will generate investment income and capital growth. In establishing the Foundation, James Hardie sought expert advice from a number of firms, including PricewaterhouseCoopers, Access Economics and the actuarial firm, Trowbridge. With this advice, supplementing the company's long experience in the area of asbestos, the directors of JHIL determined the level of funding required by the Foundation. "James Hardie is satisfied that the Foundation has sufficient funds to meet anticipated future claims," Mr Macdonald said. The initial $3 million for medical research will enable the Foundation to continue work on existing programs established by James Hardie as well as launch new programs. When all future claims have been concluded, surplus funds will be used to support further scientific and medical research on lung diseases. Mr Macdonald said Sir Llewellyn Edwards, who has resigned as a director of James Hardie Industries Limited to take up his new appointment as chairman of the Foundation, has enjoyed a long and distinguished career in medicine, politics and business. His experience with James Hardie will assist the Foundation to rapidly acquire the knowledge it needs to perform effectively. Sir Llew is a director of a number of organisations including Westpac Banking Corporation and is also Chancellor of the University of Queensland. The other Foundation directors are Mr Michael Gill, Mr Peter Jollie and Mr Dennis Cooper. -ends- For further information: Greg Baxter Bus: Mob:" 116 A telephone number and mobile number were included in the announcement. I have excluded them. 117 Melanie Cole, whose previous surname was Coghlan, worked in the corporate affairs department of JHIL. She was responsible for managing the distribution of various announcements made by JHIL on 16 February 2001. 2.7 Final ASX Announcement 118 On 15 February at 9.27 pm Ms Wheeler sent an email to Ms Cole attaching the 7.42 pm Final Draft Announcement. 119 At 10.03 pm on 15 February 2001 Ms Cole sent an email to Ms Wheeler attaching the Final ASX Announcement. 120 On 16 February 2001 Mr Donald Cameron forwarded to the ASX a number of documents including the Final ASX Announcement. 121 The differences between the Final ASX Announcement and the 7.42 pm Final Draft Announcement were the deletion of the heading "Legally privileged and confidential – for legal advice only"; the deletion of the word "Final" and the date 15 February 2001. They were substituted by the logo of James Hardie, the title "media release" and the date 16 February 2001. The assets value at $285m was replaced with $293m. The Medical Research and Compensation Foundation was referred to as MRCF rather than Foundation. The contact details for Mr Baxter were slightly altered. A statement was added that the document was available on the James Hardie website and a disclaimer was added that the document contained forward-looking statements subject to risks and uncertainties and readers should not place undue reliance on the statements. They should not be regarded as a representation that the objectives or plans described would be realised. The Final ASX Announcement was in the following terms: "media release 16 February 2001 James Hardie resolves its Asbestos Liability Favourably for Claimants and Shareholders James Hardie Industries Limited (JHIL) announced today that it had established a foundation to compensate sufferers of asbestos-related diseases with claims against two former James Hardie subsidiaries and fund medical research aimed at finding cures for these diseases. The Medical Research and Compensation Foundation (MRCF), to be chaired by Sir Llewellyn Edwards, will be completely independent of JHIL and will commence operation with assets of $293 million. The Foundation has sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products that were manufactured in the past by two former subsidiaries of JHIL. JHIL CEO, Mr Peter Macdonald said that the establishment of a fully-funded Foundation provided certainty for both claimants and shareholders. "The establishment of the Medical Research and Compensation Foundation provides certainty for people with a legitimate claim against the former James Hardie companies which manufactured asbestos products," Mr Macdonald said. "The Foundation will concentrate on managing its substantial assets for the benefit of claimants. Its establishment has effectively resolved James Hardie's asbestos liability and this will allow management to focus entirely on growing the company for the benefit of all shareholders." A separate fund of $3 million has also been granted to the Foundation for scientific and medical research aimed at finding treatments and cures for asbestos diseases. The $293 million assets of the Foundation include a portfolio of long term securities, a substantial cash reserve, properties which earn rent and insurance policies which cover various types of claims, including all workers compensation claims. Towers Perrin has been appointed to advise the Foundation on its investments, which will generate investment income and capital growth. In establishing the Foundation, James Hardie sought expert advice from a number of firms, including PricewaterhouseCoopers, Access Economics and the actuarial firm, Trowbridge. With this advice, supplementing the company's long experience in the area of asbestos, the directors of JHIL determined the level of funding required by the Foundation. "James Hardie is satisfied that the Foundation has sufficient funds to meet anticipated future claims," Mr Macdonald said. The initial $3 million for medical research will enable the Foundation to continue work on existing programs established by James Hardie as well as launch new programs. When all future claims have been concluded, surplus funds will be used to support further scientific and medical research on lung diseases. Mr Macdonald said Sir Llewellyn Edwards, who has resigned as a director of James Hardie Industries Limited to take up his new appointment as chairman of the Foundation, has enjoyed a long and distinguished career in medicine, politics and business. His experience with James Hardie will assist the Foundation to rapidly acquire the knowledge it needs to perform effectively. Sir Llew is a director of a number of organisations including Westpac Banking Corporation and is also Chancellor of the University of Queensland. The other Foundation directors are Mr Michael Gill, Mr Peter Jollie and Mr Dennis Cooper. Ends. For further details contact: Greg Baxter, Senior Vice President Corporate Affairs Tel: Mob: This document is available from the Investor Relations Section of the James Hardie website – www.jameshardie.com This document contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties and, as a result readers should not place undue reliance on such statements. The inclusion of these forward-looking statements should not be regarded as a representation that the objectives or plans described will be realised." 122 I have excluded the telephone number and mobile number set out in the announcement. 2.8 The attendees at the 15 February 2001 Meeting 123 Mr Harman had a discussion with Mr Macdonald, Mr Shafron and Mr Morley in the evening of 14 February 2001 concerning the circulation of documents to the directors. UBS was still finalising the slides. He was asked to send the PowerPoint presentation and the Cashflow Model to the US directors who would be attending the board meeting by video or telephone. He said he asked should he also send the PwC and Access Economics reports and was told by Mr Morley, Mr Macdonald or Mr Shafron, he could not recall who, not to send them; it was too much detail; but he should bring them to the meeting. Mr Morley confirmed this conversation. He said it was Mr Macdonald who gave the instruction. 124 No steps were taken to obtain the consent of PwC, Access Economics or Trowbridge to the reference to them in the Draft ASX Announcement until the afternoon of 15 February 2001, after the conclusion of the board meeting. 125 Ms Wheeler said she recalled receiving the 9.35 am Draft Announcement from Ms Rotsey on 15 February 2001 and she recalled printing out one or more copies of it and giving them to Mr Baxter. She recalled that he was late leaving for the meeting. 126 Evidence was adduced from eight persons who attended the 15 February 2001 Meeting: Mr Baxter, Mr Harman, Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel, Mr Willcox and Mr Morley. 127 In his affidavit, Mr Baxter said he sent the 7.28 pm Draft Announcement to Mr Macdonald, Mr Shafron, Mr Morley, Mr Ashe and possibly Mr Attrill and David Robb of Allens for comment. Wayne John Attrill was litigation manager and later litigation counsel in the asbestos-related litigation section of the legal department of JHIL. He reported to Mr Shafron. 128 There is no documentary evidence recording these communications. Mr Morley denied having received any version of the draft announcement before the 15 February 2001 Meeting and had no recollection of such a document being distributed at the meeting. Mr Attrill said he did not receive any version of the draft announcement until either late on the evening of 15 February 2001 or in the morning of 16 February 2001. 129 Mr Baxter said he took the 7.24 am Draft Announcement without the boxes to the 15 February 2001 Meeting. That was his intention as he stated in his email to Ms Rotsey. That is the document annexed to the fourth further amended statement of claim as the Draft ASX Announcement. 130 Mr Baxter said he had no specific recollection of what happened during the course of the 15 February 2001 Meeting. He was unable to say that the directors ever saw the press release at any time up to or during the course of the board meeting. He was unable to say that the chairman tabled the press release at the meeting. He was unable to say that the directors took a vote on the resolution. He was unable to say whether a vote was affirmative or negative. He could not recall saying anything about the Draft ASX Announcement during the meeting nor was he certain that anyone else said anything about it at the meeting. He thought it was handed around. He did not know who handed it around. He was asked whether he handed it around and he said he probably did. He did not recall whether it was handed to any person during the course of the meeting. 131 Later in his cross-examination the following exchange occurred: "Q. You didn't, did you, distribute hard copies of any announcement that the JHIL board was to consider to each member of the board and others present; correct? A. I believe I did do that. Q. I want to suggest to you that you've got no recollection whatsoever of doing so; correct? A. Correct. Q. And I want to suggest to you that, in fact, your recollection is that you didn't; correct? A. No, that's incorrect." 132 In his affidavit, Mr Baxter said that it was his usual practice in attending JHIL board meetings that if proposed announcements had not been sent to the board members in the board packs prior to the meeting, he distributed hard copies of any announcement that the board was to consider to each of the board and others present. He said that in the case of the overseas directors a copy was either emailed or faxed to them, or if it was not, or they indicated they had not received it, Mr McGregor would read out the terms of the proposed announcement to them. He said that while he could not specifically recall distributing to those present at the 15 February 2001 Meeting copies of the Draft ASX Announcement he had no reason to believe he departed from his usual practice of distributing copies to those present. He said he also had no reason to believe that the announcement was not either sent to the board members attending by telephone or that Mr McGregor did not read out its terms. 133 In his affidavit, Mr Baxter said that announcements to the ASX other than those of a financial nature were drafted by corporate affairs and required approval by the chief executive officer, the chief financial officer, general counsel and the company's external legal advisers before they were finalised to go to the board. 134 In cross-examination, Mr Baxter said that after a draft announcement to the ASX was prepared it would be sent to the line management concerned, namely, Mr Attrill so far as asbestos liabilities were concerned, Mr Morley so far as financial matters were concerned and Mr Shafron and Allens so far as legal matters were concerned. The draft would also be sent to UBS and Mr Macdonald and possibly Mr Harman. Until all were satisfied it was not in accordance with established procedure to bring the press release to the board. 135 The document taken to the 15 February 2001 Meeting by Mr Baxter had not been through this procedure. It had not been seen by Mr Macdonald, Mr Shafron or Mr Morley and had not been approved by Allens. Mr Baxter said he was unaware of sending the 7.24 am Draft Announcement to anyone other than Ms Rotsey. Mr Baxter agreed that what occurred in relation to the Draft ASX Announcement was entirely irregular. 136 When asked whether he went through the usual procedures and that all parties had signed off on the press release before 15 February 2001 Mr Baxter said that the only part that he could recall that was not signed off was the reference to the independent verification by Trowbridge, PwC and Access Economics. When it was put that that part of the procedure certainly was not followed he said it was. It was work in progress but it was not done by the time of the board meeting. He believed, incorrectly, that a draft announcement had been sent to PwC, Access Economics and Trowbridge to obtain their approval prior to the board meeting. But a press release was only sent to PwC after the meeting and Mr Shafron did not contact Trowbridge to obtain their approval until the evening of 15 February 2001. 137 There is no documentary evidence that any version of the Draft ASX Announcement was provided to Mr Koffel or Mr Gillfillan prior to or during the board meeting. Mr Baxter's evidence on whether the Draft ASX Announcement was read out at the meeting is equivocal. In his cross-examination this exchange occurred: "Q. It wasn't read out was it? A. It was read, I believe. Q. I want to suggest to you that that's just simply wrong: do you agree with that? A. No. Q. Who read it? A. It was read by – it was read; those people read something. Q. So, in other words, I just want to be clear on this, it wasn't read out loud, was it? A. No." 138 Later in his cross-examination it was put to Mr Baxter that there was no discussion concerning the press release during the course of the meeting. He said he could not agree with that. He was asked what discussion did he remember. He said he had no recollection. 139 No witness gave evidence of a positive recollection that Mr McGregor read out the Draft ASX Announcement. Nor did any witness recall a draft announcement being read out aloud at any other board meeting of JHIL that they had attended. Nor is there any contemporaneous documentary evidence of the fact that the Draft ASX Announcement had been read out at the meeting. Mr Morley said it did not happen. 140 Mr Baxter recalled presenting slides numbered 23 to 30 with respect to communications strategy to the meeting. Those slides did not suggest that an announcement would be made by JHIL that it was certain that the Foundation had sufficient funds to meet potential Asbestos Claims or that it was fully funded. Slide 29 with respect to key messages contained the statement "The Foundation expects to have enough funds to pay all claims". Slide 24 stated that Mr Loosley had "counselled us to strengthen the adequacy of funding so that we could argue that the most likely outcome was that all claims would be met." Mr Baxter had no reason to believe that he did not present the entirety of the communications strategy slides, slides 30 to 40. 141 Mr Harman was unable to say that the Draft ASX Announcement was tabled at the meeting or that there was any discussion or resolution in relation to it. 142 Mr Morley had a recollection that there was some discussion of the communications strategy presented by Mr Macdonald and Mr Baxter at the 15 February 2001 Meeting. He said he would not have supported any proposal that JHIL make unqualified public statements about the sufficiency of funding of the Foundation and he would have opposed the release of the Draft ASX Announcement had it been considered at the meeting. 143 On 15 January 2001, Mr Brown sent a facsimile to Mr Morley before the 16 January 2001 audit committee meeting which contained the following: "Basis structure purpose of trust – and proposed public statement on this (is it sufficient?)". 144 Mr Brown was dissatisfied with the communications strategy in the board papers for the February 2001 meeting because it did not convey that there would be certainty of funding: "Q. You read the board paper for the February meeting and you noticed that the communications message was unsatisfactory because it did not convey that there would be a certainty of funding – that's correct? A. I note – yes. Q. You had expected from the previous meeting that if the management was going to put up a proposal again, there were two things that you expected of them: one, it would be fully funded? A. Yes, Sir Q. And, two, that's the message they would be conveying to the market? A. Yes, Sir. Q. And yet the board paper you got, which dealt in detail with a communications strategy, didn't say "fully funded"? A. That is correct, and that's where there was a whole lot of discussion in the board meeting, and that was the focus of the board meeting, for the board to be satisfied that the Foundation had sufficient funds to meet its obligations." 145 Yet Mr Brown said he had no recollection of receiving, reading, or discussing the Draft ASX Announcement at the 15 February 2001 Meeting. He said he had no recollection of reading the Final ASX Announcement issued on 16 February 2001. He said he did not recall any discussion regarding the content and wording of any announcement. 146 But Mr Brown said he believed the board discussed the overall communications strategy and the key messages to be made to stakeholders at the meeting. He said he did not recall the words used by management to describe the message to the market. 147 Slide 11 of the presentation to the 15 February 2001 Meeting was headed "Summary of key issues for consideration" which included "Positioning/key stakeholder messages" and Mr Brown, Ms Hellicar, Mr Willcox and Mr Morley accepted that management addressed that slide. A number of later slides contained references to a Separation Proposal announcement or news release. 148 Mr Brown's evidence was that he asked Mr Macdonald at the 15 February 2001 Meeting: "Can we be sure that the funds we allocate to the Foundation on the basis of the Trowbridge report are sufficient? Is the Trowbridge report sound and fit for purpose?" 149 Mr Brown said that Mr Macdonald replied: "If we can't tell all of the interested stakeholders that there will be enough funds then we will have great difficulty getting acceptance of the plan and it won't work". Mr Brown accepted that was a statement about the content of the announcement to the ASX. 150 Mr Brown said he responded: "I appreciate that difficulty, but that is not an answer. My question is: are you sure there are going to be sufficient funds in the trust? To which Mr Macdonald said: "Yes there are. We have got the best actuarial modelling. We have shown that we can meet the cash requirements each year. We are providing enough funds for future claims." 151 Mr Brown said that no one else at the meeting said anything to qualify what Mr Macdonald had said. 152 Mr Brown agreed that part of the communication to the market would be an announcement to the ASX. He was satisfied that what was said as to the proposed terms of the communication to the market accorded with what he expected should be said. He said it was likely that the board's approval of that message was summarised by Mr McGregor in the usual fashion saying "is the board happy with that?" and everybody nodded or otherwise indicated their agreement. 153 Mr Brown agreed it was likely that one of the members of management, most likely Mr Macdonald or Mr Baxter, indicated to the meeting that the key message to be communicated included that JHIL had established a Foundation to compensate sufferers of asbestos-related diseases with claims against the company and to fund medical research aimed at finding cures for these diseases. That statement correlates with paragraph 1 of the Draft ASX Announcement. 154 Mr Brown agreed it was likely that Mr Macdonald or Mr Baxter also said that the Foundation would have sufficient funds to meet all legitimate compensation claims from people injured by asbestos products manufactured in the past by two former subsidiaries of JHIL. That statement correlates with paragraph 3 of the Draft ASX Announcement. 155 Mr Brown also agreed it was likely that Mr Macdonald or Mr Baxter said the establishment of a fully funded Foundation provided the best resolution for all stakeholders, which correlates with paragraph 4 of the Draft ASX Announcement. Mr Brown qualified this answer by saying it was in the context of "fully funded" as discussed which he said meant a form of shorthand developed at the meeting to say it was fully funded but in the context of sufficiently funded to the actuarial estimate. But he agreed that the expression "fully funded" was used at the meeting in relation to the Foundation and it was expected that the message to be conveyed to the market was that the Foundation was fully funded. 156 Mr Brown agreed that it was likely that Mr Macdonald or Mr Baxter said the Foundation provides certainty for people with a legitimate claim against the former James Hardie companies which manufactured asbestos products. That statement correlates with paragraph 5 of the Draft ASX Announcement. But Mr Brown said the term "certainty" was ambiguous. It might mean that a sufficient or a certain amount of funds were available and put aside and were not dependent on the fortunes of James Hardie in the future. Or it could mean absolutely certain that there was no possibility whatsoever that the funds were not enough and he would not concur in the company making that suggestion. 157 Mr Brown agreed that it was likely said that the fund manager, Towers Perrin, had been appointed to manage the Foundation's investments, which would generate investment income and capital growth, a statement that correlates with paragraph 9 of the Draft ASX Announcement. 158 Mr Brown agreed it was likely that Mr Macdonald or Mr Baxter said that James Hardie sought expert advice from a number of firms including actuaries, Trowbridge, Access Economics and PricewaterhouseCoopers. That statement correlates with portion of paragraph 10 of the Draft ASX Announcement. 159 Mr Brown agreed that it was likely said that the advice supplemented the company's long experience in the area of asbestos and formed the basis of determining the level of funding required to meet all future claims, which correlates with the balance of paragraph 10 of the Draft ASX Announcement. 160 Mr Brown also agreed that it was likely that Mr Macdonald or Mr Baxter said that the directors of James Hardie were satisfied that the Foundation would have sufficient funds to meet all future claims, a statement correlative with paragraph 11 of the Draft ASX Announcement. 161 It was put to Mr Brown that it was likely that whoever made these statements did so by reference to some form of writing. Mr Brown said: "I don't recall, Sir quite conceivably; I just do not recall". To the proposition that the Draft ASX Announcement was distributed at the meeting, Mr Brown said that if that had happened he would have looked at it and probably made some comments and the fact that he did not recall that led him to think that it was not at the meeting. But he did not recall specifically. He did not agree there was a discussion by reference to a document as to what was to be conveyed by way of an announcement to the ASX. He could not point to any document other than the Draft ASX Announcement as the source of the statements as to the messages to be conveyed to the market. 162 Mr Gillfillan's recollection was that he was not provided with the Draft ASX Announcement during or prior to the 15 February 2001 Meeting and he did not have a copy of it during the meeting. He said to the best of his recollection there was no discussion of the Draft ASX Announcement at the meeting. 163 As to whether Mr McGregor read out the terms of the Draft ASX Announcement, Mr Gillfillan said that to the best of his recollection this did not happen. Nor was this done, he said, at any time during the period he was a director of the James Hardie group, whether by Mr McGregor or anyone else present at a board meeting or an audit committee meeting. 164 Mr Gillfillan said were this to have happened he believed he would have remembered it because it would have been very unusual in the context of his professional experience with companies in the US. He said had he been shown a draft press release in the form of the Draft ASX Announcement he would not have approved it because it contained wording "so unequivocal and unqualified". His belief was that his "antenna" would have been raised had the Draft ASX Announcement been shown to him. 165 Mr Gillfillan had no recollection of any discussion at the board meeting about the key messages to be conveyed by an announcement to the ASX. Nor did he recall whether Mr McGregor sought the views of the board as to whether they were happy with what was to be communicated in any statement to the ASX. 166 Mr Gillfillan said he took virtually no interest in matters relating to communications issues or strategy. He would leave the essential message that was to be conveyed by any announcement as a matter to be considered by management, the attorneys and the Australian based directors. He said his normal practice was not to spend a great deal of time reading board papers dealing with the communications strategy. He might tune out or have a break if discussion got to communications strategy. He did not read the paper on communications included as Attachment B to the Project Green board paper for the 15 February 2001 Meeting. 167 When the same matters that had been put to Mr Brown as statements made by management with correlations with the paragraphs of the Draft ASX Announcement were put to Mr Gillfillan, he did not recall them but he did not deny that they might have been said. 168 Ms Hellicar said she did not recall seeing the Draft ASX Announcement at the 15 February 2001 Meeting. She was adamant that there was no significant discussion about communications processes and strategies. She said this in cross-examination: "Q. What I want to suggest to you is that there was extensive discussion at the meeting about the content of the separation announcement? A. No, there was no discussion about the content of the separation announcement. Q. There was significant discussion about the terms of what would be communicated to the market on the announcement of the Foundation wasn't there? A. No, there was not. Q. There was significant discussion as to the likely reaction of stakeholders to the proposed communication? A. I don't recall there being significant discussion but, as I said to you, I know that some of the slides flicked past and potentially one of management could have spoken about reaction. Q. I suggest there was discussion as to the recommended terms of the communication to the market which the Board agreed to? A. To the best of my recollection, there was no discussion at all of the terms of an announcement to the market." 169 Mr Koffel said he had no recollection of anyone reading out the contents of the Draft ASX Announcement during the 15 February 2001 Meeting or Mr Baxter, Mr McGregor or anyone else stating that a draft press release was being handed out during the course of the meeting. If he had been told that a document was being tabled at a meeting, or he became aware that one was being distributed and he was being asked to approve its terms, he would have asked for a copy of it. 170 Mr Koffel said he was not asked to approve the contents of any announcement to the ASX or any news release in connection with the establishment of the Foundation. He said he was able to say this definitively because if he had been asked to approve the contents of the press release concerning the establishment of the Foundation he would have insisted on receiving a hard copy of the document so that he could properly review it and have his US attorneys, Cooley Godward Kronish (Cooley) review it. 171 Mr Koffel said because corporate disclosure was a critical issue in the US at the time he agreed to join the board of JHIL, he had insisted to Mr McGregor that he be allowed to show any corporate disclosures that he considered to be sensitive upon which he was expected to comment to Cooley so that he might obtain additional advice on such disclosures. He said Mr McGregor had agreed with this. He said he had no record of receiving a copy of any news release of February 2001 or providing such a document to Cooley. 172 Mr Koffel did not provide the draft announcement to the ASX in the January 2001 board papers to Cooley for advice. 173 Mr Koffel said that if he had been provided with the Draft ASX Announcement he would not have approved it because of several broad statements that in the US would be capable of interpretation as forward-looking statements. He said he would never provide forward-looking statements to a securities exchange or to media outlets in such absolute terms and without significant qualification. 174 Mr Koffel did not recall the description of what was to be said in any announcement concerning the Foundation. He said it was unlikely that someone would have read out aloud the key messages although he conceded his focus would not have been on the implementation of communications strategy. He said to read out a press release would not be consistent with the way the board meetings were conducted. If a press release had been read out there would have been active discussion on it, he said, and it would have attracted great attention from the board. 175 Mr Morley said that Mr Koffel expressed the view from time to time at board meetings that he had considerable concern based on his US experience about unqualified press statements. 176 Mr Koffel agreed that in the normal course he would have received a copy of the Final ASX Announcement on 16 February 2001 but he did not recall receiving a copy. 177 Mr Koffel did accept that it was probable that the key messages to be promulgated by the company were discussed at the 15 February 2001 Meeting. He accepted that someone could have outlined what was to be in the announcement. They might have outlined what was to be said about the sufficiency of funding being made available. That could have occurred as part of the process of outlining what was to be in any announcement or the message that was promulgated. It could have been stated that what was to be said was that the Foundation would have sufficient funds to meet all legitimate compensation claims from people injured by asbestos products manufactured in the past by two former subsidiaries of JHIL. 178 Mr Koffel said it was unlikely and inconsistent that during the meeting, as part of the discussion of the messages that would be promulgated by the Foundation, somebody read out aloud copy for him. He said it could have been done but his focus would not have been on communications strategy. 179 Mr Willcox had been concerned that the Net Assets Model considered at the board meeting on 17 January 2001 was unacceptable. He agreed that likely negative reaction to the announcement of that decision would be triggered by what he anticipated would need to be said about the sufficiency of funding. He agreed that part of his duty in making a decision as to whether or not to approve the setting up of the Foundation was to assess the likely reaction of the community to the announcement. He said he spoke at length about why the Net Assets Model was completely unacceptable. It would violate community expectations and would damage James Hardie's reputation. He agreed that he had said words to the effect that if they made a decision in which they did not provide sufficient funds to cover all of the expected future debts then there would be a negative reaction to it when it was announced. 180 Mr Willcox said that Mr Baxter did not during his presentation to the 15 February 2001 Meeting table or show the directors a draft press release, as he recalled it. He had no recollection of the Draft ASX Announcement being tabled by Mr McGregor, or by anyone else, or being discussed at the meeting. He agreed that Mr Baxter might have had a draft press release with him. He did not know and could not recall it. Mr Willcox said he would have required qualifications to be made to portions of the Draft ASX Announcement. 181 On 27 February 2004 the New South Wales government announced the appointment of the Honourable David Jackson AM QC to undertake a special commission of inquiry into James Hardie asbestos liability issues (Special Commission). The late Peter Stewart Cameron, a partner and head of mergers and acquisitions of Allens, gave a statement to the Special Commission as did the late Mr McGregor. Both were cross-examined on their statements before the Special Commission. Mr Peter Cameron and Mr Robb attended the 15 February 2001 Meeting. It was chaired by Mr McGregor. Portions of their evidence before the Special Commission was tendered in these proceedings. That evidence, however, does not deal with the question whether the Draft ASX Announcement or any version of a press release was tabled, discussed, or approved at that meeting. 2.9 Which document was before the 15 February 2001 Meeting? 182 Section 140 of the Evidence Act 1995 prescribes the standard of proof in civil proceedings as the balance of probabilities and provides that the Court may take into account in deciding whether it is so satisfied, the nature of the cause of action or defence, the nature of the subject matter of the proceedings and the gravity of the matters alleged. 183 This provision reflects Dixon J's discussion of the quality of persuasion required for this purpose in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362. In that case, the High Court held that, on a petition for divorce on the ground of adultery, the standard of proof was not that of proof beyond reasonable doubt. 184 Dixon J said that when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. In civil matters, the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal: "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. 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. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency." 185 To similar effect is the statement of the majority of the High Court in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450. 186 These are civil penalty proceedings where a pecuniary penalty of up to $200,000 and an order disqualifying the individual defendants from managing corporations for such period as the Court considers appropriate, are sought. The seriousness of the nature of the cause of action and the gravity of the matters alleged must be taken into account in deciding whether facts have been proved on the balance of probabilities (Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 at [146]-[148]). This means that, ordinarily, the more serious the consequences of what is contested in litigation, the more a Court will have regard to the strength and weakness of evidence before it in coming to a conclusion (CEPU v Australian Competition and Consumer Commission [2007] FCAFC 132, (2007) 162 FCR 466 at [30]). That means that if inferences are to be drawn, ASIC has to establish that the circumstances appearing in the evidence give rise to a reasonable and definite inference and not merely to conflicting inferences of equal degrees of probability (CEPU at [38]). 187 Not one of the eight witnesses who attended the 15 February 2001 Meeting or the late Mr Peter Cameron or the late Mr McGregor said that the Draft ASX Announcement was before the 15 February 2001 Meeting. That does not auger well for ASIC in the discharge of its onus on the balance of probabilities. 188 But there are countervailing circumstances that need to be considered in weighing the strengths and weaknesses of the evidence. 189 ASIC fails on this issue against the individual defendants if the evidence fails to establish that the Draft ASX Announcement was before the 15 February 2001 Meeting. The five defence witnesses who gave evidence were not disinterested in asserting that the Draft ASX Announcement was not before the meeting. 190 If a person was minded to dissemble, it would be an easy task for that person to say that he or she could not recall the Draft ASX Announcement being discussed at the meeting and he or she believed that it was not discussed because it contained such unqualified statements about the sufficiency of funding that the person would not have approved it and would have said so and he or she had no recollection of having said so. 191 Each of the eight witnesses who attended the 15 February 2001 Meeting said they had no recollection of the Draft ASX Announcement being tabled, its terms being discussed, or it being approved. Each of the non-executive directors who gave evidence said they would not have approved the Draft ASX Announcement because it was too broadly stated or they would have made comments seeking to modify its terms. 192 ASIC is not confined to establishing its case by positive evidence. Thus, the fact that neither Mr Baxter nor Mr Harman could say the Draft ASX Announcement was before the meeting, is not fatal. The Court may draw inferences but must be careful that those inferences are reasonably definite and not merely inferences conflicting with other inferences of equal degree of probability. 193 Mr Baxter said he took a document to the 15 February 2001 Meeting. There was no reason to doubt that evidence. No one suggested he had no document with him. Mr Gillfillan said it was conceivable that he did. Mr Willcox said Mr Baxter might have had a draft press release with him at the meeting. The inference may be drawn readily that the document Mr Baxter took to the meeting contained the statements as to the key messages to be communicated to the market that Mr Brown agreed were likely made and, to a lesser extent, Mr Koffel agreed could have been made. 194 Because of the strong correlation between those statements and the Draft ASX Announcement, the document that Mr Baxter took to the meeting must have been the 7.24 am Draft Announcement, the Draft ASX Announcement, which was the 7.24 am Draft Announcement minus Mr Baxter's boxes, or the 9.35 am Draft Announcement. Nobody suggested any other document as the source of the correlative statements. 195 It would have been an easy matter for Mr Baxter to have Ms Wheeler print out the Draft ASX Announcement by simply removing Mr Baxter's boxes from the 7.24 am Draft Announcement. Ms Wheeler may already have done that when she recalled printing out one or more copies of the 9.35 am Draft Announcement for Mr Baxter who she said was running late for the 15 February 2001 Meeting. Or she may have been mistaken and printed out one or more copies of the 7.24 am Draft Announcement minus Mr Baxter's boxes. Mr Baxter said he arrived for the meeting on time at 9.00 am and was called in approximately half an hour after the commencement of the meeting. 196 The document annexed to the fourth further amended statement of claim as the Draft ASX Announcement was produced to ASIC by BIL Australia Pty Limited (BIL Australia) in answer to a notice to produce board papers of JHIL received during a specified period. Mr O'Brien was a director of BIL Australia and the local agent for BIL International Limited, formerly called Brierley Investments Limited, (Brierley International). Mr Terry was a director of Brierley International, the ultimate holding company of BIL Australia. Mr Terry was a director of JHIL and Mr O'Brien was an alternate director for Sir Selwyn Cushing. They both attended the 15 February 2001 Meeting. 197 Allens produced two copies of the Draft ASX Announcement, each containing handwritten comments of Mr Robb and, presumably, hand written comments of Mr Peter Cameron on one of them. Both attended the 15 February 2001 Meeting. The typed text and appearance of those documents matched exactly the document produced by BIL Australia and matched exactly the 7.24 am Draft Announcement minus Mr Baxter's boxes. 198 ASIC invites the Court to draw the inference that it was the Draft ASX Announcement that Mr Baxter took to the meeting. It was submitted that is the only explanation for the production of three identical copies of the Draft ASX Announcement. A copy must have been given to Mr O'Brien, Mr Terry, Mr Peter Cameron and Mr Robb at the meeting and the copy of Mr O'Brien or Mr Terry was kept by BIL Australia and the copies of Mr Peter Cameron and Mr Robb were kept by Allens. It was submitted that Mr Baxter's belief that he followed his normal practice and distributed a copy of the Draft ASX Announcement to all those present at the meeting was verified. Mr O'Brien, Mr Terry, Mr Peter Cameron and Mr Robb would not have been the only persons to whom the document was distributed. 199 In opposition to this submission, it was argued that reliance could not be placed upon the Draft ASX Announcement as ASIC's system of document identification revealed nothing about the time at which, and the circumstances in which, the party producing the document came into its possession. That is true, but ASIC invites the Court to draw the inference irrespective of this lack of identification. Such identification is unnecessary to the drawing of the inference. 200 Reference was made to Trade Practices Commission v Allied Mills Industries Pty Ltd (No 4) (1981) 37 ALR 225 at 239-240 where Sheppard said: "it would be impermissible – to use a hackneyed phrase – to pile inference upon inference in order to reach the conclusion that there is a case to answer". I do not regard this as a case of inference upon inference. The combination of the three documents together with Mr Baxter's evidence that he told Ms Rotsey that he intended to take the 7.24 am Draft Announcement to the 15 February 2001 Meeting, supports the one level inference ASIC invites the Court to draw. 201 It was submitted that the inference is not reasonably definite and conflicts with inferences of equal degree of probability. In my view there are no conflicting inferences of equal degree. The rival inference, that it was the 9.35 am Draft Announcement that Mr Baxter took to the board meeting, depends solely on Ms Wheeler's evidence which is in conflict with that of Mr Baxter. The inference ASIC invites the Court to draw is not only based upon Mr Baxter's evidence, it is supported by the documentary evidence: his email to Ms Rotsey notifying his intention to take the 7.24 am Draft Announcement to the 15 February 2001 Meeting together with the three documents produced by BIL Australia and Allens. 202 Reference was made to Cook's Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 at [42] where Hodgson JA said: "…In my opinion, where a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party's favour from indirect and second-hand evidence, when the party doesn't call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation…" 203 Reference was made to a similar observation in Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559 at [119]. 204 ASIC did call the witness who might have proved the fact directly, Mr Baxter. He said it was the Draft ASX Announcement he took to the 15 February 2001 Meeting. ASIC chose not to call Mr Wilson and Mr Sweetman from UBS or Mr Robb, all of whom attended that meeting. 205 ASIC had indicated that it would call each of the above gentlemen. It served an affidavit of Mr Sweetman and a list of topics that Mr Wilson and Mr Robb respectively would discuss. The proceedings had commenced when the decision not to call was announced. No adjournment was sought. 206 A formal submission has been made that ASIC has failed to act fairly and, as a prosecutor in civil penalty proceedings, it has an obligation akin to that of a prosecutor in criminal proceedings. I am bound by the decision of the Court of Appeal in Adler at [678] to dismiss that submission. It was held that the concept of prosecutorial fairness that applies in criminal jurisprudence has no application to civil penalty proceedings. 207 So far as the above observations are concerned, notwithstanding the cooperation of the three gentlemen with ASIC in the production of proofs of evidence, they remained in the camp of the defendants or at least in the camp of the eleventh defendant. JHIL was a client of UBS and of Allens. There is no suggestion that the three gentlemen could not have been called in the case of any of the defendants and there is no suggestion that they would not have cooperated to the same extent as they had been prepared to do with ASIC. They were the last surviving independent advisers. 208 It was submitted that the inference ASIC invites the Court to draw is undermined by the lack of production of a Draft ASX Announcement by any other director. 209 A copy of the Draft ASX Announcement was not produced from the records of JHIL. Mr Donald Cameron said it was his practice at the conclusion of each board meeting to collect such of the board packs from directors as he was able to locate which he subsequently destroyed except for the copy to be filed in the board records. But he did not keep copies of draft announcements to the ASX. He kept only the one that went to the ASX and they were kept in a separate file. He said because there might be several drafts before the final version, all the earlier drafts were destroyed. 210 So far as the directors are concerned, each of Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox said that they did not keep documents provided to them at board meetings either leaving them at the meeting or, if they took them away, they later shredded them. 211 Neither Mr O'Brien nor Mr Terry gave evidence. Since they were appointed directors by virtue of the shareholding of Brierley International in JHIL, they might well have ensured that a copy of board papers was kept by BIL Australia. 212 With respect to the Draft ASX Announcements produced by Allens, it was submitted that there was nothing to have prevented Mr Baxter providing those documents to Allens before the 9.00 am commencement of the 15 February 2001 Meeting. 213 In cross-examination, Mr Baxter agreed that he had not sent the 7.24 am Draft Announcement to Mr Peter Cameron or to Mr Robb before the meeting. In cross-examination that followed, no one put to Mr Baxter that that evidence was incorrect, or that Mr Baxter might have provided the documents to Allens before the meeting. 214 It was submitted that there was no reason why Mr Baxter might not have provided the two Draft ASX Announcements to Allens after the 15 February 2001 Meeting. That ignores the fact that BIL Australia was in possession of a like document. There is no reason why Mr O'Brien or Mr Terry would have received the document from Mr Baxter after the meeting. And if they received their copies at the meeting, the clear inference is that so did Mr Peter Cameron and Mr Robb. 215 It was submitted that the title "Legally privileged and confidential – for legal advice only" indicated that the document was intended to be provided to lawyers and not to the board. That argument does not take account of the other document in the possession of BIL Australia. Neither Mr O'Brien nor Mr Terry was giving legal advice to the board, yet one or other, or both of them, it may be inferred, received the document during the 15 February 2001 Meeting. 216 Furthermore, the same heading appeared on other documents intended for the board. Attachment A to the January board papers was a draft announcement to the ASX with the same heading. 217 In cross-examination, Mr Baxter denied that Mr Robb only saw the Draft ASX Announcement after the board meeting. It was submitted that the handwritten notations on the two Draft ASX Announcements produced by Allens were made after the 15 February 2001 Meeting. On each Mr Robb had altered the opening wording of the third paragraph from: "The Foundation will have sufficient funds" to: "The Foundation is expected to have sufficient funds" but had then crossed out the amendments. On one, the words "On the basis of detailed actuarial analysis" were added as an introduction to the third paragraph. On the other the introduction was: "On the basis of detailed analysis from actuaries." 218 Mr Morley said he saw Mr Robb write the word "anticipated" on a form of press release in the early hours of 16 February 2001 when Mr Robb was working in his office on an amendment to the DOCI. Since the 7.42 pm Final Draft Announcement introduced the word "anticipated", Mr Morley was mistaken as to the timing of this event. 219 It is unnecessary to speculate on the timing of the handwriting on the two Draft ASX Announcements produced by Allens since the combination of the three Draft ASX Announcements produced to ASIC justifies the inference that the three documents were handed out at the 15 February 2001 Meeting as one of higher probability than that Mr Baxter returned to his office and forwarded the documents to Allens. That inference is of far less probability since by then the 7.24 am Draft Announcement had been replaced by the 9.35 am Draft Announcement and Mr Baxter would have discovered that on returning to his office. 2.10 Did the directors approve the Draft ASX Announcement? 220 Bearing in mind the strictures enunciated in Briginshaw and the need to have an actual persuasion of the happening of an event, I am satisfied that Mr Baxter took with him to the 15 February 2001 Meeting copies of the 7.24 am Draft Announcement without the explanatory boxes, that being the Draft ASX Announcement and that, in accordance with his practice, he provided copies of the Draft ASX Announcement to those present, including Mr Peter Cameron and Mr Robb. 221 Mr Brown said the general practice was that if a document was circulated at a board meeting there were usually enough copies for everyone at the meeting to have one. It did not always happen. Sometimes the count was short. But, generally, that was the case. That general practice was confirmed in this case. It explains why Allens produced two copies of the Draft ASX Announcement. At the meeting there were enough copies for Mr Peter Cameron to have one and for Mr Robb to have one. 222 For present purposes it is sufficient for me to find that those of the individual defendants who swore that the Draft ASX Announcement was not before the 15 February 2001 Meeting were mistaken. 223 Notwithstanding Ms Hellicar's assertion that there was no discussion at the meeting of the content of the announcement of the Separation Proposal, an assertion that would have the meeting conclude well before it did, I am satisfied that one or other or both of Mr Macdonald and Mr Baxter spoke to the Draft ASX Announcement and put the statements as to the key message to be communicated to the market set out in that document that Mr Brown agreed were likely to have been stated and, to lesser extent, Mr Koffel agreed might have been stated. 224 The purpose of the distribution of the Draft ASX Announcement to those present and the discussion of its contents was to approve its release. It was submitted that this contravened the standard practice of obtaining the approval of a draft press release by line management and senior executives before its provision to the board. And it offended the disclosure policy approved by the board. That is so. But this was a last minute affair. None of the board, or management, or Allens, had seen the document before the board meeting commenced. Its distribution to the board in those circumstances provided all the more reason for a detailed consideration of its content by each director. 225 I am satisfied that the Draft ASX Announcement was approved. It has not been suggested that the board rejected it. The defences were that the Draft ASX Announcement was not before the board, was not considered and was not approved. A rejection of the first and second propositions leads to the conclusion that it was approved. The board had been forewarned in the board papers for the January 2001 board meeting that an announcement of the formation of the Foundation would be made after the February board meeting if management's proposal was accepted. The discussion of the Draft ASX Announcement at the 15 February 2001 Meeting could be for one purpose only – for the board to approve the release of the announcement. 226 Mr Brown agreed that part of the communication to the market would be an announcement to the ASX. He said it was likely that the board's approval of that message was summarised by Mr McGregor in the usual fashion saying "is the board happy with that?" and everybody nodded or otherwise indicated their agreement. 227 And an announcement was made to the ASX in the form of the Final ASX Announcement and that was based on the Draft ASX Announcement. 228 Again, it is sufficient for me at this stage to find that those individual directors who swore that there was no consideration or approval of the Draft ASX Announcement were mistaken. 229 It was submitted that because further consideration was given by management and Allens to the terms of the Draft ASX Announcement after the conclusion of the 15 February 2001 Meeting, the approval of the directors was subject to this further consideration and did not constitute final board approval. 230 I reject that submission. The fact that management made alterations to the Draft ASX Announcement may put in question their authority to have done so. But it does not detract from the inference that the approval of the board to the release of the announcement was sought and obtained at the 15 February 2001 Meeting. None of the defendants raised a case that there was a resolution by the board but it was conditional. The defences were that the Draft ASX Announcement was not before the meeting, was not discussed and was not approved. That is a different case. 231 The Draft ASX Announcement was not provided to the US directors, Mr Gillfillan and Mr Koffel. The discussion that took place may have been sufficient for them to be taken to have approved its release, bearing in mind the correlation that the statements as to the key message to be communicated to the market bore to the paragraphs of the Draft ASX Announcement. But the burden of the evidence was that it was not read out at the 15 February 2001 Meeting and in light of Mr Baxter's equivocal evidence on this topic I am not prepared to find that, for the benefit of Mr Gillfillan and Mr Koffel the Draft ASX Announcement was read out at the meeting. 232 Nor am I prepared to find that by their lack of voiced objection to the document, they are taken to have participated in the approval by the other directors of the Draft ASX Announcement. Nor for that matter am I prepared to find that by silence either should be taken to have abstained from approving the release of the document. 233 What remains is that neither Mr Gillfillan nor Mr Koffel raised an objection that he did not have a copy of the Draft ASX Announcement at the 15 February 2001 Meeting. Nor did they ask that a copy be provided to them. Nor did they abstain from approving the Draft ASX Announcement. 234 The practice of the board of JHIL was not formally to put a matter to a meeting as a resolution. No one recalled a formal vote ever being taken. Mr McGregor summarised the position and directors indicated their approval or remained silent. In either case the directors regarded that procedure as the passing of a resolution by the board. Neither Mr Gillfillan nor Mr Koffel voiced an objection to the expression of approval of the release of the Draft ASX Announcement at the 15 February 2001 Meeting. 2.11 Statutory duty of care and diligence 235 The second question that arises under this issue is whether the directors were in breach of their duty in approving the Draft ASX Announcement. 236 The legal principles with respect to Section 180(1) were considered by Brereton J in Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373. I gratefully adopt his Honour's analysis as follows: "[99] The statutory duty imposed by s 180(1) reflects, and to some extent refines, that which obtains at general law. As Santow J (as his Honour then was) explained in ASIC v Adler (2002) 168 FLR 253; 41 ACSR 72; [2002] NSWSC 171 at [372], both the common law and equity imposes on directors a duty of care and skill ( Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109; 14 ACSR 109; Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 118 FLR 248: 16 ACSR 607), the content of which is essentially the same as the statutory duty: Sheahan v Verco (2001) 79 SASR 109 at 134; 37 ACSR 117 at 141; [2001] SASC 91 (Mullighan J); Daniels v Anderson at NSWLR 603; FLR 408-9; ACSR 756-7 (Powell JA); see also Australian Innovation Ltd v Petrovsky (1996) 21 ACSR 218 at 222 (Lockhart J). Similarly, the statutory duties imposed by ss 181 and 182 reflect, and to some extent refine, corresponding obligations of directors under the general law. [100] In determining whether a director has exercised reasonable care and diligence, as s 180(1) expressly contemplates, the circumstances of the particular corporation concerned are relevant to the content of the duty. These circumstances include the type of company, the provisions of its constitution, the size and nature of the company's business, the composition of the board, the director's position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees, and the circumstances of the specific case: Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 427; (Romer LJ); Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 125 (Tadgell J); Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43; 11 ACLC 286; Daniels v Anderson at NSWLR 504-5; FLR 310; ACSR 667-8; ASIC v Adler at [372]; explanatory memorandum to the CLERP Bill 1999: para 6.75). [101] Directors are not required to exhibit a greater degree of skill in the performance of their duties than may reasonably be expected for persons of commensurate knowledge and experience, in the relevant circumstances: ASC v Gallagher . And while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company ( Daniels v Anderson at NSWLR 495-505; FLR 300-11; ACSR 659-668), they are entitled to rely upon others, at least except where they know, or by the exercise of ordinary care should know, facts that would deny reliance: Re City Equitable Fire Insurance Co; Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 13 WAR 11; 11 ACSR 785 at 856–8; Daniels v Anderson at NSWLR 502-4; FLR 308-10; ACSR 665–6; Re Property Force Consultants Pty Ltd [1997] 1 Qd R 300; (1995) 13 ACLC 1051 (QSC). [102] The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation. As Clarke and Sheller JJA observed in Daniels v Anderson at NSWLR 504; FLR 309; ACSR 665, the duties imposed by former s 232 (the predecessor of s 180) reflected the concept of negligence at general law, in that a director owes to the company a duty to take reasonable care in the performance of the office. In Vrisakis v ASC (1993) 9 WAR 395 at 449–50; 11 ACSR 162 at 211–13; Ipp J (as his Honour then was) (with the concurrence of Malcolm CJ) held that although the statutory duty of care and diligence would be contravened if a director had not exercised a reasonable degree of care and diligence in the exercise of his powers or the discharge of his duties, even if there was no actual damage, that could only be so if it was reasonably foreseeable that the relevant conduct might harm the interests of the company - which means the corporate entity itself, the shareholders, and, where the financial position of the company is precarious, the creditors of the company - and, moreover, that in determining whether the relevant duty had been breached, the foreseeable risk of harm must be balanced against the potential benefits which could reasonably be expected to accrue to the company from that conduct: see also Australian Securities and Investment Commission v Doyle (2001) 38 ACSR 606 at 641; [2001] WASC 187. As His Honour explained: Under s 229(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. Nevertheless, 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. No act of commission or omission is capable of constituting a failure to exercise care and diligence under s 229(2) unless at the time thereof it was reasonably foreseeable that harm to the interests of the company might be caused thereby. That is because 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 the foreseeable risk of harm to the company that would otherwise arise. 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." 237 That analysis was adopted by Hamilton J in Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224; (2008) 69 ACSR 1 at [27]. 238 That the statutory duty is akin to the common law duty of care was restated by Spigelman CJ in Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 62 ACSR 1 at [142]-[151]. 239 In determining whether a director has exercised reasonable care and diligence one must ask what an ordinary person, with the knowledge and experience of the defendant might be expected to have done in the circumstances if he or she was acting on their own behalf (Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [372]). 240 The "corporation's circumstances" in Section 180(1)(a) will include the competence of a company's management, the competence of the company's advisers and the distribution of responsibilities within the company, including as between the directors and as between the directors and officers. 241 A director or officer's "responsibilities within the corporation" in Section 180(1)(b) include not only matters of specific delegation but also the manner in which work is distributed in fact within the corporation and the expectations placed by those arrangements on the shoulders of the individual director or officer (Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) 174 FLR 128 at [50]). They include arrangements flowing from the experience and skills that the director brings to his or her office and any arrangements within the board, or between the director and executive management affecting the work that the director would be expected to carry out (Rich at [49]). 242 The "same responsibilities" in Section 180(1)(b) require a consideration of the work in fact undertaken by the relevant director or officer and require a consideration of the whole of the position occupied. If a director or officer has dual roles as, for example, a director and chief executive, both roles are to be taken into account (Australian Securities and Investments Commission v Vines [2005] NSWSC 738; (2005) 55 ACSR 617 at [1061]-[1062]. 243 An aspect of this case is the extent to which, as part of JHIL's circumstances, reliance could be placed by a director on other directors, management and external advisers. 244 In AWA Ltd v Daniels (1992) 7 ACSR 759 at 868, Rogers CJ Comm Div said: "A director is justified in trusting officers of the corporation to perform all duties that, having regard to the exigencies of business, the intelligent devolution of labour and the articles of association, may properly be left to such officers." 245 His Honour went on to say that a director was entitled to rely, without verification, on the judgment, information and advice of the officers so entrusted and was entitled to rely on management to go carefully through relevant financial and other information of the corporation and draw to the board's attention any matter requiring the board's consideration: "Reliance would only be unreasonable where the director was aware of circumstances of such a character, so plain, so manifest and so simple of appreciation that no person, with any degree of prudence, acting on his behalf, would have relied on the particular judgment information and advice of the officers." 246 On appeal, Daniels v Anderson (1995) 37 NSWLR 438 at 502, Clarke and Sheller JJA said that the law of negligence can accommodate different degrees of duties owed by people of 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. Their Honours referred to what Rogers CJ Comm Div had said at first instance and to the origin of the phrase he relied upon as the exception to reliance. Lord Hatherley LC had said in Overend & Gurney Co v Gibb (1872) LR 5 HL 480 at 487 that the question there in issue was whether the directors, if they did not exceed their powers, were cognisant of circumstances of such a character, so plain, so manifest, and so simple of appreciation, that no men with any ordinary degree of prudence, acting on their own behalf, would have entered into such a transaction as they entered into. 247 Clarke and Sheller JJA said the statement of Rogers CJ Comm Div did not represent modern company law. Their Honours said, at 505, that a director owes to the company a duty to take reasonable care in the performance of the office. As the law of negligence had developed, no satisfactory policy grounds survived for excluding directors from the general requirement that they exercise reasonable care in the performance of their office. 248 In Adler at [372], Santow J, citing Clarke and Sheller JJA in Daniels, put the proposition thus: "at general law, a director is entitled to rely without verification on the judgment, information and advice of management and other officers appropriately so entrusted. However, reliance would be unreasonable where directors know, or by the exercise of ordinary care should have known, any facts that would deny reliance on others." 249 To similar effect is the summary of Brereton J in Maxwell at [101]. Although Santow JA dissented in Vines, he did so on the basis of the application of principles to the facts and not upon the basis of any disagreement as to the principles. His Honour restated the proposition as to reliance that he had enunciated in Adler. At [731] he said: "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) 168 FLR 253; 41 ACSR 72; [2002] NSWSC 171 at [372]." 250 The law has not yet established the extent to which the position of a non-executive director shapes the content of the duty of care. In Ford's Principles of Corporation Law, 13th ed (2007) LexisNexis Butterworths, Australia, at [8.330] it is said: "For a non-executive director case law has supplied no objective standard of the reasonably competent company director analogous to the reasonably competent member of a particular profession or trade, such as architect, solicitor, physician or builder, against whom the conduct of a director can be measured when determining whether there has been a breach of the duty of care, diligence and skill. Part of the reason is the absence of any shared body of detailed expert knowledge of what is involved in the directing of companies. The diversity of companies and varieties of business endeavour are such as to allow uniformity of standards only on very general matters." 251 In Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 at 431, Ormiston J said there was a place for part-time and advisory directors. Directors were entitled to delegate to others the preparation of books and accounts and the carrying on of the day-to-day affairs of the company. What each director was expected to do was to take a diligent and intelligent interest in the information either available to him or which he might with fairness demand from the executives or other employees and agents of the company. This decision was approved in Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22. 252 In Daniels at 867 Rogers CJ Comm Div had said: "The directors rely on management to manage the corporation. The board does not expect to be informed of the details of how the corporation is managed. They would expect to be informed of anything untoward or anything appropriate for consideration by the board." Later, his Honour said: "In contrast to the managing director, non-executive directors are not bound to give continuous attention to the affairs of the corporation. Their duties are of an intermittent nature to be performed at periodic board meetings, and at meetings of any committee of the board upon which the director happens to be placed. Notwithstanding a small number of professional company directors there is no objective standard of the reasonably competent company director to which they may aspire. The very diversity of companies and the variety of business endeavours do not allow of a uniform standard." 253 In Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 451-452, Ipp J cited these passages; said the former was particularly apposite to non-executive directors, in the ordinary course; referred to the first passage from the judgment of Rogers CJ Comm Div in Daniels set out above; said it applied a fortiori to non-executive directors, in the ordinary course; and added: "It is to be emphasised, however, that these remarks are statements of broad principle alone and act merely as signposts in the search for the determination of the ambit of the duties imposed on a particular director and the particular standard of care required to be met. These matters may be influenced by considerations such as whether a director is an executive or a non-executive director, but are always dependent on the particular circumstances." 254 His Honour repeated these remarks in Permanent Building Society v Wheeler (1994) 11 WAR 187 at 240. 255 While Clarke and Sheller JJA in Daniels rejected the test propounded by Rogers CJ Comm Div for the limit of a director's entitlement to rely on management, they did recognise that the role of a non-executive director was to guide and monitor the management of the company rather than to be involved at an operational level. Their Honours said at 500-501: "There is no doubt reason for establishing a board which enjoys the varied wisdom of persons drawn from different commercial backgrounds. Even so a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience. That duty involves becoming familiar with the business of the company and how it is run and ensuring that the board has available means to audit the management of the company so that it can satisfy itself that the company is being properly run. The board may be assisted by sub-committees consisting of its members, including non-executive directors: see generally, Sievers, Farewell to the Sleeping Director, (1993) 21 Australian Business Law Review 111 at 115-117. In our opinion the responsibilities of directors require that they take reasonable steps to place themselves in a position to guide and monitor the management of the company…" 256 In Adler at [372], Santow J's eighth principle drawn from the authorities was that in accordance with their responsibilities, directors were required to take reasonable steps to place themselves in a position to guide and monitor the management of the company. His Honour went on to say: "(a) a director should become familiar with the fundamentals of the business in which the corporation is engaged; (b) a director is under a continuing obligation to keep informed about the activities of the corporation; (c) directorial management requires a general monitoring of corporate affairs and policies, by way of regular attendance at board meetings; and (d) a director should maintain familiarity with the financial status of the corporation by a regular review of financial statements. Indeed he or she will be unable to avoid liability for insolvent trading by claiming that they had never learned to read financial statements: Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 125." 257 On appeal, the Court did not consider Santow J's analysis of the principles to be deficient (Adler at [529]). 2.12 Were the non-executive directors in breach or duty? 258 The directors other than Mr O'Brien who became an alternate director in August 2000 and was later appointed to the board had been alerted to the potential liability of a company making statements, false in a material particular or materially misleading under Section 999 in a paper entitled "Securities Transactions Rules Legal Memorandum as to Securities Transactions 7 June 1995, Revised 7 June 2000". 259 All of the non-executive directors including Mr O'Brien knew or should have known that if JHIL made the statements as to the sufficiency of funding of the Foundation in the Draft ASX Announcement there was the danger that JHIL would face legal action for publishing false or misleading or misleading or deceptive statements, its reputation would suffer and there would be a market reaction to its listed securities. 260 This was not a matter in which a director was entitled to rely upon those of his co-directors more concerned with communications strategy to consider the Draft ASX Announcement. This was a key statement in relation to a highly significant restructure of the James Hardie group. Management having brought the matter to the board, none of them was entitled to abdicate responsibility by delegating his or her duty to a fellow director. 261 Nor was this a case of reliance upon management, a co-director or expert adviser. Management had sought the board's approval and the task of approving the Draft ASX Announcement involved no more than an understanding of the English language used in the document. Mr Brown said he was satisfied by what Mr McGregor said at the meeting, testimony not supported by any other witness, that the Foundation would have sufficient funds to meet all present and future Asbestos Claims, yet he said he would not have approved the content of the Draft ASX Announcement. 262 The non-executive directors knew that the Draft ASX Announcement contained false or misleading, or deceptive statements. That is why all of them who gave evidence said they would not have approved it. It contained what Mr Gillfillan described as "so unequivocal and unqualified" statements. Yet the board had had before it numerous statements of the uncertainty of prediction of the level of Asbestos Claims. 263 Draft accounts for the year ended 31 March 2000 were included in the board papers for the May 2000 meeting. The directors other than Mr O'Brien received them. They included a contingent liability note with respect to the uncertainty surrounding the valuation of future Asbestos Claims. The note stated: "James Hardie cannot measure reliably its exposure with respect to future asbestos-related claims. The Directors rely upon various internal and public reports and seek expert actuarial advice in assessing the ongoing exposure to claims. A contingent liability exists in respect of the ultimate cost of settlement of claims yet to be made which cannot be measured reliably at the present point in time." 264 The material brought to the board's attention after the appointment of Mr O'Brien as an alternate director established that the Trowbridge reports suffered the problem of actuarial estimation. They were uncertain. And the Cashflow Model not only took figures from the Trowbridge reports but also applied an earnings rate well above a risk-free rate to invested funds when its sensitivity analysis demonstrated that a drop of 1% in the rate, halved the fund. In other words, on a fifty-one year analysis, the fund would be exhausted somewhere between year 20 and year 25. 265 At the August 2000 board meeting, a slide presentation addressed a draft 2000 Trowbridge report (Draft 2000 Trowbridge Report) in detail. The report stated in a number of places that it was inherently uncertain. It said it was: "subject to considerable uncertainty and significant deviations from our estimates are to be expected". It stated that the projections were based on epidemiological work that was subject to great uncertainty. The behaviour of potential claimants was uncertain and potential exposures were heavily influenced by the outcome of Court decisions that were impossible to predict. The report stated that the projections were affected by legislative processes that were also impossible to predict. With respect to sensitivity of results, the draft report stated: "The estimate of exposure we have produced in this review can be described as our 'mostly likely' estimate of the ultimate cost to Hardies. In principle all our assumptions have been selected to yield estimates which are not intentionally above or below the ultimate cost of Hardies asbestos-related exposure within the scope defined although as noted earlier there is considerable potential for future experience to differ from assumptions." 266 The slide presentation was made under the heading "James Hardie Project Green". It addressed asbestos related issues presented by Mr Shafron. It set out a comparison of the 1996 and 1998 Trowbridge reports and the Draft 2000 Trowbridge Report. The estimates were $249m in 1996, $254m in 1998 and $263m in 2000. 267 Under "key observations" the board was informed that mesothelioma average settlement costs had risen by 45% over five years and non-mesothelioma average settlement costs had nearly doubled over two years. The board was also advised that claims outside Australia and New Zealand, psychological trauma or stress claims, environment property land remediation, Dust Disease Board claw back, new legislation, exemplary damages and test case success had not been included in the Draft 2000 Trowbridge Report. 268 In October 2000 a memorandum from Mr Shafron to members of the board advised that the Draft 2000 Trowbridge Report did not need to be disclosed to the market partly because the work "… does not produce any definite outcomes. It is based on imperfect epidemiological models and a range of predictions of future claim numbers and claim costs", and, later, "… it is insufficiently definite in that it is heavily based upon assumptions subject to considerable uncertainties". 269 In his 13 December 2000 memorandum, in relation to the accounting approach taken to asbestos liabilities, Mr Macdonald said: "Under AGAAP, we have, to-date felt that the data were not precise or consistent enough for such an estimate to not be misleading for our investors or other stakeholders, and have therefore booked no provision for potential claims in the JHIL accounts." 270 In the January 2001 board papers the following statement appeared: "… there is no reliable basis for determining what amount any such future contribution should be if attempting to fund all future claims. Previous indicative advice obtained as to the potential quantum of future claims has been quite variable and unreliable." 271 At the January 2001 board meeting there was a slide presentation, portion of which referred to constraints on the ability of the directors to provide funds above the net assets of the subsidiaries. It included the statement: "no reliable basis for determining amount." 272 The draft Q&A included in the February 2001 board papers included the following: " 3. What does your actuarial advice say in relation to the ongoing exposure to claims? We have learned that actuarial advice is not a reliable basis for assessing these kinds of liabilities. Within these limitations it can, however, provide a reference point which should be considered along with many other factors." 273 The slide presentation at the February 2001 board meeting with respect to the Trowbridge report addressed the question what had changed since the last board meeting. It stated that increased funding was available to Coy in exchange for an indemnity and waiver to JHIL producing $112m over time with a net present value (NPV) of $72m. It also stated: "Gross assets should be sufficient for future claims." 274 A slide on "fund life expectancy/sensitivity" stated that the revised Trowbridge analysis was based on the same basic assumptions as previously and led to higher claim numbers being predicted. Mr Morley said that Mr Shafron addressed this point and said that the Draft 2000 Trowbridge Report incorporated Watson & Hurst material into their best estimate and high scenario numbers. 275 In November 2000, Trowbridge actuaries Bruce Watson and Mark Hurst made a presentation at a seminar suggesting that insurers and parties exposed to asbestos related disease liabilities might be significantly under-reserved because claim number experience in the 1990s was generally worse than expected, recent developments including changes to legislation, weakening of lung cancer criteria, increased stevedore claims and plaintiff lawyer activity might have adverse effect on claims numbers and settlement amounts. 276 The slide on fund life expectancy/sensitivity also contained reference to future funds availability which Mr Morley said he addressed, advising the directors that available future funds depended on three major assumptions: the Trowbridge cash flows, the assets of the fund and the earnings of the funds. The next slide stated: "JH modelling · Key assumptions - Trowbridge actuarial data - earnings on investment portfolio 11.7% - JHIL loan 8.13% p.a. return - running costs of $ 2.4m p.a. - inflation - 3% p.a. rent, running costs - 4% p.a. litigation costs - no tax paid (no realisation of investment earnings in early periods) -land increases in value by 3% p.a., building is not depreciated, though $1m p.a. sinking fund - properties disposed of in 2025 at carrying value · Surplus most likely outcome · Analysis reviewed by PWC and Access Economics." 277 Mr Morley said he addressed this slide by taking the board through the Cashflow Model. 278 There was some suggestion that the slide presentation and the Cashflow Model were not received by Mr Gillfillan and Mr Koffel. Mr Harman said that at 12.33 am Sydney time on 15 February 2001 he sent the Cashflow Model together with the slide presentation to, amongst others, Mr Gillfillan and Mr Koffel. 279 In his statement, Mr Gillfillan said he could not recall whether he received the email and printed the attachments. Where he attended the meeting by telephone was some 60 yards from his wife's home office that had a computer, printer and email. He was not prepared to concede that it was likely he obtained a copy of the slide presentation although he did not deny receiving it. He had no recollection of advising the 15 February 2001 Meeting that he did not have a copy of the slide presentation. The preponderance of evidence was that there was considerable discussion of the slide presentation and the Cashflow Model at the meeting. Mr Morley said that the US directors who were present by telephone confirmed during the meeting that they had the Cashflow Model and the slide presentation. 280 It is more likely than not that Mr Gillfillan had the slide presentation and the Cashflow Model when he attended the meeting. 281 Mr Koffel complained about the late receipt and size of the slide presentation. He was away from his office. His secretary told him that she had received the slide presentation and unworkable instructions about extracting ranges of data from an Excel spreadsheet. One page of the Cashflow Model was an Excel spreadsheet. Mr Koffel asked her to try to send the material to him by facsimile. 282 Mr Koffel had said that if he became aware that there was discussion by reference to a slide presentation that he did not have, he would have requested a copy. It was put to him that, equally, if by the time of the meeting he did not have the spreadsheet, he would have asked for it to be sent to him by facsimile. He said he might have raised it if the spreadsheet was used in the discussion at the meeting and he believed it was. 283 Mr Koffel said he had raised in conversation with Mr McGregor his concern about that part of the communications strategy that suggested discussions should occur with politicians and union leaders. He later said it was more likely that he noticed this during the board meeting. The slide presentation contained a number of slides referring to meetings with politicians, bureaucrats and union leaders. 284 It is likely that Mr Koffel had the slide presentation and the Cashflow Model with him when he attended the meeting. 285 Mr Morley said in addressing the key assumptions slide he told the meeting the following: that litigation costs net of insurance recoveries were from the most likely Trowbridge model updated on 9 February 2001; the Trowbridge model assumed 4% inflation on claims amounts; Trowbridge's undiscounted numbers had been used in the projections; rental income on the properties assumed a 3% CPI increase that was allowed for in the lease documents but any market rate increases were ignored; a $1m sinking fund had been deducted from rental income to allow for capital renovations to the property; buildings maintained their nominal value, they were not inflated or depreciated and the land component had been increased at 3% per annum; it was assumed that the properties would be sold in 2025 and the proceeds reinvested for their then book value. 286 Mr Morley said he continued and told the meeting: so far as management costs were concerned there was a starting assumption of $2.4m per annum covering litigation, management and remuneration of the new directors of the Foundation and an administration function inflated at 3% per annum but limited in the later years to litigation outgoings plus $100,000 per year; no tax was assumed to be paid in the model, because of the structure of the payments under the DOCI there was no need to realise investments in the early years because of significant cash inflows and in the later years the realisation of the assets was sheltered by accumulated tax losses created by the asbestos claims payment outflows; investment earnings of 11.7% before tax was assumed. 287 The first page of the Cashflow Model set out these assumptions. It was in the following terms: "Assumptions: Litigation costs, net of insurance recovery, are from Most Likely Trowbridge model, updated 9 February. The Trowbridge model assumes 4 % inflation on claims amounts. Rental income assumes 3% CPI increases but ignores any Market Rate increases. A sinking fund of $1.0m pa inflated at 3% annually) has been deducted from rental income, to allow for major capital renovations to the properties. Buildings maintain their nominal value, i.e. are not inflated or depreciated. Land increases in value at 3% pa. Properties are sold at March 2025, for their book value, and the cash proceeds invested. Management costs (legal services, Directors fees etc) have been assumed at $2.4m pa (inflated at 3% pa), but limited in later years an amount equal to the litigation outgoings, plus present day $100k pa. There would be no need for a substantial legal dept and related cost structure if only minor amounts being paid out for litigation, and the only management required is for allocation of funds to charitable works. It is not necessary to include any cashflows in relation to tax payments because separate detailed modelling has shown that: - during the early years, when there are significant cash inflows through a combination of loan principal receiptsand ( sic ) indemnity receipts, there will be no need to realise investment earnings and thereby create a tax liability - in subsequent years, when the deferred investment earnings are realised, there will be sufficient accumulated losses from litigation and other outgoings to shelter the taxable investment earnings Investment earnings of 11.70% are assumed, before tax. Sensitivity analyses at various pre-tax earnings rates are attached. Cashflows occur evenly through year, except for repayment of JHlL ( sic ) principal, external investment earnings and property proceeds which are received on 31 March." 288 The second page of the Cashflow Model contained a series of columns identifying different cash inflows and cash outflows with projected figures in the columns extending for fifty-one years with a separate box marked "n" identifying JHIL payments under the DOCI and a box of three columns headed "current", "best estimate" and "high scenario" respectively below each of which was a column of figures of decreasing value of the Foundation each year until exhaustion or completion of the fifty-one years. 289 Mr Morley said he addressed this page of the Cashflow Model column by column and said as follows: the opening position at 30 September 2001 was shown in the net assets column, column "e", at $192.499m; column "b", the JHIL inter-company account column started with a figure of $127m; it had been reduced by $50m that had been invested in securities held by Coy to comply with stamp duty advice; the figure for the next year of $70m was the inter-company loan that had been converted to an external loan because Coy would be an outside party; interest was applied at 250 basis points above the bank bill rate as an arm's length rate of 8.13%. 290 Mr Morley said he next addressed column "d" and said that current book values for the properties had been used based on an independent valuation by Jones Lang Wootton in March 1999. 291 Column "f" was next addressed according to Mr Morley when he said: the rent figures were those paid by JHNV to Coy in accordance with rental agreements; $1m was deducted per annum while the properties were owned by Coy; the funds were to be set aside in a sinking fund for building refurbishment. 292 Mr Morley said that he then addressed column "g" and said: the amounts represented interest earned on the inter-company loan balances set out in column "b" using the 8.13% rate; this would become an external loan after separation; the interest amount declined over time as the loan got repaid in accordance with the repayment schedule in the box marked "n". 293 Column "h2" was next addressed according to Mr Morley. He said he told the meeting that this was the annual payment from QBE over the following 14 years in accordance with an agreement. 294 Mr Morley said he next addressed column "h3" and said: it was the indemnity payments required from JHIL to Coy in accordance with the DOCI; there were seven annual payments of $5.575m the first being payable on the day the Foundation was set up; there was then a balloon payment in year eight of $73m; it was tax effective to have the payments structured in that way and PwC had given tax advice about that. 295 Mr Morley said he then returned to the assumptions page and said there was no need to include any tax outgoings in the model because the annual payments were being sheltered by the losses created in the new vehicle via asbestos payment outgoings and legal expenses. In year eight when the balloon payment was made sufficient losses would have been created to shelter that payment from tax liability. PwC had given advice on that structure. 296 Mr Morley said he then returned to the second page and to column "i" and said: approximately $2m had been provided for litigation management and legal costs; Mr Attrill would be responsible for doing this work for Coy; there was also $400,000 for administration costs. 297 Mr Morley said he then addressed column "j" and said that the figures used in this column were based on the Trowbridge "best estimate" figures set out in the second column on the right hand side of the page plus actuals to date. Mr Morley said that Mr Shafron then said that the best and the high estimates were Trowbridge's latest projections incorporating the Watson & Hurst study fitted into the James Hardie experience. 298 Mr Morley said he then addressed column "k", the interest on average investment column, and said: they had used three external asset consultants and the long term historical figures provided by them; they had used performance figures from superannuation funds because they were analogous to the fund that was to be set up; the figures used had been provided by Towers Perrin, Mercer and InTech; they had used a blended rate of 11.7% and applied it through the period of the model on the surplus investment funds; the rate was at the lower end of the historical earnings rates they had looked at; surplus funds were referred to in column "a1". 299 Mr Morley then said there was an exchange between some of those present at the meeting about which there is some conflict in the evidence. 300 Mr Morley said he then took the meeting to the third page of the Cashflow Model, a sensitivity table, and informed the meeting that using Trowbridge's most likely scenario the table showed the assets available from year ten through to year fifty-one at varying earnings rates on a pre-tax basis. The table showed that if the earnings rate was reduced from 11.7% to 10.7% the fund would be exhausted somewhere between year 20 and year 25. 301 Mr Morley said he then took the meeting to the fourth page of the Cashflow Model, a sensitivity analysis. Mr Morley said he told the meeting: the sensitivity analysis showed the assets remaining under the most likely and high scenarios supplied by Trowbridge at the earnings rate used in the model and a higher earnings rate; it showed, under the high scenario at the 11.7% rate, the money ran out in year 20. 302 Mr Morley said that Mr Macdonald then addressed the second bullet point on the key assumptions slide and said that the model showed that a surplus was the most likely outcome. Mr Morley then said he addressed the final bullet point on the slide and said the model had been reviewed by PwC and Access Economics and they had found it to be logically sound and technically correct. 303 Notwithstanding these two observations, the non-executive directors must have realised that unqualified statements that there were sufficient funds in the Foundation to cover all legitimate Asbestos Claims could not be made. The likely outcome was dependent upon an average investment earning of 11.7%. If the earning rate dropped by but 1% the money ran out before year 25. If the high scenario of Trowbridge was used instead of the best estimate, the money ran out before year 20 at the 11.7% rate used in the model. 304 Every two years that Trowbridge had provided a report, its estimate of the total liability under Asbestos Claims had risen. There was no guarantee that in 2002 a further Trowbridge report might not reveal yet another increase. Mesothelioma costs had risen by 45% in five years and non-mesothelioma costs had nearly doubled in a two year period. 305 The non-executive directors were intelligent people. Their backgrounds were described in the 2000 and 2001 annual reports of JHIL. In 2000 Mr Brown was a group finance director of Brambles Industries Limited and a councillor of the Royal Blind Society of New South Wales. In 2001 he was a director of Energy Developments Limited and a councillor of the Royal Blind Society of New South Wales. Prior to 2000, Mr Brown had held a number of executive and non-executive roles including executive director, finance, chief financial officer of Renison Goldfields Consolidated Limited from 1991 to 1994 and executive director and chief financial officer of Goodman Fielder Limited from 1994 to 1995. 306 Prior to 2000, Mr Gillfillan had held a number of senior positions in Wells Fargo Bank including vice-chairman and chief credit officer from 1991 to 1994 and from 1996 to 1998. In 2000 Mr Gillfillan joined an investment bank, Neveric LLC, as a partner. He also held a number of non-executive roles including being a director of Electrolux Corporation and Wells Fargo HSBC Trade Bank. 307 Ms Hellicar is a BA LLM (Hons). In 2000 and 2001 she was a director of Goldfields Limited, the chair of the Sydney Institute, a director of Musica Viva and the chief executive officer of Corrs Chambers Westgarth. Prior to that she worked in the corporate affairs divisions of Esso Australia Pty Limited from 1984 to 1988, Chase Corporation from 1988 to 1989 and then briefly Bond Brewing. She also held a number of management roles including executive director of New South Wales Coal Association from 1989 to 1994 and managing director of TNT Logistics Asia from 1994 to 1997. She was a director and chief executive officer of New South Wales Environment Protection Authority from 1992 to 1997 and New South Wales Water Resources Council. 308 From 1989 Mr Koffel held the position of chairman and chief executive officer of URS Corporation. In 2000 and 2001 he was also a director of McKesson HBOC Inc. 309 From 1999 Mr O'Brien was a director of Brierley International and in 2000 and 2001 he was a director of BIL Australia. 310 Mr Terry is an LLB MA. In 2000 he was managing director and chief executive officer of Brierley International, a director of Air New Zealand Limited and Thistle Hotels Plc and a member of the board of overseers of the Fletcher School of Law and Diplomacy. His previous positions included vice-chairman, Pacific region, of Credit Suisse First Boston and director and group general counsel of Jardine Matheson Limited. 311 Mr Willcox is a BA (Hons) MA. In 2000 he was a director of Lend Lease Corporation Limited, Energy Developments Limited and FH Faulding & Co Limited. As at 2001, he was a director of Energy Developments Limited. Previously he acted as chief executive officer of BHP Petroleum from 1986 to 1994 and was a director of Woodside Petroleum from 1986 to 1993, BHP Limited from 1988 to 1994, North Ltd from 1994 to 1999 and Schroders Holdings Ltd from 1994 to 1999. 312 The fourth further amended statement of claim alleged that the Draft ASX Announcement conveyed, or was capable of conveying, that the material available to JHIL provided a reasonable basis for the assertion that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. The theme of certainty of sufficient funding pervades the other allegations of what was conveyed or was capable of being conveyed by the Draft ASX Announcement in the pleading. 313 It was submitted that the Draft ASX Announcement did not convey certainty that the Foundation's funding was sufficient to meet all Asbestos Claims. It was submitted that no evidence was adduced of any person being mislead by the Final ASX Announcement. It has been held, however, that where a regularity authority seeks to prevent conduct in breach of provisions like Section 52 this will often be the case and such an applicant will rely upon the terms of the representation and the circumstances in which it was, or is to be made, looking to the notional representative class member as the basis for assessing the likely effect of the conduct in question (National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 at [23]). 314 Where the representation is to be made to the public or to a section of it, consideration must be given to its effect upon an ordinary or reasonable member of the class in question. In this case the class was broad. It not only included financial market analysts and investors but also stakeholders of a wide range. It included the sophisticated and the unsophisticated. 315 If the document is misleading or deceptive, or likely to mislead or deceive, the notional representative class member must be shown to labour under some erroneous assumption or may be expected to do so (Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 252 ALR 659 at [608]). 316 It was submitted that the notional representative class member on a fair reading of the Draft ASX Announcement would understand that there was, necessarily, uncertainty associated with Asbestos Claims to be made in the future. A sophisticated reader might understand that, but would assume that such emphatic statements as the Draft ASX Announcement contained could only be made if very conservative assumptions had been adopted by JHIL in determining the funding level for the Foundation. 317 Mr Thompson agreed in cross-examination that any matter of financial prediction of the type contained in the Draft ASX Announcement involved a degree of uncertainty. But he said it depended upon the assumptions. He said: "There was definitely confidence that everything was okay, so by that I would read into that some very, very conservative assumptions had been used." 318 To the unsophisticated sufferer of an asbestos related disease or other stakeholder the message on a fair reading of the Draft ASX Announcement was that it was certain that the Foundation had sufficient funds to pay all legitimate Asbestos Claims. That was the plain English meaning of the third paragraph. It was enforced in the fourth paragraph by the statement attributed to Mr Macdonald that the Foundation was fully funded. That meant that Mr Macdonald was saying the Foundation was fully funded to meet all legitimate Asbestos Claims. And what was promised in the fifth paragraph was certainty that this was so. People with legitimate Asbestos Claims could be certain that there were sufficient funds to pay their claims. To read that paragraph as conveying that the establishment of the Foundation provided certainty but not certainty that legitimate claims would be paid is a tortuous reading of the document. 319 The message is repeated in paragraphs 10 and 11. The level of funding in the Foundation was sufficient to meet all future claims based upon advice from independent experts supplemented by JHIL's experience. On that basis Mr Macdonald represented that the directors of JHIL were satisfied that the Foundation had sufficient funds to meet all future claims. 320 The unsophisticated notional class representative would labour under the misapprehension having read the Draft ASX Announcement that it was certain that the Foundation had sufficient funds to meet all future Asbestos Claims. The sophisticated notional class representative would, like Mr Thompson, labour under the misapprehension that JHIL had adopted highly conservative assumptions in determining the funding level of the Foundation. 321 The non-executive directors must have been aware that the Draft ASX Announcement conveyed, or was capable of conveying, that the material available to JHIL provided a reasonable basis for the assertion of certainty of sufficient funding; that it conveyed, or was capable of conveying, that Mr Macdonald believed there was certainty of sufficient funding; that it conveyed, or was capable of conveying, that all the directors or a majority of them believed there was certainty of sufficient funding; and that it conveyed, or was capable of conveying, that JHIL had received expert advice from PwC and Access Economics that supported the statement as to certainty of sufficient funding. 322 No reasonable reader would think that the statements had been made without supporting material; that statements were attributed to Mr Macdonald that he did not believe; that statements were attributed to the board that a majority of them did not believe; and that the expert advice to which reference was made did not support the directors' belief. 323 I am not satisfied that the Draft ASX Announcement conveyed, or was capable of conveying, the matters set out in paragraphs 117 and 118 of the fourth further amended statement of claim. I understand they are no longer pressed against the non-executive directors. 324 It was submitted that it was not unreasonable for non-executive directors to have approved the Draft ASX Announcement, bearing in mind that Trowbridge was a highly respected actuarial firm upon whom they were entitled to rely. And they were entitled to rely on management. Further, it was submitted that it was reasonable and appropriate to estimate the financial position of the Foundation using the Cashflow Model. 325 But it is the emphatic nature of the Draft ASX Announcement that is at fault. And that is not a matter for reliance upon management or outside experts. The shortcomings of the Cashflow Model must have been obvious to the non-executive directors, or at least they ought to have been and they should have realised that they were prevented from approving the unequivocal and unqualified statements as to certainty of sufficient funding in the Draft ASX Announcement. 326 What was the motive of the non-executive directors in approving the Draft ASX Announcement? They may well have believed they were acting in the best interests of the James Hardie group in divorcing Asbestos Claims against Coy and Jsekarb from the group. To quell any opposition to the formation of the Foundation and the transfer of Coy and Jsekarb to it, they were prepared to allow JHIL to make unequivocal and unqualified statements as to the sufficiency of funding. 327 Why did neither Mr Peter Cameron nor Mr Robb react to the unequivocal and unqualified statements when they read their copies of the Draft ASX Announcement at the 15 February 2001 Meeting? The reason is that Mr Peter Cameron accepted the term "fully funded" as appropriate but earlier that morning he and Mr Robb had been advised of a new development that they had not had time to absorb. 328 In his statement to the Special Commission, Mr Peter Cameron said that Mr Robb came to his office on the morning of the 15 February 2001 Meeting and told him that Mr Shafron had said that the most recent Trowbridge analysis did not include several months of the most recent claims data of JHIL. Mr Peter Cameron and Mr Robb spoke with Mr Macdonald and Mr Shafron by speakerphone. Mr Peter Cameron said he told Mr Macdonald and Mr Shafron that the absence of the most recent claims data from the Trowbridge report made him concerned that Allens may have been proceeding under a misapprehension. Mr Peter Cameron said that Mr Shafron explained that Trowbridge said they did not require the most recent data and it would not make a difference to their conclusions because their report had been based on longer term trends and on a broader pattern of asbestos-related diseases in the wider community. This was further elucidated and Mr Peter Cameron said he then used words to this effect: "With the Board meeting so soon, I am simply not in a position to absorb and assess the detail of what has happened. My primary concern is whether this information has any impact on the key conclusions in the proposals going to the Board and the financial models which are based on the Trowbridge report. In short, I need to understand the bottom line before we talk to the Board. Is there any reason to depart from the view that the Foundation will be fully funded?" 329 Mr Peter Cameron said that Mr Macdonald replied: "Absolutely not." Presumably Mr Cameron and Mr Robb held back on voicing a view on the content of the Draft ASX Announcement consistent with Mr Cameron's need for time to absorb and assess the new development. Mr Robb had the opportunity later that day to give his view of the document. 2.13 Breach of Section 180(1) by Mr Brown, Ms Hellicar and Mr Willcox 330 The application of principle to the non-executive directors, Mr Brown, Ms Hellicar and Mr Willcox requires the answer that they breached their statutory duties of care and diligence laid down in Section 180(1). 331 None of them agreed that they had approved the Draft ASX Announcement. Mr Willcox denied that he had. Each of them said that if it had been considered at the 15 February 2001 Meeting they would not have approved it, or would have made comments seeking to modify its terms. By acknowledging that they would have spoken against, or in modification of, the Draft ASX Announcement those directors impliedly conceded that they had a duty to do so. 332 And so they did. Management having indicated that it would bring a draft announcement to the board in January 2001 and having done so at the 15 February 2001 Meeting, it was part of the function of the directors in monitoring the management of the company to settle the terms of the Draft ASX Announcement to ensure that it did not assert that the Foundation had sufficient funds to meet all legitimate compensation claims; that it did not state that the Foundation provided certainty for people with a legitimate claim against Coy and Jsekarb; and that it did not state that the Foundation was fully funded. 333 This was not a matter of operational responsibility. These directors had no qualms about a request from management to consider the content of a press statement announcing the formation of the Foundation. And nor should they have had. The formation of the Foundation and the separation of Coy and Jsekarb from JHIL were potentially explosive steps. Market reaction to the announcement of them was critical. This was a matter within the purview of the board's responsibility: what should be stated publicly about the way in which Asbestos Claims would be handled by the James Hardie group for the future. 334 Once the findings are made that the Draft ASX Announcement was before the 15 February 2001 Meeting, was discussed and was approved, they are in the position that they say they would have, but they did not, speak against or in modification of the announcement when it was incumbent upon them to do so. 335 A reasonable person, if a director of a corporation in JHIL's circumstances who occupied the office of non-executive director and had the same responsibilities within the corporation, would not have voted in favour of a resolution that JHIL approve the Draft ASX Announcement and JHIL authorise the execution of the Draft ASX Announcement and send it to the ASX. 336 Mr Brown, Ms Hellicar and Mr Willcox failed to discharge their duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if they were a director of a corporation in JHIL's circumstances and occupied the office of non-executive director, and had the same responsibilities within the corporation, by voting in favour of the above resolutions in the manner voting was conducted by the board of directors of JHIL. That failure constituted a breach of Section 180(1). 2.14 Breach of Section 180(1) by Mr Gillfillan and Mr Koffel 337 Mr Gillfillan and Mr Koffel were likewise in breach of Section 180(1) in failing to request that they be provided with a copy of the Draft ASX Announcement, in failing to familiarise themselves with its terms, or in failing to abstain from voting in favour of the above resolutions as a reasonable person in their shoes with their responsibilities would have done. 338 Mr Gillfillan did not agree that he had approved the Draft ASX Announcement. Mr Koffel denied that he had. Notwithstanding that they did not have a copy of the Draft ASX Announcement before them, they also regarded it as appropriate to have considered the content of the document had they recalled it being before the 15 February 2001 Meeting. Like their co-directors who gave evidence they said they would not have approved it. 339 Once the finding is made, contrary to their testimony, that the Draft ASX Announcement was considered at the meeting their failure to call for a copy to familiarise themselves with its terms or to abstain from voting constituted a breach of duty. 340 The situation is analogous to that in Milwell v Olympic Amusements Pty Ltd [1999] FCA 63; (1999) 85 FCR 436. It was a case of infringement of copyright where the infringing act was denied. To obtain protection for an innocent copyright infringement, it was necessary to establish an active subjective lack of awareness that the act constituting the infringement was an infringement of the copyright and that, objectively considered, the defendant had no reasonable grounds for suspecting that the act constituted an infringement. A Full Court of the Federal Court said at 449: "Milwell failed to satisfy either limb. There was simply no positive case advanced at all as to Messrs Macdougalls' awareness of the quality of their act. On the contrary, their case was that the act simply did not occur. They denied any copying. Having opted for this bold course they can hardly claim to be credited with a state of mind, as to which they gave no evidence, relevant to an act, which they denied committing." 2.15 Breach of Section 180(1) by Mr O'Brien and Mr Terry 341 Similar considerations apply to Mr O'Brien and Mr Terry who did not give evidence and, consequently, did not say that they would not have approved the Draft ASX Announcement. 342 The nature of the announcement made it appropriate for management to ask the board to approve the content of the Draft ASX Announcement. Once asked, the board had a duty to consider its content carefully. Neither Mr O'Brien nor Mr Terry put forward a case that they abstained from approving the Draft ASX Announcement. 343 The fact that it was approved with its overstatement of the situation as to the level of funding of the Foundation, what Mr Gillfillan described as "so unequivocal and unqualified" statements, meant that they failed in their duty to JHIL to protect it from the harm it potentially faced upon publication of the Draft ASX Announcement. 2.16 Breach of Section 180(1) by Mr Macdonald 344 Mr Macdonald was appointed a director and chief executive officer of JHIL in November 1999. He reported directly to the board of directors. He was to perform such duties and functions as might be assigned to him by the chairman of the board. 345 Mr Macdonald was the driving force behind Project Green. His memoranda on the topic appeared in the board packs for the May 2000, June 2000, August 2000, September 2000, October 2000, November 2000, December 2000 and February 2001 board meetings. He alone, or in conjunction with others, presented slide presentations at the April 2000, July 2000, August 2000, November 2000, January 2001 and February 2001 board meetings and at the January 2001 audit committee meeting. He was responsible for the review of the communications strategy in the February 2001 board papers and he attended and participated at some Project Green all hands meetings with JHIL advisers. 346 As chief executive officer he had ultimate responsibility for planning the Separation Proposals. He was the person appointed to make public statements on behalf of JHIL concerning Separation Proposals and he was responsible for dealing with the board on this issue. Mr Macdonald bore a high standard of care as a result of his responsibilities on the issue of separation. 347 As a director who voted in favour of the resolution that JHIL approve the Draft ASX Announcement and JHIL authorise the execution of the Draft ASX Announcement and send it to the ASX, in the manner voting was conducted by the board of directors of JHIL, he was a fortiori in breach of Section 180(1). 348 For the reasons set out in relation to the non-executive directors, a reasonable person, if a director of a corporation in JHIL's circumstances who occupied the office of director and chief executive officer and had the same responsibilities within the corporation, would not have voted in favour of a resolution that JHIL approve the Draft ASX Announcement and JHIL authorise the execution of the Draft ASX Announcement and send it to the ASX. 349 Mr Macdonald failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if they were a director of a corporation in JHIL's circumstances and occupied the office of director and chief executive, and had the same responsibilities within the corporation, by voting in favour of the above resolutions in the manner voting was conducted by the board of directors of JHIL. 350 There are other allegations of breaches of duty raised against Mr Macdonald. It is alleged that he failed to inquire of each of the other directors as to whether they had formed the opinion that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. 351 I fail to see that it was any part of Mr Macdonald's duty to monitor the individual bases upon which his co-directors voted on the issue. A director is not obliged to analyse the basis upon which fellow directors intend to vote before determining his or her own course. Bearing in mind the calibre of the JHIL board members, it would be insulting for the chief executive officer to ask each board member whether he or she really meant what they were about to do. 352 It was submitted on Mr Macdonald's behalf that he knew no more than his co-directors of actuarial matters and he knew less than some members of the board. I do not accept that that was the case. On 11 February 2001, Mr Ashe sent an email to Mr Macdonald and others. It contained Mr Ashe's suggestion of what might be said in the Draft ASX Announcement about the review of the Cashflow Model by PwC and Access Economics. It contained the following paragraph: "Given the assumptions used in the model and the "most likely estimate" future claims cost scenario as provided by the actuarial firm Trowbridge, the model shows that a surplus of funds will exist after all claims have been paid." Mr Macdonald replied: "A couple of suggestions: In particular – I think the use of most likely is better than "best estimate" which can be interpreted as "best case" which it clearly isn't. OK?" 353 It demonstrates that Mr Macdonald had some idea of the meaning of the "best estimate" as used in Trowbridge reports. 354 It is alleged against Mr Macdonald that he was in breach of Section 180(1) in failing to advise the board that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future Asbestos Claims. It is alleged that his failure to advise the board that the Draft ASX Announcement was in that respect false or misleading also constituted a breach of Section 180(1). 355 It was submitted on Mr Macdonald's behalf that ASIC had not proved that Mr Macdonald failed to advise the board that the Draft ASX Announcement was false or misleading and the charge was based upon a false premise that Mr Macdonald believed the language was too emphatic and that it was false or misleading. 356 The matters about the Cashflow Model to which I have already referred that should have alerted the non-executive directors that the Draft ASX Announcement was too emphatically expressed, should also have alerted Mr Macdonald to that fact. He, as chief executive officer and leader of the Project Green proposal, should have said so to the board. There is no suggestion that he did. The fact that the board approved the Draft ASX Announcement suggests that he did not. If the directors had gone against a recommendation of their chief executive officer one would have expected a non-executive director to have given evidence that he or she recalled such an event. There was no such evidence. 357 A reasonable person, if a director of a corporation in JHIL's circumstances who occupied the office of director and chief executive officer and had the same responsibilities within the corporation, would have advised the board that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future Asbestos Claims and in that respect it was false or misleading. 358 Mr Macdonald failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if he or she were a director of a corporation in JHIL's circumstances and occupied the office of director and chief executive officer, and had the same responsibilities within the corporation, by failing to advise the board that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future Asbestos Claims and in that respect it was false or misleading. Those failures constituted breaches of Section 180(1). 359 It is alleged against Mr Macdonald that he failed to advise the board that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of the Cashflow Model and had not verified, and they had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rate, litigation and management costs, future claim costs and inflation on rental income and asset values. 360 It was submitted that ASIC had not established that Mr Macdonald was aware of the actual work done by PwC and Access Economics. I do not accept that submission. The full text of Mr Ashe's email was: "Subject: suggested report wording Executive Summary This report comments on a model for estimating future costs in asbestos litigation involving JH&Coy P/L and Jsekarb P/L. Specifically we are asked to comment on the reasonableness of the model in projecting future cashflows. … has reviewed the "forecast JH & Coy Pty Limited and Jsekarb Pty Limited assets and future cash flow" model and finds it to be logically sound and technically correct. The model works effectively by inputting classes of assets, generating predetermined returns on those assets, and deducting management and claims related costs and settlements. Given the assumptions used in the model and the "most likely estimate" future claims cost scenario as provided by the actuarial firm Trowbridge, the model shows that a surplus of funds will exist after all claims have been paid. Key variables in the model which we have not checked and on which we express no opinion are: · investment earnings rates · litigation and management costs · future claim costs." 361 For a man familiar with the use of the term "best estimate" in the Trowbridge reports, this email brought, or ought to have brought, to Mr Macdonald's attention the limited nature of the work done by PwC and Access Economics. They were not asked to check the vital assumptions listed in the email. That meant that the inherent uncertainty of the Trowbridge reports remained. It must have been clear to Mr Macdonald that the work to be done by these firms was limited to determining whether the Cashflow Model was logically sound and technically correct. As the chief executive officer and driver of this Separation Proposal he should have brought this matter to the attention of his co-directors. 362 From Mr Ashe's email it must have been obvious to Mr Macdonald, or at least it ought to have been, that PwC and Access Economics had been instructed not to express an opinion on the key variables. Why else would they agree to a statement that they had not checked key variables and expressed no opinion about them? But the email said nothing about the key variables including inflation on rental income and asset values. Mr Macdonald should have brought the other aspects of the limited nature of the reviews to the attention of his co-directors. 363 A reasonable person, if a director of a corporation in JHIL's circumstances who occupied the office of director and chief executive officer and had the same responsibilities within the corporation, would have advised the board that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of it and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rates, litigation and management costs and future claim costs. 364 Mr Macdonald failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if he or she were a director of a corporation in JHIL's circumstances and occupied the office of director and chief executive officer, and had the same responsibilities within the corporation, by failing to advise the board that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of it and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rates, litigation and management costs and future claim costs. That failure constituted a breach of Section 180(1). 365 It is alleged that Mr Macdonald failed to advise the board that the best estimate contained in the February 2001 Trowbridge Report and in the Trowbridge 50 Year Estimate was too uncertain to be used as a basis to assess the adequacy of Coy and Jsekarb's funding, it had not taken into account superimposed inflation as a prudent estimate would have and it only had a 50% probability of being achieved. 366 It was submitted that the term "best estimate" was not clear. Mr Minty said that in the Trowbridge reports he used the phrases "best estimate" and "most likely estimate" as central estimates. A central estimate is an estimate of a range of possible estimates that have a 50% chance of equalling or exceeding the actual liability. There is an equal likelihood that the amount will prove to be sufficient and an equal likelihood that it will prove to be insufficient to meet the actual liability. In cross-examination Mr Minty said that neither phrase had an acknowledged actuarial meaning and in 2001 there was no standard with respect to their use and the profession spoke of "central estimate", "best estimate" and "most likely estimate" with relative abandon and without any clarity of definition. 367 But it is evident from Mr Macdonald's response to Mr Ashe that he well understood that "best estimate" and "most likely estimate" could be interchanged. That suggests some familiarity with the content of the Trowbridge reports. 368 I am not satisfied, however, that the evidence establishes an awareness on Mr Macdonald's part that a best estimate or a most likely estimate involved but a 50% probability of being accurate. ASIC relies on the Draft 2000 Trowbridge Report and its statement: "The estimate of exposure we have produced in this review can be described as our "most likely" estimate of the ultimate cost to Hardies. In principle, all our assumptions have been selected to yield estimates which are not intentionally above or below the ultimate cost of Hardies' asbestos-related exposure within the scope defined, although as noted earlier there is considerable potential for future experience to differ from our assumptions." 369 I do not regard that passage as sufficient to bring to Mr Macdonald's attention the nature of a central estimate. 370 In April 2000, Mr Minty sent an email to Mr Shafron indicating that Trowbridge's first attempt at an estimate of liability was between $300m and $350m. Mr Shafron forwarded the email to Mr Macdonald who said: "As we discussed, the next step will be to work through the whole thing thoroughly and test all the assumptions to make sure we think the basis if ( sic ) fair." 371 ASIC submits that the Court should infer that Mr Macdonald, personally, rather than other employees of JHIL, worked through the Draft 2000 Trowbridge Report and the February 2001 Trowbridge Report. If he did, it was submitted he would have realised that an inflation rate of only 4% was used and that this was confirmed by the slide presentation at the February 2001 board meeting that stated that the Trowbridge analysis used the same basic assumptions as previously. It was submitted that Mr Macdonald should have advised the board that the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate had not taken into account superimposed inflation. 372 I am not prepared to draw the inference. There were other employees of JHIL who would "work through the whole thing thoroughly". I am not prepared to find that Mr Macdonald realised that a prudent estimate would take account of superimposed inflation and that superimposed inflation was missing from the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate. 373 In the absence of knowledge of the use of a central estimate and of the absence of superimposed inflation in the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate, I am not prepared to find that Mr Macdonald was in breach of duty for failing to advise the board at the 15 February 2001 Meeting that the best estimate contained in the those reports was too uncertain to be used as a basis to assess the adequacy of Coy and Jsekarb's funding. 374 Inherently uncertain as they are, actuarial reports are used in business to assist decision-making about the future. They are tools that seek to manage the uncertainty. In the absence of proof of the duty to advise on the 50% probability of the best estimate and the lack of superimposed inflation, I am not prepared to find that Mr Macdonald knew or ought to have known that the best estimate was too uncertain to base an assessment of the funds needed in the Foundation to meet all present and future Asbestos Claims. 2.17 Breach of Section 180(1) by Mr Shafron 375 It follows from what I have said with respect to the non-executive directors that Mr Shafron was provided with a copy of the Draft ASX Announcement at the 15 February 2001 Meeting. If there were enough copies for Mr Peter Cameron and Mr Robb to receive a copy each, there were enough copies for one to be provided to Mr Shafron. 376 The allegations against Mr Shafron are in similar terms to those against Mr Macdonald. 377 It is alleged that he failed to inquire of each of the directors as to whether they had formed the opinion that it was certain that the amount of funds made available to the Foundation, including its subsidiaries, would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. For the reasons I rejected the notion that Mr Macdonald had a duty to make this inquiry, I find that Mr Shafron was under no such duty. 378 Mr Shafron was appointed a company secretary of JHIL in 1999. He is a qualified legal practitioner with Bachelor and Masters of Law degrees from the University of Sydney. He was admitted to practice in Australia and in California. He performed the role of general counsel. 379 Mr Shafron reviewed extensive material concerning Project Green. In February 2000 he presented and spoke to a paper entitled "Asbestos Board Paper". He spoke to the "Big Picture Options" and addressed strategic options for addressing the James Hardie group asbestos exposure as part of Project Green. In April 2000, Mr Shafron presented a paper entitled "Asbestos Resolution including Stakeholder Issues". He presented that part of the slide presentation concerning asbestos resolution and Project Green. 380 Mr Shafron provided a legal memorandum to the board as part of the June 2000 between meetings board papers advising on confidentiality in relation to Project Green. The memorandum enclosed a standard memorandum to directors and officers on corporate information and statutory rights updated to take account of recent amendments. The document summarised the provisions of the Corporations Law concerning improper use of information, market manipulation and the publishing of false or misleading statements including a reference to Section 999. 381 At the August 2000 board meeting Mr Shafron made a detailed presentation in relation to asbestos related issues concerning Project Green. In the October 2000 between meetings board papers there was a memorandum from Mr Shafron to Mr Macdonald in which Mr Shafron provided legal advice as to whether or not JHIL was obliged by the continuous disclosure rules to inform the ASX of Trowbridge's estimate of total asbestos liabilities. 382 At the board meeting of November 2000, Mr Peter Cameron and Mr Shafron outlined legal issues surrounding the proposed restructure as part of the discussion on Project Green. At the November 2000 board meeting a slide presentation concerning the latest proposals in relation to Project Green was shown. Part of the presentation addressed the question whether any explanatory statement would need to be lodged in relation to the proposed restructure. Mr Morley said that Mr Shafron together with persons from Allens and possibly UBS addressed this matter. 383 At the January 2001 board meeting, Mr Shafron reported on a meeting with potential trust directors and together with Mr Peter Cameron and Mr Robb discussed legal issues and risks associated with the trust concept. Mr Shafron presented part of the slide presentation at that meeting that addressed the proposed trust structure. Mr Morley's handwritten notes indicated that Mr Shafron addressed a number of slides dealing with the ability of JHIL directors to provide more funds to Coy and Jsekarb, the ongoing asbestos risk to JHIL, the post-trust post-Green options for JHIL and the key risks from the Separation Proposal part of which addressed stakeholder reaction. 384 Mr Shafron presented the slide presentation at the 15 February 2001 Meeting, in so far as it addressed Trowbridge analysis. 385 It was Mr Shafron who retained the actuaries engaged by JHIL. He assisted Mr Macdonald in drafting board papers and he assisted Mr Macdonald in the planning and implementation of Separation Proposals. 386 In Commissioner for Corporate Affairs v Bracht [1989] VR 821, Ormiston J considered a provision that operated upon a person who was concerned in, or took part in, the management of a corporation. In Vines at first instance the relevant definition was of an "executive officer" defined similarly as: "a person, by whatever name called and whether or not a director of the body or entity, who is concerned, or takes part, in the management of the body or entity". The current definition of an "officer" of a corporation in s 9 of the Corporations Act includes a director or secretary of the corporation and, relevantly for present purposes: "a person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation." 387 It was submitted that the current definition is vastly different from the definitions considered in Bracht and Vines. It was submitted that to be concerned in the management of a company is a much wider concept than making, or participating in the making, of a far-reaching decision. I doubt this is so. As Jacobson J said in Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Limited [2007] FCA 963 at [490]: "The language of subparas (b)(i) and (b)(ii) of the definition of "officer" corresponds, in large measure, with Ormiston J's description of the concept of management. What emerges from this is that an officer is involved in policy making and decisions that affect the whole or a substantial part of the business of the corporation." 388 To participate in making decisions that affect the whole or a substantial part of the business of a company is, to my mind, the same as taking part in the relevant process. Ormiston J considered the degree of participation required by the section with which he was concerned and said at 831: "Taking first the expression "take part in", it is unnecessary to say more, in construing such simple words, than that it both connotes and proscribes the active participation of a prohibited person in the management of a corporation: cf. Marshall v. British Broadcasting Corporation [1979] 1 W.L.R. 1071, pp. 1073-4. Such participation would have to be real and direct, but not necessarily in a role in which ultimate control is exercised, although it would have to be more than the administrative carrying out of the orders of others responsible for a company's management." 389 In my view that approach is apposite with respect to the current definition for, if the making, or participation in the making, of decisions affecting the whole or a substantial part of the business of the corporation was restricted to those in ultimate control, there would be no point in extending the definition beyond a director. 390 It was submitted that the words "and have the same responsibilities within the corporation" in Section 180(1) were limited to the responsibilities of the particular office and not every responsibility that officer had within the company. 391 I reject that construction. As was pointed out, the functions performed by a company secretary of one company may differ considerably from those performed by company secretary in another as Barrett J said in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 657 at [10]: "The corporations legislation envisages certain functions for company secretaries. One would readily infer that any company secretary had authority commensurate with those functions. Beyond that, however, one cannot make any assumptions about the authority of a particular company secretary in a particular context." 392 The words "and have the same responsibilities within the corporation" in Section 180(1) ensures that all the responsibilities of a person occupying the office of director or secretary or other person are within the scope of the duty of care and diligence. 393 The functions performed by Mr Shafron involved him in participating in the making of decisions that affected the whole or substantial part of the business of JHIL. The Separation Proposal considered by the board of directors of JHIL at the 15 February 2001 Meeting was such a decision. And Mr Shafron played a vital role in the board's deliberations thereby participating in the making of that decision. 394 As general counsel protecting JHIL from infringement of statutory obligations, it must have been obvious to Mr Shafron on 15 February 2001, or at least it ought to have been, that if JHIL authorised the release of a public statement concerning separation that was false and misleading that would be harmful, or potentially harmful, to JHIL in that it might contravene or risk contravening Section 995(2) and Section 999. Guarding against legal risks to JHIL was at the core of Mr Shafron's responsibilities as general counsel. 395 Mr Shafron must also have realised on 15 February 2001 that if JHIL published a false or misleading statement and its falsity or misleading aspect was exposed, that would be harmful to JHIL's reputation and jeopardise market perceptions of it. 396 There had been a continuous flow of communications strategies papers in the board packs that highlighted the importance of market and stakeholder perception. Communications strategies were contained in the April 2000 Project Green board paper; in the presentation at the April 2000 board meeting; in the presentation at the August 2000 board meeting; in the presentation at the November 2000 board meeting; in an announcement "strategy and tactics" document sent to Mr Shafron amongst others by Mr Baxter in January 2001; in the January 2001 board papers; in the presentation at the January 2001 board meeting; in Mr Macdonald's review of communications strategy for the February 2001 board papers; in discussion with Mr Loosley on 9 February 2001; in the communications strategy for the 15 February 2001 Meeting; and in the presentation at that meeting. 397 Mr Shafron knew or ought to have known that there was significant public and market interest, especially from asbestos sufferers and those who represented them, in any communications concerning the adequacy of funding made available for Asbestos Claims. The material advised that a successful communications strategy was essential to the achievement of any separation and central to that was the need to convince stakeholders that there were sufficient assets available to meet Asbestos Claims. 398 On 15 February 2001, Mr Shafron had a high degree of responsibility to protect JHIL from legal risks associated with the proposed publication of the Draft ASX Announcement. 399 The second allegation against Mr Shafron is that he failed to advise the board that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future Asbestos Claims. 400 As with Mr Macdonald, it must have been obvious to Mr Shafron on 15 February 2001, or at least it ought to have been, that in using unequivocal and unqualified statements in the Draft ASX Announcement it was too emphatic and was false and misleading. 401 It was said in Mr Shafron' behalf that he owed no duty to warn the board because any reasonable director who considered the Draft ASX Announcement would have appreciated that it was expressed in too emphatic terms and that it was false and misleading. 402 But Mr Shafron had a duty to protect JHIL from legal risk and if the directors were minded to approve the release of the Draft ASX Announcement in its false and misleading form, there was the danger that JHIL would be in breach of Section 995(2) and Section 999. Against that harm it was his duty to warn the directors that the Draft ASX Announcement should not be released in its too emphatic form. The factors of the Cashflow Model that should have alerted the non-executive directors and Mr Macdonald that the excessive statements in the Draft ASX Announcement should not be made should have alerted Mr Shafron also. 403 It was submitted that the directors had been informed repeatedly that the Trowbridge estimates were subject to qualifications, limitations and uncertainty and it was unnecessary for Mr Shafron to warn them about the too emphatic language in the Draft ASX Announcement. 404 But that did not relieve Mr Shafron from his duty to protect JHIL from legal risk. The directors approved the release of the Draft ASX Announcement. Mr Shafron should have warned them that by doing so they put JHIL in jeopardy. He did not do so. 405 A reasonable person, if an officer of a corporation in JHIL's circumstances who occupied the office of secretary and general counsel and had the same responsibilities within the corporation, would have advised the board that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future Asbestos Claims and in that respect it was false or misleading. 406 Mr Shafron failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if he or she were an officer of a corporation in JHIL's circumstances and occupied the office of secretary and general counsel, and had the same responsibilities within the corporation, by failing to advise the board that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future Asbestos Claims and in that respect it was false or misleading. Those failures constituted breaches of Section 180(1). 407 Similar allegations to those made against Mr Macdonald with respect to the limitation in the review by PwC and Access Economics of the Cashflow Model were made against Mr Shafron. In his behalf it was submitted that this fell within Mr Morley's area of responsibility. It was submitted that Mr Shafron did not know of the limitation and there was no good reason why he should know. Addressing the Cashflow Model was the responsibility of Mr Morley as chief financial officer. 408 But the email from Mr Ashe with the suggested report wording was sent to Mr Shafron as well and he must have understood from it, as Mr Macdonald must have understood from it, that the scope of the review by PwC and Access Economics was limited to its logical soundness and technical correctness and key variables were not considered. 409 Mr Morley said he told the meeting that the Cashflow Model had been reviewed by PwC and Access Economics and they had found it to be logically sound and technically correct. He did not say that the reviews were limited to this analysis. He did not say that key variables had not been considered. 410 Mr Shafron knew, or ought to have known, that the unqualified statements that PwC and Access Economics had advised JHIL and that advice supplemented the company's long experience in the area of asbestos and formed the basis of determining the level of funding required to meet all future claims was false or misleading and potentially damaging to JHIL. 411 In the absence of explanation by Mr Morley, it was Mr Shafron's duty in protecting JHIL from legal risk to have advised the board of the limitations. 412 A reasonable person, if an officer of a corporation in JHIL's circumstances who occupied the office of secretary and general counsel and had the same responsibilities within the corporation, would have advised the board that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of it and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rates, litigation and management costs and future claim costs. 413 Mr Shafron failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if he or she were an officer of a corporation in JHIL's circumstances and occupied the office of secretary and general counsel, and had the same responsibilities within the corporation, by failing to advise the board that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of it and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rates, litigation and management costs and future claim costs. That failure constituted a breach of Section 180(1). 414 As with Mr Macdonald, I am not satisfied that the final allegation against Mr Shafron with respect to the 15 February 2001 Meeting has been made out. 415 Verne Selwyn Baker was an actuary and senior consultant with Towers Perrin. He made a diary note of a meeting he had in August 2000 with Mr Shafron amongst others. It included the following: "We said that a range of estimates was probably more appropriate in this type of assignment. Trowbridge perhaps gave a central estimate due to this being normal practice for Australian accounting purposes." 416 I do not regard that statement as establishing that Mr Shafron was made aware of the nature of a central estimate. 417 Mr Shafron was present during a discussion with the incoming directors of the Foundation on 13 February 2001 when Mr Minty said: " "Best estimate" is the amount which we think is most likely to be the outcome on the basis that it is intended to be neither optimistic nor conservative…." 418 Again, I do not regard that statement as conveying to Mr Shafron that the best estimate in the February 2001 Trowbridge Report and in the Trowbridge 50 Year Estimate was a central estimate. 419 Roy Williams of Allens wrote to Mr Attrill in June 2000. Mr Attrill sent a copy of the letter to Mr Shafron in July 2000. Mr Williams commented on the Draft 2000 Trowbridge Report. He said: "Trowbridge assume that "average claim costs" will increase with general wage inflation in Australia, at a rate of 4% per annum. Trowbridge assume no "superimposed inflation" (pp 20-21). It seems to me this may well be an excessively optimistic assumption. Indeed, it runs contrary to the "current legal environment". As we know, at least over the last five years, damages payouts have increased at a rate substantially higher than inflation." 420 Mr Shafron made extensive handwritten alterations to the Draft 2000 Trowbridge Report which he sent to Mr Attrill. Under the heading "Sensitivity of the Results" he had altered many of the figures including those in assumption 5 which read: "High Claim Inflation – claim costs escalate at 8% per annum (4% in excess of assumed wage inflation) rather than 4% per annum." 421 Mr Shafron altered the 8% to 7% and the first 4% to 3%. 422 Mr Williams' complaint had been that there was no superimposed inflation. Mr Shafron's alteration of the Draft 2000 Trowbridge Report was of a rate for superimposed inflation. These documents do not establish that Mr Shafron was aware that the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate had not taken into account superimposed inflation. 423 As with Mr Macdonald, so with Mr Shafron, in the absence of proof of knowledge of these issues by Mr Shafron I am not prepared to find that he owed a duty to advise the board that the best estimate was too uncertain to be used in an assessment of the funds needed to meet all present and future Asbestos Claims. 2.18 Breach of Section 180(1) by Mr Morley 424 Mr Morley received a copy of the Draft ASX Announcement at the 15 February 2001 Meeting. This follows from my reasoning that Mr Shafron received a copy at the meeting. Mr Morley said he did not recall the Draft ASX Announcement being distributed at the meeting. It was. 425 The allegations against Mr Morley take the form of the last few allegations against Mr Shafron. 426 It is alleged that Mr Morley failed to advise the board that the reviews by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of the Cashflow Model and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model being fixed investment earnings rates, litigation and management costs, future claim costs and inflation on rental income and asset value. 427 It is also alleged against Mr Morley that he failed to advise the board that the best estimate contained in the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate was too uncertain to be used as a basis to assess the adequacy of Coy and Jsekarb's funding, had not taken into account superimposed inflation as a prudent estimate would have, and only had a 50% probability of being achieved. 428 Mr Morley was appointed chief financial officer of JHIL in March 1997. He had graduated in Economics from Sydney University in 1970 and subsequently obtained a Masters of Business Administration. He worked as a chartered accountant, as a management accountant, a cost accountant, a treasurer, a finance manager, a group financial controller and general manager finance. He joined the James Hardie group in 1984 as group chief accountant, subsequently holding the positions of general manager finance and executive general manager of the building services division. He moved to the US in 1999. 429 Mr Morley had a staff of 22 persons worldwide, 13 of whom were qualified accountants whose principal responsibilities related to financial and taxation matters. Mr Morley was not an actuary. He reported to Mr Macdonald. 430 As chief financial officer of JHIL, Mr Morley attended all meetings of the board of JHIL in 2000 and 2001. As a person who participated in making decisions that affected the whole or a substantial part of the business of JHIL, Mr Morley satisfied the definition of "officer" in the Corporations Law as carried over into the Corporations Act. 431 I did not think it was suggested that Mr Morley was not an officer. I thought he agreed that he participated in major decisions affecting the work of the company. But, at least in oral submissions, Mr Morley adopted the submissions advanced on behalf of Mr Shafron. I have rejected those submissions. The participation of Mr Morley in far-reaching decisions of the board of directors of JHIL makes him, like Mr Shafron, an officer within the current definition. 432 As the chief financial officer, Mr Morley was the second or third most senior executive in JHIL. He was responsible for all of the finance, audit, tax and treasury aspects of the James Hardie group's affairs. He was responsible for the management of the annual, half yearly and quarterly financial reports of the James Hardie group, the review of audit reports, the fund raising and debt of the James Hardie group, the group's taxation liabilities and tax planning, the group's worldwide treasury operations, internal audit and special projects with a financial focus. 433 It was Mr Morley's December 1999 board paper "Potential Separation Structure Outline" that precipitated the establishment of Project Green. At the February 2000 board meeting he presented a paper entitled "Project Green – Update" and he presented reports at the May 2000 and August 2000 board meetings. 434 As chief financial officer he was responsible for Mr Harman's development of various forms of the Cashflow Model. Mr Morley was in receipt of communications strategy being developed in order to deal with public and market interest in the separation of Coy and Jsekarb. He attended the November 2000 board meeting at which there was discussion about the risk associated with the restructure through interference or spoiling by outside parties. In December 2000 he was sent the first draft of a proposed media release prepared by Mr Baxter. In January and February 2001 he was sent updated versions of the communications strategy including Mr Macdonald's marked up version of the latest draft communications strategy. Mr Morley was involved in recruiting directors for the Foundation. He, like Mr Shafron, had a high degree of responsibility with respect to the Draft ASX Announcement. 435 Mr Morley learned from Mr Macdonald that Mr Loosley had suggested verification of the Cashflow Model. He received an email from Mr Ashe on 9 February 2001 confirming willingness on the part of PwC and Access Economics to do the work. Shortly thereafter he received an email from Mr Shafron to Mr Harman that in relation to PwC and Access Economics said: "Get these guys to bless your model". On 10 February 2001 he received an email from Mr Macdonald in reviewing his meeting with Mr Loosley. 436 Mr Ashe said that his email of 11 February 2001 set out above was dictated to him by Mr Morley at some time between 9 February 2001 and 11 February 2001. Mr Morley denies he dictated the email. 437 On 13 February 2001 Mr Morley attended a meeting with the proposed directors of the Foundation. Mr Attrill took a note during the meeting recording Mr Morley saying: "PwC are to confirm the model. Access Economics will consider future earnings rates". His evidence was not challenged. 438 Dennis John Cooper was one of the proposed directors of the Foundation. He said that in Mr Morley's presentation of the Cashflow Model he made a handwritten note that Mr Morley said "PwC have been instructed to confirm the model as well as Access Economics. Surveys from Mercer and Towers Perrin have been utilised in relation to levels of investment returns". This evidence was not challenged. 439 Peter Edward John Jollie was also a proposed director of the Foundation who attended the meeting. He recalled Mr Morley saying words to the effect: "PricewaterhouseCoopers are to confirm the model – they will do the technical modelling and Access Economics will comment on the reasonableness of the assumptions. We are also going to produce some Mercer statistics for fifteen years in support of their assumptions." 440 Mr Jollie made a note at the time that states: "PwC to confirm model Access Economics – assumptions Reasonable". Mr Jollie was not challenged on this evidence. Mr Morley denied making the statements. He was not challenged on the denial. 441 Sometime on the evening of 13 February 2001 or the morning of 14 February 2001 Mr Harman told Mr Morley that both PwC and Access Economics had found the Cashflow Model to be logically sound. 442 On the evening of 14 February 2001, Mr Harman had the discussion with Mr Macdonald, Mr Shafron and Mr Morley as to whether or not he should forward the PwC and Access Economics reports to the directors as set out earlier in these reasons. Mr Morley said it was not he who gave the instruction not to send them. He was not challenged on his denial. 443 Mr Harman gave Mr Morley the PwC report after the board meeting on 15 February 2001. He did not receive a draft or final version of the Access Economics report until 20 February 2001. 444 The detail of Mr Morley's explanation of the Cashflow Model is set out earlier in these reasons. ASIC challenges Mr Morley's evidence that he told the 15 February 2001 Meeting that the Cashflow Model had been reviewed by PwC and Access Economics and they had found it to be logically sound and technically correct. There is no suggestion that he said anything more. 445 Mr Morley did not give the instruction to PwC or to Access Economics to limit their reviews and not to consider the assumptions in the Cashflow Model. 446 Whether he dictated Mr Ashe's email of 11 February 2001 or merely received it, Mr Morley was aware that the reviews by PwC and Access Economics were limited to logical soundness and technical correctness. Whether or not Mr Morley said to the 15 February 2001 Meeting that the Cashflow Model had been reviewed by PwC and Access Economics and they had found it to be logically sound and technically correct, it must have been obvious to Mr Morley, or at least it ought to have been, that if nothing more was said and, in particular, if the directors were not told that PwC and Access Economics were instructed not to comment on the assumptions and had not done so, the directors might act under the misapprehension that the reviews were more significant than they were. 447 The bland statement that the Cashflow Model had been reviewed by PwC and Access Economics and they had found it to be logically sound and technically correct did not describe the reviews as being limited and gave the impression, or were capable of giving the impression, that an unlimited review had been concluded with a finding of logical soundness and technical correctness. 448 The assumptions upon which the Cashflow Model was based were essential to its integrity. If the directors had been told that they had not been reviewed, they might had taken different attitude to the Draft ASX Announcement. It attributed to those reviews and the Trowbridge reports a supplementation of the company's experience and the basis for determining the level of funding required to meet all future Asbestos Claims. 449 It was submitted that Mr Morley had explained properly the items that made up the Cashflow Model and its sensitivity to changes in the investment earnings rates. But that is not the gravamen of the allegation against Mr Morley. The allegation is that he failed to explain the limited nature of the reviews that found the Cashflow Model to be logically sound and technically correct. It was the basis of upon which the reviews were made that was not explained to the 15 February 2001 Meeting and Mr Morley is alleged to have been negligent in failing to do so. 450 A formal submission was made on Mr Morley's behalf that the degree of negligence that must be established to constitute a contravention of Section 180(1) is higher than that which would support a finding of negligence at common law. It was accepted that this Court is bound by the decision of the New South Wales Court of Appeal in Vines to reject that proposition. 451 It was submitted on Mr Morley's behalf that ASIC did not plead that Mr Morley said anything that induced a belief on the part of the board that PwC or Access Economics had been asked to do anything more than report on the logical soundness and technical correctness of the Cashflow Model. It was submitted that it was incumbent upon ASIC, if it wished to mount a case that Mr Morley did something to engender an erroneous belief on the part of the board that required correction, to have pleaded what Mr Morley said or did that engendered the erroneous belief and to plead what was the erroneous belief that was engendered. 452 I do not accept that submission. This is a case of an erroneous belief engendered by a failure to do something as distinct from a case of an erroneous belief engendered by doing something. The gravamen of ASIC's case is that Mr Morley failed to say anything to dispel an erroneous belief of the directors that the reviews by PwC and Access Economics were more significant than they were in fact by the limited statement he had made and his failure to do more. The pleading identifies the alleged words he used and identifies what more he should have said. It is sufficient. 453 Mr Morley knew, or ought to have known, that the unqualified statements that PwC and Access Economics had advised JHIL and that advice supplemented the company's long experience in the area of asbestos and formed the basis of determining the level of funding required to meet all future claims, was false or misleading and potentially damaging to JHIL. Mr Morley knew, or ought to have known, that if JHIL made a false or misleading statement that was exposed as such, not only was it likely to face legal risk, but also it would affect JHIL's reputation in the market with a likely adverse effect on the price for JHIL's shares. 454 A reasonable person, if an officer of a corporation in JHIL's circumstances, who occupied the office of chief financial officer and had the same responsibilities within the corporation, would have advised the board that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of it and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rates, litigation and management costs and future claim costs. 455 As with Mr Macdonald and Mr Shafron, I am not persuaded that it has been established that PwC or Access Economics was instructed not to consider inflation on rental income and asset values as a key assumption adopted by the Cashflow Model. 456 Mr Morley failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if he or she were an officer of a corporation in JHIL's circumstances and occupied the office of chief financial officer, and had the same responsibility within the corporation, by failing to advise the board that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of it and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rates, litigation and management costs and future claims costs. That failure constituted a breach of Section 180(1). 457 Had it been necessary for me to resolve the conflict in the evidence of Mr Attrill, Mr Cooper, Mr Jollie on the one hand and Mr Morley on the other as to what he said at the meeting of prospective directors of the Foundation, I would have preferred the evidence of Mr Attrill, Mr Cooper and Mr Jollie. Their contemporaneous diary notes refer to a review by PwC and Access Economics that it was not limited by instructions not to consider the assumptions underlying the Cashflow Model. 458 Nor would I have accepted the submission on behalf of Mr Morley that the materiality of his comment as recorded by Mr Attrill, Mr Cooper and Mr Jollie was that a third party would consider future earnings rates. The recorded statements were broader than that and suggested that PwC was to confirm the Cashflow Model with Access Economics commenting on the whole or portion of PwC's work. 459 But it is unnecessary for me to resolve that conflict because the allegations against Mr Morley in relation to what he said about the reviews of PwC and Access Economics are limited to the 15 February 2001 Meeting. 460 As to the allegation that Mr Morley failed to advise the board at the 15 February 2001 Meeting that Trowbridge's best estimate only had a 50% probability of being achieved, is concerned, ASIC submitted that Mr Morley should have realised that an obvious issue was the degree of uncertainty surrounding the Trowbridge best estimate. 461 ASIC relied upon the references in the annual reports to the valuation being so uncertain that a provision for future liabilities could not be raised; the discussion in the August 2000 presentation concerning the 2000 Draft Trowbridge Report noting that it had "heavily qualified findings", "numerous disclaimers" and "actuaries have favoured 'low side' numbers'". ASIC relied upon Mr Shafron's continuous disclosure memorandum of October 2000 where it said the Trowbridge work did not produce any definite outcomes. Reliance was placed upon Mr Macdonald's memorandum of 13 December 2000 referring to proposed changes in accounting standards. Reliance was also placed upon the references in the January 2001 board papers to the fact that James Hardie group's asbestos liability could not be reliably measured and reliance was placed on the letter from Mr Minty to Allens referring to two further projections of claim numbers on a best estimate basis and a high basis. 462 None of this material, however, establishes that Mr Morley was aware of the nature of a central estimate. 463 ASIC also relies on Mr Minty's statement to the meeting of proposed Foundation directors on 13 February 2001 set out above. As with Mr Shafron, I would not regard that statement, on its face, to convey the notion that the best estimate had only a 50% chance of being accurate. But ASIC submitted that Mr Morley agreed to this proposition in cross-examination on what Mr Minty had said: "Q. What I am suggesting to you is you understood that an estimate which lay between an optimistic and a conservative one, precisely in the middle, had an equal chance of covering the actual liabilities; that was obvious, wasn't it? A. Yes." 464 I do not accept that by that answer Mr Morley conceded that Trowbridge's best estimate had only a 50% chance of being accurate. 465 It had been put to Mr Morley that he understood that a conservative estimate had a greater chance of covering the actual liabilities than an optimistic estimate. He answered by saying that was why Mr Minty gave them the Berry high so they had two curves to look at. 466 Geoffrey Berry had made projections called "Berry high" and "Berry low". They were plotted on a graph. A third set of projections, "Berry medium", were also plotted on the graph. 467 Mr Morley agreed that an optimistic estimate had a lesser chance of covering the actual liabilities. Then this was put: "Q. You understood that an estimate in between the two would have an equal chance of covering the actual liabilities; that's right, isn't it? A. No. My understanding at the time was Berry medium was their best estimate which was the most likely. They also supplied a Berry high – Q. But I - A. So I took that to be Berry medium had a better than 50 per cent chance and Berry high was a projection for a higher claims experience." 468 It was in that context that the hypothetical question was put to him assuming a position precisely between an optimistic and a conservative approach. He agreed to that. But that did not mean he departed from his view that Berry medium, as the most likely, had a better than 50% chance of covering actual liabilities. 469 Mr Morley did not put to the 15 February 2001 Meeting that the best estimate in the Trowbridge reports had only a 50% probability of being achieved. Mr Morley had thrown up the contrast between Berry high and Berry medium by including the Berry high figures in the sensitivity analysis as the high scenario. That in itself suggests that Mr Morley was ignorant of the nature of the Trowbridge best estimate. If he had been aware that it had a 50% probability of being accurate, one would have expected him to have said so. 470 ASIC has failed to persuade me that Mr Morley was aware of the nature of the Trowbridge best estimate as having only a 50% probability of being achieved. 471 In relation to the charge that Mr Morley failed to advise the board at the 15 February 2001 Meeting that the Trowbridge reports had not taken into account superimposed inflation, ASIC pointed to material available to Mr Morley that would have informed him of the concept of superimposed inflation and the need to warn the board that in establishing a fund based upon the Trowbridge best estimate, the board needed clearly to understand that it did not take into account superimposed inflation. 472 But in order to found the charge, ASIC had to establish that Mr Morley read this material or in some other way had become aware of the need for superimposed inflation. 473 Mr Morley agreed in cross-examination that in the February 2001 Trowbridge Report, Asbestos Claim payouts were increased by an inflation rate of 4%. Mr Morley agreed that this would be just slightly higher than the general inflation rate at the time. That was followed by this exchange: "Q. You would accept, wouldn't you, if you were a person wanting to the ( sic ) prudent about the amount you might set aside to be entirely comfortable with its likelihood of covering projected asbestos liabilities, it would be a good idea to assume that claims would be higher, would increase higher than the ordinary inflation rate? A. Yes, that's what - that was what was done in February 2001, because Trowbridge incorporated the Watson and Hurst data." 474 ASIC submits that Mr Morley was wrong about this because the Watson & Hurst data involved different assumptions as to the number and distribution of claims and not the adoption of any differing assumption as to inflation. The Watson & Hurst material of November 2000 that made this clear was sent to Mr Morley in December 2000. 475 Mr Morley may have forgotten this when he said that the adoption of the Watson & Hurst material involved the adoption of a higher inflation rate. But that was the answer he gave and it was not further explored in cross-examination. 476 I am not persuaded that Mr Morley understood on 15 February 2001 that the best estimate in the February 2001 Trowbridge Report and the Trowbridge 50 Year Estimate had not taken into account superimposed inflation as a prudent estimate would. 477 In the absence of the establishment by ASIC of Mr Morley's knowledge of this limitation on the best estimate in the Trowbridge reports and a failure to establish that Mr Morley was aware that the best estimate had only a 50% probability of being accurate, I am not satisfied that ASIC has made out that Mr Morley was in breach of his duty to JHIL in failing to advise the board at the 15 February 2001 Meeting that the Trowbridge reports were too uncertain to be used as a basis to assess the adequacy of Coy and Jsekarb's funding. 478 Business decisions that involve prognostications as to the future are constantly made. Actuarial reports are sought in appropriate circumstances. While there is inherent uncertainty about such reports, they offer an informed appraisal of that uncertainty and constitute an appropriate basis for decision-making. 3 DOCI disclosure issue 479 The DOCI was executed in the early hours of 16 February 2001 by Mr Morley and Mr Donald Cameron on behalf of Coy and Jsekarb and by Mr Shafron on behalf of JHIL under a power of attorney. 480 The DOCI was explained in attachment A to Mr Macdonald's board paper of 5 February 2001. It was discussed at the 15 February 2001 Meeting. The minutes record the chairman tabling the board paper explaining the proposed transaction and the board discussing the paper along with the board paper for the January meeting. The minutes further record the chairman tabling the DOCI, referred to in the minutes as the Indemnity, and the passing of a resolution that the company execute the Indemnity and make payments as required thereunder. 3.1 Breach of Section 1001A(2) by JHIL 481 The allegation against JHIL is that, as a listed disclosing entity, it was obliged to disclose the DOCI Information to the ASX and it negligently failed to do so. 482 As JHIL was a listed disclosing entity to which the provisions of the listing rules of the ASX applied and those rules, namely Listing Rule 3.1, required continuous disclosure, Section 1001A(2) applied to JHIL and required it not to contravene Listing Rule 3.1 by intentionally, recklessly or negligently failing to notify the ASX of the required information. 483 In order to establish its charge, ASIC must prove that the DOCI Information was not generally available, that a reasonable person would expect it, if it were generally available, to have a material effect on the price or value of JHIL's shares, that it did not fall within an exception in Listing Rule 3.1 and the failure to notify the ASX was intentional, reckless, or negligent. 484 The DOCI Information of which JHIL became aware no later than 15 February 2001 was that, subject to certain terms and conditions, Coy and Jsekarb provided covenants that they would not make any claim against JHIL arising from or incidental to, the marketing, manufacture, processing, purchase, sale, distribution or importation, by Coy and Jsekarb, of asbestos or products containing asbestos, and in relation to past dividends, distributions and management fees (The Covenants). Secondly, that, subject to certain terms and conditions, Coy and Jsekarb would indemnify JHIL against claims which might be made against it, and all losses suffered or incurred by it, arising from or incidental to, the marketing, manufacture, processing, purchase, sale, distribution or importation, by Coy and Jsekarb, of asbestos or products containing asbestos (The Indemnities). Thirdly, that in consideration for The Covenants and The Indemnities, JHIL would make annual payments to Coy in each of the years 2001 to 2042 of $5,296,250, make annual payments to Jsekarb in each of the years 2001 to 2042 of $278,250 and, under certain conditions, accelerate payments to either or both of Coy and Jsekarb. Fourthly, Coy provided the Put Option by an additional covenant to the "JHIL Shareholder", defined as the person who was the sole registered holder of all of the issued shares of JHIL, that on certain conditions, including the receipt of a notice from the JHIL Shareholder, it would acquire all of the shares of JHIL in whole and in one lot. 485 There seems little doubt that on 15 February 2001 the DOCI Information was not generally available. There is no reference to it in the communication strategy, Attachment B to Mr Macdonald's February 2001 board paper including the draft Q&As in that Attachment. There was no reference to it in either the Draft ASX Announcement or the Final ASX Announcement. There was no reference to it in any of the materials JHIL's corporate affairs put together for Mr Macdonald for the press conference on 16 February 2001 including in any asbestos Q&A, Foundation Q&A, key messages, key points, or assumptions. It was not mentioned during the press conference. None of the media articles and analysts' reports following the press conference made any mention of the DOCI Information. 486 The Final ASX Announcement stated that the Foundation would commence operation with assets of $293m. That figure included the amounts payable under the DOCI. There was no mention of the DOCI nor The Covenants, The Indemnities or the Put Option. That cannot be a disclosure in compliance with Listing Rule 3.1. 487 It was not until the publication of JHIL's annual report for the year ended 31 March 2001 on 8 June 2001 that any of the DOCI Information was published and then only by note to the accounts in explanation of a provision of $73.4m in relation to the Foundation. The note stated: "As part of the establishment and funding of the Foundation as discussed in note 5, JHIL has undertaken to pay Amaca Pty Ltd (Formerly James Hardie & Coy Pty Ltd) and Amaba Pty Ltd (formerly Jsekarb Pty Ltd) 42 annual payments of A$5.6 million. JHIL has the option of making the first seven payments then a final payment of A$73 million. JHIL has established a provision for the net present value of these payments based on the most likely payment schedule and an interest rate of 5.285%. The first payment was made on 16 February 2001. In addition, in the event that claims against the former subsidiaries exceeded certain amounts, the Foundation has the right to demand payment of any remaining unpaid balance, discounted for early payment." 488 The DOCI Information was more extensive than this disclosure. The disclosure made no mention of The Covenants, The Indemnities or the Put Option. 489 In any event, Listing Rule 3.1 required immediate disclosure once there was an awareness of information required to be disclosed. Disclosure on 8 June 2001 of information of which JHIL became aware no later than 15 February is not immediate. 490 Alan John Humphris, a merchant banker, gave evidence that in his review of media articles and analysts' reports he found no mention of the amounts payable by JHIL following the publication of the 2001 annual report. The DOCI Information was not provided to the Securities Exchange Commission (SEC) of the US until October 2001. 491 The review of the ASX announcement listings for JHIL and JHINV indicate that the DOCI Information was not provided to the ASX. 492 There was market interest in James Hardie group's potential liability for Asbestos Claims and the sufficiency of the assets of Coy and Jsekarb. And there was awareness by the management of JHIL that any announcement of a Separation Proposal was likely to have an effect on the market. 493 In the board papers for the April 2000 meeting there was a summary of market analysts' valuation of the James Hardie group's asbestos liabilities. Management's awareness of this interest led to the development from December 2000 until the 15 February 2001 Meeting of media strategy for the announcement of the establishment of the Foundation which involved consideration of the manner in which stakeholders would be informed and their likely reactions. The board papers for the January 2001 meeting contained a detailed communications strategy concerning the announcement with strategy and tactics including the announcement in conjunction with JHIL's Q3 results in order to position it as a "business story" and not a "general news story". Mr Loosley was engaged to advise on announcement strategy. The board papers for the 15 February 2001 Meeting emphasised the significance to the success of the Separation Proposal of an appropriate media strategy and Attachment B dealing with communications strategy referred to the central communications conundrum. 494 JHIL management understood that an announcement of the formation of the Foundation was likely to have a material effect on the price or value of JHIL shares and they crafted the Draft ASX Announcement and the Final ASX Announcement and the material to be used in the Press Conference Statements to induce a positive effect on the price or value of its shares 495 In James Hardie & Co Pty Ltd v Hall (1998) 43 NSWLR 554, the Court of Appeal held that in the absence of evidence that a subsidiary company was a mere façade the fact that a parent company exercised control and influence over its subsidiary did not of itself justify lifting the corporate veil so as to create a duty of care on the part of the parent company towards an employee of the subsidiary. As the respondent was the administrator of the estate of Desmond Putt, the original plaintiff, the case is referred to as Putt's case. 496 At the 15 February 2001 Meeting an opinion by Allsop SC, as his Honour then was, was considered. His view was that on the facts in Putt there would need to be a significant change in the law before the matters expressed by the Court in Putt about the corporate veil could be overturned. The opinion went on, however, to point out that Putt had left open the question whether JHIL could be liable, not as an employer and not ignoring the corporate veil, but working from the foundation of those accepted factual and legal hypotheses, by reason of its failure to act to direct the subsidiary employer to avoid foreseeable harm to the subsidiary's employees. 497 In CSR Ltd v Wren (1997) 44 NSWLR 463, the Court of Appeal had held that the fact that the operations of a subsidiary company were subject to direction, control or involvement by or from CSR and the fact that the management staff of the subsidiary were all CSR staff, were sufficient to establish a relationship between the plaintiff and CSR so as to give rise to a duty of care by CSR to the respondent and that duty was co-extensive with that owed by an employer to an employee. 498 An analysis was being conducted by JHIL to ascertain whether, in the period from the late 1970s to 1987 when Coy ceased to manufacture asbestos products or its business was sold, JHIL involved itself in the affairs of Coy in its manufacture of asbestos products such that Wren might apply to it. 499 If it did, The Covenants and The Indemnities were valuable because they protected JHIL from co-extensive liability as a joint tortfeasor with Coy and Jsekarb. 500 Mr Humphris expressed the opinion that knowledge of The Covenants and The Indemnities would have a material effect on the price of JHIL shares. He said that if the information had been disclosed on 16 February 2001, analysts would likely have calculated an NPV for the payments JHIL was required to make under the DOCI. JHIL had done this in its note to the accounts in the 2001 annual report and arrived at $73.4m. Mr Humphris was of the view that analysts at 16 February 2001 would arrive at a similar amount. That amount represented a loss of JHIL equity of approximately 4.64% of market capitalisation of its shares and approximately 12.7% of JHIL's shareholders' funds as at 31 March 2001. Mr Humphris expressed the opinion that these percentages were material in relation to both market value and book value of JHIL's equity. 501 Assuming that the $293m mentioned in the Final ASX Announcement included the NPV of JHIL's payments under the DOCI, which was the fact, Mr Humphris opined that if the DOCI Information had been disclosed on 16 February 2001 it would have had a material positive effect on the market price of JHIL's shares, taking account of its likely effect as an increment to the information generally available, including the Final ASX Announcement and the Press Conference Statements. He said: "I am of the opinion that the likely incremental effect of disclosure of the DOCI Information would be to increase the value of JHIL by an amount equal to the value ascribed by investors to the Covenants, Indemnities and the Put Option. As noted in sub-paragraph 34(b) of this report, this value amount is likely to be material but significantly less than the NPV Amount. I am of the opinion that, on and from 16 February 2001, that the DOCI Information on an incremental basis, if it were generally available, would have a material positive effect on the market price of JHIL's securities. When the DOCI Information is considered on an aggregate basis, with other generally available information, it would have the likely effect of enhancing the market price of JHIL's shares compared with the likely effect on market price of the disclosures actually made on 16 February 2001." The NPV amount was the $73.4m. 502 Mr Humphris' reports were criticised. It was said that he was a merchant banker and not a stockbroker or investment adviser. But as a merchant banker he needed to develop and did develop wide experience in the field of analysing analysts' reports and market reactions. It was submitted that his methodology was flawed because he had no empirical evidence to test or check the accuracy of his report. There could be no empirical evidence in relation to the effect of publication of the DOCI Information on 16 February 2001 when it was not published then, or shortly thereafter. It was submitted that Mr Humphris had failed to expose his reasoning in a way that demonstrated his opinion was based on particular specialised knowledge. I do not agree. He had gained specialised knowledge and he explained why he thought the market would react to a disclosure of the DOCI Information in a way that exposed his reasoning. 503 It was submitted that Mr Humphris' reasoning process was defective because it was based on his erroneous and untested opinion that the market would ascribe a value to The Covenants, The Indemnities and the Put Option. 504 It was submitted that The Covenants and The Indemnities reflected the existing legal position and could have no material effect on the price or value of JHIL's shares. They were covenants and indemnities that Coy and Jsekarb would not make a claim against JHIL for any liability of Coy and Jsekarb and would indemnify JHIL for any claims made against JHIL for liabilities of Coy and Jsekarb. 505 The Covenants and The Indemnities were valuable because they protected JHIL from prospective liability as a joint tortfeasor with Coy and Jsekarb if the approach in Wren was upheld against JHIL, or legislation was introduced that created the same result. And enforcement of The Covenants and The Indemnities gave JHIL access to the assets of Coy. 506 Even without Mr Humphris' evidence, postulating what effect a reasonable person would expect the publication of the DOCI Information to have, that person would know from contemporaneous information, namely the Final ASX Announcement, that the Foundation had $293m to commence operations. That person would know from the DOCI Information that JHIL had the benefit of The Covenants, that Coy and Jsekarb would not make any claim against it. That person would know that JHIL had the benefit of The Indemnities, that Coy and Jsekarb would hold it harmless against all claims that anyone might make against it. That person would think those rights had considerable value to JHIL. After all that reasonable person would know from the DOCI Information that JHIL was prepared to pay $5,574,500 per year for 42 years to obtain those benefits and the benefit of the Put Option. 507 On that basis the reasonable person to whom Listing Rule 3.1 refers, on 16 February 2001, would have expected the publication of the DOCI Information to have a material effect on the JHIL share price. As JHIL had obtained these advantages, the reasonable person would think that its Asbestos Claim liability had been controlled and the blight upon its share price because of its perceived exposure to Asbestos Claims had been removed. The reasonable person would perceive that its future looked bright and those features would be reflected in an increase in the price of JHIL shares. 508 It was submitted that there was no obligation to disclose the DOCI Information because the Put Option was an incomplete proposal or not sufficiently definite to warrant disclosure in terms of par 3.1.3(b) or par 3.1.3(c) of the exceptions to Listing Rule 3.1. 509 The short answer is that even if the Put Option fell within an exception, JHIL was still obliged to disclose The Covenants and The Indemnities. 510 On 16 February 2001, JHIL shares listed on the ASX were held by millions of shareholders. It was submitted that since the Put Option was inoperative on that day, it fell within par 3.1.3(b) of Listing Rule 3.1. 511 It was submitted that there was no certainty that there would ever be a single JHIL shareholder and, if there was, that it would be able to exercise the Put Option unilaterally. 512 After October 2001, JHINV became the holder of all issued shares in JHIL including the partly paid shares. Under the transfer terms for the partly paid shares there was no obligation on JHIL to register any transfer as a consequence of the exercise of the Put Option. In consequence, if the Put Option was exercised, JHIL might refuse to register a transfer of the partly paid shares. It was submitted that, in consequence, the Put Option did not need to be disclosed as it was an incomplete proposal in terms of par 3.1.3(b) of Listing Rule 3.1 or was insufficiently definite in terms of par 3.1.3(c). 513 Paragraph 3.1.3(b) of Listing Rule 3.1 excludes from the disclosure obligation information concerning an incomplete proposal or negotiation. That refers to information about a non-concluded transaction. Here the Put Option was included in an executed DOCI as a definite covenant, albeit one that could not be called upon unless and until all the shares of JHIL were held by one shareholder. 514 I do not regard the fact that the Put Option could not be activated on 16 February 2001 as rendering it incomplete. 515 Even if it were, that does not activate the exception. It requires the information to be an incomplete proposal or negotiation. The DOCI was past the stage of negotiation and was no longer a proposal on 16 February 2001. The exception in par 3.1.3(b) of Listing Rule 3.1 did not apply. 516 The unfettered discretion to refuse to register the transfer of the partly paid shares was contained in an implementation deed between JHINV and JHIL of August 2001. It did not apply on 16 February 2001. The information with respect to the Put Option then was not insufficiently definite to warrant disclosure on that account. The exception in par 3.1.3(c) of Listing Rule 3.1 did not apply. 517 The question then is whether JHIL's failure to notify the ASX of the DOCI Information on 16 February 2001 was intentional, reckless or negligent. 518 It was submitted that Mr Shafron and Allens were giving consideration to the question whether the DOCI Information had to be disclosed. 519 On 1 February 2001, Mr Shafron sent an email to Mr Peter Cameron and Mr Robb a copy of which went to Mr Macdonald amongst others. It was headed "Indemnity/release from Coy and Jsekarb". It stated: "I want to revisit this. If we are being generous with Coy (and arguably we are, particularly if we hand across the 57) then that should support a waiver/indemnity in respect of Coy manufacture. If its ( sic ) a private document, then I wonder about disclosure – initially any way ( sic ). I ( sic ) could be that we ask the existing Coy directors to sign the docs (I guess with the benefit of some Allens/Allsop advice, if needed) and present it to the prospective directors as a fait accompli. With more cash than they thought they had, they shouldn't complain (I doubt Bancroft would). Obtaining the indemnity overcomes possibly the biggest question mark I have over this transaction (risk to JHIL). I would very much like to make it work." 520 The DOCI provided that each party should keep confidential its existence and terms and any discussions between the parties or their representatives and advisers in relation to it. 521 It was submitted that this email was evidence of the fact that disclosure of the DOCI Information in accordance with Listing Rule 3.1 was being considered by Mr Shafron and Allens. 522 I doubt that is the case. The question Mr Shafron was addressing was whether the proposed DOCI needed to be disclosed to the incoming directors of the Foundation and whether, since its terms were not to be disclosed, it could be executed and presented to the incoming board of the Foundation as a fait accompli. That is what happened. 523 On 2 February 2001, Mr Robb made a diary note of a meeting with Mr Morley, Mr Shafron, Mr Harman, Mr Seddon and Mr McClintock. It included: "S.Mc – query disclosure of indemnity". It was submitted that this was evidence of Allens being asked to advise on the liability to disclose the DOCI. ASIC submitted that since Mr McClintock was the auditor of JHIL, the disclosure in question was disclosure in the accounts. 524 I think the ASIC submission produces the more likely construction of the document. The note commences with a reference to Mr McClintock and two issues. There is then a reference to deconsolidation and a loss of the right to sue. This is followed by the note: "Statement in accounts – needs advice about the disclosure in the accounts (legal) – risk of liability?" - we haven't seen any legal advice on what - dividends/asbestos. 1 Action against JHIL directly from within 2 Interaction – Coy - that issue is covered off by the agreement – 57 million - What if someone succeeds in action against JHIL & goes into meltdown then need to look to Nat ED 88 territory - issue today, but and disclosure is appropriate" 525 It was after this that the note relied upon appeared. There was no mention of the DOCI and the preceding notes related to disclosure in the accounts. 526 On 4 February 2001, Mr Shafron sent to Mr Peter Cameron, Mr Robb and others with a copy to Mr Macdonald amongst others, an email attaching a draft paper on legal and structural issues, Attachment C. In the email, Mr Shafron referred Mr Peter Cameron and Mr Robb to a query for Allens near the beginning. At the beginning of Attachment C there was the following: "There has been one major structural change since the January Board discussion. In return for a substantial capital injection ($57M), JHIL will now obtain a waiver and indemnity from Coy and Jsekarb. These elements address in large part concerns about JHIL vulnerability post separation. [Coy will also commit to acquire the JHIL shares should JHIL become a non operating subsidiary at some time in the future; query whether this can be structured as a non discloseable commitment in relation to JHIL shares – Allens to advise ]." 527 ASIC submitted that the reference to structuring as a non-discloseable commitment in relation to JHIL shares is a reference to the potential requirement to disclose the existence of a substantial shareholder under s 671B of the Corporations Law. Since the Put Option only became operative if there was a single shareholder, ASIC submitted there was until that happening no obligation to disclose the substantial shareholder. The DOCI is not mentioned. 528 I do not think I am in a position based solely on the face of the document to determine whether the disclosure being discussed was in relation to Listing Rule 3.1 or in relation to s 671B of the Corporations Law. What the document does show is a preference by Mr Shafron for non-disclosure. I refer later to the inference to be drawn in relation to this document when viewed in conjunction with all the documentary evidence on this issue. 529 On 5 February 2001 an email was sent to Mr Peter Cameron, Mr Robb, Mr Macdonald and Mr Shafron amongst others appointing a conference call with respect to Project Green. Mr Robb's note of the conference included: "To do – Query disclosure + relevant interest on the Put. Put shares to Coy". 530 Mr Frangeskides' file note contained the following: "- Option granted for benefit of NL1 - will be disclosing creation of # - if JHIL grants an option/give right over shares – ASX disclosure?" 531 Mr Blanchard's file note contained the following: "Option – granted for benefit of future benefit of JHINV Will disclose creation of Trust If JHIL grants option over its shares no consideration Not absolutely essential Does it need disclosure By deed poll. If it gets shares, will Put them." 532 Because the question of disclosure in each of these file notes and in the emails already mentioned related only to the Put Option and did not raise an issue of disclosure with respect to the other portions of the DOCI, I accept the submission on behalf of ASIC that the disclosure to which reference is made in them is a disclosure with respect to the substantial shareholder provision and not a disclosure under Listing Rule 3.1. 533 I was invited to draw an inference under Dunkel that evidence from Mr Robb, Mr Frangeskides or Mr Blanchard from Allens would not have assisted ASIC's case and I should find that Allens was advising Mr Shafron in relation to whether the DOCI Information should have been disclosed on 16 February 2001. I decline to draw any inference under Dunkel. A proper interpretation of the documents relied upon to support the submission does not support it. 534 There was no discussion of the question whether Listing Rule 3.1 required disclosure of the DOCI information in the board papers for the 15 February 2001 Meeting. There was no advice from Mr Shafron or Allens as to whether disclosure was required included in the board papers for the 15 February 2001 Meeting. In contrast, when Mr Brown raised the question whether the continuous disclosure regime required disclosure with respect to the Trowbridge reports, Mr Shafron provided a memorandum on that topic to Mr Macdonald in October 2000 that was subsequently included in the board papers. It set out the relevant provisions and indicated that in giving the advice Mr Shafron was expressing the opinion of himself and Mr Peter Cameron. There was no discussion of the issue at the 15 February 2001 Meeting. While the papers for that meeting contained ample references to the DOCI there is no mention of the issue whether Listing Rule 3.1 required disclosure of its terms. 535 I reject the notion that JHIL discharged its duty to disclose by seeking advise from Allens as to whether Listing Rule 3.1 applied to the DOCI Information. 536 No other explanation for JHIL's failure to comply with Listing Rule 3.1 and Section 1001A(2) was offered. 537 ASIC has made out its charge that on or about 15 February 2001, JHIL negligently failed to disclose the DOCI Information in contravention of Listing Rule 3.1 and Section 1001A(2) in that it did not obtain any legal advice as to whether it should disclose the DOCI Information and in that neither the board nor management of JHIL considered disclosure of the DOCI Information. 538 I would have had difficulty with the particular of negligence alleged in par 153(iii) of the fourth further amended statement of claim that the board had not adopted a policy or procedures concerning its continuous disclosure obligations in light of the Disclosure Policy document circulated by Mr Baxter in April 1998. I understand, however, that the particular is not pressed. 539 ASIC also contends that if Mr Macdonald or Mr Shafron is found to be negligent in the performance of their duties as to whether continuous disclosure of the DOCI Information was required, then JHIL is fixed with that neglect. 3.2 Breach of Section 180(1) by Mr Macdonald 540 It is alleged against Mr Macdonald that in failing to advise the chairman of the board of JHIL whether or not the DOCI Information was to be disclosed to the ASX, in failing to seek and consider advice to satisfy himself in relation to that question, in failing to determine that JHIL would disclose the DOCI Information to the ASX, or in failing to raise with the chairman of the board of JHIL that the issue needed to be considered and determined, Mr Macdonald was in breach of Section 180(1). 541 Mr Macdonald relied on the submissions on behalf of JHIL with which I have dealt. In addition, Mr Macdonald relied upon s 180(2) of the Corporations Law as carried over into the Corporations Act (Section 180(2)). On 16 February 2001 it was in the following terms: "A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a) make the judgment in good faith for a proper purpose; and (b) do not have a material personal interest in the subject matter of the judgment; and (c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d) rationally believe that the judgment is in the best interests of the corporation." The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold." 542 The requirements for the operation of the business judgment rule in Section 180(2) are cumulative. The short answer is that there was no evidence that Mr Macdonald rationally believed that a business judgment was in the best interests of the corporation. He gave no evidence. In the absence of evidence that Mr Macdonald had a belief that a business judgment was in the best interests of JHIL, his appeal to Section 180(2) must fail. 543 It was submitted that Mr Macdonald's belief that not disclosing the DOCI Information was in the best interests of JHIL could be seen from the documents. I reject that submission. Not only do the documents not support the contention that Allens' advice was sought on whether or not to disclose the DOCI Information, but also they say nothing as to Mr Macdonald's belief. The mere receipt of copies of documents addressed to others with no reaction from Mr Macdonald is insufficient to establish any belief on his part. 544 Similar problems arise with respect to the other requirements in Section 180(2). Mr Macdonald submitted that he made a business judgment not to disclose the DOCI information. There is no evidence that he made such a judgment. 545 In conjunction with reliance upon Section 180(2) Mr Macdonald invoked s 189 of the Corporations Law as carried over into the Corporations Act. (Section 189). On 16 February 2001 it was in the following terms: "If (a) a director relies on information, or professional or expert advice, given or prepared by: (i) an employee of the corporation whom the director believes on reasonable grounds to be reliable and competent in relation to the matters concerned; or (ii) a professional adviser or expert in relation to matters that the director believes on reasonable grounds to be within the person's professional or expert competence; or (iii) another director or officer in relation to matters within the director's or officer's authority; or (iv) a committee of directors on which the director did not serve in relation to matters within the committee's authority; and (b) the reliance was made: (i) in good faith; and (ii) after making an independent assessment of the information or advice, having regard to the director's knowledge of the corporation and the complexity of the structure and operations of the corporation; and (c) the reasonableness of the director's reliance on the information or advice arises in proceedings brought to determine whether a director has performed a duty under this Part or an equivalent general law duty; the director's reliance on the information or advice is taken to be reasonable unless the contrary is proved." 546 Similar problems arise under Section 189. There is no evidence of Mr Macdonald's reliance upon any advice by Mr Shafron or Allens in relation to the question whether the DOCI Information should have been disclosed. Furthermore, there is no evidence of any independent assessment by Mr Macdonald of any advice proffered by Mr Shafron or Allens on the question of disclosure of the DOCI Information. 547 Neither the business judgement rule in Section 180(1) nor the reliance rule in Section 189 applied to Mr Macdonald. 548 Mr Macdonald was aware that one of his duties as chief executive officer was to ensure that the continuous disclosure requirements were met by JHIL. He was aware of the requirements from Mr Shafron's memorandum to Mr Macdonald of October 2000 following Mr Brown's query as to whether the continuous disclosure regime required disclosure with respect to the Trowbridge reports. 549 Robert Samuel Muscat had considerable experience as chief executive officer of large companies. He said that the management of a company by a chief executive officer included being responsible for ensuring compliance with legal requirements imposed on the company and its officers. He said the continuous disclosure obligation was part and parcel of the role and responsibility of the chief executive officer although understood by and shared with the chief financial officer and the company secretary and general counsel. 550 It must have been obvious to Mr Macdonald, or it ought to have been, that if JHIL failed to disclose the DOCI Information it risked contravening Section 1001A(2). It must also have been obvious to Mr Macdonald on 15 February 2001 when the board voted in favour of executing the DOCI that if the DOCI Information was not disclosed to the ASX and JHIL had an obligation under Listing Rule 3.1 to do so and that failure was revealed, it would have been harmful to JHIL's reputation and could jeopardise market perceptions of JHIL. 551 In the absence of advice from Mr Shafron or Allens that there was no obligation to disclose the DOCI Information, Mr Macdonald should have taken one or other of the courses that ASIC alleges were open to him. The reasonable person to whom reference is made in Section 180(1) would have done so. 552 ASIC has made out its claim against Mr Macdonald that by failing to advise the chairman of the board of JHIL as to whether or not the DOCI Information was required to be disclosed to the ASX; by failing to seek and consider advice and satisfy himself in relation to whether JHIL was required to disclose the DOCI Information to the ASX; by failing to resolve or determine that JHIL would disclose the DOCI Information to the ASX; or by failing to raise with or propose to the chairman or the board of JHIL that they needed to consider and determine whether or not to disclose the DOCI Information to the ASX; Mr Macdonald failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if a director and chief executive officer of a corporation in JHIL's circumstances and occupied the office of director and chief executive officer and had the same responsibilities within the corporation as Mr Macdonald had. The failure constituted a breach of Section 180(1). 3.3 Breach of Section 180(1) by Mr Shafron 553 Similar allegations to those raised against Mr Macdonald are raised against Mr Shafron. It is alleged that in failing to advise Mr Macdonald or the board of JHIL that it needed to consider whether JHIL was required to disclose the DOCI Information to the ASX, in failing to obtain advice for Mr Macdonald or the board or provide his own advice as to whether they were required to disclose the DOCI Information, or in failing to advise Mr Macdonald or the board to resolve or determine that JHIL would disclose the DOCI Information, Mr Shafron was in breach of Section 180(1). 554 Mr Shafron adopted submissions similar to those with respect to JHIL with which I have already dealt. Thus it was submitted that ASIC had not established that Mr Shafron knew or ought to have known that the DOCI Information was of a kind that a reasonable person would expect to have a material effect on the price or value of JHIL shares if it was generally available. For the reasons set out with respect to JHIL, Mr Shafron fails on those arguments. Similarly, he fails on the argument that the DOCI Information was not required to be disclosed to the ASX under Listing Rule 3.1. 555 It was submitted that since the need to consider whether JHIL was required to disclose the DOCI Information was a need that would have been well known to Mr Macdonald and the board, any neglect to bring the matter specifically to their attention did not constitute a failure by Mr Shafron in his obligations to the company. 556 Mr Shafron was aware of the requirements for continuous disclosure. He had provided his advice to Mr Macdonald on the continuous disclosure implications of the Trowbridge reports in August 2000. Mr Muscat said that the continuous disclosure obligation was part and parcel of the role and responsibility, not only of a chief executive officer, but also of the chief financial officer and the company secretary and general counsel. 557 Peter Athanas Bobeff was senior vice president commercial affairs at Foster's Group Limited for 13 years until retirement. The title involved the positions of company secretary and general counsel as well as other responsibilities. His opinion was that a listed company would expect its general counsel to provide advice about the operation and application of the continuous disclosure rules and that a company secretary and general counsel would ensure that directors were aware of issues that arose in relation to continuous disclosure. 558 Mr Shafron was aware that if JHIL failed to comply with Listing Rule 3.1 but was required to do so, that would be harmful to JHIL because it would contravene Section 1001A(2). Further, if JHIL failed to disclose when required to do so and that failure was exposed, JHIL would suffer harm to its reputation with the prospect of an adverse market reaction. 559 Even if the continuous disclosure obligation should have been obvious to Mr Macdonald and the other directors of JHIL, the absence of any reference to it with respect to the DOCI Information in the February 2001 board papers should have led Mr Shafron either to advise Mr Macdonald or the board that it needed to consider whether JHIL was required to disclose the DOCI Information; or to obtain advice for Mr Macdonald or the board or provide his own advice to the board as to whether they were required to disclose the DOCI information to the ASX; or to advise Mr Macdonald or the board to resolve or determine that JHIL would disclose the DOCI Information to the ASX. A reasonable person, if an officer of a corporation in JHIL's circumstances, occupying the office of secretary and general counsel, with the same responsibilities as Mr Shafron, would have taken one or other of those courses. The board papers indicated that the board would be asked to approve execution of the DOCI. No mention was made of the continuous disclosure obligation and whether it might apply when the DOCI was executed. In order to protect JHIL from the risk that it might infringe Section 1001A(2), a reasonable person in Mr Shafron's shoes would have taken one or other of the above courses. 560 Having not taken one of those courses, and having attended the 15 February 2001 Meeting when no mention was made of whether or not there was an obligation to disclose the DOCI Information, Mr Shafron should then have taken one or other of those courses. The core of his responsibility was to protect JHIL from legal risk. The board had approved the execution of the DOCI and no one had mentioned whether the DOCI Information was required to be disclosed to the ASX. To prevent harm to JHIL, Mr Shafron was duty bound to take one or other of those courses. The reasonable person to whom reference is made in Section 180(1) would have done so. 561 It was submitted in Mr Shafron's behalf that it should be inferred that Mr Macdonald appreciated from the receipt from Mr Shafron of two emails that it was necessary to consider disclosing the DOCI Information to the ASX. The first is the email of 1 February 2001. The second is the email of 5 February 2001. I have already found that the disclosure discussed in those documents was not disclosure under Listing Rule 3.1. 562 In any event, even if Mr Shafron had raised the question of disclosure under Listing Rule 3.1 with Mr Macdonald and Mr Macdonald did nothing about it either before or during the 15 February 2001 Meeting, Mr Shafron ought to have remedied that situation in discharging his duty to protect JHIL from a legal risk, by taking one or the other of the courses set out above. 563 It was submitted that Mr Shafron took reasonable and sufficient steps to ensure that the question of disclosure of the DOCI Information was one of the questions on which Allens was required by him and JHIL to give advice. I have already rejected the argument that Allens was retained to advise on this topic. 564 It was submitted that the pleading was confined to an alleged failure by Mr Shafron to take one or other of the above courses at the 15 February 2001 Meeting and such of the obligations to the company as Mr Shafron had, did not require him to take one or other of the courses at that meeting. 565 It was submitted that par 57 of the fourth further amended statement of claim referred to alleged knowledge of Mr Shafron prior to and on 15 February 2001, par 58 referred to alleged knowledge of Mr Shafron on 15 February 2001 and the reference to "in the premises" in par 59 limited the alleged deficiencies in Mr Shafron's conduct to those during the 15 February 2001 Meeting. I reject that submission. There is no reason to confine the operation of par 59 to par 58. It applies equally to par 57 and it covers the period before as well as during the 5 February 2001 Meeting. 566 It was submitted that Mr Shafron's duty was not necessarily to have the continuous disclosure issue determined at board level. There were other mechanisms in place to deal with the topic under the company's disclosure policy. But in the circumstances of this case, where the board papers did not raise the continuous disclosure issue, it was Mr Shafron's duty to take one or other of the actions specified in par 157. And in the absence of that course, when no mention was made at the 15 February 2001 Meeting as to whether the DOCI Information was required to be disclosed to the ASX, Mr Macdonald was duty bound to take one or other of the courses of actions specified in par 159. 567 ASIC has made out its claim against Mr Shafron that by failing to advise Mr Macdonald or the board of JHIL that it needed to consider whether JHIL was required to disclose the DOCI Information to the ASX; in failing to obtain advice for Mr Macdonald or the board or provide his own advice to the board as to whether they were required to disclose the DOCI Information to the ASX; or in failing to advise Mr Macdonald or the board to resolve or determine that JHIL would disclose the DOCI Information to the ASX; Mr Shafron failed to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise, if they were an officer of a corporation in JHIL's circumstances and occupied the office held by Mr Shafron and had the same responsibilities within the corporation as Mr Shafron had. The failure constituted a breach of Section 180(1). 4 DOCI execution issue 568 The gravamen of the allegations against Mr Morley are that he failed to make sufficient inquiries or seek expert advice about the level of liabilities to be assumed under the DOCI and the nature of the Put Option and he failed to bargain for a higher price for Coy and Jsekarb before he executed the DOCI. 569 I understand that ASIC no longer presses par 165(c)(iii) of the fourth further amended statement of claim. 4.1 Section 180(1) and Mr Morley 570 It is also alleged against Mr Morley that he failed to make any inquiries, or sufficient inquiries, to determine what further amount would be required so that it would be certain, or there was at least a high likelihood, that the amount of funds available to Coy and Jsekarb would be sufficient to meet all legitimate present and future Asbestos Claims that might be made against them. 571 This allegation depends upon ASIC establishing that Mr Morley was aware that the February 2001 Trowbridge Report was too uncertain to form the basis of a judgment as to the James Hardie group's prospective liability for Asbestos Claims. 572 That harkens back to what ASIC alleged against Mr Morley under the Draft ASX Announcement issue. It was alleged that Mr Morley failed to advise the board that the best estimate contained in the February 2001 Trowbridge Report and in the Trowbridge 50 Year Estimate was too uncertain to be used as a basis to assess the adequacy of Coy and Jsekarb's funding, it had not taken into account superimposed inflation as a prudent estimate would have and it only had a 50% probability of being achieved. 573 ASIC failed to establish that charge and the allegation that he ought to have ascertained a more certain estimate of the amount of funds needed by Coy and Jsekarb must suffer the same fate. 574 On 8 February 2001, Mr Morley reviewed a memorandum to Mr Donald Cameron from Mr Shafron setting out his advice on the duties of the directors of Coy and Jsekarb in considering entry into the DOCI. 575 On 13 February 2001, Mr Morley and Mr Donald Cameron attended a meeting with William Koeck of BDW. Mr Morley said that Mr Shafron was present and spoke to his memorandum of 8 February 2001 and then Mr Koeck spoke and Mr Morley took as many notes as he could. Mr Morley said that no advice was given that Coy and Jsekarb should seek a higher price for their entry into the DOCI. At the end of the meeting Mr Morley said they asked Mr Koeck for written advice. 576 At 3.30 pm on 15 February 2001, Mr Morley and Mr Donald Cameron met with Mr Koeck and Jeremy Kriewaldt of BDW. Mr Donald Cameron said that the meeting was largely focused on the mechanical steps that he and Mr Morley would take as directors in order to make a decision. Again, there was no advice that Mr Morley and Mr Donald Cameron should seek a higher price for Coy and Jsekarb to execute the DOCI. Mr Kriewaldt gave evidence of a more wide ranging discussion. He said he had an actual recollection of the specific items discussed. He had no contemporaneous diary note. He was not in the habit of making diary notes. His evidence is challenged by Mr Morley. 577 Mr Kriewaldt was a careful witness who carefully considered questions put to him before answering. He admitted he was not infallible. He maintained he had good recollection. He denied that he was reconstructing from an advice BDW sent to Mr Morley and Mr Donald Cameron about a week later. 578 If it were necessary for me to resolve the issue I would prefer Mr Morley's evidence to that of Mr Kriewaldt where no mention is made of the topic in the contemporaneous documents. Mr Morley made a diary note of the meeting of 15 February 2001 as well as of the earlier meeting on 13 February 2001. Mr Koeck accepted in cross-examination that it addressed all the material issues discussed at the meeting. Mr Koeck agreed that it was likely that he used a draft executive summary as a basis for discussion at the meeting without providing the document to Mr Morley or Mr Donald Cameron. Before the meeting Mr Kriewaldt made a diary note of nine issues to be discussed at the meeting. 579 To the extent to which Mr Kriewaldt's evidence extended beyond the matters mentioned in those three documents I would, if it were necessary, reject his evidence on the basis that after the lapse of seven and a half years it is more likely that Mr Kriewaldt's evidence was a matter of subconscious reconstruction. 580 It is not necessary for me to resolve the issue. The items in question go beyond the DOCI execution issue. For example, according to Mr Kriewaldt Mr Morley said one of the reasons for the restructure was ED 88. Mr Kriewaldt said that Mr Koeck asked to see the Trowbridge actuarial reports but Mr Shafron said they would not be made available. According to Mr Kriewaldt, Mr Morley said he had developed a Cashflow Model and was satisfied that there were sufficient funds and that the model had been looked at by external people. These matters were not mentioned in the three documents. 581 These are matters that do not go to the allegations that Mr Morley failed to obtain the advice recommended by Mr Koeck, failed to bargain for a higher price and failed to inquire about the Put Option. Mr Koeck's advice was that Mr Morley and Mr Donald Cameron should seek advice from Trowbridge in relation to the quantification of the liabilities that were to be assumed under the DOCI in order to be able to rely upon Section 189. The matters with which Mr Kriewaldt dealt go to the context in which BDW gave their advice. Mr Morley is not charged with falsifying that context and those matters are irrelevant to the issue in question. 582 Mr Koeck also advised Mr Morley and Mr Donald Cameron to speak to the lawyers responsible for dealing with JHIL's Asbestos Claims to confirm the matters set out in Mr Shafron's memorandum of 8 February 2001. Mr Morley informed Mr Koeck that this was Mr Williams from Allens. 583 Later on 15 February 2001, Mr Morley and Mr Donald Cameron went to the offices of Allens. Either shortly before or shortly after that meeting, BDW issued its executive summary. 584 At about 6.30 pm on 15 February 2001, Mr Morley received a copy of the PwC report. ASIC pointed to a number of limitations with respect to the Cashflow Model mentioned in the report. This, again, is irrelevant to the issue of failure to follow advice, failure to bargain for a higher price and failure to inquire about the Put Option. 585 At about 8 pm Mr Donald Cameron telephoned Mr Williams. Mr Donald Cameron told Mr Morley that he had read Mr Shafron's memorandum to Mr Williams who agreed with it. 586 What emerges from this evidence is that BDW advised Mr Morley and Mr Donald Cameron to seek advice from Trowbridge as to the quantification of the liabilities that were to be assumed under the DOCI and to seek advice from the solicitors handling JHIL's Asbestos Claims litigation to check the matters contained in Mr Shafron's memorandum. No advice was given to seek a higher price and no advice was given to obtain professional advice concerning the Put Option or to make inquiries as to the circumstances in which the Put Option might be exercised. Mr Morley and Mr Donald Cameron sought advice from Mr Williams confirming Mr Shafron's memorandum. They did not seek advice from Trowbridge in relation to the quantification of the liabilities that were to be assumed under the DOCI. 587 Mr Morley explained his reasons for rejecting this advice. He formed the view that the $112m payable to Coy and Jsekarb under the DOCI was far greater than the potential liabilities being assumed and the rights being given up. Allsop SC had twice advised that Putt remained good law. 588 The circumstances in Wren were different because from 1937 to 1977 JHIL was a non-operating holding company with very few employees, none of whom was involved in the operations of the subsidiaries. The period from 1977 to 1987 carried a higher risk of a direct duty of care between JHIL and asbestos claimants. Mr Shafron had advised, however, that this was a relatively low risk because blue asbestos, which was the most dangerous kind, was not being used by the James Hardie group in this period; warning labels were being placed on products from around 1978; the highest risk products, insulation blocks, were no longer being sold in that period; high volume products did not contain asbestos from about 1982 onwards; the last products manufactured were pipes which were typically not cut or abraded during installation; and the insurance cover over the period was substantial and available to Coy and JHIL, including cover for all employee related suits. 589 Trowbridge's best estimate of Coy and Jsekarb's total asbestos liabilities, including any liability borne concurrently by JHIL, plus any pre-1937 liability attaching to JHIL was $734m so that the amount payable under the DOCI was about 15% of the total estimated liability. Mr Morley said he determined that the risk of JHIL being liable for asbestos claims related to a limited period covering 1980 to 1987, JHIL's risk of liability was relatively low and the subsidiaries were receiving a very large sum of money to meet a risk for which they would be concurrently liable with JHIL in any event. 590 Richard Charles Wilkinson was a director of KPMG Actuaries Pty Limited. He was asked to calculate liabilities arising from products sold during the period 1980 to 1987 using Trowbridge's cash flows in the February 2001 Trowbridge Report. On an undiscounted basis he calculated this figure at $55.1m of the total undiscounted liability projected by Trowbridge at $734.4m. He made calculations applying a discount rate of 5.285% and 7%. The figure at the higher discount rate was $18.6m. 591 The February 2001 Trowbridge Report did not contain claims data from 1 April 2000 onwards. When that material was taken into account, Mr Wilkinson's figures became $109.4m on an undiscounted basis and $32.7m discounted at 7%. 592 When additional insurance data that had not been considered by Trowbridge was included, the figures became $65.2m on an undiscounted basis and $19.43m at 7%. 593 In cross-examination Mr Wilkinson was asked what would be the effect if the investments were in a closed fund. He said as a rough guide he would increase the figures by 30% to 40%. In re-examination, however, he reduced these percentages to 15% to 20% because he said the insurance portfolio would dampen down the figures as it took up a lot of the additional claims and would take out most of them until the portfolio was exhausted. 594 Thus, on the basis of the other adjustments Mr Wilkinson had made, the first figure would become $75m to $78.2m as the value of the liabilities in the period 1980 to 1987 on an undiscounted basis as against the figure of $234.13m being the original obligation to pay $5,574,500 per year for 42 years. Perhaps more realistically the comparison should be against $112m as the more likely scenario of seven payments of $5,574,500 plus payment of the balance of the obligations in year eight, discounted for early payment. Discounted at 7% the second figure becomes $22.3m to $23.3m as against $72m being the NPV of $112m at a 7% discount rate. In either case, the calculations confirmed Mr Morley's view that the liabilities undertaken if the DOCI was executed were less than the payments to be made by JHIL. 595 Mr Wilkinson's calculations relate to the entirety of the asbestos liabilities of the James Hardie group for the period 1980 to 1987. They not only involved the liabilities of JHIL, they also included the liabilities of Coy and Jsekarb whereas it was the only the additional liability of JHIL alone that the subsidiaries were assuming under the DOCI and that risk was low. 596 Mr Morley did not need additional advice from Trowbridge to establish this assessment. Had he sought it from an actuary, Mr Wilkinson said the figures he would have received were those set out above. 597 It was submitted that Mr Morley knew or ought to have known at the time he executed the DOCI that it was doubtful that the funds being made available to Coy and Jsekarb would be sufficient to meet all their Asbestos Claims. 598 That allegation relates to the repetitive matter mentioned above. In any event, while the prediction of a sufficiency of funding under the Cashflow Model was relevant in determining the effect of the receipt of payments under the DOCI, the question whether the potential liability of Coy and Jsekarb under the DOCI was equal to or less than the proposed payments by JHIL did not depend upon that analysis. What was needed was an assessment of the amount of the potential liability that would be undertaken by Coy and Jsekarb if the DOCI was executed. 599 It was not compulsory for Mr Morley and Mr Donald Cameron to obtain the views of Trowbridge on the amount of liability to be assumed if the DOCI were executed. The advice had been based upon the notion that if such advice was sought from Trowbridge, Section 189 could be invoked. If Mr Morley was satisfied that the amount of the liability to be assumed was less than the amount of payments to be made by JHIL and that opinion was reasonably based, there was no need for the additional protection of Section 189. 600 I am not persuaded that Mr Morley contravened Section 180(1) in failing to make any inquiries, or sufficient inquiries, to determine what amount of claims against JHIL was potentially being forgone by Coy and Jsekarb in providing The Covenants; or in failing to make any inquires, or sufficient inquiries, to determine the amount of liabilities to which each of Coy and Jsekarb might be subject under The Indemnities. 601 ASIC alleges that Mr Morley and Mr Donald Cameron should have negotiated with JHIL to obtain additional funds in consideration for Coy and Jsekarb executing the DOCI. BDW did not advise Mr Morley and Mr Donald Cameron to seek further funds. ASIC has not alleged in what way the amount to be paid by JHIL under the DOCI was inadequate. ASIC says Coy and Jsekarb were not dealing with JHIL at arm's length. They did not bargain for a price. They accepted the offer of JHIL. 602 Parties can deal with each other at arm's length although they are not at arm's length. A price may be offered that is so in excess of an arm's length price that no bargaining is required. 603 In The Trustee for the Estate of the Late AW Furse No 5 Will Trust v Federal Commissioner of Taxation 91 ATC 4007, Hill J considered a legislative provision that excepted from impost income of a trust estate that resulted from a will, codicil or intestacy in relation to the estate of a deceased person. The exception did not apply where the assessable income was derived as a result of an agreement, two or more of the parties to which were not dealing with each other at arm's length and the amount of the assessable income was greater than an arm's length amount. In that case the assessable income was derived by a discretionary trust from a unit trust. A husband and wife were the directors and shareholders of the corporate trustee of the discretionary trust, the wife and another person were the directors and shareholders of the corporate trustee of the unit trust. At 4014-4015 his Honour said there were two issues relevant to the provision. The first was whether the parties to the relevant agreement were dealing with each other at arm's length in relation to the agreement. The second was whether the amount of the relevant assessable income was greater than the arm's length amount. His Honour continued: "The first of the two issues is not to be decided solely by asking whether the parties to the relevant agreement were at arm's length to each other. The emphasis in the subsection is rather upon whether those parties, in relation to the agreement, dealt with each other at arm's length. The fact that the parties are themselves not at arm's length does not mean that they may not, in respect of a particular dealing, deal with each other at arm's length. This is not to say that the relationship between the parties is irrelevant to the issue to be determined under the subsection." 604 What was required in determining whether parties dealt with each in respect of a particular dealing at arm's length was, his Honour said, an assessment whether in respect of that dealing they dealt with each other as arm's length parties would normally do, so that the outcome of their dealing was a matter of real bargaining. 605 As to the second issue, his Honour rejected a submission that in all cases it was necessary for the Tribunal or Court to make an antecedent finding of what an arm's length income would be. His Honour said at 4017: "There may be some cases where the income derived under the relevant agreement is so much in excess of an arm's length income that there is no need for an antecedent finding." (See also Granby Pty Ltd v Federal Commissioner of Taxation 95 ATC 4240 at 4243-4244) 606 If a purchaser offers a price to a vendor not unwilling, but not anxious that the vendor thinks is too good to be true and accepts, the price is not less than an arm's length price notwithstanding the lack of negotiation. 607 In the absence of evidence establishing that the amount to be paid by JHIL under the DOCI was less than market value, ASIC has failed to establish that Mr Morley was in breach of Section 180 in failing to negotiate with JHIL to obtain additional funds in consideration for Coy and Jsekarb executing the DOCI. Mr Morley thought the amount offered was generous. There was no need for negotiation. The amount was accepted. 608 As to the Put Option, no advice was given to Mr Morley and Mr Donald Cameron by BDW that they should seek legal or other professional advice about it, or should make inquiries as to the circumstances in which it might be exercised. 609 Mr Morley made his own assessment of the impact of the Put Option in evidence that was not challenged in cross-examination. He concluded that if the Put Option was exercised it would not adversely impact on the merits of the transaction because The Covenants and The Indemnities covered all post 1937 Asbestos Claims on JHIL in any event, the Asbestos Claims before 1937 were predominantly by workers covered by statutory insurance and the Put Option imposed no direct liability on Coy or Jsekarb for Asbestos Claims. 610 ASIC accepted these propositions but put that there was nothing in the DOCI that prevented the Put Option being exercised prior to all payments being made and theoretically there was nothing to prevent the exercise of the Put Option without JHIL having sufficient funds to make any remaining payments owing to Coy and Jsekarb. These arguments were not put to Mr Morley in cross-examination. What was put on the question of investigation was the following: "Q. You made no specific inquiries as to the risk of the put option being exercised, did you? A. Well, the put option didn't increase the liability at all for Coy or Brakes." Jsekarb was previously named James Hardie Brakes Pty Ltd. The matter was not taken further. 611 The option to pay out its obligations under the DOCI in year eight was exercised by JHIL. Thereafter it had no liability to Coy or Jsekarb and if put to Coy the problem of inability to pay could not then arise. Furthermore, if JHIL had not exercised its right to make full payment in year eight, and it was insolvent and could not pay its instalments, that problem would exist whether or not the Put Option was exercised. 612 I am not persuaded that there was a need for Mr Morley to go beyond his assessment of the situation. ASIC has failed to establish that in failing to seek or obtain legal or other professional advice concerning the Put Option and in failing to make any inquiries or sufficient inquiries, as to the circumstances in which the Put Option would or might be exercised, Mr Morley contravened Section 180(1). 613 It follows that ASIC has failed to establish that in executing the DOCI Mr Morley contravened Section 180(1). 5 Final ASX Announcement issue 614 Both Mr Morley and Mr Baxter said that Mr Macdonald approved the final ASX Announcement. They were not challenged on that assertion. Mr Macdonald approved the release of the Final ASX Announcement and took no steps to prevent its release before it was further amended to remove the over-emphatic statements to the effect that the Foundation was fully funded. 5.1 Breach of Section 180(1) by Mr Macdonald 615 The same allegations are raised against Mr Macdonald with respect to the Final ASX Announcement as were raised against him with respect to the Draft ASX Announcement. 616 It was submitted in Mr Macdonald's behalf that the introduction of the word "anticipated" to the 7.42 pm Final Draft Announcement which was repeated in the Final ASX Announcement removed the problem of a too emphatic statement. 617 The insertion of the word "anticipated" has to be read in the context of the Final ASX Announcement as a whole. The statement that the Foundation had sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products was immediately followed by the statement attributed to Mr Macdonald that the establishment of a fully funded Foundation provided certainty for both claimants and shareholders. That statement was not tempered by the addition of the word "anticipated" or in any other way. It remained an absolute statement. And the certainty to which reference was there made was enforced by the next paragraph and the statement attributed to Mr Macdonald that the establishment of the Foundation provided certainty for people with a legitimate claim. 618 While the word "anticipated" was introduced to paragraph 11 of the Final ASX Announcement in the statement attributed to Mr Macdonald that James Hardie was satisfied that the Foundation had sufficient funds to meet anticipated future claims, another absolute statement was made in paragraph 13 that when all future claims had been concluded, surplus funds would be used to support further scientific and medical research on lung diseases. 619 The insertion of the word "anticipated" in two paragraphs of the sixteen paragraphs of the Final ASX Announcement was not sufficient to dampen the meaning conveyed by the document as a whole that there was certainty that the Foundation had sufficient funds to meet all future Asbestos Claims - it was fully funded. The words were insufficient to dispel the message conveyed by the use of the words "certainty", "sufficient funding" and "fully funded" that the reader could be assured that the Foundation had sufficient funds to meet all present and future Asbestos Claims. That remained the tenor of the Final ASX Announcement and that tenor was not affected by the insertion of the word "anticipated". 620 A reasonable person, if a director and chief executive officer of a corporation in JHIL's circumstances, occupying the offices held by Mr Macdonald with the same responsibilities within the corporation would not have approved the Final ASX Announcement for release and would have advised that it not be released or that it be amended before release to remove matter that was false or misleading. 621 Reliance was placed on Mr Macdonald's behalf on the disclaimer in small font size at the foot of the Final ASX Announcement. In many cases under Section 52 reliance upon such disclaimers has been rejected where misrepresentation has been established on the face of the document. For example, in Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535, Burchett J said at 557: "This Court has, on a number of occasions rejected defences based on clauses of the present kind in actions for contraventions of s 52. Once misrepresentation has been shown, the statute prevails over a formal disclaimer. If such a clause is to be effective, it must be by enabling the conduct as a whole (including in it the provision to the complainant of the document containing the clause) to be seen as not misleading. In the present case, the misleading conduct complained of was not rendered blameless by the words in small print at the bottom of a page otherwise reiterating the misrepresentation." I reject the appeal to the disclaimer. 622 ASIC has made out its claim that Mr Macdonald breached Section 180(1) in approving for release the Final ASX Announcement, or in failing to advise that the Final ASX Announcement not be released, or that it be amended before being released, to remove the matters that were false or misleading. 5.2 Breach of Section 995(2) by JHIL 623 ASIC alleges that JHIL contravened Section 995(2) in publishing the Final ASX Announcement. It submits that the Final ASX Announcement was a notice published in relation to securities in terms of Section 995(2)(b)(ii). 624 Section 995(2) was based upon Section 52. The explanatory memorandum to the Bill by which it was introduced stated: "…guide to what type of conduct is misleading or deceptive can be gained from many cases decided under TPA s. 52. The Courts have tended to give a broad meaning to the terms … it was considered important to include a similar provision to s 52 in the Bill." 625 A somewhat similar provision is s 1041H(1) of the Corporations Act a précis of which is that a person must not engage in conduct in relation to a financial product that is misleading or deceptive or is likely to mislead or deceive. For its purposes, a financial product includes a share. 626 In Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211 an announcement to the ASX about a landmark test result of the company's products was held to be conduct in relation to a financial product. Jacobson and Gordon JJ said at [81]–[82]: " Here, the relevant conduct was not merely the text of the announcement, as was urged upon us by Mr Myers. The conduct consisted of an announcement made to the ASX about a "landmark" test result for the Company's products. It was an announcement that consisted of disclosure to the market that the test results indicated that the Company believed it could offer a global solution to a disease which affects 40 million people. To say that one must parse and analyse the announcement to determine whether it expressly refers to the company's shares or the value of them, is, with respect to the primary judge, contrary to the meaning of the section and to commercial reality." 627 By analogy, the Final ASX Announcement encouraging support for the Separation Proposal and a positive reaction by the market to JHIL's shares was a notice published in relation to securities for the purposes of Section 995(2). 628 Since the Final ASX Announcement was false or misleading for the reasons discussed with respect to the Draft ASX Announcement, it follows that ASIC has made out its allegation that by issuing the Final ASX Announcement to the ASX on 16 February 2001, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, contrary to Section 995(2). 5.3 Breach of Section 999 by JHIL 629 ASIC also alleges that JHIL contravened Section 999 in publishing the Final ASX Announcement. It is alleged that it constituted a statement or information that was likely to induce other persons to sell or purchase securities, namely the shares of JHIL, or likely to have the effect of increasing, reducing, maintaining or stabilising the market price of securities, namely shares of JHIL. 630 Section 999 was considered by a Full Court of the Supreme Court of Western Australia in Australian Securities Commission v McLeod [2000] WASCA 101; (2000) 34 ACSR 135. Owen J with whom Ipp and Anderson JJ agreed pointed to the predictive nature of the statutory requirement. At [32] his Honour said: "The first issue is the predictive nature of the impugned statement. I will come later to the evidence of Furlong and Newing. However, it seems to me that the primary question flows from the document itself. This means that each case will depend on its own facts. In a case such as this it is not sufficient to look at the document in the abstract and theorise what its effect might be. Obviously, it must be viewed in the circumstances which existed at the time. The question is: when the document is examined in the light of those circumstances, would it have been likely to induce members of the public to purchase securities?" At [42] his Honour analysed the relevant statement for its predictive effect: "The impugned statement was material because its natural and probable result would be to induce the reader to act in the belief that the Company had a basis for making a prediction of the profitability of the venture and that profits would arise from the mining venture. It seems to me, therefore, that the impugned statement was "materially misleading"." 631 The decision was reversed in Macleod v Australian Securities and Investments Commission [2002] HCA 37; (2002) 211 CLR 287 on the basis that ASIC had no capacity to institute the appeal to the Full Court. The above matters were not discussed. 632 A contravention of Section 999 is not established by evidence that persons were induced to subscribe for securities or induced to sell or purchase securities or that the market price of securities increased, reduced, or maintained its position. The issue is whether a false statement or disseminated information is likely to have those effects. 633 In this case, the significant existing circumstance at the time the Final ASX Announcement was published was that JHIL shares were blighted by the market perception of uncertainty as to its ability to cope with Asbestos Claims. Mr Humphris described this as the market price of JHIL shares carrying an asbestos discount. The couching of the Final ASX Announcement in the emphatic terms that the Foundation had sufficient funds to meet all present and future Asbestos Claims was likely to have an effect on JHIL shares. That was the natural and probable result of its publication. It was the intention of the company that it should have that effect. The February 2001 board papers stated: "3.2 Shareholders and Investment Community Our most desired outcome is to have analysts walk away from the presentation viewing the Foundation as having effectively terminated JHIL's long term liability for asbestos." And later: "A positive reaction from the market is therefore the highest priority and we will use the management presentation to analysts, and subsequent dialogue with them, as our most important communication task." 634 Mr Humphris took account of announcements to the market prior to the forwarding of the Final ASX Announcement together with analysts' reports published prior to that event and concluded that viewed in those circumstances, the likely effect of the publication of the Final ASX Announcement would be to maintain or stabilise the market for JHIL's shares. The third quarter results were disappointing and worse than expected. While on the face of it, the announcement would seem positive to investors, Mr Humphris' view was that they would wait and see. 635 In fact the price of JHIL shares rose. The closing price on 15 February 2001 was $3.63. The closing price on 16 February 2001 was $3.80. And trade numbers for the shares also increased. On 15 February 2001 there were 356,297 share sales. On 16 February 2001 there were 673,573 share sales. 636 When the Final ASX Announcement is read in the context of the circumstances at the time of its publication, the predictive exercise that Section 999 requires be done, leads to the conclusion that it would have induced the sale or purchase of JHIL shares and it would have had the effect of increasing or maintaining the market price of JHIL shares. The evidence of what happened in the market on 16 February 2001 and the expert testimony of Mr Humphris tend to support that conclusion. 637 The Final ASX Announcement was false in a material particular or was materially misleading for the reasons discussed with respect to the Draft ASX Announcement and, for the reasons contained in that discussion, Mr Macdonald, and hence JHIL, knew or ought reasonably to have known that the Final ASX Announcement was false in a material particular or materially misleading. 638 ASIC has established its allegation that in making and disseminating the Final ASX Announcement, JHIL contravened Section 999. 6 Press Conference Statements issue 639 ASIC alleges that similar false or misleading statements as to the sufficiency of funding of the Foundation were made at the press conference of 16 February 2001. 6.1 Breach of Section 180(1) by Mr Macdonald 640 At the press conference, Mr Macdonald said: "The Foundation is expected to have sufficient funds to meet all claims that might arise now or in the future relating to James Hardie asbestos." 641 Slide 4, which was shown when the statement was made, was in the following terms: "The Medical Research and Compensation Foundation (MRCF) Ø The Foundation has been established to Ø compensate people injured by James Hardie asbestos Ø fund medical research aimed at finding cures Ø The Foundation is a completely independent non-profit organisation with its own board and management Ø The Foundation is expected to have sufficient funds to meet all claims relating to James Hardie asbestos." 642 Slide 5 contained the following: Ø "The Foundation controls two former subsidiaries that manufactured asbestos Ø Subsidiaries liable for asbestos diseases in certain cases Ø All shares in the subsidiaries have been vested to the Foundation Ø Total assets of the subsidiaries are A$293 million Ø James Hardie will not control the subsidiaries and has no future claim on their assets Ø Subsidiaries therefore deconsolidated from JHIL." 643 Mr Macdonald said: "Towers Perrin will assist the Foundation in managing the assets so that they will grow". The accompanying slide 6 stated: Ø "Foundation's assets principally comprise income earning investments Ø The assets have been invested to generate income and capital growth Ø Towers Perrin has been appointed investment advisor to the Foundation." 644 Mr Macdonald said: "The assets provide sufficient funds to meet anticipated claims relating to James Hardie asbestos products. The directors of James Hardie Industries Limited took a lot of advice – a lot of independent advice, PricewaterhouseCoopers, Access, the actuaries: Trowbridge, have worked with the company for many years and then formed the view that this was the right amount of money." 645 The accompanying slide 7 stated: Ø "Total assets available will be much more than starting assets of A$293 million Ø The assets provide sufficient funds to meet anticipated claims related to James Hardie's asbestos Ø Independent advice provided by PwC, Access Economics and actuaries Trowbridge." 646 Mr Macdonald stated: "The Foundation also provides much greater certainty to shareholders. Their situation is much improved and there's much greater clarity for shareholders as relates to asbestos issues in James Hardie." The accompanying slide 8 stated: Ø "The Foundation provides much greater certainty for claimants and shareholders Ø The position of claimants is substantially improved Ø Foundation is focused on compensation Ø Future claims fully funded Ø Foundation has irrevocable rights to the assets Ø James Hardie has no right to divicends (sic) or any surplus Ø Assets cannot be used for other purposes ahead of claims Ø Rights of claimants to sue are undiminished." 647 There were further slides, 9 to 11, under the heading: "The Foundation provides much greater certainty for claimants and shareholders". Slide 12 was entitled "Foundation provides a win-win for claimants and shareholders and addresses James Hardie's share of a much wider community health issue. Slide 13 was entitled "Financial implications" and slide 14 stated "Questions & Answers". While that slide was shown Mr Macdonald answered an inaudible question with the following statement: "The Foundation is fully funded as of today and the Foundation has the responsibility, using those funds, to fully meet any claims which might arise in the future in relation to asbestos-related injuries that have been caused by James Hardie." 648 In answer to a question related to suing other companies in the James Hardie group, Mr Macdonald said: "It wouldn't be a sensible outcome to sue … the Foundation is fully funded and will be able to meet the claims of people who may now, or in the future, be injured by asbestos." 649 In answer to a question whether there was a precedent for setting up a Foundation and the provision not being enough and then trying to sue the head company, Mr Macdonald said: "We believe that the responsible action that James Hardie is taking in creating a Foundation to fully fund for all future liabilities is in fact a very rare, if not unprecedented step, and so there is not a historical parallel with what has been done. But, of course, the Foundation is fully funded so the situation you have described is purely theoretical." 650 In answer to a question as to the likelihood of an accelerated state of litigation Mr Macdonald said: "The Foundation is fully funded and will meet all legitimate claims of injury caused by James Hardie. Therefore, if people choose to claim and have a legitimate claim for injury caused by James Hardie, it will be met by the Foundation." 651 It was submitted on Mr Macdonald's behalf that the effect of statements made by Mr Macdonald or in the slides must be viewed as a whole. That is correct. One has to be careful that a selection process does not wrongly highlight individual words and phrases. But those of the slides that were displayed during the press conference upon which ASIC relies are set out in full as are the statements of Mr Macdonald upon which reliance is placed. It is not suggested in Mr Macdonald's behalf that other slides or other statements should be considered. 652 What emerges from the above is that the early statements were far less emphatic than the Final ASX Announcement, but as the conference progressed, Mr Macdonald made more and more emphatic statements that the Foundation was fully funded. 653 Mr Macdonald's statement while slide 7 was being displayed, conveyed the meaning that JHIL had received expert advice from PwC and Access Economics that supported the assertion that the funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. That statement was false or misleading for the reasons discussed with respect to the Draft ASX Announcement. 654 The statement in slide 5 that James Hardie had no future claim on the assets of the subsidiaries and the statement in slide 8 that the Foundation had irrevocable rights to the assets of the subsidiaries and the following statement made by Mr Macdonald were false or misleading: "James Hardie has no control over those subsidiaries and will have no future claim on the assets of those subsidiaries. In particular the position of James Hardie claimants is substantially improved because the Foundation has focused on compensation, on managing those funds to provide for those claimants. The Foundation has irrevocable rights to the assets." 655 Those statements ignore the fact that under The Covenants and The Indemnities JHIL had rights that could be enforced against the assets of Coy and Jsekarb. 656 A reasonable person, if a director and chief executive officer of a corporation in JHIL's circumstances occupying the offices held by Mr Macdonald with the same responsibilities within the corporation, would not have made the above statements. Mr Macdonald was aware, or ought to have been aware, of the potential harm such statements would have for JHIL for the reasons discussed in relation to the Draft ASX Announcement. 657 ASIC has made out its case against Mr Macdonald that the Press Conference Statements included statements that were false or misleading and potentially harmful to JHIL and Mr Macdonald was thereby in breach of Section 180(1). 6.2 Section 181 and Mr Macdonald 658 ASIC also alleges that Mr Macdonald was in breach of Section 181(1). 659 In Marchesi v Barnes [1970] VR 434, Gowans J held that a forerunner of Section 181(1) required subjective dishonesty. At 438 his Honour said: "This background to the language of the section appears to justify the conclusions, first, that the section is not concerned with the conduct of a director in relation to creditors or other persons dealing with or concerned with the company or anybody else but the company itself; secondly, that it is concerned with the performance of his fiduciary duty to the company; and, thirdly, that to "act honestly" refers to acting bona fide in the interests of the company in the performance of the functions attaching to the office of director. A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge. This constitutes the element of mens rea in the criminal offence created by the statute. If the term "fraud" is applicable in this situation, it is only so in the sense of a "fraud on the power". In effect, common law obligation in respect of acting honestly, as with the common law obligation to act with due diligence has been made a statutory duty, and failure to perform it, provided there is the proper mental element, has been made a criminal office." 660 On the other hand, King CJ in Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 took the view that the provision is analogous to constructive fraud and does not involve moral turpitude. The Chief Justice said: "The section therefore embodies a concept analogous to constructive fraud, a species of dishonesty which does not involve moral turpitude. I have no doubt that a director who exercises his powers for a purpose which the law deems to be improper, infringes this provision notwithstanding that according to his own lights he may be acting honesty." 661 In Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574 McColl JA with whom the other members of the Court of Appeal agreed referred to this difference in view. But at [247] her Honour found it unnecessary to resolve the conflict because, assuming in the appellants' favour that the Marchesi test applied, the primary judge had concluded that the appellants were subjectively dishonest. 662 In Maxwell at [109], Brereton J adopted the Marchesi approach and concluded that Section 181(1) is contravened only where a director engages deliberately in conduct, knowing that it is not in the interests of the company. But, see, contra, Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224; (2008) 69 ACSR 1 at [34] 663 ASIC invited me to follow the Marchesi approach and I do so. I agree with Brereton J in Maxwell that it is the correct approach. 664 In Chew v R (1991) 4 WAR 21 at 47 Malcolm CJ stated the principles for the operation of Section 181(1) thus: "It follows that the duty of honesty or good faith has a number of aspects under the general law. First, the directors must exercise their powers in the interests of the company, they must not misuse or abuse their powers. Secondly, they must avoid conflict between their personal interests and those of the company. Thirdly, they should not take advantage of their position to make secret profits. Fourthly, they should not misappropriate the company's assets for themselves." 665 In Maxwell at [106] Brereton J added that the duty was imposed not to secure compliance with various requirements of the Corporations Act but, as it was at general law, to prevent abuses of directors' powers for their own or collateral purposes. 666 In Chew v R (1991-1992) 173 CLR 626 the decision of the Supreme Court of Western Australia as the Court of Criminal Appeal was affirmed. But Malcolm CJ in Lloyd v R (1995) 15 WAR 117 at 126 said that it followed from what the High Court had said that the gaining of an advantage or the causing of detriment were not elements of the offence of making improper use of the position of officer or employee of a corporation to gain, directly or indirectly, an advantage or to cause detriment to the corporation, but they were in the nature of particulars constituting alternative ways in which the offence might be committed. 667 As to the requirement of a proper purpose, Ipp JA with whom the other members of the Court of Appeal agreed in Permanent Building Society v Wheeler (1994) 11 WAR 187 at 218 set out the following principles: "The principles applicable in determining whether directors of a company have acted for an improper purpose and in abuse of their powers are well settled. Relevantly, as regards the issues that arise in this case, it may be said that those principles are: (a) Fiduciary powers and duties of directors may be exercised only for the purposes for which they were conferred and not for any collateral, or improper purpose. (b) It must be shown that the substantial purpose of the directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties. (c) Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose. Whether acts were performed in good faith and in the interest of the company is to be objectively determined, although statements by directors about their subjective intentions or beliefs will be relevant to that inquiry. (d) The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned." 668 ASIC submits that Mr Macdonald's use of the phrase "fully funded" which was repeated at least five times was used in a deliberate way to justify and "sell" the Separation Proposal. It was submitted that the statement concerning PwC and Access Economics was also deliberate and emphatic and, as Mr Macdonald knew, was inconsistent with what PwC and Access Economics actually did. 669 Mr Macdonald may have been misguided in the extent to which he sought to sell the Separation Proposal. But in doing so there was no conflict between his personal interest and that of JHIL. He did not take advantage of his position to make a secret profit. He did not misappropriate the company's assets for himself. Like the non-executive directors in approving Draft ASX Announcement, Mr Macdonald may have believed it was in the best interests of JHIL to be as emphatic as he could in selling the Separation Proposal. The evidence does not establish that Mr Macdonald acted for an improper or collateral purpose. Objectively judged, Mr Macdonald was overzealous, but he was overzealous in the interests of JHIL. 670 ASIC has failed to establish a breach of Section 181(1). 6.3 Breach of Section 995(2) by JHIL 671 ASIC alleges that in making the Press Conference Statements by Mr Macdonald, JHIL contravened Section 995(2). 672 For the reasons discussed above with respect to Mr Macdonald's breach of Section 180(1), the Press Conference Statements were false or misleading and JHIL, through Mr Macdonald, engaged in misleading or deceptive conduct. For the reasons discussed in relation the Final ASX Announcement, the Press Conference Statements were made in connection with a notice published in relation to securities. 673 ASIC has made out its case that, by the conduct of Mr Macdonald in making the Press Conference Statements on 16 February 2001, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, contrary to Section 995(2). 6.4 Breach of Section 999 by JHIL 674 ASIC also alleges that the Press Conference Statements constituted a breach by JHIL of Section 999. 675 For the same reasons as with the contravention of Section 995(2), the Press Conference Statements were false in a material particular or materially misleading. The falsity or the deceptive nature of the latter part of the Press Conference Statements was not merely peripheral. Mr Macdonald used unjustifiably over-emphatic terms of certainty in his endeavour to sell the separation announcement. 676 In terms of the predictive exercise that one is called upon to make under Section 999, the natural effect of those latter statements was likely to induce listeners to purchase JHIL shares and was likely to increase the market price of JHIL shares. And Mr Macdonald knew, or ought to have known, that the statements were false in a material particular or materially misleading. 677 Mr Humphris supported that conclusion. He said that the information disseminated by the Press Conference Statements was likely both to induce the purchase of JHIL shares and to have the effect of increasing the market price of JHIL shares by having a net effect of reducing the asbestos discount by acting to increase both the estimated value and expected future market price of JHIL shares. Mr Humphris opined that this would occur as a result of a perceived reduction in JHIL risk and uncertainty. 678 ASIC has made out its case that by the conduct of Mr Macdonald in making the Press Conference Statements, JHIL contravened Section 999. 7 23 February 2001 ASX Announcement issue 679 At 3.05 pm on 23 February 2001, Mr Baxter sent an email to Mr Macdonald and Mr Shafron attaching a media release entitled "James Hardie welcomes dialogue with government". The email said the release was for comment as soon as possible. 680 At 4.43 pm Mr Baxter sent another email to Mr Macdonald that stated: "Peter, I suggest you forward this to our directors and the MRCF directors". Attached was the formatted version of the media release. Mr Baxter did not recall discussing the matter with Mr Macdonald but it was his practice not to include a quotation attributed to Mr Macdonald without approval from him. He had no reason to believe that his usual course was not followed. Mr Macdonald did not challenge this evidence. 681 At 4.43 pm Mr Macdonald sent an email to Sir Llew Edwards and his co-directors of the Foundation attaching a copy of the media release. 682 The media release was the 23 February 2001 ASX Announcement. It was forwarded to Mr Donald Cameron who at 5.00 pm on 23 February 2001 sent it by facsimile to the ASX which released it to the market. 7.1 Breach of Section 180(1) by Mr Macdonald 683 The 23 February 2001 ASX Announcement was in the following terms: " media release 23 February 2001 James Hardie Welcomes Dialogue James Hardie Industries Limited (JHIL) said today it welcomed the opportunity to continue discussions with NSW Government officials about the benefits of the Medical Research and Compensation Foundation, which the company established last week. JHIL CEO Mr Peter Macdonald said the company had instigated discussions with relevant government, union and asbestos groups representatives during the past week and was encouraged that a number of these parties had reacted positively and were interested in exploring further the role and objectives of the Foundation. "We are confident that as people familiarise themselves with the Medical Research and Compensation Foundation, they will recognise that it represents a significant breakthrough," said Mr Macdonald. "The Foundation provides certainty that funding for compensation will be available for all people who have a legitimate claim that they were injured by asbestos contained in products previously manufactured by James Hardie. "The Foundation will start with assets of $293 million which will appreciate significantly in value over the long term and more than meet all legitimate future claims. The JHIL Board determined the quantum of assets after seeking detailed, independent and expert advice from a large number of advisors. "James Hardie is solely responsible for only about 20 per cent of all compensation claims brought about by exposure to asbestos," Mr Macdonald said. "However, the additional $3 milion in research funds also granted to the Foundation, will benefit everyone as it provides a further boost to existing research projects which are working on treatments and cures for asbestos related diseases." Ends For further information please contact: Greg Baxter, Senior Vice President Corporate Affairs." There followed a mobile telephone number that I have not included. 684 The 23 February 2001 ASX Announcement contains similar over-emphatic statements as those contained in the Draft ASX Announcement. 685 Mr Macdonald accepts that the 23 February 2001 ASX Announcement does not contain the qualifications with respect to the sufficiency of funding that are expressly made in the Final ASX Announcement and the Press Conference Statements. It is submitted on his behalf, however, that those reading the document would understand that JHIL was making a predication that the funds would be sufficient to satisfy all future legitimate claims. It was submitted that they would understand that because of the inherent uncertainty when making statements about future events; the qualified statements made by JHIL and Mr Macdonald on precisely the same issue seven days earlier; and the fact that nothing had occurred or changed in that seven day period. It was submitted that readers of the 23 February 2001 ASX Announcement would understand that it was repeating the messages in the earlier announcements. 686 The problem with that submission is that I have found that the Final ASX Announcement and the Press Conference Statements were authorised or made by Mr Macdonald in breach of Section 180(1). 687 Secondly, it cannot be assumed that the readers of the 23 January 2001 ASX Announcement had read or heard the Final ASX Announcement and the Press Conference Statements and if they had, that this was but a repetition of earlier information. Readers were more likely to treat the 23 February 2001 Announcement as a direct reply to media criticism that emerged in those seven days. 688 Thirdly, the expressions used in the 23 February 2001 Announcement were somewhat different from those contained in the earlier document, slides and statements. The emphatic statements about certainty were: "that the funding for compensation will be available for all people who have legitimate claims" and funds of the Foundation would "more than meet all legitimate future claims." 689 It was submitted that the statements made clear that the establishment of the Foundation provided the certainty for claimants and shareholders that was not previously available because there would be a separate fund that would be dedicated to meeting Asbestos Claims. The fund would not be subject to the vagaries of the trading position of the James Hardie group or, at worst, its non-existence in the future. 690 That is not the certainty of which the 23 February 2001 ASX Announcement speaks. It speaks of a certainty that all legitimate claims would be met. 691 That conveyed the meaning, or is capable of conveying the meaning, that Mr Macdonald believed it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. Mr Macdonald knew, or ought to have known, that was false or misleading for the reasons discussed with respect to the Draft ASX Announcement. 692 Mr Macdonald also knew, or ought to have known that false or misleading was the statement that the board of JHIL determined the quantum of assets after seeking detailed independent and expert advice from a large number of advisors. That assertion conveyed, or was capable of conveying, that the material available to JHIL provided a reasonable basis for the assertions that there was certainty that all legitimate claims would be met. 693 Mr Macdonald also knew, or ought to have known, for the reasons discussed earlier in these reasons, that publication of false or misleading statements would be harmful, or potentially harmful, to JHIL in that it would contravene, or risk contravening, Section 995(2) and Section 999. Furthermore, Mr Macdonald knew, or ought to have known, that if false or misleading statements were revealed it would be harmful to JHIL's reputation and could jeopardise market perceptions of it. 694 A reasonable person who was a director and chief executive officer of a corporation in JHIL's circumstances with the same responsibilities within the corporation, would not have approved the 23 February 2001 ASX Announcement or would have advised that it not be released, or that it be amended before release to remove the over-emphatic portions of it. 695 ASIC has made out its claim that by approving the 23 February 2001 ASX Announcement or in failing to advise that it not be released, or that it be amended before release to remove matters that were false or misleading, Mr Macdonald contravened Section 180(1). 7.2 Section 181 and Mr Macdonald 696 ASIC also charges Mr Macdonald with a breach of Section 181(1). For the reasons discussed with respect to the Press Conference Statements, ASIC has failed to make out a case against Mr Macdonald under that provision. 7.3 Breach of Section 995(2) by JHIL 697 ASIC also alleges that JHIL contravened Section 995(2) when it released the 23 February 2001 ASX Announcement. 698 For the reasons discussed above with respect to Mr Macdonald's breach of Section 180(1), the 23 February 2001 ASX Announcement was false or misleading and JHIL, through Mr Macdonald, engaged in misleading or deceptive conduct. For the reasons discussed in relation the Final ASX Announcement, the 23 February 2001 ASX Announcement was a notice published in relation to securities. 699 ASIC has made out its case that, by issuing the 23 February 2001 ASX Announcement to the ASX on 23 February 2001, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, contrary to Section 995(2). 7.4 Breach of Section 999 by JHIL 700 ASIC also alleges that the publication of the 23 February 2001 ASX Announcement by JHIL constituted a breach of Section 999. 701 The announcement contained statements that were false in a material particular or were materially misleading for the reasons discussed above in relation to Mr Macdonald's breach of Section 180(1). And Mr Macdonald knew, or ought to have known, this. Like the later statements in the Press Conference Statements they were not merely peripheral. This was a deliberate attempt to quell the adverse media reports that had appeared in the seven days since 16 February 2001. 702 In the period immediately following 16 February 2001 a number of journalists queried the sufficiency of funds provided to the Foundation and reported on concerns expressed by some stakeholders in relation to the funding of the Foundation and the Foundation proposal generally. 703 The predictive exercise required by the section reveals a natural and probable result was to induce the reader to hold JHIL's shares thereby maintaining or stabilising their market price. The 23 February 2001 ASX Announcement was an effective answer to the critics of the separation. 704 Mr Humphris, against the background of the adverse press and having regard to the material reviewed by him, concluded that the 23 February 2001 ASX Announcement would be likely to have the effect of maintaining or stabilising the market price for JHIL shares. If the announcement had not been made the adverse media articles that occurred during the week prior to the announcement would likely have acted to increase the asbestos discount by increasing uncertainties concerning asbestos and as to whether the Foundation was fully funded. In Mr Humphris' opinion, the 23 February 2001 ASX Announcement acted to offset the likely fall in the market price of JHIL's shares that would otherwise have arisen. 705 JHIL shares opened at $3.72 on 23 February 2001, climbed to $3.83 and closed at $3.79. 706 This evidence supports the result of the predictive approach to the document itself. 707 ASIC has made out its case that in making and disseminating the 23 February 2001 ASX Announcement, JHIL contravened Section 999. 8 21 March 2001 ASX Announcement issue 708 ASIC raises similar allegations with respect to the 21 March 2001 ASX Announcement as it had with respect to the 23 February 2001 ASX Announcement. 8.1 Breach of Section of 180(1) by Mr Macdonald 709 In the evening of 20 March 2001, Mr Ashe sent an email to Mr Macdonald and Mr Shafron with a copy to Mr Baxter attaching a document entitled "Statement from James Hardie Industries Limited Foundation Safeguards Rights". The email stated: "Attached for comment is our draft press statement in relation to the protest march on York St tomorrow by the A.D. Foundation and the CFMEU, MUA and AMWU. A copy of the press statement from the A.D. Foundation has been faxed to you." 710 Mr Baxter recalled that there was a planned union protest to take place outside James Hardie's offices in York Street, Sydney. He said it was expected that the protest rally would attract media interest and it was appropriate for James Hardie to have a statement ready setting out the company's position. Mr Baxter had some input into the draft release. 711 In the early hours of 21 March 2001, Mr Shafron sent an email to Mr Macdonald and Mr Morley attaching a marked-up copy of the draft release and saying: "My comments marked on draft press release attached. Please add yours then pass on to Greg ASAP". Mr Morley added his comments to the document and sent an email of it to Mr Baxter and Mr Ashe. Later, Mr Ashe sent an email to Ms Wheeler with a copy to Mr Baxter requesting her to put the release into the right form and copy it onto James Hardie cover for distribution that morning. Mr Baxter sent the formatted document to Mr Attrill and Mr Ashe amongst others noting that it was the copy of the statement that would be issued later that day if asked to comment on the protest that was to be held outside the York Street office. 712 In the afternoon of 21 March 2001, Mr Donald Cameron sent the 21 March 2001 ASX Announcement to the ASX which released it to the market. It was as follows: " media release 21 March 2001 James Hardie Industries Limited Foundation Safeguards Rights The Medical Research and Compensation Foundation established by James Hardie Industries, will safeguard the rights to compensation of all who have, or will, develop illnesses as a result of exposure to James Hardie products. This certainty for claimants, not possible under the previous structure, represents a significant breakthrough in the area of asbestos diseases compensation. James Hardie companies have acknowledged their part in the tragic area of asbestos related diseases and recognise their continuing obligations. They have for many years compensated people who have been injured by exposure to their products. Under the new structure, the rights of claimants to sue any James Hardie Industries company are not altered or diminished in any way. The Foundation has been established with starting assets of $293 million in addition to insurance coverage for many types of claims. These assets will be invested to generate income and capital growth to a total many times the original amount. This will enable the Foundation to meet all future claims. In setting up the Foundation, James Hardie sought advice from a wide range of experts including actuarial advice specific to the James Hardie experience. Claims made by those criticising the Foundation refer to an estimated total incidence of asbestos diseases in Australia. James Hardie has been solely responsible for only 20 per cent of compensation claims brought about by exposure to asbestos. Its subsidiaries represent 2 of up to 140 defendants in asbestos litigation. The Foundation also has set aside $3 million to fund medical research aimed at finding treatments and cures for asbestos related diseases. When the Foundation was set up more than a month ago, the company issued invitations to all interested parties to meet and discuss the Foundation. Those offers have been repeated on a number of occasions to a small group which has, until today, refused to meet. Today, James Hardie received a letter from the AMWU advising that it, the MUA, the CEPU (Electrical Division) and the Asbestos Diseases Foundation have accepted our invitation to meet and discuss the Foundation. James Hardie is confident that following this meeting they will understand the benefits of the Foundation and recognise that it represents a major step forward for asbestos disease sufferers. Ends" 713 The same submissions were made on behalf of Mr Macdonald as had been made with respect to the 23 February 2001 ASX Announcement. They fail for the same reasons. 714 The 21 March 2001 ASX Announcement took the emphatic form, in the first paragraph, that the Foundation would safeguard the rights to compensation of all who had or would develop illnesses as a result of exposure to James Hardie products. That was emphasized in the second paragraph that "This certainty for claimants" represented a significant breakthrough. 715 The tenor of the assurance given was that the Foundation had sufficient funds to meet all future Asbestos Claims. In the fifth paragraph the claim was made that the assets of the Foundation would generate income and capital growth of many times the original amount such that the Foundation would be able to meet all future claims. 716 It was submitted that the use of the phrase "future claims" highlighted the nature of the predication involved. It was submitted that the reader would understand that the expected growth in the Foundation might not actually eventuate. 717 That is not the impression a reader would get. Albeit that a prediction was involved, the reader would understand from the message conveyed by the first two paragraphs that JHIL was certain that all who had or would develop asbestos related diseases would be compensated by the Foundation. 718 It was further submitted that the certainty to which the 21 March 2001 ASX Announcement referred was not a sufficiency of funding but a reference merely to safeguarding rights of compensation. 719 That is not the certainty to which the document refers. It is not merely a reference to safeguarding rights to compensation. It is a certainty of safeguarding rights to compensation of all those affected by exposure to James Hardie products. 720 The statements represented that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. 721 Paragraph six of the 21 March 2001 ASX Announcement in its reference to seeking advice from a wide range experts including actuarial advice, represented that material available to JHIL provided a reasonable basis for the assertion that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. 722 I am satisfied that Mr Macdonald either approved the 21 March 2001 ASX Announcement for release or he took no steps to prevent its publication before amendment to remove the over-emphatic statements it contained. He had the draft the evening before, Sydney time, and he had Mr Shafron's emendations that morning, Sydney time. He had every opportunity to stop its publication if he wished. He did not do so. It is likely that his silence indicates approval. He did not add comments in response to Mr Shafron's email. If he did not approve of it, he failed to take steps to stop its publication. 723 Mr Macdonald knew, or ought to have known, that the above statements in the 21 March 2001 ASX Announcement were false or misleading for the reasons discussed with respect to the Draft ASX Announcement. 724 Mr Macdonald also knew, or ought to have known, for the reasons discussed with respect to the Draft ASX Announcement, that publication of false or misleading statements would be harmful, or potentially harmful, to JHIL in that it would contravene, or risk contravening, Section 995(2) and Section 999. Mr Macdonald also knew, or ought to have known, that if false or misleading statements were revealed as such, it would be harmful to JHIL's reputation and could jeopardize market perceptions of it. 725 A reasonable person who was a director and chief executive officer of a corporation in JHIL's circumstances with the same responsibilities within the corporation, would not have approved the 21 March 2001 ASX Announcement, or would have advised that it not be released, or that it be amended before release to remove the above portions of it. 726 ASIC has made out its claim that, by approving the 21 March 2001 ASX Announcement, or in failing to advise that it not be released, or that it be amended before being released to remove matters that were false or misleading, Mr Macdonald contravened Section 180(1). 8.2 Section 181 and Mr Macdonald 727 ASIC also alleges that Mr Macdonald was in breach of Section 181(1). For the reasons discussed with respect to the Press Conference Statements, ASIC has failed to make out a case against Mr Macdonald under that provision. 8.3 Breach of Section 995(2) by JHIL 728 ASIC also charges JHIL that it contravened Section 995(2) when it released the 21 March 2001 ASX Announcement. 729 For the reasons discussed above with respect to Mr Macdonald's breach of Section 180(1), the 21 March 2001 ASX Announcement was false or misleading and JHIL, through Mr Macdonald, engaged in misleading or deceptive conduct. For the reasons set out in relation to the Final ASX Announcement, the 21 March 2001 ASX Announcement was a notice published in relation to securities. 730 ASIC has made out its case that by issuing the 21 March 2001 ASX Announcement, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, contrary to Section 995(2). 8.4 Section 999 and JHIL 731 ASIC also charges JHIL that by publishing the 21 March 2001 ASX Announcement it was in breach of Section 999. 732 The 21 March 2001 ASX Announcement contained statements that were false in a material particular or were materially misleading for the reasons discussed above in relation to Mr Macdonald's breach of Section 180(1). Mr Macdonald knew, or ought to have known, of the falsity or misleading nature of the statements. Like the statements in the 23 February 2001 ASX Announcement they were not peripheral. This was a deliberate step to counter media coverage of the march to the Sydney offices of the James Hardie group. 733 Mr Humphris pointed out that between 16 February 2001 and 21 March 2001 media articles about the James Hardie group continued to appear. On 3 March 2001 there was extensive media reporting of a successful suit against Coy by a woman who contracted mesothelioma although she had not directly worked with asbestos, but had washed her husband's work clothes. She was awarded $374,000. 734 On 17 March 2001 at 7.45 am, 702 ABC Sydney Radio News ran a news item in which Mr Paul Bastian of the Australian Manufacturing Workers' Union said: "We've got some real concerns about the way its structured, the way they think the money's going to eventuate". Mr Macdonald said: "certainly sufficient to fully fund current and future people who may become ill as a result of exposure to James Hardie products". The reporter concluded the segment: "The union says the only way to fully assess the viability of the proposal is for the state governments to combine and carry out a full investigation into the matter to ensure victims and their families are not left dying with no legal or financial recourse." 735 Mr Humphris also said a number of analysts continued to rate the shares of JHIL as a hold in view of the depressed gypsum prices and the uncertainty over future gypsum prices offsetting the good performance of the US Fibre cement business. 736 The market price of JHIL shares increased during March 2001. The closing price on 20 March 2001 was $3.98. 737 The predictive exercise required by Section 999 would suggest that the 21 March 2001 ASX Announcement was likely to induce the maintenance or stabilisation of the JHIL market price as an answer to the otherwise detrimental effect that the march on 21 March 2001 might have. 738 But Mr Humphris expressed the opinion that it was unlikely to have the effect of increasing, reducing, maintaining or stabilising the market price of JHIL shares because it contained no information that was not already in the public domain, that was sufficiently material to impact upon the key variables affecting the value or market price of the shares. He said: "In view of the media reports and the union led street march, referred to in sub-paragraph 19(b) of this report, it was potentially beneficial to JHIL to inform the market that it was 'doing the right thing' by establishing the Foundation and initiating dialogue with the unions and state government as reported in the 21 March 2001 Announcement. The announcement acted to reinforce the company's message concerning the Foundation and it is likely to have provided some comfort to investors who may have had concern about the Foundation's critics. I am of the opinion that the 21 March 2001 Announcement would tend to act in the direction of maintaining or stabilising the market price of JHIL's shares by assisting to neutralise uncertainty created by Foundation critics, but that the effect would not be sufficiently material or widespread among investors as to have the likely effect of increasing, reducing, maintaining or stabilising the market price of JHIL shares." 739 While Section 999 is not dependent upon expert evidence as to the likely market reaction to the dissemination of information, the above evidence makes me cautious about my predictive analysis of the 21 March 2001 ASX Announcement. In a Briginshaw sense, I am not persuaded that ASIC has established the elements required for the operation of Section 999. 740 ASIC has failed to establish that in making and disseminating the 21 March 2001 ASX Announcement, JHIL contravened Section 999. 741 There was no evidence that any of the non-executive directors reacted to the terms of the 21 March 2001 ASX Announcement on the basis that it contained unequivocal and unqualified forward-looking statements. 9 Scheme of Arrangement issue 742 ASIC alleges that Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox were in breach of Section 180(1) in approving the Draft IM to be sent to members as part of the members' Scheme, in that it contained a statement that the partly paid shares enabled JHIL to call on JHINV if it required funds to meet any liabilities when they knew it was intended that the partly paid shares would be cancelled after the restructure. 9.1 Section 180(1) and Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox 743 Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox approved the Draft IM on 23 July 2001. It included the statement: "JHIL will be able to call upon JH INV to pay any or all of the remainder of the issue price of the partly paid shares at any time in the future and from time to time." 744 ASIC submits that when they so resolved, they intended, or assumed, that JHIL would, or might, be transferred out of the James Hardie group after the Scheme was implemented and that necessarily involved, or most likely required, the cancellation of the partly paid shares, or the putting of them to Coy pursuant to the Put Option. 745 ASIC submits that this conclusion can be inferred from the material the directors received concerning the position of JHIL and its likely future and the objectives of the restructure. 746 ASIC submitted that the directors were aware that management had formed a fairly firm intention in this respect and that intention needed to be disclosed. 747 ICAL Ltd v County Natwest Securities Australia Ltd (1988) 39 NSWLR 214 concerned a bidder's statement in a takeover situation. ASIC submits, however, that the reasoning applies equally to the materiality of information required to be disclosed under Section 411. 748 In the Part C statement the offeror said that a strategic review would be conducted with respect to the target's properties and investments. It would assess the strategic value of the fishing interests of the target's wholly owned subsidiary, but otherwise intended to continue the subsidiary's business as then constituted. Bryson J found this disclosure to be inadequate, as an intention had been formed to sell substantial assets of the target. At 238 his Honour said: "I find that the second defendant intends and on 18 March intended on succeeding in its take-over to sell off a large part of ICAL's assets in order to raise money; that intention was open to reconsideration whether particular assets would be sold, when and for what amount, but none the less it was highly likely that a large part of the assets would be sold; the intention of selling them was fairly firm…." 749 If it is appropriate to attribute the extent of disclosure in ICAL to the Section 411 context, the question is whether ASIC has established a fairly firm intention on the part of management that the partly paid shares be cancelled and whether such an intention was conveyed to the board of directors of JHIL. 750 Mr Morley's December 1999 board paper "Potential Separation Structure Outline" was the genesis of Project Green. It pointed out that a scrip-for-scrip rollover had been granted relief from capital gains tax and this meant that existing JHIL shareholders could transfer their shares for shares in Newco NV with no immediate tax liability. It proposed a scheme of arrangement under which existing JHIL shareholders would exchange four of every five JHIL shares for four shares in Newco NV, a listed company that would have full ownership of the JHNV group. The remaining one JHIL share would own: "only the rump portion of James Hardie, including JH&Coy". One of the major issues identified by Mr Morley was: "with the asbestos litigation poison pill clearly separated from operating assets, increased take-over risk." 751 This Separation Proposal did not involve JHIL being removed from the James Hardie group. Separation under this model was the sheltering of the assets of the operating companies from Asbestos Claims against JHIL, Coy and Jsekarb. 752 At the February 2000 board meeting, Mr Morley presented and spoke to a paper entitled "Project Green – Update". It stated the major purposes for the then Separation Proposal: "The major drivers for this change are the increasing requirement for James Hardie to have a form of US–listed scrip which can be used for acquisitions such as Republic, and the desire to effect a separation of James Hardie's ongoing operating assets from the legacy liabilities contained in JH&Coy." 753 The broad outline of the Separation Proposal under consideration was similar to that considered at the December 1999 meeting. Newco would acquire four out of every five JHIL shares issuing Newco stock in exchange. JHIL would make a selective buy-back of the 80% of its capital then owned by Newco in consideration for its ownership interest in JHNV. Newco would be listed on the NYSE and the ASX. JHIL would be left with sufficient net assets and liquidity to meet its liabilities and operating costs. And Coy's existing interest bearing loan account to JHIL would be repaid leaving Coy's net assets represented by cash or income-generating properties. 754 The board pack for the April 2000 meeting included a Project Green paper. Under "Section 1: Executive Summary" it was said that in an effort to capitalise on its global market potential and at the same time improve James Hardie's investment profile, management was recommending a number of matters including: "Complete preparation for the corporate restructuring to create a newly listed vehicle and separate the asbestos liability." 755 Under "Section 3: Background and Need for Action" it was stated that JHIL's asbestos liability had a range of consequences: · "The company's asbestos liability has a range of consequences. Ø It prevents James Hardie from using its scrip as currency for acquisitions, mergers etc as potential targets and partners are not prepared to assume exposure to asbestos liability. Ø It prevents the company's operating assets from being fully valued by the equity markets. Just as targets and partners will not hold James Hardie shares, neither will some equity investors. Ø A change in Australian GAAP for liabilities is expected to become effective around July 2001 and may result in James Hardie having to disclose the full expected future liability of all asbestos related claims. This liability may be more than the market is currently estimating." 756 Under the heading "Section 5: Corporate Restructure and Separation" the following appeared: "The purpose of the corporate restructure, in financial terms, is to add shareholder value by: · eliminating the significant annual withholding tax cost that will be incurred by James Hardie as it remits profits from its US operating companies or Australian finance company to the listed parent, for distribution to shareholders. The restructure aims to position the shareholder closer to the source of the operating profits, resulting in only a 5% WHT cost to the company. · establishing tax efficient financing for the group, using jurisdictions which are not subject to further taxation under Controlled Foreign Corporation legislation. · permanently separating the operating assets from the non-core assets and liabilities, while ensuring that the latter are properly funded." 757 Like the Separation Proposals before it, the proposal at the April 2000 board meeting did not involve full separation. JHIL was to remain a subsidiary of Oldco with the non-core assets and liabilities of the James Hardie group including Coy and Jsekarb, while Newco would own the operating companies. It did, however, shelter the assets of the operating subsidiaries from payment of the liabilities of JHIL and its non-core assets including Coy and Jsekarb. 758 The board pack for the May 2000 board meeting contained a memorandum from Mr Macdonald containing an overview of Project Green. Under the heading "Base Case" was the following: "Our base case option is still to pass sufficient cash back up from JHNV to JHIL to achieve the structural separation and migration to the Netherlands. We also believe that some form of "top up" insurance will be recommended in addition to the cash provided. Our preferred option is to achieve some form of commercial "take out" of our future asbestos liabilities ahead of our restructure…" 759 The board papers for the July meeting included a Project Green update memorandum from Mr Macdonald. It contained a base case update as follows: "Our base case is to pass sufficient cash back up from JHNV to JHIL to achieve the structural separation and migration to the Netherlands. We have retained JLT (Jardine Loss Transfer) to obtain alternative proposals to fully takeout our asbestos liabilities and to provide a tranche of cover above the actuarial estimate of liability. Initial proposals are due at the end of July and we are aiming to bring a recommendation to the August board meeting. We want to achieve a commercial "take out" of our future asbestos liabilities ahead of announcing a restructure..." 760 Mr Macdonald's Project Green update memorandum for the August board meeting under the heading "Summary" listed a number of matters that had arisen: "Some issues have emerged that impact on the stand alone implementation of Project Green · Further investigations have caused us to feel less sanguine about the political and social environment in which we would be seeking to achieve separation. · CSR has stated it is in negotiations with possible re-insurers in an effort to arrange for a take-out or extended cover for its asbestos liabilities. CSR has also said that it is considering making a significant increase in its asbestos provisions around its year end in March '01 (when it will likely have large gains on sale of sugar and aluminium assets to take to account). We would prefer not to be running behind CSR in case its endeavors (sic) raise the profile of the issue politically and in the markets. · PwC advises that Exposure Draft 88, dealing with long term contingent liabilities, is now back on the Accounting Review Board agenda. Timing is uncertain, but post March '01 seems likely. We would prefer to have separation in place before our hand was 'forced' by ED 88. · We have received early indications from re-insurers on the costs of covering ongoing asbestos liabilities which are at the upper end of our expectations in both premium and cover. Further investigation and negotiation is required before a recommendation can be made. · The Netherlands tax authorities have not been able to provide the assurances we desired about our preferred structural alternatives and further work is required to achieve the certainty we require at reasonable cost. · As of today's date, we are still "alive" in the negotiations to acquire Republic Group within price levels ($14-$16/share or around $180M for equity and $200M of debt for a total cost of USD380M) that create value for James Hardie. A range of alternatives are being considered for funding and to manage our exposure to Republic's paper assets including acquiring only Duke, pre and post purchase sales, JV, operating lease, etc. · Given the higher cost indications from potential re-insurers, we may not have available funds to achieve the separation. We are considering alternatives to make the separation economics work. We can fund the acquisition of Republic by utilizing nearly all our current liquidity." 761 Under the heading "Base Case" Mr Macdonald used the past tense for the first time: "Our base case was to pass sufficient cash back up from JHNV to JHIL to achieve structural separation and migration to the Netherlands. JLT has obtained proposals to cover our asbestos liabilities at costs and coverage above levels we have targeted. We are encouraged that there are several parties interested in taking on the risk, but need to do more work to satisfy ourselves that the cost of putting the cover in place is economically justifiable and when James Hardie can fund it." 762 The presentations to the August 2000 board meeting included a slide presentation entitled "Project Green board presentation Structuring options". Under the heading "Restructure and separate" one of the issues was the likely cost of total insurance at A$400m up front which could not be funded. Under the heading "Current View" the management of JHIL said: "Not recommended at this time but will continue to develop and consider potential to resolve key issues (funding, stakeholder reactions)." 763 The presentation also included slides with respect to "Restructure but no separation" with Newco NV holding JHIL and non-core assets and liabilities including Coy and Jsekarb and Newco NV also holding JHNV with its operating companies. Under the heading "Rationale" the following appeared: v "Potentially lower execution risk than restructure and separation - preferably implement by scheme of arrangement, legal implications being considered further - reduced concerns re stakeholder reactions v Minimal stockholder issues - can sound out key investors v Potentially positions group for simpler separation in future - contingent liabilities held in separate subsidiary group - possibly "distributed" when appropriate v Costs may be circa $10M." 764 The positioning of the James Hardie group for simpler separation in the future did not involve the separation of JHIL from the group. As it was now in a separate subsidiary group it could be transferred to a new holding company within the group more easily. It is not clear what was meant by "distributed". The DOCI concept had not arisen in August 2000. 765 One of the issues was that the proposal did not address uncertainty of asbestos for investors but separation was possible at a later stage. The current view of management was a recommendation of this proposal if separation was not feasible in the short term. 766 Mr Brown agreed that as at August 2000 one of the issues JHIL had to confront was the ongoing uncertainty with asbestos. There was some attitude in the US that investment funds would not invest in any company that had any association with asbestos. He agreed that another difficulty with the alternative scenario of "business as usual" was ED 88. He recalled being advised with respect to the Separation Proposal prior to August 2000, that a viable insurance alternative had not being identified. He said asbestos separation was off the agenda, but it could be reconsidered at a future time. Mr Gillfillan agreed that management had explored the cost of separation and, in particular, reinsurance cover and found it to be too expensive. Ms Hellicar said that separation was off the table. 767 The August 2000 presentation also considered "Restructure, sell Gypsum to fund separation". This concept involved utilising the proceeds after tax to repay debt, fund separation and buy back shares or fund capital reduction. The rationale included that it provided additional funding for separation now. The proposal was not recommended by management at current realisation price estimates. 768 To the proposition that gypsum proceeds would be used to fund JHIL, Coy and Jsekarb as a prelude to separating off that group, Mr Morley said that was one of the options being considered. 769 It was submitted that this represented a clear statement by management to the board that the restructure without separation model would facilitate later separation when that became affordable. That is so, but it says nothing about the exclusion of JHIL from the James Hardie group. Mr Brown agreed that it might well have been discussed as a means of funding separation later on. 770 Consideration was also given in the slides to an alternative to "Sell JHIL". But it was recognised that one of the issues was: v "Contingent liabilities are problematic - poison pill for most potential acquirers (ie. separation would be a pre-requisite) - due diligence and disclosure issues" Management did not recommend this alternative. 771 Following the August 2000 board meeting the management of JHIL and the advisers considered the necessity to demonstrate that sufficient assets would be left in JHIL post restructure. These documents were not, however, sent to the non-executive directors. 772 Mr Macdonald's memorandum "Project Green" for the November 2000 board meeting under the heading "Project Green Outline" stated: "We are asking for authority to continue work on the revised Project Green restructure, including completion of a Scheme of Arrangement booklet, approvals and advisors, so that the Board can be in a position to make a decision at its February 14 meeting." 773 Included in the board papers was a paper entitled "Project Green: Overview" prepared by Allens. It indicated that the Separation Proposal then being considered differed from that under consideration in August 2000. The paper said that in presenting a scheme of arrangement to the Court it would be necessary to portray the company's objectives and the scheme's impact on stakeholders. That the scheme: Ø "has substantial benefits for JHIL shareholders. Ø has no impact upon Coy. Ø affects JHIL, which will substitute for its shares in JHNV a contingent debt owed by its parent but that JHIL's "true" nett (sic) worth is unaffected and JHIL has no creditors not covered by liquid assets." 774 The paper went on to say that this Court is interventionist in its view of schemes and might be influenced by or enquire into: Ø "complex restructurings apparently driven by tax; Ø balance sheet impact upon JHIL (see below) Ø partly paid shares as a method of maintaining JHIL's net worth; Ø the potential for later transactions (in-group) to affect that net worth; Ø the need to hear submissions from potentially interested parties; Ø possible public policy issues." 775 Mr Morley agreed that this was the first occasion when the board was presented with the concept of partly paid shares. 776 In the slide presentation to the board, the proposal was described as being: "Achieved by a scheme of arrangement whereby shareholders receive Newco NV shares in exchange for JHIL shares". In describing the proposal the heading "Redomicile to Netherlands achieved by:" the following appeared: v "Newco NV issues shares to ordinary shareholders in consideration for their shares in JHIL. v Subsequent selective share buy-back by JHIL from Newco NV and transfer of JHNV to Newco NV in consideration for its own shares. v JHIL net worth re-instated by Newco NV subscription for partly paid shares in JHIL. v Re-establishment of Dutch Financing Company." 777 Under the heading "Documentation requirements – Australia" the following appeared: "Scheme of Arrangement booklet v Explanatory Statement - must explain - effect of the Scheme - rationale for the Scheme - must include all information material to the decision. - must disclose: - JHIL funding "lifeline" from Newco NV - JHIL Directors' intentions regarding the business, including maintenance/reduction of lifeline. - accounts of JHIL and Newco NV - set out alternative proposals considered v Expert's Report - required due to Newco NV/JHIL common directors - market practice dictates anyway - will determine whether scheme in best interests of members - key questions: - benefit for members if Scheme implemented - effect on members of exchange of JHIL shares for Newco NV shares. v Implementation and Buy-back agreement - will outline Newco NV and JHIL's obligations in relation to Scheme and buy back v Notice of Meeting - convenes meeting of JHIL shareholders to consider Scheme - Scheme Booklet must be approved by Court and ASIC." 778 Another version of the slide was worded differently in relation to the disclosure in the explanatory statement. It was in the following terms: "- must disclose: - JHIL partly paid shares issued to JHI NV - JHIL Directors' intentions regarding the business, including intentions, if any, regarding partly paid shares - accounts of JHIL and JHINV" 779 ASIC submitted that the slide presentation at the November 2000 board meeting made it clear that the partly paid shares were not necessarily a permanent and unchangeable feature of the revised Project Green structure. The reference to directors' intentions regarding the maintenance or reduction of the lifeline or directors' intentions, if any, regarding the partly paid shares support this conclusion. 780 But ASIC went further and submitted that the introduction of the concept of partly paid shares was associated with a structure plainly designed to facilitate later separation. It was submitted that partly paid shares were always associated with later separation. It was submitted that to promote a structure that did not involve separation, represented a substantial change from previous proposals. It was submitted that it was essential that if any restructure did not achieve immediate separation, it would at least facilitate later separation. It was submitted that an obvious advantage of the Separation Proposal under consideration at the November 2000 board meeting was that it would position JHIL as a subsidiary with the benefit that it could be separated later without the need for a further restructure. 781 I do not accept that submission. The structure proposed at the November 2000 board meeting was similar to that discussed at the August 2000 board meeting. JHIL was to become a wholly owned subsidiary of JHINV with Coy and Jsekarb as wholly owned subsidiaries of JHIL. The proposals up to the November 2000 board meeting considered separation in terms of a dual structure with Newco holding the operating assets and Oldco holding JHIL and its subsidiaries. JHIL would remain a member of the James Hardie group. 782 If under the model considered at the November 2000 board meeting, the partly paid shares were cancelled a different form of separation would result. JHIL would cease to be a member of the James Hardie group. I am not satisfied that the non-executive directors who gave evidence understood this difference. 783 The introduction of partly paid shares was a new step that called for greater detail of explanation than that contained in the above material upon which ASIC relies. If management intended that the partly paid shares should be cancelled as a means of separating JHIL from the James Hardie group, one would have expected a detailed explanation of this process. The fact that there are but a few references to partly paid shares in the material before the board meeting in November 2000, tends to support the claim of the non-executive directors who gave evidence that the partly paid shares, as a method of separating JHIL from the group, was not explained to them at the meeting. 784 Sir Llew Edwards said he did not recall if an explanation or rationale was given at the meeting in regard to the partly paid shares. 785 It was put to Mr Brown that it was explained at the meeting that the connection between JHIL and JHINV after the buy-back would be the partly paid shares. He agreed saying: "Yes. I don't know how much attention that got, but that would be consistent with the presentation." It was put to him that the amount of the outstanding loan was $80m so that only $80m of liquid assets would be left in JHIL under the partly paid shares. Mr Brown said he had no recollection of that type of conversation. This exchange then took place: "Q. Surely you would have been interested to know why the partly paid concept had been used? A. I would have thought that it was simply an arrangement between two wholly owned organisations that supported the value of JHIL and in the context of this overall proposal, which was complex, had many other features than those we are focused on, that my focus was on those other features and not particularly on this particular structural detail." 786 It was put to Mr Brown that he appreciated that a restructure without separation that positioned JHIL as a subsidiary of a new holding company enabled JHIL to be removed from the group at a later date without the need for a further restructure. He said that if he looked at it today he could see that that would be case. But he did not recall it being explained to him in those terms. 787 Mr Gillfillan said he recalled that he did not understand what partly paid shares were and he asked Mr Morley whether he should look at them as a guarantee. Mr Morley answered in the negative. Mr Gillfillan asked who had the option to trigger the partly paid shares and Mr Morley explained that it was up to JHIL to trigger the potential for the payment of the unpaid capital on the partly paid shares. He said Mr Morley said that JHIL would still be part of the James Hardie group so they would still have control over the partly paid shares. It was put to Mr Gillfillan that when he attended the meeting in November 2000 he was aware that one of the potential advantages of the proposed restructure was that it potentially positioned the James Hardie group for simpler separation in the future. Mr Gillfillan said it was clearly in the presentation but whether he was aware of it or not he did not know. 788 Ms Hellicar said she recalled that she was aware of the proposed use of partly paid shares but did not have an understanding of their legal operation. She agreed that it was likely that somebody indicated that there would be a need to disclose in an explanatory statement matters including the issue of the partly paid shares and the directors' intentions, if any, regarding those shares. Mr Koffel said he could not recall the proposal in November 2000 that JHIL would issue partly paid shares to JHINV. It was put to Mr Willcox that it was explained to him and he understood the reference in Allens' paper and in the slides to the need to disclose intentions in relation to the partly paid shares, was a reference to the ready potential to deal with the partly paid shares in the future. He said he had no recollection of that. It was put to him that he understood that the later removal of JHIL from the new group was facilitated because it was no longer the holding company. He said he never even thought about it. There was no proposal or suggestion that that would be done. 789 With respect to the slide mentioning the need to disclose future intentions, if any, both Mr Gillfillan and Mr Willcox said they had no recollection of it or of any discussion concerning it. Ms Hellicar recalled that something was said about the need to disclose intentions but she recalled no explanation beyond that stated in the slide. 790 The limited reference to the future of the partly paid shares in the presentation and board papers for the November 2000 board meeting does not go far in establishing that management intended that JHIL would be transferred out of the James Hardie group after the Scheme was implemented and that most likely required the cancellation of the partly paid shares, or the putting of them to Coy pursuant to the Put Option. Nor does the meagre reference to the future of the partly paid shares support ASIC's claim that the non-executive directors intended or assumed that the partly paid shares would be cancelled or put to Coy. 791 While I approach with caution the evidence of the non-executive directors who gave evidence for reasons discussed in relation to subsequent events and credit issues, in this respect the paucity of evidence from management on this topic in November 2000 tends to support their evidence that they were not informed of future intentions with respect to the partly paid shares. 792 In the December 2000 between meetings board papers was Mr Macdonald's "Project Green Update" memorandum that introduced the idea of transferring JHIL's shares in Coy and Jsekarb to a trustee company. 793 The January 2001 board papers included a "Proposed Trust Structure Update" discussed above. It informed the board of directors that whether JHIL could be held liable for Coy and Jsekarb's liabilities had been discussed with counsel. They were warned: "However, it seems inevitable that plaintiffs will be prompted to re-litigate the corporate veil issue and raise new arguments sooner than would otherwise be the case in the face of JHIL's strong and public repudiation of any liability." 794 Reference was made to the possibility of Coy, or Jsekarb, or a liquidator, choosing to cross-claim against JHIL. And under the heading "Market Reaction" it was noted that if there were unexpected developments that resulted in JHIL somehow being, or appearing to potentially be, responsible for claims against Coy and Jsekarb, the benefits of establishing the trust from a market perspective would disappear. 795 The problems of JHIL remaining a member of the James Hardie group was also mentioned in the slide presentation for the January 2001 board meeting. Under the heading "Introduction", the negative implications of asbestos liabilities for the James Hardie group and JHIL's share price were mentioned. There was investor uncertainty, constraint of corporate activity, constraints upon debt and equity raisings to fund growth, reduction in reported earnings and management distraction. Mention was made of a need to act quickly because of the impending introduction of ED 88. 796 Under a heading "Legal Issues and Risks", JHIL directors' duties, corporate veil and risks were mentioned. Under the first, the benefits of the trust were said to be that it facilitated restructure and other corporate activity; it avoided ED 88 and other reporting; and it reduced board and management distraction. Mr Morley said that Mr Shafron addressed this slide and said of the facilitation of restructure that separation enabled the company to restructure in accordance with what was one of the legs of Project Green. Mr Morley said that Project Green had three elements: separation, sale of gypsum and restructure. And because Coy and Jsekarb would be deconsolidated, ED 88 and other reporting would be avoided. 797 Under the heading "Corporate Veil" the following was stated: v "Notwithstanding corporate veil and Putt: - some parties still sue JHIL - likely acceleration of JHIL claims - chance that JHIL may be found liable." 798 Under the heading "Ongoing asbestos risk to JHIL" was the following: v "Pre 1937 exposure v Distinguish Putt - certain time periods, certain states of Australia - certain asbestos subsidiaries (some liquidated) - proximity v Putt overturned by High Court or legislation (see below) v Accounting consequences - Aus GAAP and US GAAP - US Registration statement - partly paid shares." 799 Mr Morley said that Mr Shafron said that despite the separation there were still some risks arising from asbestos claims. He said that if Putt was overturned it would change the corporate veil argument and there was a possibility of state government intervening and making JHIL liable. Mr Morley agreed that Mr Shafron had said that if Putt was overturned or distinguished, or there was adverse legislation, one consequence would be a need to disclose liabilities or potential liabilities under Australian GAAP or US GAAP and under the US 20F registration statement, the statement needed to register on the NYSE. 800 Of the reference to partly paid shares, Mr Morley said he understood they were never intended to be issued to satisfy asbestos liabilities. They were to be issued simply to satisfy what was then the outstanding debt between JHIL and Coy and Jsekarb. Mr Morley said that if contrary to what he understood to be the advice, Putt was distinguished or overturned, or there was adverse legislation, there was the risk that the partly paid shares would be able to be called upon to satisfy the previously unforeseen JHIL asbestos liabilities. Mr Morley said JHIL could have done that. 801 Mr Morley said that Mr Shafron went through the slide entitled "Post Trust, post Green options for JHIL" which was as follows: v "Retain JHIL as a subsidiary of JHINV v Sell/gift JHIL to a third party v Sell/gift JHIL to the trust v Create stand alone trust for JHIL shares (a la MRCF) v Liquidate JHIL." 802 Mr Gillfillan said he could not recall this slide or any discussion about it but agreed that four of the five options involved getting rid of JHIL. Mr Koffel said he had no recollection of any presentation by Mr Shafron. Mr Koffel accepted that if the proposal went ahead the last remaining company within the James Hardie group with any potential asbestos liability was JHIL. He said he was not sure that he grasped that at the time. 803 Under "Key Risks" was a slide entitled "Plaintiff/Cross-claimant activity". It included the following: v "Adverse corporate veil decision post restructure, but before JHIL resolution to wind-up, may necessitate detailed FAS 5 disclosure for restructure." 804 Mr Morley said Mr Shafron outlined the risk that if after creation of the trust and after implementation of the Project Green restructure and the creation of the partly paid shares but before JHIL was wound up, there was an adverse court decision against JHIL an "FAS disclosure" would be necessary. That is a disclosure under US financial accounting standard number 5. 805 It was submitted that this slide and Mr Shafron's explanation indicated that management intended to liquidate JHIL before any adverse corporate veil decision was made. It was further submitted that Mr Shafron was indicating that the liquidation of JHIL involved the disappearance of the partly paid shares. The Put Option concept had not been developed at this stage. 806 I do not think that the non-executive directors would glean from the short mention of winding up that this was management's intention. Nor do I think it probable that the non-executive directors would realise that a winding up of JHIL would involve a disappearance of the partly paid shares. If management's intention was to wind up JHIL shortly after the restructure had been effected, one would expect far more to have been said about it than was in the slides and statement by Mr Shafron upon which ASIC relies. 807 The slide entitled "Other Issues" contained the following: v "Impact on future restructuring options for JHIL - future initiatives may be viewed with suspicion by certain stakeholders." 808 Mr Morley had written on this slide: "PDM - crucial point. Cannot afford to do trust in isolation, would prejudice future growth. Poor performance in gypsum" and "once-off opportunity to do trust at lower price than insurance". Mr Morley confirmed this was what Mr Macdonald said, the gist being that the trust was just a step in the overall process as part of Project Green. 809 ASIC submitted that of the five options identified in the "Post Trust, post Green options for JHIL" slide, liquidation post-restructure would be pursued with a view to achieving it before any adverse corporate veil decision emerged. I do not accept that submission for the reasons set out above. Nor do I accept that the non-executive directors understood that to be management's intention as a result of what they saw and were told at the January 2001 board meeting. 810 Mr Brown said he did not recall the slide or any discussion of the position of JHIL post-restructure. His focus was on the separation of asbestos liabilities and not on what might happen after that. Mr Gillfillan said he did not recall the slide or any discussion concerning its content. Ms Hellicar said she had no recollection of the slide being discussed and doubted that the bullet points were in fact discussed. Mr Koffel said he had no recollection of management making a slide presentation at the meeting or any discussions concerning this slide. Mr Willcox said he could not recall the presentation of this slide or any discussion regarding the possible future of JHIL. 811 While I maintain my scepticism with respect to the evidence of the non-executive directors who gave evidence, I again take the view that the paucity of evidence to which ASIC refers to ground its submission that the board of directors was informed that it was the intention of management to cause JHIL to be liquidated soon after the restructure was effected, seems to corroborate their testimony that this matter was not the subject of much explanation and there was no direct statement identifying management's alleged intention. 812 The first alternative in the slide was to retain JHIL as a subsidiary of JHINV. If management had determined to liquidate JHIL, one would expect it to have made a recommendation that the first alternative not be adopted. One would also have expected that alternative to have been placed last and the liquidation of JHIL alternative to have been put first or, at the least, that some discussion of the alternatives would have been included in the board papers with a recommendation against retention and a recommendation in favour of liquidation. 813 It was submitted on behalf of Mr Brown, Mr Gillfillan, Ms Hellicar and Mr Koffel that since the emphasis of this meeting was upon the rejection of the Net Assets Model, it was more likely than not that the presentation was not shown in full. That may be so but the above discussion is based on the unchallenged evidence of Mr Morley. 814 Prior to the 15 February 2001 Meeting, there was an exchange of correspondence between members of management that was not provided to the board of directors. 815 The board papers for the 15 February 2001 Meeting included Mr Macdonald's "Project Green Board Paper". Under the heading "Summary", this was said: "The objective is to position James Hardie for future growth and to eliminate legacy issues that would otherwise continue to detract from value creation. Once fully implemented, a focused fiber ( sic ) cement growth company, with an appropriate financial structure, will be in place and legacy issues will have been removed." 816 Under heading "1. Separation from legacy issues" it was stated that: "The creation of a Foundation as recommended will largely remove asbestos related issues from JHIL and the ongoing James Hardie Group. A separate paper detailing the separation process is included as Attachment A." 817 Under the heading "4. Recommended Solution and Timing", it was recommended that all three components of JHIL's strategic alignment project be implemented. This involved first, implementing separation by creating a Foundation immediately; secondly, seeking a sale of gypsum immediately; and, thirdly, commencing financial restructuring before, or at year end results announcement. In relation to the third component it was said: "Implement the recommended financial restructuring which will create JHINV as the dual (ASX/NYSE) listed holding company for James Hardie's operating assets. Post restructure, JHIL will be a wholly owned, non operating subsidiary of JHINV. The restructuring should be announced at the same time a Gypsum sale or JV is announced or, if this was not possible, at the mid-May full year result presentation. We have confirmed that funding is not an issue for JHINV if Gypsum is sold. Without a Gypsum sale gearing of JHINV would be higher than desirable, but there would be no substantial adverse funding risk. A range of alternative funding options are available should operating performance fall below plan levels. See Attachment D for further details and cash flow modeling." 818 Under a heading "5. Alternatives Considered and Rejected" was the following: "There are many options that have been considered, developed, and rejected over the lives of Projects Chelsea and Green. Detailed analysis (see Attachment E) shows the next best alternative that could be developed and demonstrates that, for a combination of legal and commercial issues, it is inferior to the recommended proposal. Allens comments on this option (combining separation and restructure) compared to the preferred option are set out in Attachment F." 819 Attachment E described separation and restructure in one step by the transfer of the shares of JHIL, Coy and Jsekarb to the Foundation. It was described as: "Potentially the quickest alternative to achieve complete and final separation of all asbestos related liabilities and restructuring if able to be implemented." 820 Under the "Alternatives Considered and Rejected" heading there also appeared: · "Combined separation and restructure with delayed NYSE listing. The most significant element of the next best proposal is that it seeks to place together the separation and financial restructuring elements in one transaction that is approved by the courts and shareholders under a scheme of arrangement. Its major merit is that, having survived the court process, this option would more rapidly lead to a full asbestos separation (including JHIL) so that risks of "break through" actions will disappear more quickly than the recommended option (this is less important with a JH & Coy indemnity in place). In contrast, the recommended option initially transfers out of the ongoing structure only JH & Coy and Jsekarb, leaving JHIL in the ongoing "new world". It could take some months for this issue to be addressed – so there is increased exposure." 821 ASIC submits that the board paper informed the directors that the management plan was to transfer JHIL out of the group within a matter of months after the restructure. That is certainly said in the board paper. It is not given prominent exposure. There was no recommendation that the board approve the transfer of JHIL out of the James Hardie group. The focus of meeting was the establishment of the Foundation and the retention of JHIL within the group, the alternative of separation and restructure in one step having been rejected by management. If it was the intention of management to obtain board approval to the transfer of JHIL out of the group after restructure, one would expect that to have been highlighted in the board papers. It was not. Again the paucity of reference to this issue does not go far in establishing that the non-executive directors knew that management planned to remove JHIL from the group soon after the Scheme had been effected. It goes nowhere in establishing ASIC's contention that the non-executive directors knew or assumed that the partly paid shares would be cancelled. 822 ASIC submits that the non-executive directors appreciated that there was a risk of JHIL being sued after the establishment of the Foundation and its continued presence in the James Hardie group exposed JHIL to the risk of a break through suit and hence exposed JHIL's assets to a possible successful Asbestos Claim. But that risk was relatively small and management was satisfied that the alternative of separation and restructure in one step should be rejected in favour of JHIL's retention within the group. Knowledge of the risk of JHIL being successfully sued does not equate to knowledge that the partly paid shares would be cancelled. 823 It was submitted that it was important for management to indicate to the board that they had secured a means of readily removing JHIL from the James Hardie group after restructure, the ready means being the Put Option. But, again, there was scant explanation of the Put Option in the material before the board at the 15 February 2001 Meeting. There was no prominent discussion of it, nor of management's alleged intent to exercise the Put Option to remove JHIL from the group. 824 ASIC relies on a reference to the Put Option five times in the board papers for the 15 February 2001 Meeting, twice in the attached Allens' paper and four times in the slide presentation. The first reference in the board papers was: "It is also proposed that an additional sum be paid over time (NPV $70M) to JH & Coy in return for an indemnity and covenant not to sue JHIL and an agreement to take JHIL if it is put to it in the future with no subsidiary companies." 825 ASIC also relies on a sentence in the quotation with respect to the implementation of the recommended financial restructuring set out above: "Post restructure, JHIL will be a wholly owned, non-operating subsidiary of JHINV." 826 Neither statement says anything about an intention on the part of management to exercise the Put Option or cancel the partly paid shares. 827 The second reference is in Attachment A under the heading "Payment to JH & Coy/Jsekarb and Obtaining Indemnity": "Also in return, JH & Coy would give a commitment to accept shares in JHIL if JHIL is put to it as a non operating subsidiary without subsidiary companies or operational obligations. At that time, any operational obligations of JHIL (e.g. guarantees, subsidiaries) would transfer to the operational (JHINV) side of the business and JHIL's main interest would be as the former holding company of JH & Coy and Jsekarb. JH & Coy would already be responsible for any JHIL asbestos liability and merely acquiring JHIL shares would not impose any additional liability, beyond management responsibility for its affairs." 828 That passage clearly outlines a proposal by management for the removal of JHIL from the James Hardie group by putting its shares to Coy under the Put Option. But that was a matter for the future. The board was not asked at the 15 February 2001 Meeting to approve this proposal. It was asked to deal with the immediate issue of the establishment of the Foundation. The fact that the management proposal on 15 February 2001 was to exercise the Put Option did not mean it would remain the management choice of alternatives. It had considered other alternatives in the past and might do so again in the future. And if the proposal was put to the board in the future, there was no guarantee the directors would accept it. The board had an absolute discretion to refuse to register a transfer of shares. There was no guarantee that the directors would accept Coy as a shareholder in the place of JHINV and that consideration might cause the directors of JHINV not to exercise the Put Option. As at 15 February 2001 it was a matter of conjecture whether or not JHIL would be removed from the James Hardie group at some future stage by cancellation of the partly paid shares or the putting of the shares to Coy under the Put Option. 829 The third reference upon which ASIC relies is also in Attachment A: "From the JHIL perspective, the additional equity is supported by: · the desire to ensure JH & Coy/Jsekarb are better able to meet claims; · Foundation director requirements for a substantial life from date of establishment; · a JH & Coy/Jsekarb indemnity and waiver; and · a JH & Coy commitment to acquire shares in JHIL if it is put to it under the terms of the agreement." 830 That is clear reference to the Put Option but says nothing of any intention to exercise it. 831 The fourth reference, again in Attachment A, is as follows: "From the JH & Coy perspective, the indemnity (and commitment to acquire JHIL) is supported by: · a very large sum of money; · continuing access to insurance monies; and · the weakness of JH & Coy's and any third party's case against JHIL." 832 This reference is similar to the third. The final reference in the board papers, again in Attachment A, was under the heading "3. Extra Funding & Hold Harmless" as: "In addition, and also in consideration of the additional funding, JH & Coy will agree to acquire all the outstanding shares in JHIL, should JHIL ever cease to hold any business operations and become delisted and otherwise non operational." 833 That is merely descriptive of the Put Option and non-indicative of its use. 834 Mr Brown was taken to Attachment A. He agreed that its message was that although the Separation Proposal there considered would not entirely remove the "asbestos shadow" because JHIL was still part of the James Hardie group, there was an option enabling the removal of JHIL when it became a non-operating subsidiary. But Mr Brown said the future role of JHIL was not a driving consideration and he said he could not recall what discussions took place regarding the future possible restructure. 835 Mr Gillfillan said he understood the concept of a put and call option in relation to shares and agreed that there were a number of references to the Put Option in the board papers. But he said he did not even think he was aware of the Put Option at the time he approved the establishment of the Foundation. He said he could not recall if there was any discussion about the post- restructure options for JHIL. 836 Ms Hellicar said she understood from the 15 February 2001 Meeting that the legal justification for the provision of extra funds included the Put Option. She denied she understood that the Put Option would trigger so soon as JHIL ceased to be an operating subsidiary. She said the issue at the 15 February 2001 Meeting was the asbestos separation and not the ongoing work in relation to the restructure. She had no recollection of what was going to be the position of JHIL after the restructure. She said the meeting did not focus upon what might happen to JHIL. She said she had no notion as to why JHIL would need to go anywhere. It did not register in her mind as anything other than part of a list of issues drawn up by the lawyers. 837 Mr Koffel said he did not know what a put option was and did not have the legal knowledge to know that the reference to the Put Option was to some form of agreement that the Foundation would take JHIL if it were put to it in the future that with subsidiary companies. He said he had never heard of partly paid shares. He said he had no recollection of any discussions concerning the potential transfer of JHIL out of the James Hardie group. 838 Mr Willcox said that with the benefit of hindsight he saw the references to the Put Option in the board papers, but he did not remember it registering at the time. He did not recall it being anything of significance. He could not recall any discussion in relation to the future of JHIL after the restructure. He said there was no proposal put to the board in relation to the capitalisation of JHIL or any particular future of JHIL and no decision made by the board in relation to its capitalisation or future at the 15 February 2001 Meeting. He said his understanding at the time was that these were matters to be determined in the future. He had no recollection of discussion of JHIL leaving the group. 839 The two references in Attachment F appear under the heading "Disadvantages of the Preferred Option" as follows: · "To vest JHIL into the trust is likely to involve a reduction of capital (presumably by cancelling the partly paid shares), which will require the directors to leave behind assets within JHIL, at least to the extent that JHIL has creditors. Those creditors will include any then current claimants, including those who may be ill but who have yet to establish the veracity of their claim. · We have a concern that the announcement of the trust and/or the reconstruction will result in an increase in the number of claims received by Coy and JHIL. If this does happen at the JHIL level then the liquidation or vesting of JHIL will become more difficult. While this may also happen under the other option, the consequences would be easier to manage by retaining some of JHNV in JHIL. The indemnity in favour of JHIL reduces the grounds for concern in relation to such suits." 840 The references to vesting JHIL are, clearly, references to the Put Option. But they occur in relation to the proposal rejected by management and cannot be regarded as an expression of any proposal of management with respect to the Put Option or the cancellation of the partly paid shares. 841 ASIC also relies upon one sentence in Allens' conclusion of some eighteen lines: "We agree that management and the board have grounds to support the view that the commercial benefits of the preferred approach, with its staggered separation and the disadvantages discussed above, outweigh the costs of delay and heightened execution risk of the second alternative." 842 ASIC fastens on the word "staggered" to suggest that the non-executive directors understood that the preferred option involved not only the establishment of the Foundation, the gifting of the shares in Coy and Jsekarb to it and the Scheme, but also the removal of JHIL from the James Hardie group after the Scheme had been approved. 843 I do not accept that submission. One word of description in Allens' conclusion with respect to a proposal that was rejected by management is hardly the basis for ascribing to the non-executive directors their approval of the notion that JHIL would be removed from the James Hardie group following the approval of the Scheme. 844 The slide presentation to the 15 February 2001 Meeting contained slide 16, entitled "JH & Coy and Jsekarb relationship post separation", which included: v "Ability to contribute JHIL to Foundation at later point in time." 845 This was the first reference to the Put Option and was merely descriptive of it. 846 Slide 18 contained the following under the sub-heading "Additional funds for indemnity and waiver": "- JH & Coy will run litigation - provides significant certainty to JHIL - undertaking to acquire JHIL - "life of fund" considerations and impact on success of transaction and transaction benefits (Allsop advice)" 847 It contained the second reference to the Put Option. It is merely a mention of the Put Option and does not advance the case that the non-executive directors intended, or assumed, that JHIL would, or might, be transferred out of the James Hardie group. 848 ASIC also relies on slide 50 under the heading "Key issues": v "JHIL capitalisation post restructure - to be determined v JHIL post restructure options - put JHIL to JH & Coy - separate trust for benefit of shareholders - wound-up/liquidated v JH & Coy (NZ) - as per JHIL" 849 In relation to the post-restructure options for JHIL, Mr Morley said that either Mr Macdonald or Mr Wilson spoke in relation to each of the options and there was no reference to any other options. Mr Morley agreed that each involved JHIL effectively ceasing to be an operative member of the James Hardie group after restructure. 850 Mr Brown agreed that no option was put forward in the slide that involved JHIL remaining within the James Hardie group after restructure. Mr Gillfillan accepted that each of the options involved the removal of JHIL from the group. He said he did not know the Put Option was a major part of the restructure and the references to it was somewhat veiled. He said: "Q. You see, your evidence is that you simply want to deny that you had any knowledge of the put - that's your evidence, isn't it? A. That is my evidence. I did not know that a put was a major part of this thing, and I don't believe that it was ever brought forth. In any of the documents or the presentations I saw, it was always in, as I read now, somewhat of a veiled reference to it. Q. To that end, I suggest, you will just simply deny that you saw or closely read any document that makes reference to the report ( sic )? A. No, I don't deny that I read any reference. I basically said that I read the report that came in, but I would like to bring your attention to the fact that those references are basically a phrase here, a phrase there. They are not put out as a major structural piece of this transaction, as I recall it." 851 This was one of the last slides in a 57 slide presentation. It said little about the options. 852 Mr Morley said that at about the time slide 50 was shown, Mr Macdonald said: "It is the aim of the company to put JHIL to the Foundation later on". But in later cross-examination it was put to Mr Morley that he didn't suggest that those were Mr Macdonald's precise words. He agreed. This exchange then occurred: "Q. It may have been that he used words such as those set out at the third diamond point on page 0277: that is, page 16 of your document? A. The third diamond point, Mr Finch? Q. Yes. He says, the "ability to contribute"? A. "The ability to contribute", that's correct." 853 None of the executives and directors at the 15 February 2001 Meeting recalled Mr Macdonald making the statement. This included Mr Harman. And the evidence of Mr McGregor before the Special Commission was that no consideration was given in February 2001 to transferring JHIL out of the James Hardie group. 854 I have not lost my scepticism with respect to the evidence of the non-executive directors who gave evidence, but the few references to the Put Option that support a management proposal to exercise it after approval of the Scheme tend to support their evidence that this topic was not discussed, or discussed only briefly at the 15 February 2001 Meeting. In any event, there is no evidence to suggest approval of such a proposal by the directors at the meeting. 855 ASIC submits that on this evidence both prior to and at the 15 February 2001 Meeting the board of directors was informed that it was the aim of the company to exercise the Put Option to put JHIL to the Foundation later on, namely, after the restructure when the precondition to its exercise, namely, JHIL becoming a non-operating subsidiary, was realised. 856 I reject that submission. The references to the Put Option in the material upon which ASIC relies were veiled. Nowhere was there a proposition put to the board for its approval. Mr Morley accepted in cross-examination that he did not observe any resolution of the board that JHIL would be put to the Foundation then or at a later stage. At best the evidence indicates that a proposal might be brought to the board at some time for the removal of JHIL on the James Hardie group. That had not happened by 15 February 2001. 857 An internal memorandum from Mr Shafron to Mr Macdonald was included in the board papers for the April 2001 board meeting. In it Mr Shafron looked at the possible legal consequences of completing the restructure without additional funding or capital available to JHIL, with limited additional funding or capital available to JHIL and with funding equal to either the market value or the book value of the existing net assets of JHIL available to it. Mr Shafron recommended that the third alternative had the greatest chance of avoiding delay. Mr Shafron recommended setting the additional capital at book value. 858 Under the heading "3. Equal Additional JHIL Funding" the following was stated: "This option has the most cosmetic appeal but leaves in place a significant obligation between JHINV and JHIL. It reduces completion risk but leaves in place what would be judged by the future JHIL as an altogether unnecessary capital lifeline. If JHIL is left in the same economic position after the restructure as it was in before, then stakeholders should effectively be deprived of grounds for complaint. They may argue that the asset position prior to the restructure (ownership of JHNV) is more attractive than the asset position after the restructure (ability to call on JHINV to pay under partly paid shares) but that may be seen as a subtlety only. They may argue that JHIL could cancel the partly paid shares shortly after the scheme was approved – to which the reply would be that the then JHIL directors are still subject to the Corporations Law and to the risk of suits if they breach their director duties involving creditors. In response to questions about the reason for the level of funding, JHIL may say that the intention was to ensure that the company remained in the same position, that the future funding requirements of JHIL could not be determined with precision so the logical solution was to ensure no change. JHIL may say that, naturally, no guarantees could be given that the capital structure of JHIL would not be re-examined over time, but that was not a pressing issue." 859 ASIC submits that the message conveyed included that the additional available capital was not, and would not, be needed by JHIL after the restructure and thus the partly paid shares could be cancelled after the Court approval of the Scheme. It was submitted that the cosmetic appeal of the partly paid shares was that they would give the appearance that JHIL had sufficient funds to meet all Asbestos Claims whereas the true position was that, in JHIL's view, it had no such liabilities and the partly paid shares, therefore, could not logically provide any comfort to stakeholders. 860 But each of the options considered by Mr Shafron involved a real liability of JHINV to JHIL, the third option being chosen because it left JHIL in the same economic position before and after the restructure. There was more than cosmetic appeal in this. I do not regard the reference to an unnecessary lifeline as supporting the proposition that the non-executive directors knew, or assumed, that the partly paid shares would be cancelled. The board was not asked at the April 2001 meeting to approve the cancellation of the partly paid shares following the implementation of the Scheme. It was but one of several scenarios examined by Mr Shafron. 861 Under the proposed Scheme, if JHIL was to be supplanted as the holding company, it was necessary to leave sufficient funds in JHIL to discharge its future liabilities. As sufficient work to determine an exact figure for the liabilities had not been done, the partly paid shares served the purpose of ensuring that sufficient funding was available without tying up a lot of cash in JHIL. Hence the partly paid shares did have a commercial purpose. 862 The focus of the April meeting was the consolidation of James Hardie's pipes and windows businesses and finding a way to rid itself of its gypsum business. The directors also received an update concerning a restructure and re-domicile by way of scheme of arrangement. 863 Mr Brown said that at the meeting the board was told that while JHIL's liabilities were likely to be small, they were complex and would take some time to assess and management was busy putting together the re-domicile proposal. He agreed that he was told something to the effect that the liabilities were not likely to be near the level of the limit of the partly paid shares. 864 It was put to Mr Gillfillan that reference to no guarantee that the capital structure of JHIL would not be re-examined over time could be read as Mr Shafron saying that they could not guarantee that they would not get rid of the partly paid shares. Mr Gillfillan said that sitting in the witness box he could see how that could be said. 865 It was put that Ms Hellicar agreed that for other than cosmetic reasons there was no need to leave additional funds in JHIL. But all she said was that she noted that Mr Shafron said that. Reading the document in the witness box, she accepted that what it was saying was that having anything above actual creditors was simply to provide cosmetic appeal. 866 Mr Koffel agreed that the liabilities of JHIL might take a bit of quantification but would not be particularly significant. 867 The slide presentation at the April 2001 meeting under the heading "Funding JHIL post Green" used the language in Mr Shafron's memorandum: v "3 Options available regarding JHIL's funding post restructure i) no additional funding or capital available to JHIL ii) limited additional funding or capital made available to JHIL iii) funding equal to either the market value or the book value of the existing net assets of JHIL v If funding to be made available, preferred method is via partly paid shares - subscribed for by JHI NV - JHIL's holding company after restructuring v Restructure has greatest chance to avoid delay if option iii) is pursued v Restructure should not fail if options i) or ii) are pursued, but there is potential for delay." 868 Under the heading "Key issues" the following was presented: v "Court provides ready forum for attack (and delay) - expectation that stakeholders will be present - unions may seek to intervene v Possible that stakeholders argue insufficient funds - could argue that JHIL has future claims against it - may also argue all future claimants are creditors v JHIL may need to demonstrate either: - no liability for claims; or - sufficient funding v If announced stand-alone, likely viewed cynically v An announcement in conjunction with an announcement of the sale of gypsum/portfolio rebalance preferable – provides valid explanation for the restructure." 869 Under the heading "3 key options", the slide presentation addressed each of the key options discussed in Mr Shafron's memorandum. With respect to his third, preferred, option the slide contained the following: v "JHIL funding equal to existing JHIL assets - JHIL in same economic position as before Green - reduces risk but leaves in place an unnecessary capital lifeline - can look at capital structure later - still affected by directors' duties - book (A$660m) v market value (approx. A$1,800m) - better justification for book." 870 It was put to Mr Gillfillan that the slide suggested that there would be a revisitation of the capital structure of JHIL. Mr Gillfillan said there could be. It was put to him that the capital structure was the partly paid shares. He said he saw that looking at it then in the witness box but he did not know if he was aware of that at the time. 871 Another version of this slide was in evidence. Instead of the words "can look at capital structure later", the words were "can still cancel shares later". There was no evidence that this was the slide before the meeting rather than the other one. ASIC concedes the other one was more likely to have been before the meeting because it was produced by BIL Australia. 872 The slide before the meeting does not suggest a cancellation of the partly paid shares, contrary to ASIC's submission that the directors could only have understood those words as a reference to their later cancellation. There was no other reference in the slide presentation to the cancellation of the partly paid shares. 873 ASIC submits that in voting at the April 2001 board meeting to approve the Project Green restructure including the issue of the partly paid shares, the non-executive directors intended that JHIL would, or might, be transferred out of the James Hardie group after the Scheme was implemented, or they assumed that it would, or might, happen. Alternatively, ASIC submits that they understood that Mr Macdonald and or Mr Shafron intended or proposed that it would, or might, happen, or they understood that no determination had been made that the partly paid shares would not be cancelled or put pursuant to the Put Option. 874 The last alternative is self-evident. There is no suggestion that such a resolution was passed. As to the other alternatives, I reject ASIC's submission. ASIC has pointed to nothing that occurred at the April 2001 board meeting that would lead to that conclusion. There was no mention in the slide presentation of the removal of JHIL from the James Hardie group after the implementation of the Scheme. 875 The absence of reference to the removal of JHIL from the James Hardie group in the documentary evidence supports the oral testimony of the non-executive directors who gave evidence. Mr Brown, Mr Gillfillan, Ms Hellicar and Mr Koffel all rejected the suggestion that someone said at the April meeting that the first step was for the partly paid shares to be left until after the restructure and the second step would be their cancellation. 876 Mr Willcox did not attend the April 2001 board meeting but said that Mr Shafron's memorandum did not cause him to believe that the partly paid shares would, or should, be cancelled once they had been issued. 877 Mr Koffel said he believed the partly paid shares were inviolable and the directors of JHIL had a duty to ensure that. 878 The board papers for the May 2001 board meeting included a Draft IM with a covering memorandum from Mr Shafron stating that it was not essential reading. 879 A document entitled "Corporate Restructure" was included in the board pack. Under the heading "Funding JHIL post restructure by partly paid shares" the following appeared: v "JHIL will be recapitalised following the dividend and capital reduction via JHI NV subscribing for partly paid shares in JHIL (paid to $0.01), such that JHIL's total assets and uncalled capital will be equal to JHIL's book net asset value prior to the transaction (A$575 million). JHIL will be able to make calls on the unpaid amounts at any time and in any amounts although consideration is being given to restricting the right to make calls to meet liabilities only. This should provide more than sufficient funding for JHIL to meet its obligations to the Foundation and creditors while arguably leaving JHIL in a similar financial position to its current position." 880 It made no reference to a possible cancellation of the partly paid shares. Nor was there any reference in the May slide presentation to a possible cancellation of the partly paid shares and the slide entitled "Funding of JHIL post restructure" used similar language to the above: v "JHIL recapitalised post dividend and capital reduction - JHI NV subscribes for partly paid shares such that JHIL's net assets and uncalled capital equals book net assets prior to restructure (A$625m) v JHIL able to make calls on partly paids at any time/in any amount - consideration being given to restricting right to make calls v Should provide more than sufficient funding for JHIL to meet its obligations to the Foundation and creditors while leaving JHIL in a similar financial position to its current position" 881 The slide presentation for the May 2001 board meeting under the heading "Executive Summary" recommended that a decision on Project Green be delayed until a firm decision and announcement could be made on gypsum because Project Green execution risk was minimized when undertaken in combination with the gypsum sale. 882 A slide entitled "Litigation Issues" stated: v "Initial reaction is that main stakeholder interest will be in capital reduction - IM may need additional explanation regarding the partly paid shares mechanism - No major issues or oversites ( sic ) identified - Court will ask for ASIC's views - confidential filing of Scheme booklet with ASIC recommended by counsel (already plan to submitted ( sic ) in week commencing 21 May)" 883 There was no reference to the Put Option in the board papers for the May 2001 meeting or in the slide presentation for that meeting. There was no evidence of any discussion at the May 2001 board meeting concerning the possible cancellation of the partly paid shares. 884 In June 2001, Mr Macdonald sent to the board a "Board update paper" advising of difficulties with respect to the sale of the gypsum business and stating that it was no longer proposed to announce the sale of the gypsum business and the restructure together. The board's agreement was sought to the retention of gypsum for the present and for further work to be done on Project Green with an eye to an announcement and implementation at the appropriate time. 885 In the board pack for the 12 July 2001 meeting was a paper entitled "Corporate Restructure". Under the heading "Funding JHIL post restructure by partly paid shares" the following appeared: v "It is still intended that JHIL be funded post the transfer of JHNV to JHI NV (by way of dividend and capital return) via the use of partly paid shares in order to provide funding if required. It is now intended that the total value (paid and unpaid) of the partly paid shares be based on the market value of JH NV such that the market value of JHIL be the same immediately pre and post the restructure, leaving JHIL in effectively the same financial position. This position is a change from that discussed with the Board and arises following the advice Noel Hutley SC, who strongly argues for market value to ensure a smooth passage through the courts." 886 There was no evidence of any discussion at the 12 July 2001 board meeting concerning a possible cancellation of the partly paid shares nor was there a reference in the slide presentation to a cancellation. The Put Option was not mentioned or referred to either in the 12 July 2001 board papers or in the slide presentation at the meeting and there was no evidence of any discussion of the Put Option at the meeting. 887 There was a further board meeting on 23 July 2001. Before that meeting a copy of the latest Draft IM was forwarded to Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox. It made no reference to the DOCI or the Put Option. This was the Draft IM. It was the document before this Court in August 2001. 888 Mr Brown discussed the Draft IM with Mr Macdonald who sent an email to Mr Sweetman and Mr Cowper entitled "Michael Brown's IM Comments" before the meeting. It raised five issues with respect to the Draft IM. 889 There was no evidence of any discussion at the 23 July 2001 board meeting of any possible cancellation of the partly paid shares or any discussion concerning the Put Option. Mr Koffel did not attend the 23 July 2001 board meeting. 890 The directors present at the 23 July 2001 board meeting resolved to approve the Scheme documents including the Draft IM (Draft IM Resolution). ASIC alleges that those directors confirmed that, based on all the information made available to them, including management presentations, and legal, tax and corporate advisory input, he or she (as the case may be) agreed with all recommendations and statements in the form and the context in which they were included in the Scheme Documents and the reasons for the recommendations and statements, particularly the statements listed in a document entitled "Annexure A", and attached to the minutes of the meeting; to the best of their knowledge the Scheme Documents did not contain any misleading or deceptive statements and no material matter had been omitted; they believed that the proposal was in the best interests of JHIL and its shareholders in order to secure the benefits and advantages set out in the Draft IM; the proposed capital reduction was fair and reasonable to JHIL's shareholders and did not materially prejudice JHIL's ability to pay its creditors; they intended to vote their shares in favour of the Scheme; and they had reviewed sections 7.7 to 7.10 and 7.13 to 7.15 of the Draft IM and confirmed the accuracy of those statements (July Board Confirmation). 891 ASIC alleges that the Draft IM was false or misleading in that it contained the following statements: "Under the terms of issue of the partly paid shares JHIL will be able to call upon JHI NV to pay any or all of the remainder of the issue price of the partly paid shares at any time in the future and from time to time." And: "The partly paid shares will provide JHIL with access to cash if required in the future to meet any liabilities of JHIL, whilst allowing JHI NV to obtain the financial efficiencies that the Proposal is expected to provide." And: "Other than as contained in the Information Memorandum, there is no information material to the making of a decision in relation to the Scheme (being information that is within the knowledge of any Director of JHIL or a related company) which has not previously been disclosed to JHIL Shareholders." 892 ASIC alleges that these statements were misleading in that JHIL would not be able, or did not have reasonable grounds for stating it was able, to call upon JHINV to pay because JHIL could cancel the partly paid shares at any time in the future and the management of JHIL had made proposals that necessarily, or most likely, involved the cancellation of the partly paid shares or the putting of JHIL to Coy pursuant to the Put Option. It is further alleged that was the intention of the board or it was acting upon that assumption. 893 The Draft IM had to contain material information. Section 412(1) of the Corporations Act provided: "Where a meeting is convened under section 411, the body must: (a) with every notice convening the meeting that is sent to a creditor or member, send a statement (in this section called the explanatory statement ): (i) explaining the effect of the compromise or arrangement and, in particular, stating any material interests of the directors, whether as directors, as members or creditors of the body or otherwise, and the effect on those interests of the compromise or arrangement in so far as that effect is different from the effect on the like interests of other persons; and (ii) setting out such information as is prescribed and any other information that is material to the making of a decision by a creditor or member whether or not to agree to the compromise or arrangement, being information that is within the knowledge of the directors and has not previously been disclosed to the creditors or members; and (b) in every notice convening the meeting that is given by advertisement, include either a copy of the explanatory statement or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of the explanatory statement." 894 In determining what information was material, Farwell J said at first instance in Cackett v Keswick [1902] 2 Ch 456 at 464: "The test must be, Is the omission material? And if the Court sees that the fact omitted is of such a nature that it might reasonably deter, or tend to deter, the ordinary investor from entering into the contract, this is sufficient." 895 In Australian Consolidated Investments Limited v Rossington Holdings Pty Limited (1992) 35 FCR 226 at 227, Davies J described material information as information that was necessary to enable an offeree to make an informed assessment of the offer. 896 And in Re HIH Casualty and General Insurance Ltd [2006] NSWSC 485, (2006) 57 ACSR 791 at [81] Barrett J said of s 412 of the Corporations Act: " At the heart of the disclosure requirement is a concept of materiality. In other words, anything which, if known and appreciated, has the capacity to influence a creditor's decision and judgment whether to vote one way rather than the other (and, indeed, whether to participate at all) must be made known as part of the explanation called for by s 412." 897 There is no doubt that if the directors had determined that after the implementation of the Scheme the partly paid shares would be cancelled, or JHIL would be put to Coy under the Put Option, that would have been information that was material to the making of a decision by a member in terms of s 412(a)(ii) of the Corporations Act. The central question under this issue is whether there was such a determination or an assumption of a like determination by the management of JHIL. 898 ASIC alleges that in approving the Draft IM Resolution; in making the July Board Confirmation; in failing to seek or request further advice from Allens concerning the need to disclose the board's, or the directors' intentions or understandings, or any management proposal concerning the future of JHIL and the partly paid shares, or the terms and effect of the Put Option; and in failing to disclose material information, Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox breached Section 180(1). 899 The information asserted by ASIC to be material was that JHIL could cancel the partly paid shares any time in the future; management of JHIL had made proposals concerning the future of JHIL, which necessarily involved or most likely required the cancellation of the partly paid shares, or alternatively, the putting of the partly paid shares to Coy pursuant to the Put Option; the board of JHIL had not determined or resolved that the partly paid shares would not be cancelled or put pursuant to the Put Option; from no later than March 2001 until October 2001, it was the intention of the board of JHIL, or one or more of its members, that either JHIL would or might be transferred out of the James Hardie group, or that the partly paid shares would or might be cancelled, or both, after the Scheme was effected; further, and in the alternative, from no later than March 2001 until October 2001, the board of JHIL, or one or more of its members, were acting on the assumption that, either JHIL would or might be transferred out of the James Hardie group, or that the partly paid shares would or might be cancelled, or both, after the Scheme was affected; further, and in the alternative, from no later than March 2001 until October 2001, management of JHIL, being Macdonald and Shafron, intended or proposed that JHIL would or might be transferred out of the James Hardie group, or that the partly paid shares would or might be cancelled, or both, after the Scheme was effected; further, and in the alternative, from time to time between November 1999 and March 2001, management of JHIL had made proposals to the board of JHIL which involved either JHIL being transferred out of the James Hardie group, or the cancellation of the partly paid shares, or both, after the Scheme was effected; and further, and in the alternative, the existence of and terms and effect of the Put Option (Material Information). 900 I do not accept that Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox intended or assumed that the partly paid shares would be cancelled or that JHIL would be put to Coy under the Put Option. 901 ASIC relies on snippets of statements here and there in documents and slides and evidence of board discussion. None of it singly or cumulatively persuades me that there was an intention on the part of the board or management to take those steps. Certainly the idea of management of putting JHIL to Coy was discussed towards the end of the catalogue of material upon which ASIC relies. But that was something for the future. The board was not asked to make a decision on it and there was no evidence that the collective view of the board of directors of JHIL was to approve that course. 902 Directors must act collectively. An individual director has no implied authority to act unilaterally. In Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205, Dawson J said: "But the position of director does not carry with it any ostensible authority to act on behalf of the company. Directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it." 903 And in Stirling Resources NL v Capital Energy NL (1996) 14 ACLC 1,005 at 1,010, Hill J said: "Views in the minds of individual directors not communicated to other directors nor made the subject of board decision, can not be taken as being the plans of the company of which the proponents are directors. It is trite to say that a company can only act through its directors. Likewise a company's intentions can only be judged by reference to the intentions of the directors, not the directors singly but the directors acting as a board. There may be cases in which a particular person may be found as a fact to be the governing mind of a company so that that person's intentions may be taken as being the intentions of the company. The present has not, however, been shown to be the case." 904 The Draft IM was not false or misleading. There was no intention or assumption on the part of JHIL that would deny its ability to call upon JHINV to pay all or any of the remainder of the issue price of the partly paid shares. There was no Material Information that the directors were required to reveal. If the directors made the July Board Confirmation, they were entitled to do so. The directors were entitled to approve the Draft IM Resolution. There was no need to request further advice from Allens. 905 ASIC has failed to establish its case that with respect to the Draft IM, Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox were in breach of Section 180(1). 9.2 Section 180(1) and Mr Macdonald 906 The Draft Court Letter was sent by Mr Robb to Mr Shafron on 12 August 2001. It was addressed to the Associate to Santow J and sought to deal with some of the issues raised by his Honour at a hearing on 10 August 2001. Mr Robb forwarded the Draft Court Letter to Mr Macdonald on 13 August 2001. 907 Under a heading "What effect will the Scheme, if implemented, have on asbestos claims against James Hardie?" a similar statement to that contained in the Draft IM appeared: "As stated by Counsel in response to this query, the Scheme will not affect the position regarding asbestos claims. The former subsidiaries of JHIL against which proceedings have been taken in the past in relation to asbestos claims were transferred to an independent Medical Research and Compensation Foundation in February 2001. [Those subsidiaries have been the only Australian incorporated JHIL entities which have been held liable to asbestos claimants]. JHIL has at times been joined as a party to such proceedings, but has always successfully resisted any claims against it. That said, it cannot be said that JHIL will never be held liable. JHIL will have, through existing reserves and access to funding in the form of the partly paid shares, the means to meet liabilities which it may incur in the future whether in relation to such claims or any other matters." 908 Some time in the afternoon of 13 August 2001 the Draft Court Letter was settled and a copy was sent to Santow J's Associate. This Final Court Letter, under the same heading, stated: "As stated by Counsel in response to this query, the Scheme will not affect the position regarding asbestos claims. The former subsidiaries of JHIL against which almost all proceedings have been taken in the past in relation to asbestos claims were transferred to an independent Medical Research and Compensation Foundation in February 2001. JHIL has at times been joined as a party to such proceedings, but has always successfully resisted any claims against it. One adverse finding at first instance was overturned on appeal: see James Hardie & Coy Pty Limited & Ors v Hall (as Administrator of the estate of Putt) (1998) 43 NSWLR 554. That said, it cannot be said that JHIL will never be held liable. JHIL will have, through existing reserves and access to funding in the form of the partly paid shares, the means to meet liabilities which will or may arise in the future whether in relation to asbestos-related claims or other obligations to other persons." 909 As a director, Mr Macdonald was party to the Draft IM Resolution. Similar allegations are made against him as are made against Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox. It is alleged that in approving the Draft IM Resolution, in making the July Board Confirmation, in failing to advise the board that the Draft IM was false or misleading, in failing to advise the board and each of its directors that if they made the July Board Confirmation it might be, or would be, false or misleading and in failing to advise each of the board members not to make the July Board Confirmation, Mr Macdonald was in breach of Section 180(1). 910 Consequent upon my finding that the Draft IM was not false or misleading these allegations must fail. 911 It is also alleged that Mr Macdonald breached Section 180(1) in failing to advise, or remind the board of the effect of the Allens advice and the November 2000 slide presentation in relation to the need to disclose the directors' intentions in relation to JHIL and the partly paid shares, in failing to seek further advice from Allens concerning the need to disclose the board's or the directors' intentions, or understandings, or any proposals from management concerning the future of JHIL and the partly paid shares, or the terms and effect of the Put Option and in failing to place any such advice before the board and either proposing the redrafting of the Draft IM or advising the board not to approve the Draft IM. 912 These further allegations suffer the same fate. Since the Draft IM was not false or misleading, there was no want of care on Mr Macdonald's part in failing to remind the board of Allens' advice. 913 Additionally, ASIC charges Mr Macdonald that he breached Section 180(1) in instructing Allens to send the Final Court Letter, or in failing to query Allens regarding the accuracy of the Draft Court Letter, or in failing to correct its contents. 914 There is some doubt as to whether the evidence establishes that Mr Macdonald settled the Final Court Letter or instructed Allens to send it. 915 Assuming in ASIC's favour that Mr Macdonald did so act, the allegation and its alternative that he failed to query Allens regarding the accuracy of the Draft Court Letter or correct the contents of it must suffer the same fate. It is alleged that the passages from the Draft Court Letter and the Final Court Letter set out above were false or misleading in that they represented that JHIL would be able to call upon JHINV to pay any or all of the remainder of the issue price of the partly paid shares to meet any asbestos liabilities it might have in the future subject to the call conditions. It is alleged that the passages also represented that neither JHIL nor any of its directors had any present intention to seek the cancellation of the partly paid shares, nor any understanding that that would occur, after the Scheme was effected and that neither JHIL nor any of its directors were aware of any proposal from management to seek the cancellation of the partly paid shares after the Scheme was effected. 916 It is alleged that these representations were false or misleading in that JHIL could cancel the partly paid shares at any time in the future and the management of JHIL had made proposals concerning the future of JHIL which necessarily involved, or most likely required, the cancellation of partly paid shares or the putting of JHIL to Coy pursuant to the Put Option. 917 I have found that the Draft IM was not false or misleading. The management of JHIL had not made proposals concerning the future of JHIL that were other than matters that might arise for consideration in the future. There was no proposal that involved, or most likely required, the cancellation of the partly paid shares or the putting of JHIL to Coy under the Put Option when the Draft IM was approved on 23 July 2001. 918 Since the statements in the Draft Court Letter and the Final Court Letter are to the same effect as the statements in the Draft IM, it follows that neither of them was false or misleading. 919 ASIC has failed to establish that Mr Macdonald's conduct with respect to the Draft IM, the Draft Court Letter and the Final Court Letter was in breach of Section 180(1). 9.3 Section 180(1) and Mr Shafron 920 Mr Shafron did not attend the 23 July 2001 board meeting. The allegations against him are made in respect of his conduct on and prior to 23 July 2001 and on or about 12 August 2001 when he received the Draft Court Letter. 921 The pleading is similar to that with respect to Mr Macdonald. It is alleged that Mr Shafron breached Section 180(1) in failing to take steps to ensure that the board was advised that the Draft IM was false or misleading; in failing to take steps to ensure that each member of the board was advised that if he or she executed the July Board Confirmation, it would be, or might be, false or misleading; and in failing to take steps to ensure that the board did not make the July Board Confirmation. It is also alleged that Mr Shafron breached his duty in failing to take steps to ensure that each member of the board was advised or reminded of the contents of the November 2000 slide presentation and the Allens advice. With respect to the Draft Court Letter and the Final Court Letter it is alleged that Mr Shafron was in breach of his duty in instructing Allens to send the Final Court Letter, or in failing to query Allens regarding the accuracy of the Draft Court Letter, or in failing to correct the contents of the Draft Court Letter. It is further alleged that in failing to seek further advice from Allens concerning the need to disclose the board's, or the directors' intentions or understandings, or any management proposals, concerning the future of JHIL and the partly paid shares, or the terms and effect of the Put Option and in failing to take steps to ensure that any such advice was placed before the board, and that he propose a redrafting the Draft IM, or he advise the board not to approve the Draft IM, Mr Shafron breached his duty to JHIL. 922 For the reasons discussed with respect to Mr Macdonald, ASIC has failed to establish that Mr Shafron's conduct with respect to the Draft IM, the Draft Court Letter and the Final Court Letter was in breach of Section 180(1). 9.4 Section 995(2) and JHIL 923 ASIC alleges that in issuing the Final IM, JHIL engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of Section 995(2). 924 On 23 August 2001, Santow J ordered the dispatch of the Final IM to JHIL shareholders. It contained in identical terms the passages in the Draft IM that ASIC alleges were false or misleading. 925 Since I have found that these passages did not render the Draft IM false or misleading, it must follow that the Final IM was not false or misleading. 926 It follows that JHIL did not in dispatching the Final IM to its shareholders engage in conduct that was misleading or deceptive, or was likely to mislead or deceive. 927 ASIC has failed to establish its allegation that in dispatching the Final IM to its shareholders, JHIL was in breach of Section 995(2). 9.5 Section 999 and JHIL 928 ASIC alleges that in issuing the Final IM, JHIL was in breach of Section 999. One of its requirements is that a person has made a statement, or disseminated information, that is false in a material particular or is materially misleading. 929 Since I have found that the Final IM is not false or misleading, it could not be false in a material particular or materially misleading. 930 ASIC has failed to establish its allegation that in issuing the Final IM to its shareholders, JHIL was in breach of Section 999. 10 Roadshow Presentations issue 931 In a memorandum to the board of JHINV on 31 August 2002, Mr Baxter described why the James Hardie group had not conducted an international roadshow since 1999. It stated: "James Hardie has not conducted an international roadshow since February/March 1999. This was a deliberate move in the wake of the failed Chelsea IPO and as work progressed on Project Green. Until we had established the Foundation, completed the Green restructuring and sold Gypsum, our story would have been relatively unattractive and difficult to explain. By contrast, the pure-play fibre cement story is simple and attractive and our decision to "keep our powder dry" has been validated." 932 In his memorandum Mr Baxter said of the 2002 management presentation programme that it was designed to introduce James Hardie to a large number of foreign investors who were in most cases unfamiliar with the company. 933 The Edinburgh Roadshow and the London Roadshow were part of this investor relations programme that Mr Baxter said was designed to expand the market for JHINV shares in the core Australian markets as well as in the world's major equity centres in the US, Europe and Asia. The paper said there were two related objectives: to reduce share price volatility and increase trading liquidity. 934 Typically a roadshow presentation consisted of an introduction, a PowerPoint presentation or consideration of paper copies of the slides and a question and answer session to groups or in a series of one on one meetings with institutional clients of sponsoring stockbroking firms. It was the usual practice that a paper copy of the presentation was handed to each attendee at a meeting. Both the Edinburgh Roadshow and the London Roadshow were conducted by Mr Macdonald with Mr Baxter present. 10.1 Breach of Section 180(1) by Mr Macdonald 935 Mr Macdonald became a director and the chief executive officer of JHINV in August 2001. He was a member of the supervisory board of JHINV and he is recorded as attending meetings. His duties with respect to JHINV were similar to those he performed on behalf of JHIL. They encompassed his making and authorising public statements on behalf of JHINV and of briefing financial analysts. In the past he had conducted numerous roadshow presentations in the United Kingdom, Europe, the US, Hong Kong and Singapore. His duty of care and diligence to JHINV was particularly onerous in relation to public statements made on behalf of the company. 936 Mr Baxter said that the usual practice in JHIL and later in JHINV was for Mr Baxter to prepare a proposed PowerPoint presentation and to send it to Mr Macdonald. Mr Baxter said that Mr Macdonald usually made changes to the presentation and the version updated by Mr Macdonald became the final set of slides to be used in a roadshow presentation and for lodgement with the ASX. Mr Baxter took paper copies of the slides overseas and they were used for the presentations. 937 Mr Baxter said that consistent with this usual practice he prepared a PowerPoint slide presentation for the Edinburgh Roadshow and the London Roadshow and sent them to Mr Macdonald for approval sometime in May or early June 2002. The UK Slides were sent to the ASX at a time in Australia coinciding with the Edinburgh Roadshow on 10 June 2002 Scottish time. 938 It was submitted that ASIC had not established that Mr Macdonald approved the provision of the UK slides to the ASX. 939 No suggestion was put in cross-examination that Mr Baxter departed from his usual practice; that he did not send the slides to Mr Macdonald; that he did not receive Mr Macdonald's approval; that Mr Macdonald advised or provided amendments to the slides that Mr Baxter ignored or failed to incorporate; or that Mr Macdonald advised or directed Mr Baxter that the slides not be provided to the ASX and Mr Baxter ignored or failed to act upon that instruction. 940 The inference I draw from the evidence is that Mr Macdonald either approved the provision of the UK Slides to the ASX or he failed to advise that they not be provided. 941 The itinerary for the United Kingdom and European roadshows included a number of group lunches and one on one presentations. Among those was a group lunch at the Bonham Hotel in Edinburgh on 10 June 2002. Mr Thompson described the Edinburgh Roadshow as being delivered over lunch with some opening comments by Mr Macdonald and a question and answer session. 942 In proceedings alleging that conduct was misleading or deceptive or likely to mislead or deceive and that conduct was the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in the proved circumstances (Watson v Foxman (1995) 49 NSWLR 315 at 318). 943 Mr Baxter took notes at the lunch at the Bonham Hotel and recorded four questions asked of Mr Macdonald as: "Asbestos – How secure Any comeback? How much time before it runs out Any obligation to pay more." 944 Mr Thompson said that he recalled Mr Macdonald saying during the lunch: "We set up a foundation and asbestos has been ring fenced". Mr Thompson said he asked: "How can you guarantee that?" He did not recall the actual response given by Mr Macdonald. 945 The first of the UK Slides had the James Hardie logo and its name and stated: "Unique Technology Driving High Growth". It was followed by a slide providing a brief history. The third slide was entitled: "An Emerging Company" and provided some financial information. Slide 4 was in the following terms: " Restructured for Focus and Growth Ø All non-core businesses sold 1995-2002 - proceeds 96-02 US$800 million - profits over book 96-02 US$170 million Ø Asbestos Foundation established 2001 - future claims separated and fully funded - no future liability – no provision required Ø New corporate structure established 2001 - higher after tax returns - ASX primary listing with full index weighting - ADR's listed on NYSE Ø Fibre Cement is our business" 946 Slide 5 was headed: "Attractive Investment Attributes" and slide 6 commenced a series of slides on James Hardie's development of the fibre cement technology and its operations in the US. Slide 22 commenced a series of slides on Asia as a large market with significant growth potential. Slide 25 dealt with Chile and South America. Slide 26 dealt with pipes and slide 27 dealt with roofing. Slide 28 focused on the longer term and slide 29 entitled: "High Growth Plus Cash Returns" described returns per share. Slide 30 was concerned with the use of the gypsum sale proceeds and slides 31 and 32 contained a comparative analysis of profits by product and region for the years ended 31 March 1999 to 31 March 2002. Slide 33 returned to "High Growth and Attractive Returns Targeted" and the presentation concluded with slide 34 containing a disclaimer. 947 Mr Thompson was referred to slide 4. He did not recall the actual presentation but he recalled Mr Macdonald saying words to the effect: "The Foundation is fully funded to meet future claims, so asbestos is not an issue for James Hardie." 948 In cross-examination it was put to Mr Thompson that to the extent that statements were made at the lunch they were not new statements. Mr Thompson agreed. The following exchange then took place: "Q. They were dealing with matters of history, as you understood them? A. Yes. Yes. And ongoing – yes. The asbestos issue, in their words, had been put to one side. Q. They were telling you something - A. End of story. Q. They were telling you something which they said had happened over a year ago? A. Yes." 949 Mr Thompson agreed that at these presentations he did not expect to receive information that was not already publicly available. He agreed that his best recollection was that nothing was said at the presentation at the Bonham Hotel that he did not regard as already publicly available. 950 It was put to Mr Thompson that he had no recollection of the events at the Bonham Hotel but had reconstructed what he thought might have happened. He did not accept that proposition in its entirety. He said: "This – yes. This is my recollection- it may not be word perfect – of what was said." 951 It was put to Mr Thompson that Mr Macdonald did not say the Foundation was fully funded but rather the Foundation was, on establishment, fully funded. He disagreed. The first exchange to this effect was: "Q. Just to be perfectly fair to you, what I am suggesting to you is – if you look at the last two lines of paragraph 11 in your affidavit, the ones in italics, I want to suggest to you, given your state of recollection, that it is perfectly possible that he said something like: The Foundation was, on establishment, fully funded Rather than: The Foundation is fully funded. A. Well, I doubt that, and the reason why I doubt that is because of the next part of that sentence, that it is no longer an issue. If he had said "The Foundation was fully funded", it implies that there might – to me, it implies that there might be a future liability." 952 The matter was put again and rejected by Mr Thompson: "Q. All I am suggesting to you is given your recollection of what was said and not said at the meeting and indeed your lack of recollection of any of the precise words, that it is quite possible that he used the past tense "was" rather than present tense "is"? A. I think that would be unlikely." 953 Mr Thompson conceded that he did not recall the exact words used. It was put to him that Mr Macdonald did not use the words "not an issue". Mr Thompson answered: "A. My recollection is that the conversation took place, that there was – you know, it was a historical event, and it was all closed, you know, therefore, not an issue, not something that investors or future investors should be concerned about." 954 It was put to him that he understood Mr Macdonald to be talking of things that had happened in 2001. Mr Thompson replied: "A. 2001 and up until June 2002, because we're talking about the state of the company at that point." 955 It was submitted that Mr Thompson had no recollection of what Mr Macdonald had said and had reconstructed what he thought may have occurred using the UK Slides. I reject that submission. Mr Thompson was a candid and disinterested witness. In the passages to which reference is made above, he conceded he had no recollection of the exact words used but, time and again, Mr Thompson said he had a recollection of the effect of what was said. I accept that evidence and reject the notion that all that Mr Macdonald said was that the Foundation was fully funded when it was established. The whole purpose of the roadshows was to extol the then current position of the company as Mr Thompson said. It was with respect to the position in June 2002 that Mr Macdonald made reference to a fully funded Foundation. 956 Likewise, slide 4 of the UK Slides conveyed the meaning that the Foundation was fully funded in 2002 and there was no future liability that required a provision to be raised in the accounts. 957 It was submitted that the statements attributed to Mr Macdonald in the Edinburgh Representations and in slide 4 said nothing as to whether the outcome was "certain" or "highly likely". I reject that submission. The term "fully funded" is emphatic as is the phrase "no future liability". The emphatic nature of the statements implies certainty or high likelihood. What is conveyed does not need to match the words used. 958 It was submitted that Mr Macdonald was entitled to believe that Mr Baxter would inform him if anything he said during the Edinburgh Roadshow of the London Roadshow was incorrect, inappropriate or needed correction. I reject that submission for the reasons discussed with respect to the Draft ASX Announcement. The words used in the ASX Representations and in the Edinburgh Representations were expressions in ordinary English that did not require Mr Baxter's expertise in public relations to elucidate. 959 It was submitted that the words conveyed no more than that the funding was by reference to calculations and estimates that involved predictions as to the future incidence and outcomes of claims at that time. I reject that submission for the reasons discussed with respect to the Draft ASX Announcement. The vice lay in choosing to use over-emphatic language. 960 The submission that the statements were not new and related to something that had happened over a year previously fall into the same category as the submission that Mr Macdonald used the past tense in relation to the phrase "fully funded". As Mr Thompson said, the statement was not only with respect to the past but also with respect to the position of the company as at June 2002. 961 For the same reasons I reject the submission that nothing was said to Mr Thompson that was not already publicly available. The repetition of assurances that the Foundation was "fully funded" as at June 2002 was a new assertion not in the public domain. 962 Mr Thompson said in relation to any company he was analysing an investment case would be put forward and he and other analysts would review it to determine whether or not they agreed to proceed with an investment. He would look at information on the company as far back as was available. When he went to a meeting such as the Edinburgh Roadshow there was a deal of work that had to be undertaken before he was likely to make an investment decision. 963 A decision to invest in the James Hardie group would turn very much upon an analysis of its actual and prospective financial position. A decision would be made not to invest in the James Hardie group if there was not perceived to be enough value and that turned on considerations such as its forecast earnings and earnings multiple. 964 Edinburgh Fund Managers had not invested in the James Hardie group before the meeting with Mr Macdonald and Mr Baxter and did not invest in the James Hardie group thereafter. 965 It was submitted that Mr Thompson's non-reliance upon what was said by Mr Macdonald in the Edinburgh Representations prevented Mr Macdonald being found to have breached his duty of care. But Mr Macdonald is not charged with a breach of duty to Mr Thompson or Edinburgh Fund Managers or to the public generally. Nor is he charged with a breach of a statutory requirement not to mislead or deceive the public. To constitute a breach by Mr Macdonald of his duty under Section 180(1) did not require that Mr Thompson should suffer loss or damage by his reliance upon the Edinburgh Representations. 966 Mr Macdonald was charged with a breach of his duty of care and diligence to JHINV and for the reasons discussed with respect to the Draft ASX Announcement, Mr Macdonald knew, or ought to have known, that there was a risk of harm to JHINV if he published a statement that was false or misleading, because JHINV would contravene, or risk contravening, Section 1041E, Section 1041H and Section 52. And if the false or misleading statement was revealed, Mr Macdonald knew, or ought to have known, it would be harmful to JHINV's reputation and could jeopardise market perceptions of it. 967 On 11 June 2002, Mr Macdonald and Mr Baxter met with Mr Simons in a one on one meeting at the London offices of his employer. Mr Simons took notes during the meeting. He said his notes recorded and he recalled Mr Macdonald using words to the following effect: "The asbestos liability has been shifted to a foundation; the foundation is fully funded; James Hardie has no liability; previously, cases have failed to claim from the parent company; James Hardie never had exposure to US asbestos." 968 Mr Simons said that, although not recorded in his notes, he recalled Mr Macdonald saying words to the effect: "Our legal advice is to the effect that we've set up a Foundation and the company no longer has a liability." 969 Mr Simons said that Pyford International plc had never invested in James Hardie group shares. In June 2002, a decision not to invest was related to concerns about the state of the housing market in the US. 970 In cross-examination Mr Simons agreed that he had no good recollection of the exact words that Mr Macdonald used. But he said he did have some recollection of the meeting. He just could not remember the exact words that were said. He said in answer to the proposition that he was told that the legal advice was that they had set up a Foundation and that the company was no longer liable in respect of the operating subsidiaries that had been transferred to the Foundation: "A. Yes, that's right. In my own words, the understanding I gained on this subject from the meeting was that we would not, if we were to become shareholders, have any risk of the company's earnings, in the future, being reduced by unexpected asbestos claims." 971 Mr Simons was taken to slide 4 and said there was some overlap between the information in it and the information in his notes. He agreed that if he had noticed any significant tension between his notes and the written handout he would have raised that matter for clarification. 972 Mr Simons did not agree that Mr Macdonald said that the Foundation was, on its establishment, fully funded. The following exchange took place: "Q. I don't say this critically at all, given the amount of time which has elapsed between this meeting and today, it is quite possible, would you agree, that Mr Macdonald said about the establishment of the Foundation that it was, on its establishment, fully funded? A. Well, as I say, I can't remember the exact words, but - Q. It is possible that that's what he said? A. It's possible. Q. That's certainly the tenor or the substance or what he said, according to your understanding? A. No. I said it was possible that's what he said, what I have written down – and this is the basis of my recollection – is that the Foundation had been funded and was fully funded and that the company we were discussing had no further liability. As you can see in my notes, that's the next four words I wrote. "JHX" is the Stock Exchange code for James Hardie." 973 The proposition was put again: "Q. Of course. What I am suggesting to you is that you cannot say now, according to your present recollection, whether or not Mr Macdonald said, as you record him here saying, "the Foundation is fully funded", or whether he said something to the effect that, "the Foundation, when established, was fully funded"? A. I can't remember the exact words." 974 It was submitted the Court should not find that Mr Macdonald used words to the effect of those set out in Mr Simons' notes together with his evidence that Mr Macdonald spoke about legal advice. It was submitted that Mr Simons had no note with respect to the legal advice and his evidence was a reconstruction from the notes he took. 975 I reject that submission. Mr Simons was quite open in accepting that he could not recollect the exact words used by Mr Macdonald but he said he had a recollection of the matters set out in the notes he took at the meeting. The contemporaneous record supports that evidence. 976 There had been a slide presentation at a UBS Warburg Conference in Sydney in May 2002, the slides for which were released to the ASX. Mr Humphris agreed that the UK Slides were essentially the same as the UBS Warburg slides. But the slide in the earlier presentation that was replaced by slide 4 did not contain the assertion that the Foundation was fully funded. It was as follows: " Transformation Completed Ø All non-core and under-performing businesses sold - Gypsum sold for US$345 million – 30% above book - Las Vegas Land – sale contract for US$50 million - total proceeds 1996–2002 = US$804.6 million - profit over book value 1996–2002 = US$173.1 million Ø Asbestos Foundation established in 2001 - future claims separately funded - no future liability and no provisions required Ø New corporate structure established in 2001 - higher after-tax returns - strong cashflows and conservative gearing " 977 It was submitted that the repetition of the UBS Warburg material was inconsistent with a reading of slide 4 of the UK Slides as containing a current assessment of JHINV's position. 978 I reject that submission. First, there was a significant difference between slide 4 and its counterpart in the UBS Warburg material. The latter did not contain an allegation that the Foundation was fully funded. Secondly, the UBS Warburg conference material spoke as from May 2002. The ASX Representations spoke as from June 2002. Repetition of much of the material in the UK Slides did not prevent slide 4 asserting a current position. 979 Likewise, I reject the submission that Mr Baxter's recording of the question: "How much time before it runs out?" is inconsistent with any earlier statement that JHINV's current assessment was that it would not run out. The submission was that the question made it clear that Mr Macdonald's statements about funding were historical and conveyed no impression that JHINV was providing a current assessment. 980 That is not the way I read the ASX Representations. Nor is it the way in which Mr Thompson and Mr Simons interpreted the material. One does not know when the question was asked and whether before or after the questioner had looked at or was directed to the copy of slide 4. The questioner may have been sceptical of the assertion in slide 4. But for whatever reason the question was asked, it does not detract from the proposition that Mr Macdonald was extolling the current position of JHINV. That was the whole purpose of the Edinburgh Roadshow and the London Roadshow. 981 It was submitted, correctly in my view, that since the Foundation was established by JHIL when JHINV did not exist there could be no implied representation that when the Foundation was established JHINV asserted that it was fully funded. But I reject the further submission that slide 4 merely described a past event that involved the conduct of others at an earlier point in time when JHINV did not exist. 982 It was submitted that the heading "Asbestos Foundation established 2001" in slide 4 meant that the statement about full funding related to the time when the Foundation was established and did not speak to the future. I reject that submission. What is conveyed is that as a result of the establishment of the Foundation future claims are separated and are fully funded. There is no future liability and no provision is required. The heading does not call for the use of the past tense: future claims were separated and were fully funded. There was no future liability and no provision was required. 983 It was submitted that the Court should find that Mr Macdonald said the Foundation, at its establishment, was fully funded using the past tense rather than the present tense. I reject that submission. While Mr Simons conceded that it was possible that Mr Macdonald used the past tense, he was firm in his denial that the tenor of the words used by Mr Macdonald were of the past. And there is a correlation with some of the elements in slide 4 that, as I have said, speaks as of June 2002 and is not restricted to the past. 984 It is likely that the message conveyed by Mr Macdonald in London was the same as that conveyed by him in Edinburgh. The recollection that Mr Simons said he had was consistent with Mr Thompson's recollection at that other event. 985 I accept the evidence of Mr Thompson and Mr Simons as to their recollections of the effect of what Mr Macdonald said. 986 The fourth further amended statement of claim pleaded that the statements made by Mr Macdonald in the Edinburgh Representations and in the London Representations represented that it was certain, or highly likely, that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb. 987 It was submitted that there was no reference to "certainty" or "high likelihood" of funds being sufficient to meet "all claims" and the claim against Mr Macdonald must fail because the evidence did not match the contention in the pleading. 988 It was submitted that the statement said nothing as to the basis on which, or assumptions by reference to which, or the degree of confidence with which, future claims were separated and fully funded. It was submitted that the phrase conveyed no more than that funding was provided by reference to calculations and estimates that involved predictions as to the future incidence and outcomes of claims at the time the funding was provided. It was submitted that the slide did not state or imply that the fully funded outcome was considered "certain" or "highly likely". 989 I reject that submission. The pleading describes what was conveyed by the words used in the Edinburgh Representations and in the London Representations. The term "fully funded" is emphatic as is the phrase "no future liability". The emphatic nature of the statements implies certainty or high likelihood. What is conveyed does not need to match the words used. 990 In the same vein was the objection that the pleading alleged that Mr Macdonald stated that the legal advice was to the effect that a Foundation had been set up and the company no longer had a liability whereas the evidence was that the legal advice was that the James Hardie group had no remaining asbestos liabilities. I reject that submission. The Edinburgh Representations, the London Representations and the ASX Representations did not differentiate between members of the James Hardie group. The relevant company within the James Hardie group was JHINV. I read the "company" in that context as a reference both to JHINV and the James Hardie group. The real issue in the proceedings was whether the statement was made by Mr Macdonald and not on whose behalf the legal advice was obtained. If necessary, I would order that the pleading stand amended to include an allegation that the advice was that the James Hardie group no longer had a liability. 991 As with Mr Thompson's evidence, so with Mr Simons it was alleged that his lack of reliance upon the London Representations was an insurmountable hurdle. The submission is rejected for the same reason. 992 Mr Simons said that companies gave a framework of information and analysts then made their own forecasts. He attached a degree of scepticism to any such forecast. The statement that money had been set aside to pay all future claims would have required further investigation as the meeting in London was not the final step in the process. Mr Simon said he would not make an investment decision unless he had done rigorous analysis of the financial returns of the company and he would go back ten years if the information was available. He said he did not expect to receive information that was not publicly available in such briefings and he would not make an investment decision based upon anything said in isolation at the meeting. 993 In addition to the submission that UK Slides and the statements made in the Edinburgh Representations and in the London Representations made no reference to "certainty" or "high likelihood" it was submitted that they contained no reference to legal advice. 994 The evidence of Mr Simons, which I accept, is that the receipt of legal advice was mentioned in the London Representations. ASIC does not plead a representation as to legal advice in the Edinburgh Representations. It does with respect to the ASX Representations on the basis that a public company would not make such statements as were contained in slide 4 unless it had received legal advice. I reject that submission. Commercial history is littered with executive misstatements made in the absence of the receipt of legal advice. 995 ASIC alleges with respect to the Edinburgh Representations, the London Representations and the ASX Representations that they conveyed that the material available to JHINV provided a reasonable basis for the assertions of sufficiency of funding. For the reasons explored with respect to the Draft ASX Announcement, those representations have been made out. 996 It was submitted that the risk that Asbestos Claims against Coy and Jsekarb might exceed the funding provided to the Foundation had been publicly disclosed when JHINV filed with the SEC its Form 20-F (Form 20-F) in October 2001 and on 14 June 2002 when JHINV provided to the ASX its annual report for the year ended 31 March 2002. But that means there was all the more reason for Mr Macdonald not to make emphatic statements about a fully funded Foundation at the roadshows. 997 The Form 20-F stated that two former subsidiaries were no longer part of the James Hardie group and JHIL held a provision for contingencies related to asbestos litigation of US$187.7m as at 31 March 2000. It stated that due to the significant uncertainty associated with asbestos litigation, JHINV was unable to reasonably estimate costs beyond a 15 year period and it was possible that amounts greater than the provision established could be incurred by the two former subsidiaries then controlled by the Foundation. It indicated that no such provision was in the accounts of JHIL as at the date of the document because the two former subsidiaries had been transferred to the Foundation and all claims had been successfully defended by JHIL. It indicated that JHINV's current and former subsidiaries manufactured products containing asbestos in Australia and a New Zealand subsidiary also manufactured products containing asbestos in New Zealand prior to 1987 and, as a result, JHINV might be subject to future lawsuits relating to those activities in those and other jurisdictions. It stated that if a Court were to find JHIL or the New Zealand subsidiary liable for damages, JHINV might incur liabilities in connection with any damages that might be awarded in addition to costs associated with defending such claims. 998 A note to the consolidated financial statements in JHINV's annual report stated that the company held a provision for contingencies related to asbestos litigation. It stated that the company calculated the provision based upon a reasonable estimate of expected litigation and settlement costs to be incurred in the ensuing 15 years. It said that due to the significant uncertainty associated with asbestos litigation, the company was unable to reasonably estimate costs beyond that point. It said that as it was difficult to predict the incidence or outcome of future litigation, it was reasonably possible that amounts greater than the provision could be incurred by the two former subsidiaries. 999 There was evidence additional to that upon which the finding was made that Mr Macdonald knew or ought to have known that the statements in the Draft ASX Announcement were false or misleading. Mr Macdonald had been informed on a number of occasions prior to June 2002 that Coy and Jsekarb did not have sufficient funds to meet all future Asbestos Claims. 1000 In April 2001 Mr Cooper met with Mr Macdonald during which he said: "You haven't properly allowed for a rapid escalation in litigation costs and the consequence could be a potential under provisioning. The financial year end results of 2001 are well in excess of the $22.5 million expected and this will be a problem if the trend continues". 1001 In May 2001 Sir Llew Edwards and Mr Cooper met with Mr Macdonald when Mr Cooper attempted to hand documents containing financial analysis of the Foundation fund to Mr Macdonald but he refused to accept them. 1002 In June 2001 there was a conversation between Mr Cooper and Mr Ashe regarding the solvency of the Foundation. Mr Ashe made a note of this conversation that he sent to Mr Macdonald amongst others. It contained the following: " Solvency Analysis The Foundation is undertaking a solvency analysis to ascertain its "real" financial position. This involves: · New estimates from Trowbridge on future claim numbers and costs · Review of investment earnings · Review of property holdings (hold v sell) Dennis indicated that the returns the Foundation is getting are well under 11% (property about 2.8%, loan accounts 6%, securities 5%). He had a dig at us over the indemnity payments, noting that there are 42 payments over an 8 year period with flexibility to cut this down to one payment per year. His point being that together with the other loan repayments that they really didn't have $293m to invest, "they were really just being drip fed" by us." 1003 In September 2001 Mr Cooper sent an email to Mr Macdonald amongst others. It contained the following: "Amaba shows a negative net asset position as at end July and the cash forecast shows a deficiency in October of some $288K. This is subject to movement in either direction. MSJ advice was that we can trade till mid September latest at which time no more debts should be entered into and therefore that Amaba's legal defence work must be suspended." 1004 Sir Llew Edwards said that in the period prior to September 2001 he had a number of telephone conversations with Mr Macdonald about his concern about the emerging and continuing upward trend of claims figures that the Foundation was experiencing. He said in one of these conversations he said words to the effect: "What are you going to do about our continuing forecasts about us running out of money within about 5 years". Later in September Sir Llew said he telephoned Mr Macdonald and this exchange took place: "Sir Llew: Peter, the Foundation now has more information further to the conversation that you and I had in May. There is no doubt now that the Foundation has a very limited life. We believe that we could well be insolvent in less than 10 years. Our current estimated value of future claims could be as high as about $600 million. What is happening is there has been a great increase in the frequency and settlement value of claims. Our present experience shows continuing increases and the next study may well show an even worse position. We are either going to be short of money in the medium term, or are you able to do something about it? Mr Macdonald: We cannot do anything about it. In light of all the information we had available to us at the time, we believe we provided adequate funds to the Foundation." 1005 Shortly after this conversation Sir Llew sent a letter to Mr Macdonald that contained the following: "In summary, the major outcomes are as follows: · Amaca Pty. Ltd. could be insolvent in less than 9 years · Expected value of future claims is estimated to be $574 million compared with previous estimation of $310 million as advised in February this year. · Funds available therefore would be expected to meet only 40% of future claims. · Additional funding of some $200 million would be required to achieve a 20 year life as expected. · Properties will be required to be liquidated within 6 years." 1006 In November 2001 a meeting took place between Sir Llew, Mr Cooper and Mr Macdonald in which they expanded on the points contained in Sir Llew's September letter to Mr Macdonald. During that meeting Mr Cooper said words to the effect: "You now have our letter which outlines our concerns. The funding for the Foundation is likely to last less than nine years. In March 2002 at a meeting between Sir Llew Mr Cooper and Mr Gill with, amongst others Mr Macdonald Mr Cooper said that on the current figures the projected life of the Foundation was far less than 20 years." 1007 Despite his knowledge that the Foundation was seriously under-funded, Mr Macdonald was prepared to extol JHINV to overseas analysts, fund managers and institutional investors by telling them that the Foundation was fully funded. 1008 Mr Macdonald submits that if he is found to have made the statements alleged he made a business judgment when he did so within the meaning of Section 180(2). For the same reasons as set out with respect to his claim to the protection of that provision under the DOCI disclosure issue that appeal fails. There was no evidence that Mr Macdonald rationally believed that a business judgment was in the best interests of JHINV. Nor was there evidence that Mr Macdonald had a belief that a business judgment was in the best interest of JHINV. 1009 Mr Macdonald also invoked Section 189. In the absence of evidence from Mr Macdonald similar problems arise and for the reasons set out with respect to the DOCI disclosure issue, Mr Macdonald's appeal to Section 189 fails. 1010 A reasonable person, if a director and chief executive officer of a corporation in JHINV's circumstances, occupying the offices held by Mr Macdonald and with the same responsibilities within the corporation, would not have approved the provision of the UK Slides to the ASX or would have advised that they be amended to remove the false or misleading material in them. Such a reasonable person would not have made the statements as to the sufficiency of funding of the Foundation and the statement as to the provision of legal advice in the Edinburgh Representations and in the London Representations. In these respects Mr Macdonald was in breach of his duty of care and due diligence to JHINV. 1011 In June 2002, s 186 of the Corporations Act was in the following terms: "Sections 180 to 184 do not apply to an act or omission by a director or other officer or employee of a foreign company unless the act or omission occurred in connection with: (a) the foreign company carrying on business in this jurisdiction; or (b) an act that the foreign company does, or proposes to do, in this jurisdiction; or (c) a decision by the foreign company whether or not to do, or refrain from doing, an act in this jurisdiction." 1012 The term "foreign company" was defined in s 9 to include a body corporate incorporated outside Australia that is not a corporation sole or an exempt public authority. Since JHINV was incorporated in the Netherlands it was a foreign company. 1013 As at June 2002, s 21(1) and s 21(2) of the Corporations Act provided: "(1) A body corporate that has a place of business in Australia, or in a State or Territory, carries on business in Australia, or in that State or Territory, as the case may be. (2) A reference to a body corporate carrying on business in Australia, or in a State or Territory, includes a reference to the body: (a) establishing or using a share transfer office or share registration office in Australia, or in the State or Territory as the case may be; or (b) administering, managing, or otherwise dealing with, property situated in Australia, or in the State or Territory, as the case may be, as an agent, legal personal representative or trustee, whether by employees or agents or otherwise." Section 21(3) contained a series of exclusions irrelevant for present purposes. 1014 Throughout 2002, JHINV maintained its share registry through Computershare Investor Services Pty Limited in Sydney. It maintained an Australian registered office in Pitt Street. It maintained its investor relations department at its registered office. It maintained a business office in Rosehill. It maintained at least two manufacturing plants in Australia and it continued to manufacture and sell products in Australia. 1015 JHINV carried on business in Australia since it had a place of business in this country and it used a share registration office in Australia. 1016 The Edinburgh Representations and the London Representations occurred in connection with JHINV carrying on its business in Australia. Section 180(1) applied to Mr Macdonald. 1017 ASIC has made out its case that with respect to the Roadshow Presentations issue Mr Macdonald was in breach of Section 180(1). 10.2 Section 181 and Mr Macdonald 1018 ASIC also alleges with respect to the Edinburgh Representations, the London Representations and the ASX Representations that Mr Macdonald failed to exercise his powers and discharge his duties to JHINV in good faith in the best interests of JHINV and for a proper purpose and thereby contravened Section 181(1). 1019 For the reasons discussed with respect to the Press Conference Statements issue I am not satisfied that Mr Macdonald acted in bad faith and for an improper purpose. There was no conflict between his personal interest and that of JHINV in making the Edinburgh Representations and the London Representations and in authorising or failing to prevent the provision of UK Slides to the ASX. 1020 ASIC has failed to establish that with respect to the Roadshow Presentations issue Mr Macdonald was in breach of Section 181(1). 10.3 Breach of Section 1041E by JHINV 1021 As with Section 999, so with Section 1041E, the statute calls for a predictive exercise in which expert evidence may be helpful but is not essential. The document is to be examined in light of the circumstances that existed at the time and the question asked: would it have been likely to induce members of the public to purchase JHINV shares? 1022 The Edinburgh Representations, the London Representations and the accompanying UK Slides were designed by Mr Baxter to have the effect of encouraging the purchase of JHINV shares and the maintenance or stabilisation of the market for those shares. That was the natural and probable purpose of the exercise. There was nothing to suggest that purpose was thwarted. That is one of the circumstances to be taken into account. 1023 In a different context but with applicable logic Dixon and McTiernan JJ said in Australian Woollen Mills Ltd v FS Walton & Co Ltd (1937) 58 CLR 641 at 657: "In a question how possible or prospective buyers will be impressed by a given picture, word or appearance, the instinct and judgment of traders is not to be lightly rejected, and when a dishonest trader fashions an implement or weapon for the purpose of misleading potential customers he at least provides a reliable and expert opinion on the question whether what he has done is in fact likely to deceive." 1024 Mr Macdonald was aware that the Edinburgh Representations, the London Representations and the ASX Representations were false or misleading and not in a minor way. The central thrust of the representations was to quell concern about the ability of JHINV to meet Asbestos Claims. The statements that future Asbestos Claims were separated and fully funded with no further liability for JHINV, that Asbestos Claims had been ring fenced in the Foundation and that James Hardie had no liability, were not merely false or misleading they were false in a material particular or were materially misleading. 1025 Mr Humphris concluded that the Edinburgh Representations, the London Representations and the ASX Representations were likely to induce persons to acquire JHINV shares and were likely to have the effect of maintaining or stabilising the price for those shares. 1026 It was submitted that Mr Humphris gave evidence with respect to the reactions of fund managers, analysts and institutional investors when he had no experience in those fields. But as a merchant banker he did. This appeared to be recognised by JHINV when its counsel put to Mr Simons that the analysts' reports with respect to the James Hardie group to which he referred included those of Australian merchant banks. 1027 In forming his opinions, Mr Humphris had regard to the circumstances that existed at the time. They included the information in JHINV's Form 20-F. 1028 Mr Humphris also took account of the completion of the restructure of the James Hardie group in October 2001 after shareholder and this Court's approval of the scheme. He took account of the announcement by JHINV in April 2002 that it had closed the previously announced sale of its gypsum business for US$345m, approximately 30% above book value. 1029 Mr Humphris took account of the market price of JHINV shares and their recovery from a slump in September 2001 to $4.00 to close at approximately to $6.19 on 7 June 2002 and $6.16 on 11 June 2002. In the period between May and June 2002 the price of JHINV shares significantly outperformed the ASX S & P 200 index. He formed the view that the JHINV shares were trading on a high P/E ratio in line with its perceived high future growth in earnings. 1030 Mr Humphris also took account of media coverage that indicated that the number of Asbestos Claims was increasing as was the amount of compensation in Australia, the US and the United Kingdom together with an increasing incidence of mesothelioma diagnosis and third wave claims and US investor nervousness. 1031 He took account of the announcement in May 2002 of a strong profit result together with capital return and dividend and analysts "buy" ratings. And he took account of the pitching of the ASX Representations at investors in the United Kingdom and Europe that presented JHINV as a fast growing fibre cement company with unique proprietary technology, competitive advantages and further global growth aspirations for those products. 1032 Mr Humphris concluded that on and from 12 June 2002 when the ASX Representations were made, they were likely to induce persons to acquire JHINV shares. He regarded the ASX Representations as promotional material released as a brief on JHINV for respective investors visited in the UK and European roadshows. Mr Humphris said that although the ASX Representations were not new, their purpose was to induce persons to buy shares. 1033 He said of the statements in slide 4 that cautious overseas investors would include persons who might have put a lot of value on that statement. 1034 In cross-examination Mr Humphris was taken to the statements in the Form 20-F that suggested that the Foundation might not be fully funded. Mr Humphris said the Form 20-F document was prepared on the basis of scoping all the possible risks of the company but did not convey a hierarchy of risks. It merely disclosed all possible risks. 1035 It was put to Mr Humphris that the statements he was asked to assume were made by Mr Macdonald in the Edinburgh Roadshow and in the London Roadshow were to be understood in the context of the information in the Form 20-F and qualified by those statements. He said the statements at the roadshows were some 15 to 16 months after the formation of the Foundation and there had been other disclosures including the Form 20-F. But the statements he was asked to assume were not qualified in any way and he took them to be company guidance on the matter by which he meant that there was an extremely low risk of the Foundation running out of funds or asbestos having any impact on the company. The statements were made taking into account all disclosures made in the period since the formation of the Foundation. 1036 Mr Humphris' opinion with respect to the likely effect of the ASX Representations was qualified because he only considered that information in the context of the Edinburgh Roadshow and the London Roadshow. He did not consider the likely effect on persons who gained access to the UK Slides through the ASX. He said: "The ASX Presentation, itself, does not appear to disseminate any information that was not generally available. When viewed in the circumstances at the time which includes generally available information, my opinion is qualified in that the ASX Presentation would be likely to induce only a category of persons (being those investors, who were recipients of the presentation and who were satisfied with the company's handling of asbestos risk based on the generally available information including the ASX Presentation) to acquire JHI NV shares. The expected net benefit of perceived future share price growth would be likely to be sufficiently material to induce that category of persons to buy shares of JHI NV." 1037 Mr Humphris said that it was likely that these persons were mainly institutional investors located in the UK. The inducement to acquire shares might not have necessarily resulted in immediate purchase of shares by persons in this category since it was likely that not all of those persons would have been following JHINV prior to the ASX Representations. 1038 Mr Humphris was also of the opinion that the ASX Representations were likely to have the effect of maintaining or stabilising the price for JHINV shares. He considered that they reinforced the company's message and when viewed in the circumstances that existed at the time they would be likely to impact materially on the factors affecting the market price for JHINV shares. 1039 With respect to the Edinburgh Roadshow, Mr Humphris explained his opinion that the UK Slides and the statements attributed to Mr Macdonald would be likely to induce persons to acquire JHINV shares. Viewed in circumstances that existed at the time, JHINV was performing well and the outlook set out in the ASX Representations was positive. The UK Slides presented JHINV as a relatively unique company, a fast growing and cost competitive fibre cement company with good technology that had been separated from its asbestos past on a fully funded basis. The statements made by Mr Macdonald carried the authority of the chief executive officer at an investor presentation. They would have had the effect of reducing asbestos as an issue for JHINV in the minds of investors, bearing in mind that overseas investors were reportedly more concerned and cautious than Australian investors about the asbestos risk and exposure. The main industry negative from a global perspective was asbestos and the statements made at the presentation would be likely to have the effect of giving comfort to ordinary investors, including cautious overseas investors, thereby reducing the perceived asbestos risk and the asbestos discount. The net benefit would be likely to be sufficiently material to induce persons to acquire JHINV shares. 1040 Mr Humphris was also of the view that the ASX Representations and the statements attributed to Mr Macdonald would be likely to have the effect of maintaining or stabilising the price for JHINV shares as they would be likely to act to bring about a net benefit as the JHINV shares were trading at a relatively high P/E ratio and the expected net benefit would be likely to maintain and stabilise the share price. 1041 In relation to the London Roadshow, Mr Humphris was of the view that the statements attributed to Mr Macdonald carried the authority of the chief executive officer at an investor presentation and would have the effect of reducing asbestos as an issue for JHINV in the minds of investors, again, bearing in mind that overseas investors were reportedly more concerned and cautious than Australian investors about asbestos exposure. In his opinion the ASX Representations and the statements attributed to Mr Macdonald at the London Roadshow would be likely to induce persons to acquire JHINV shares and have the likely effect of maintaining or stabilising the price for JHINV shares. 1042 In cross-examination Mr Humphris said he had assumed that the London Roadshow involved more than one person. He said he could still form a view as to the impact of the information although the outcome might be different. He agreed that in one sense it would depend on the characteristics of the person to whom the presentation was made. If that party had no knowledge or very little knowledge of the James Hardie group and had not carried out any research it was unlikely that that person would be making any decisions based on the presentation. But that did not mean that the information did not have the effect that he attributed to it. He conceded that if there was but one person at the presentation that could have an effect on whether the price was maintained or not. It may have been maintained, but he could not support it as strongly. He just did not know. He would have to have a lot of other information. 1043 He was asked whether he withdrew his opinions in relation to the London Roadshow. He said he would qualify his opinion about it maintaining and stabilising the share price. He would need further information before he could express that opinion. 1044 Mr Humphris said that the acquisition of JHINV shares arising from the Edinburgh Representations, the London Representations and the ASX Representations would likely have been through the ASX in Australia. It was an internationally recognised exchange and the primary market for JHINV shares. It had greater volumes of trade compared with the NYSE, giving the market greater liquidity. The majority of JHINV shareholders had shares located in Australia. He also said that any maintenance or stabilisation of price would take effect on the ASX. 1045 Those views were supported by Mr Thompson and Mr Simons who said that if they were to have bought JHINV shares they would have done so on the ASX. 1046 In relation to the question of inducement, it was pointed out that ASIC did not lead evidence that anyone purchased shares in JHINV in reliance upon what had been said in the ASX Representations, the Edinburgh Representations or the London Representations. Mr Thompson and Mr Simons indicated that they did not recommend the purchase of JHINV shares following the presentations. 1047 Fiona Anne Barwick was senior portfolio manager within the Pacific region of Mondrian Investment Partners Limited in London. She met with Mr Macdonald and Mr Baxter in June 2002. She did not make a recommendation to invest in JHINV shares following their meeting. 1048 It was also pointed out that Mr Humphris did not undertake an analysis of movements in the price of JHINV shares before and after the relevant representations. 1049 On 11 June 2002, JHINV shares started at $6.15 traded in a range between $6.00 and $6.16 at close of trading. On 12 June 2002, they started at $6.17 and traded in a range between $6.10 and the starting price. Between 13 June 2002 and 17 June 2002 they started at $6.10 and traded in a range between $6.01 and $6.19 with the last trade at $6.05. 1050 The week commencing on 10 June 2002 involved a public holiday and trading volume was modest thereafter. In the following two weeks, however, trade volumes and values increased significantly as did the share price from a low of $6.05 to a high of $6.50 on 28 June 2002. 1051 It was pointed out that professional investors would not usually make a decision on the sole basis of a roadshow. Financial analysis was necessary before a recommendation to purchase shares would be made. 1052 In Boughey v R (1986) 161 CLR 10 the High Court considered a provision that culpable homicide was murder if committed, amongst other things, by means of an unlawful act or omission which the offender knew, or ought to have known, to be likely to cause death in the circumstances, although he had no wish to cause death or bodily harm to any person. The majority, in discussing the meaning of the word "likely" in that collocation said at 21: "In our view, the word "likely" is used in both ss. 156(2)(a) and 157(1) with what we apprehend to be its ordinary meaning, namely, to convey the notion of a substantial – a "real and not remote"- chance regardless of whether it is less or more than 50 per cent. 1053 Applying that ordinary meaning to Section 1041E it is not a requirement that the statement or information in question be the sole inducement of persons acquiring shares, or the sole cause of the maintenance or stabilisation of share price. What is required is that the impugned statement or information has a real and not remote chance of inducing persons to take the various steps enunciated in the provision with respect to financial products. 1054 The purpose of the provision is to prevent market manipulation. It would thwart that purpose if the statement or information in question had to be the sole inducement. Just as it would be contrary to the legislative intention with respect to s 82 of Trade Practices Act if the loss or damage suffered by a person by the conduct of another in contravention of the Act, was irrecoverable unless the conduct was the sole cause of the loss or damage. 1055 That proposition has been rejected in a number of cases as, for example, in Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [14] where Gleeson CJ said that it was not essential that the contravention be the sole cause of the loss or damage. As Brennan J had pointed out in Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332 at 356-357 where the making of a false representation induces a person to act in a certain manner, loss or damage may flow directly from the act and only indirectly from the making of the representation; but in such a case the act "is a link – not a break – in the chain of causation". 1056 The fact that fund managers, research analysts and institutional investors conduct financial research before making a recommendation to purchase a share, does not preclude a finding that the statement or information in the ASX Representations, the Edinburgh Representations and the London Representations were likely to induce the purchase of, or likely to have the effect of maintaining or stabilising the price for, JHINV shares. 1057 Mr Humphris accepted that if within days or weeks other material was released to the market he would expect an analyst, an institutional investor or a fund manager to take the further material into account. He accepted that if the professional adviser had taken into account the statements in the annual accounts issued on 14 June 2002 it was at least possible that the professional adviser would not have taken the position he had with respect to company guidance. 1058 It was further submitted that in reaching his opinions with respect to slide 4 and the statements in the Edinburgh Representations and in the London Representations that they were likely to stabilise or maintain the price of JHINV shares, Mr Humphris had not analysed what would have happened had the UK Slides not been provided to the ASX, or the statements had not been made to Mr Thompson or Mr Simons. I do not regard it as necessary for Mr Humphris to have carried out such a comparative exercise in forming his opinion. 1059 It was submitted that ASIC's case was that each and every word in the ASX Representations and each and every word in the Edinburgh Representations and in the London Representations was likely to have the effect of inducing the purchase of JHINV's shares or stabilising or maintaining the market for those shares. That was not the case put forward by ASIC. It relied on the statements in slide 4 and those of Mr Macdonald's statements in the Edinburgh Representations and in the London Representations that asserted that the Foundation was fully funded, that there were no liabilities, that there was no need of a provision in the accounts and with respect to the London Representations that JHINV had received supporting legal advice. 1060 It was submitted that Mr Humphris did not address the correct question. He opined on the effect of the UK Slides on those who attended the Edinburgh Roadshow and the London Roadshow. Mr Humphris agreed in cross-examination that he did not consider the effect of the UK Slides on persons who had access to the slides through the ASX. He had only considered that information in the context of the Edinburgh Roadshow and the London Roadshow. 1061 His expert opinion in this regard is of no assistance to the predictive exercise I must do in relation to the provision of the UK slides to the ASX for release to the market in Australia. 1062 So far as the statements in slide 4 are concerned they were likely to have the effect for which they were designed, to quell apprehension as to whether or not sufficient funds were held by the Foundation to meet all present and future Asbestos Claims and to quell the volatility in the JHINV share price by assuring the market that JHINV had separated out its asbestos risk. That is the natural meaning to be attributed to the words "future claims separated and fully funded" and to the words "no future liability – no provision required". Slide 4 was likely to have the effect of inducing persons to acquire JHINV shares and to have the effect of maintaining or stabilising the market price. The members of the market to whom slide 4 was addressed included the sophisticated and the unsophisticated and the reaction of each was likely to be similar to that discussed with respect to the Final ASX Announcement. 1063 I am fortified in this conclusion by the interpretations placed upon slide 4 by Mr Thompson and Mr Simons. 1064 While there was no immediate effect on share price following the release to the market of the UK Slides, there was an increase within a fortnight which may have been influenced in part by slide 4. 1065 The impugned statements in slide 4 were false in a material particular or were materially misleading. Through Mr Macdonald, JHINV knew, or ought reasonably to have known, that the statements were false in a material particular or were materially misleading. 1066 As to the Edinburgh Representations, however, I am not satisfied that the statements made by Mr Macdonald to an audience of three analysts, institutional investors, or fund managers was likely to have the effect Mr Humphris placed upon them. And none of them, in fact, was induced to recommend the purchase of JHINV shares. The absence of any purchase means that there could be, in fact, no maintaining or stabilising effect on the market. 1067 Where likelihood of the occurrence of an event is in issue and relevant facts are available, they are to be preferred to prophecies. 1068 Thus in Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331 at 347, Deane J in discussing the secondary boycott provision in the Trade Practices Act 1974 (Cth), s 45D said: "Section 45D(1) proscribes conduct only if it be engaged in for the purpose of causing loss or damage to the business of the relevant corporation. Even though conduct be engaged in for such a purpose it will be outside the proscription contained in the subsection unless it "would have or be likely to have" that effect. Plainly the reference to "would be likely to have" is meant to convey a lower degree of likelihood than the reference to "would have". In the case where conduct has not occurred, a court would be constrained to determine whether conduct "would have" the specified effect by reference to the ordinary standard of whether it was more likely than not that it would. In such a case, if "likely" is interpreted as meaning "more likely than not", it would add little to the practical scope of the section. On the other hand, if conduct had run its ordinary course and had not had the specified effect, it would be but rarely that a court would feel justified in disregarding the lesson of the event and finding that while the conduct did not have the specified effect it had been more likely than not that it would have that effect (see per Dixon J Willis v Commonwealth (1946) 73 CLR 105 at p 116)." 1069 The significant circumstance that existed on 10 June 2002 was the limited nature of the audience addressed by the Edinburgh Representations. While to a larger audience, like the Australian investing public, the statements made by Mr Macdonald may well have been likely to induce the purchase of JHINV shares, or may well have been likely to maintain or stabilise the market for those shares, I am of the view that ASIC has failed to establish that with respect to the Edinburgh Representations JHINV breached Section 1041E. 1070 The same conclusion applies a fortiori to the London Representations that were made to a non-investing audience of one. The statements were not likely to induce the purchase of JHINV shares and Mr Humphris needed more material before he could express an opinion on whether they were likely to maintain or stabilise the market for JHINV shares. 1071 ASIC has made out its case that with respect to the ASX Representations JHINV was in breach of Section 1041E but it has failed to make out a breach of Section 1041E by JHINV with respect to the Edinburgh Representations and the London Representations. 10.4 Breach of Section 1041H by JHINV 1072 The UK Slides contained misleading or deceptive statements in slide 4. By delivering the slides to the ASX, JHINV engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive. The statements related to a financial product, namely, the shares in JHINV. The misleading or deceptive conduct occurred within the jurisdiction. 1073 ASIC has made out its case that in forwarding the UK Slides to the ASX, JHINV was in breach of Section 1041H. 11 Cancellation of the partly paid shares issue 1074 ASIC alleges that the arrangement by JHINV and JHIL for the transfer of JHIL out of the James Hardie group by the steps approved at the 25 March 2003 Meeting (ABN 60 Information) should have been disclosed under JHINV's continuous disclosure obligation on or about 25 March 2003. 1075 The steps were: · The cancellation of the partly paid shares by JHIL on 15 March 2003; · A consolidation of JHIL share capital into one fully paid share held by JHINV on 15 March 2005; · The reduction of JHIL share capital by approximately $1.5m and payment of that amount to JHINV on 31 March 2003; · The execution of the ABN 60 Foundation trust deed by JHINV and the settling of $2,000 on the ABN 60 Foundation on 31 March 2003; · The execution of the DOCIA by JHINV and JHIL on 31 March 2003; · The issue of 1,000 shares by JHIL to the ABN 60 Foundation on 31 March 2003; and · The cancellation by JHIL of its one fully paid share owned by JHINV for no consideration on or about 14 April 2003. 11.1 Breach of Section 674(2) by JHINV 1076 JHINV maintains that the only relevant information was the settlement of the liability of JHIL to the Foundation under the DOCI and that information was generally available. Since the continuous disclosure obligation does not arise, in terms of Section 674(2)(c)(i), unless the information is not generally available, JHINV claims that it had no obligation to disclose the information and was not, therefore, in breach of Section 674(2). 1077 In March 2003, s 676 of the Corporations Act provided, so far as is relevant: "(2) Information is generally available if: (a) it consists of readily observable matter; or (b) without limiting the generality of paragraph (a), both of the following subparagraphs apply: (i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in securities of a kind whose price or value might be affected by the information; and (ii) since it was so made known, a reasonable period for it to be disseminated among such persons has elapsed. (3) Information is also generally available if it consists of deductions, conclusions or inferences made or drawn from either or both of the following: (a) information referred to in paragraph (2)(a); (b) information made known as mentioned in subparagraph 2(b)(i)." 1078 It was common ground that JHINV was a listed disclosing entity. Hence, in order to sustain its charge, ASIC must establish that the ABN 60 Information was information that a reasonable person would expect to have a material effect on the price or value of JHINV's shares and that information was not generally available. 1079 Whether information is "readily observable matter" is a question of fact to be determined objectively and hypothetically (R v Firns [2001] NSWCCA 191; (2001) 51 NSWLR 548 at [83], Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35 at [546]. 1080 The continuous disclosure provisions are intended, amongst other things, to prevent selective disclosure of market sensitive information (Australian Securities and Investments Commission v Southcorp Ltd [2003] FCA 1369; (2003) 130 FCR 406 at [2]. Protective legislation should be construed beneficially to the public (Exicom Pty Ltd v Futuris Corporation Ltd (1995) 123 FLR 394 at 397), even if a distinction between "punitive" and "protective" proceedings or orders is elusive (Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129 at [32]). 1081 The former legislation required an intentional, reckless or negligent failure to comply with the continuous disclosure provisions. The current legislation is not limited to intentional, reckless or negligent non-disclosure. 1082 JHINV put its argument that the relevant information was limited to the settlement of JHIL's liability to the Foundation in the commercial context of the sale of its gypsum business. The more significant aspects of that context were the following. 1083 In JHIL's 2001 annual report, in JHINV's Form 20-F, in JHINV's 2002 annual report and in JHINV's September 2002 Form 20-F, the liability to the Foundation was reported in JHIL's and, subsequently, in JHINV's balance sheet. 1084 In the later Form 20-F the consolidated balance sheet under the heading "Liabilities and Shareholders' Equity" has the item "Liability to Medical Research and Compensation Foundation $50.2m." 1085 UBS Warburg in March 2002 had identified settlement of the liability to the Foundation as a likely use of the proceeds of sale of the gypsum business. 1086 At the April 2002 and May 2002 board meetings of JHINV, the directors were provided with papers by Mr Morley in relation to the use of the sale proceeds of the gypsum business. The method of settlement of the debt to the Foundation was the subject of advice from PwC. 1087 On 16 May 2002 there was a quarterly results briefing. There was a transcript of it. Someone asked what was the level of capacity utilisation in JHINV's plants in the different regions of operation and why receivables had increased from US$47m the previous year to about US$80m. Mr Morley answered the question, although it is wrongly attributed to Mr Macdonald in the transcript which contains the following: "In other parts of the world, utilisation is probably similar orders of magnitude, so capacity utilisation is typically not a problem for our … [recording cut out] … its shown as non-current liabilities $50m. That will be part of the $100m we repay." 1088 Mr Morley said that what he said at the briefing was: "We are going to use part of the gypsum proceeds to retire debt and to settle the $50m liability to the Foundation." 1089 There was no disclosure of that intention in the media release for the quarterly results or in the accompanying slide presentation. However, Mr Baxter sent an email to Mr Macdonald on 24 March 2003 that indicated his recollection of what Mr Morley had said. The email was as follows: "Peter, since my email I have reviwed ( sic ) the transcripts from Q4/FY02 (May 2002) and Q1 and Q2 of FY03 (Aug and Nov) but can only find mention in the results presentation of last May, but would you believe there was a break in recording on the transcript at the precise point where Phil was talking about paying down $100m (which was going to be 50m in debt and 50m to the Foundation as I recall). Sam is going to listen to it again to see if we can fill in the missing works ( sic) and she is also checking the Q3 results webcast from Feb 03 to see if there ais anuthing ( sic ) additional." 1090 ASIC questions this evidence. I accept it. Mr Baxter confirmed Mr Morley's testimony. He was ASIC's witness and the matter was not dealt with in examination in chief. Furthermore, David Andrew Leitch was an equities analyst employed by JP Morgan. He identified JHINV's intention to settle the debt due to the Foundation in his August 2002 report. He analysed JHINV's quarterly operating summary and said: "As at balance date, JHX retained a net cash position, however the company will move to a net debt position following the capital return of US$114m tax liabilities on the gypsum sale and settlement of the Asbestos Foundation's outstanding liability of US$50m, partly offset by a US$50m receivable from the Las Vegas Land sale. We estimate net debt will be around US$100m following all these transactions." 1091 The period from May 2002 to August 2002 was a reasonable period for the information to be disseminated by such people. 1092 Mr Morley's statement was made to the very people who were likely to bring it to the attention of persons who commonly invested in securities of a kind whose price or value might be affected by the information. The recipients of the information were the analysts who routinely reported on JHINV. 1093 The sale of the gypsum business triggered a breach of one of the lending covenants. It required the net proceeds from that sale less capital expenditure for the ensuing twelve months to be less than 15% of total assets. The sale of the gypsum business gave rise to a 23% result. That led to a need to renegotiate the terms of JHINV's long term notes. Those negotiations took much longer than predicted and were not concluded until November 2002. 1094 In his paper for the September 2002 board meeting, Mr Shafron referred to these negotiations thus: "recent experience renegotiating with note holders shows that Foundation involvement can be an unwelcome distraction." 1095 JP Morgan Securities had been retained by JHINV to negotiate the refinance. Its managing director, Peter Walraven, reported to Mr Shafron in October 2002. His report became Annexure F to Mr Shafron's February 2003 board paper: "Lenders have agreed to final terms offered by James Hardie and documentation should be completed and signed over the next couple of weeks. JPMorgan believes that the initial terms proposed by James Hardie to the Lenders were fair and appropriate to both parties given the scope of the amendment request. However, final terms were somewhat less favourable to James Hardie and the renegotiation process has continued longer than expected, despite Lenders agreeing to the sale of Gypsum and the revised obligor structure very early in the renegotiation process. The primary factor contributing to the term changes and process delay has been the Lenders' concern over the asbestos history of the Company's subsidiaries. In particular, their due diligence centred around any potential for further liability by the Company due to asbestos claims arising from the current arrangements between James Hardie and the Foundation. Based on Lenders' response during this debt renegotiation process, we believe that further reduction of the arrangements between the Company and the Foundation would improve James Hardie's position in any future debt negotiations or new debt raising." 1096 Mr Leitch repeated his statement that the debt to the Foundation would be discharged in a report in October 2002 as follows: "As at balance date JHX retained net cash position; however JHX will move to a net debt position following the capital return of US$114m. Tax liabilities on the gypsum sale and settlement of the Asbestos foundation outstanding liability of US$50m, partly offset by a US$50m receivable from the Loss ( sic ) Vegas Land sale. We estimate that net debt will be around US$100m following all of these transactions." 1097 In his paper for the February 2003 JHINV board meeting, Mr Shafron referred to the description of the Foundation in the 2002 consolidated balance sheet and continued: "Notwithstanding this, recent experience (June to October 2002) renegotiating the terms of the Company's long term notes indicates that the mere existence of arrangements with the Foundation causes anxiety among certain lenders at least and prejudices the position of and the terms available to the Company. The note's renegotiation was seriously delayed by the Foundation issue and at worst it would seem as though the renegotiated terms were substantially less favourable than they would have been without the connection to the Foundation. (The delay in renegotiation saw interest rates fall and cost James Hardie around USD4M). A note from Peter Walraven, debt specialist with JP Morgan, substantiates this concern in Annexure F. Other recent transactions, such as the attempted sale (by Cemplank to a third party) and lease back (to JH US) of industrial land connected with the acquisition of the two Cemplank fiber ( sic ) cement sites in December 2001, were also adversely impacted by the Company's former subsidiaries' liabilities and the ongoing connection to the Foundation (according to CRIC, the lead investor engaged to put the financial aspects of the transaction together). That deal was delayed to the point where it could not go forward and the land was not transferred in the manner planned." 1098 In an email from Mr Baxter on 23 March 2003 he recorded what the transcript of the Q3 results presentation in February 2003 recorded Mr Morley as saying: "… Also there's a liability to the Foundation which is not in the numbers (related to cash position), $55-56m that will be settled this quarter as well. So that will finalise all those issues on the balance sheet (he also referred to the sale of the Vegas land earlier in the answer)." 1099 In May 2003, after the finalisation of the Las Vegas land sale, Credit Suisse First Boston referred back to JHINV's new capital management strategy of May 2002, identified its main features and noted: "Details of the use of the original US$345m Gypsum divestment proceeds included: · US$114m Capital return/dividend · US$100m Retired debt ($50m for note holders, $50m for MRCF capital return/dividend) · US$64m Tax on business sale profits." 1100 Mr Humphris agreed that it was sufficient to cause information of a transaction to be generally available if a company announced an intention to complete the transaction. There was no need for a further announcement when the transaction was completed. 1101 It was submitted that information of the intention of the James Hardie group to discharge the liability to the Foundation was generally available by the above announcements and there was no need to disclose any of the ABN 60 Information on and from 25 March 2003. 1102 But the settlement of the liability to the Foundation was but part of a series of steps approved at the 25 March 2003 Meeting, including the separation of JHIL from the James Hardie group by the cancellation of the partly paid shares. If there was a blight on the JHINV share value as a result of a perceived connection to asbestos through JHIL, then the separation of JHIL was just as significant as the discharge of the debt to the Foundation, if not more so. 1103 JHINV believed there was such a blight, irrational though it might have been. Mr Baxter's "Investor Relations Update" board paper of August 2002 stated: · "the prospect of a residual asbestos exposure remains of significant interest to US investors – one broker has published a report that argues that these concerns are unwarranted and this view is being generally well received. Note: CSR is generally a well-regarded stock in the USA where about 20% of its equity is held. However, brokers and CSR itself have confirmed that its asbestos liability is the reason why it is unable to attract additional US equity investment." 1104 JHINV's experience in renegotiating its notes was that the blight of asbestos affected their terms. Irrational or not, the blight was real. The James Hardie group lost approximately US$4m. 1105 JHINV's belief of a negative perception to its shares in the market place is also apparent from Mr Shafron's September 2002 board paper and its reference to the "unwelcome distraction". The paper went on to make clear that it was the negative perception that led to the recommendation to transfer JHIL to the ABN 60 Foundation and not the debt due to the Foundation. The paper stated: " Recommended Action 1. To note this paper and discuss any issues. 2. Approve further work by management in relation to the steps discussed. 3. To make a final decision on: request to cancel partly paid shares; capital structure of ABN 60; and transfer of control of ABN 60 later this year once the board receives final external legal advice. 1. Transfer ABN 60 to Foundation and Settle Indemnity Obligations · Advantages: o Good for Foundation as it: reduces ongoing risk to JH group; allows Foundation to diversify its investments; gives Foundation opportunity to earn higher return that reflected in annual payments; and is most effective way to receive repayment of the indemnity amount; o Good for JHI NV. · Foundation required under the restructure documents to take the shares in ABN 60: Foundation receptive to transfer but will do legal, accounting and tax due diligence. · ABN 60 being tidied up ready to transfer- e.g. undoing deeds of cross guarantee, tiding up balance sheet, transferring out subsidiaries, p-notes, etc etc. · Intention is to transfer ABN 60 with around AUD98M in cash representing the liability under USGAAP in JHINV's books – all other liabilities will be settled prior to transfer. · Main issues: o Stamp duty (possible AUD 1.75M payable): hopeful of reducing – worst case ABN 60 pays (PwC and AAR advising on structural alternatives). o Director duties for ABN 60 directors (Phillip Morley and Don Salter): canceling partly paids, adjusting capital structure): obtaining independent legal advice. o Directors' duties for JHI NV directors (requesting cancellation of partly paid shares and transferring ABN 60 to Foundation): preliminary advice from De Brauw is that there are no impediments from the Dutch point of view. o Passing control of ABN 60 to a third party: AAR reviewing documentation o Receptiveness of Foundation to transfer and its due diligence: early indications are that Foundation is willing to receive ABN 60 – substantial upside for Foundation. · Transfer will be structured so that JHI NV indemnifies Foundation for all non-asbestos liabilities of ABN 60; Foundation indemnifies JHINV for all ABN 60 asbestos liabilities." 1106 In his February 2003 board paper, Mr Shafron had pointed out that the mere existence of arrangements with the Foundation caused anxiety among certain lenders at least and prejudiced the position of and the terms available to the JHINV. A negative market perception of the value of JHINV shares was also clear from Peter Walraven's report of October 2002, Annexure F to Mr Shafron's February 2003 board paper. 1107 There is no reason to suppose that the considerations that led to the more stringent loan terms would not also have a depressing effect upon JHINV's share price. 1108 In approving the steps at the 25 March 2003 Meeting, the directors of JHINV must have seen an advantage to JHINV. That advantage was the hope that the separation of JHIL from the James Hardie group would have the effect of increasing the JHINV share price. It was the separation of JHIL rather than the discharge of the debt that was the significant element in the steps approved at the meeting. 1109 Mr Humphris was of the view that on and from 25 March 2003 the ABN 60 Information was information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of JHINV shares. He said the cancellation of JHIL's partly paid shares for no consideration removed the prospect of JHINV being required, under certain conditions, to inject further equity into JHIL. The payment of $1.5m by JHIL to JHINV increased the value of JHINV by that amount, albeit that the amount in itself was not material. He said the effective transfer of JHIL out of the James Hardie group would be likely to bring about a further reduction of perceived asbestos risk and uncertainty and enhanced sentiment in the minds of investors thereby leading to an expected increase in JHINV's market price by reducing the asbestos discount. He said that through the effective transfer of JHIL to the ABN 60 Foundation, JHINV would derive potential value benefit from the elimination of expected ongoing costs in JHIL in light of JHIL's apparent lack of surplus net assets. He said that, pursuant to the DOCIA, JHIL provided JHINV, subject to certain conditions, with a covenant and indemnity. He said the aggregate net effect of these items was that a reasonable person would expect them to have a positive material effect on the value and price of JHINV's shares. 1110 Allens gave advice in January 2003 that the ABN60 Information should be disclosed. A number of arguments against disclosure were put to Allens and in a second advice in March 2003 they said that if JHINV correctly held the view that announcing the transaction to the market would not affect the price of its shares nor affect any decision by persons who commonly invest, whether or not to buy them, disclosure was unnecessary. 1111 That lender sentiment was also investor sentiment was borne out by the first advice of Allens: "(d) to the extent that effecting the transfer of ABN 60 is likely to be viewed positively by the JHI NV Group's principal and syndicated lenders, it is likely a reasonable person would expect the transaction to be disclosed to shareholders and be viewed similarly." 1112 Mr Humphris assumed that JHIL had a lack of surplus net assets at the time of transfer. He was wrong in this respect. It had $95m in assets with liabilities with an NPV of $75m reduced by the return of capital of $1.5m giving a surplus of $18.5m. 1113 Mr Humphris agreed that if a company made a payment that had an NPV in terms of foregone revenue expressed as a percentage of its market capitalisation of less than one percent he would not consider that to be material. JHINV's market capitalisation in March 2003 was in excess of $3,000m. $18.5m was approximately 0.6% of market capitalisation. But that was not the transaction in question: it was the cancellation of the partly paid shares after a reduction in share capital. 1114 In relation to Mr Humphris' third and fourth reasons which addressed the same subject, he agreed that he had assumed that there was a perceived asbestos risk which attached to JHIL that would be significantly removed from JHINV by the separation of JHIL. He assumed the sentiment but was not able to say whether it was rational or irrational. 1115 The market sentiment assumed by Mr Humphris was real, whether rational or irrational, as discussed above. And it was not without reason. There was not only the JHIL involvement before 1937 in the manufacture of asbestos products but also there was the prospect of liability in relation to the Wren decision and the management and board of JHIL had concerns that there might be government reaction if the Foundation was under-funded which it was since future asbestos claims were in excess of $1billion. 1116 It was submitted that Mr Humphris was unable to describe or quantify the reduction in risk to JHINV of the covenant and indemnity in the DOCIA. An assessment of materiality can be made without quantification. Particularly is this is so when, as here, one is concerned with the prospective effect on a negative perception in the market place which itself is unquantifiable. 1117 Mr Humphris expressed his opinion as the cumulative effect of the factors set out above. A criticism of the factors individually does not address the accumulation. 1118 As a matter of hypothesis in the circumstance of a market rationally or irrationally devaluing JHINV shares because of a perceived connection through JHIL with a liability for Asbestos Claims, a reasonable person is likely to have regarded knowledge that JHIL was to be separated from the James Hardie group as being important and as having a material effect on the price or value of JHINV shares. 1119 It was put to Mr Humphris that if he assumed that the company had assessed the value of the potential liability of JHIL at about $12m and it separated JHIL with net assets to provide for those liabilities the transaction would not be a material one. He agreed but said it depended on how good the calculation was. But the question is not what the management of JHINV believed to be a material transaction: the question is whether the investing public would regard the ABN 60 Information as having a material effect on the JHINV share price. 1120 It was submitted that Mr Humphris was not able to say what asbestos discount was applicable to JHINV's share price, nor was he able to say that it was removed or eliminated by the transfer of JHIL. But that there was an affectation upon the share price by the association of JHIL to the James Hardie group was established by internal documents and analysts' statements. The discounting effect of this market sentiment constituted the asbestos discount. That it could not be quantified is beside the point. The question is whether the disclosure of the ABN 60 Information would likely have had the effect of materially increasing the share price. 1121 It was submitted that the evidence did not establish that any negative perception attaching to the James Hardie group in relation to the general subject of its asbestos history was due to the connection with JHIL or that it extended beyond the actual and potential asbestos liabilities of JHIL. I reject that submission. It was JHINV's possible connection to Asbestos Claims and not the amount of debt owed by JHIL to the Foundation that gave rise to the negative perception and that connection was through JHIL. The severing of that connection was likely to reduce the negative sentiment. 1122 On 15 May 2003, JHINV released a preliminary final report. It contained the following note: " ABN 60 Pty Ltd On 31 March 2003, the company transferred control of ABN 60 Pty Limited ("ABN 60", formerly James Hardie Industries Limited) to a newly established company named ABN 60 Foundation Pty Ltd ("ABN 60 Foundation"). ABN 60 Foundation was established to hold the shares in ABN 60 and to ensure that ABN 60 meets its payment obligations to the Medical Research and Compensation Foundation. Following the establishment of the ABN 60 Foundation, JHI NV no longer owns any shares of ABN 60. ABN 60 and ABN 60 Foundation are managed by independent directors and operate entirely independently of the Company. The Company does not control the activities of ABN 60 or ABN 60 Foundation in any way. The Company has no economic interest in ABN 60 or ABN 60 Foundation, has no right to dividend or capital distributions, nor will it benefit in the event that there is ultimately a surplus of funds in ABN 60 Foundation or ABN 60. As a result of the change in ownership of ABN 60 on 31 March 2003, a loss on disposal of $0.4 million was recorded by the Company at 31 March 2003, representing the liabilities of ABN 60 (to the Medical Research and Compensation Foundation) of A$ 94.6 million ($57.2 million), the A$94.5 million ($57.1 million) in cash held on the balance sheet, and costs associated with the establishment and funding of ABN 60 Foundation. JHI NV has agreed to indemnify ABN 60 Foundation for any non asbestos related legal claims made on ABN 60. There is no maximum amount of the indemnity and the term of the indemnity is in perpetuity. The Company believes that the likelihood of any material non asbestos-related claims occurring is remote. As such, the Company has not recorded a liability for the indemnity. The Company has not pledged any assets as collateral for such indemnity." 1123 It was submitted that JHINV's share price movement on 15 May 2003 favoured a finding that if the transfer of JHIL was disclosed, it was not material. The opening and closing range was only $0.20 with a high of $6.61 and a low $6.35 with an average trading price of $6.467. The volume of trades, however, was the highest it had been in a month. But the question is not an ex post facto one, whether the market did react to the disclosure of the information. The question is whether a reasonable person would expect the information to have a material effect on the market price. 1124 In similar vein was the submission that two analysts, one on 21 May 2003 the other on 3 July 2003, continued to refer to asbestos or the risk that future liabilities of the Foundation might not be fully covered. The actual effect of the information is not determinative and two instances suggest that the majority of analysts had regarded the information as material. 1125 There were a number of filings of documents with ASIC by JHINV and JHIL as follows: · On 17 March 2003 notification of the issue of 22 JHIL fully paid ordinary shares for $69,903.3182 per share signed on 15 March 2003; · On 17 March 2003 notification of special and general meetings of shareholders of JHIL to be held on 17 March 2003 to pass resolutions that the share capital of JHIL be reduced in 14 days after lodgement by cancelling the one fully-paid ordinary share held by JHINV for no consideration signed on 17 March 2003; · On 17 March 2003 notification of a resolution that the share capital of JHIL be reduced by cancelling all its partly paid ordinary shares for no consideration signed on 15 March 2003; · On 17 March 2003 notification of resolution that the share capital of JHIL be consolidated by converting all its fully-paid ordinary shares into one fully-paid ordinary share signed on 15 March 2003; · On 17 March 2003 notification of capital reduction of JHIL by cancellation of 100,000 partly-paid ordinary shares for no consideration signed on 15 March 2003; · On 31 March 2003 notification of resolution that the share capital of JHIL be reduced after 14 days by cancelling one fully-paid ordinary share held by JHINV for no consideration signed on 31 March 2003; · On 31 March 2003 notification of special and general meetings of shareholders to be held on 31 March 2003 to pass resolutions that the share capital of JHIL be reduced in 14 days after lodgement by cancelling the one fully-paid ordinary share held by JHINV for no consideration signed on 29 March 2003; · On 31 March 2003 notification of resolution that the share capital of JHIL be reduced without cancelling any shares by A$1,430,425 with such amount to be paid to the Company's shareholder signed on 31 March 2003; · On 31 March 2003 notification of issue of 1,000 JHIL fully-paid ordinary shares for $1 per share signed on 31 March 2003; and · On 14 April 2003 notification of capital reduction of JHIL by cancellation of one fully-paid ordinary share for no consideration signed on 14 April 2003. 1126 It was submitted that information contained on a publicly accessible register was readily observable matter and therefore generally available and the combination of the filings revealed the steps approved at the 25 March 2003 Meeting. 1127 There are a number of answers to this submission. First, the filings did not reveal the execution of the DOCIA nor its covenant and indemnity. 1128 In March and April 2003, JHIL was a private company. ASIC maintains a register of private company filings. They may be in an electronic form. It charges a prescribed fee for persons to access documents it maintains through electronic means or at its Business Centre. Upon payment of the fee, any person may inspect and copy or electronically extract any document filed with ASIC. From 1 March 2003 any person could have received an electronic transmission notifying any of the documents in the electronic database and including an electronic copy of that document. 1129 While JHIL maintained its Australian Business Name, it changed its name on 4 January 2002, again on 30 April 2002 and again on 8 April 2003. It was submitted that an ABN search would have revealed the filings that JHIL made under its different names. 1130 In Firns a judgment of the Supreme Court of Papua New Guinea was held to be readily observable matter. Mason P said at [78]: "Even if ready observability were to be limited to perceptibility by the unaided human senses, the published judgment of a Supreme Court is readily observable. A fortiori if, as I believe to be the case, one is not confined to the unaided human senses. Since the demise of the pony express and semaphore and the advent of telephone, telex, facsimile, television and the internet we have come to observe information immediately yet indirectly. Our human senses are engaged, but with the aid of modern means of telecommunication. Absent statutory clarification or restriction, there will be cases where failure to advert to this modern reality skews the true scope of s 1002B(2)(a) despite emphasis on the modifying adverb "readily"." 1131 But the President recognised that there were exceptions. As well as his analogies at [73] of a message widely published yet encrypted and a gold nugget lying in a remote corner of desert, his Honour observed at [88] that depositing information in an obscure portion of a public library might not establish ready observability. His Honour said the issue is a factual or jury one. 1132 The circumstances that led to the finding of ready observability of the Court judgement are quite different from the present case. The question was whether the information that a favourable judgment had been delivered by the Supreme Court of Papua New Guinea was generally available in the sense that it was readily observable matter when one of the directors of the company arranged share purchases allegedly in breach of insider trading laws. The existence of the litigation was well known to the market. It had been notified throughout the proceedings by a number of press releases that were sent to the ASX. There were articles in the Australian press referring to the litigation. There was an anticipation in the market because of the pre-existing generally available information that there would be a judgment in the ordinary course. 1133 In my view information on an ASIC register that might, on payment of a fee, be searched and might reveal relevant information if the searcher was sufficiently astute to consider name changes and conducted a search for the ABN of JHIL, was not readily observable matter. The legislation aimed at preventing selective disclosure of market sensitive information should not be understood as treating as readily observable a complex series of filings by a private company that had changed its name on a number of occasions. As French J observed in Re Chameq Ltd; Australian Securities and Investments Commission v Chemeq Ltd [2006] FCA 936; (2006) 234 ALR 511 at [46] the importance attached to continuous disclosure by the legislation is emphasised by the penalties for their contravention. That importance should not be downgraded by an entitlement to exemption from disclosure because filings with ASIC required by the legislation for other purposes have been made. 1134 Nor was the information in the filings made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invested in securities of a kind whose price or value might be affected by the information and a reasonable period for its dissemination had elapsed. Again, a complex series of filings with ASIC is not presented in a manner likely to be brought to the attention of the investing public, entitled to assume that information will be made available in accordance with the listing rules. A member of the investing public should not be required to pay a fee for the privilege of conducting a search of the filings by private companies held by ASIC. 1135 Finally, the information in the filings did not consist of deductions, conclusions or inferences made or drawn from readily observable matter, or information made known in a manner likely to bring it to the attention of the investing public. JHINV has failed to establish that on 25 March 2003 the ABN 60 Information was generally available because of its filings with ASIC. 1136 ASIC has made out its charge that on and from 25 March 2003 until 30 June 2003, JHINV failed to notify the ASX of the ABN 60 Information in accordance with the ASX listing rules and thereby contravened Section 674(2). 12 Jones v Dunkel 1137 The failure to call Mr Wilson, Mr Sweetman and Mr Robb led to the submission that the rules in Jones v Dunkel (1959) 101 CLR 298 should be applied. Two inferences are involved. First, a Court might infer that the evidence of the absent witness would not have assisted the party that failed to call that witness. Secondly, a Court might draw, with greater confidence, any inference unfavourable to the party that failed to call that witness, if that witness appears to be in a position to cast light on whether the inference should be drawn (Manly Council v Byrne and Anor [2004] NSWCA 123 at [51]). 1138 The failure of Mr Macdonald, Mr Shafron, Mr O'Brien and Mr Terry to give evidence led to similar submissions. 1139 I have come to conclusions on each of the issues raised in these proceedings without the need to draw a Dunkel inference. I am not compelled to draw an inference if the bases for its operation are established. The drawing of such an inference is a facility. It is not an obligation in the reasoning of a decision maker (Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 343). 1140 As explained in Manly at [53], while Glass JA dissented as to the application of the principles in Dunkel to the facts in Payne v Parker (1976) 1 NSWLR 191, his analysis of the principles is a correct statement of the law. At 200-202 his Honour deduced nine principles. His sixth and seventh were as follows: "(6) Whether the principle can or should be applied depends upon whether the conditions for its operation exist. These conditions are three in number: (a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained. (7) The first condition is also described as existing where it would be natural for one party to produce the witness: Wigmore, par. 286, or the witness would be expected to be available to one party rather than the other: O'Donnell v. Reichard [1975] V.R. 916, at p. 921, or where the circumstances excuse one party from calling the witness, but require the other party to call him: ibid. [1975] V.R. 916, at p. 920, or where he might be regarded as in the camp of one party, so as to make it unrealistic for the other party to call him: ibid. [1975] V.R. 916, at p. 920, Regina v. Burdett (1820) 4 Barn. & Ald. 95; 106 E.R. 873, or where the witness' knowledge may be regarded as the knowledge of one party rather than the other: Earle v. Castlemaine District Community Hospital [1974] V.R. 722, at p. 733, or where his absence should be regarded as adverse to the case of one party rather than the other: ibid. [1974] V.R. 722, at p. 734. It has been observed that the higher the missing witness stands in the confidence of one party, the more reason there will be for thinking that his knowledge is available to that party rather than to his adversary: ibid. [1974] V.R. 722, at p. 728. If the witness is equally available to both parties, for example, a police officer, the condition, generally speaking, stands unsatisfied. There is, however, some judicial opinion that this is not necessarily so: ibid. [1974] V.R. 722, at p. 728. Evidence capable satisfying this condition has been held to exist in relation to a party's foreman: Café v. Australian Portland Cement Pty. Ltd. (1965) 83 W.N. (Pt. 1) (N.S.W.) 280; his safety officer: Earle v. Castlemaine District Community Hospital [1974] V.R. 722; his accountant: Steele v. Mirror Newspapers Ltd. [1974] 2 N.S.W.L.R. 348; his treating doctor: O'Donnell v. Reichard [1975] V.R. 916, at p.921." 1141 Mr Wilson, Mr Sweetman, Mr Robb, Mr Blanchard and Mr Frangeskides were not in ASIC's camp and, in the absence of a duty akin to prosecutorial fairness, I would have inclined to the view that they should not have been expected to have been called by ASIC rather than a defendant. They were independent experts and the general rule that there is no property in a witness of fact applies also to an expert (Harmony Shipping Co SA v Saudi Europe Line Ltd [1979] 1 WLR 1380, Phipson on Evidence 16th ed (2005) Sweet & Maxwell, London at [33-49]). They should have been equally available to both sides of the bar table. 1142 It was suggested that Mr Robb had indicated that he was not prepared to meet with some of the defendants. But that does not make him a witness expected to be called by ASIC rather than a defendant. He was subject to a subpoena to give oral evidence served by ASIC. He could have been served with a subpoena by a defendant. 1143 I chose not to draw a Dunkel inference against ASIC. Had I been minded to do so, I would have inclined to the view that the first condition for its operation was not established. 1144 The second principle deduced by Glass JA concerned the treatment of a failure to adduce evidence as a reason for increasing the weight of the proofs of the opposite party or reducing the weight of the proofs of the party in default. His Honour said at 201: "The principle may be invoked for a deficiency in the evidence either of a party bearing the legal onus of proving an issue, or of a party bearing the evidentiary burden only: Ibid. [1975] V.R. 916, at p. 921; Steele v. Mirror Newspapers Ltd. [1974] 2 N.S.W.L.R. 348, at pp. 360, 367. If the failure is of the latter kind, the direct evidence of the party with the onus of proof can be more readily accepted, and inferences in his favour may be more confidently drawn: Jones v.Dunkel (1959) 101 C.L.R. 298, at pp. 308, 312. If the failure is of the former kind, a consonant formulation would be that the direct evidence of the party carrying the onus may be more readily rejected, and the inferences for which he contends may be treated with greater reserve. The default "brings a great slur on his cause": Ward v. Apprice (1704) 6 Mod. Rep. 264; E.R. 1011." 1145 It was submitted that Mr O'Brien and Mr Terry bore no legal or evidentiary onus. If it had been necessary for me to decide the issue I would have tended to agree. 1146 It was further submitted that the decision in Adler at [661] that it was open to the judge at first instance to draw Dunkel inferences in civil penalty proceedings should not be followed since the decision of the High Court in Rich. 1147 That is an important matter into which I should not venture by way of obiter dictum. 13 Subsequent events and credit issues 1148 ASIC relied upon events subsequent to the matter in issue that called for a response that was not forthcoming as an admission that the matter in issue occurred or as damaging the credit of the non-responding person. 1149 There is a difficulty in this line of submission in a multi-party proceeding such as the present. Does the attack on the credit of one party affect the credit of all other parties who failed to respond? Is it significant if the matter in issue is the intention of the board of directors of JHIL? Is the intention of one director indicative of the collective intention of all the directors? 1150 I have reached my decision without resort to this evidence. But where a response was called for if my decision on a matter in issue was incorrect and none was forthcoming, I drew support for my decision from that circumstance. 1151 Likewise, if the credit of a witness was damaged, I drew comfort for my rejection, on other grounds, of that person's evidence on a matter in issue. 1152 Ms Wheeler said ASX announcements were distributed to each of the JHIL directors by facsimile with pre-set distribution lists set up in the facsimile machine in corporate affairs and through an external facsimile provider. It was put to her that there should be facsimile coversheets for all distributions that went out to directors. She said that was not so because it was all done electronically through an internet based programme. She agreed that she did not have a single piece of paper captured electronically or in hard copy that showed that that had occurred. 1153 Ms Wheeler said that on 16 February 2001, emails with web links to the Final ASX Announcement were sent to each of the JHIL directors from her email address. Ms Cole recalled that she copied the web links into pre-drafted emails located in Ms Wheeler's draft email box. Ms Cole was not required for cross-examination. 1154 Ms Wheeler said she recalled this because an email to one of the JHIL directors "bounced back." 1155 It was put to her that since there was no record of any email being sent to any director on 16 February 2001, she was probably mistaken. She said: "It is possible that I have mistaken it, but I can remember clearly that a director's email had bounced in the distribution, because I can remember walking into Mr Baxter's office really nervous that the director didn't receive the email. That is my recollection of the event and how I can recall that an email had bounced to a director." 1156 She agreed that she did not know what the contents of the email were, from which director the email bounced back, or whether there were attachments or reference to websites or the like in it. 1157 An email that Ms Wheeler sent to Ms LJ Locke of Hawker Britton attaching the Final ASX Announcement bounced back and she had to send it again. It was put to her that was the email that bounced back. She denied this: "No, my recollection – LJ used to work for James Hardie. L knew her of a personal level. I would have rung her, but because it was a director and it was very important, I can recall a bounce-back coming from a director." 1158 I was impressed by Ms Wheeler's account of her concern that an email to a director had not been received. It is the sort of experience I can well understand that she would remember. 1159 Mr Koffel agreed that in the normal course he would have received the Final ASX Announcement. Yet there is no evidence that any of the directors complained that they had not received their copy. 1160 Mr Brown said he had no recollection of receiving the Final ASX Announcement. Mr Gillfillan had no recollection of seeing it or being provided with a copy. Ms Hellicar said she believed she first saw the Final ASX Announcement in the report of the Special Commission. Mr Koffel did not recall receiving a copy. Mr Willcox believed that he had received a copy of the Final ASX Announcement but during preparation for this case he came to believe that he might not have received it based upon the absence of any documentary evidence of its dispatch. 1161 It is extraordinary that none of the non-executive directors who gave evidence recalled seeing the document that announced a most significant event in the life of the James Hardie group, an event that they were at pains to ensure was well received by the market. Had they received copies of the Final ASX Announcement, and had it been true that they would not have approved the Draft ASX Announcement, they would have expressed the concern that it made forward-looking statements with which they disagreed. There is no evidence that any of the non-executive directors complained about the content of the Final ASX Announcement on or soon after 16 February 2001, or at all. 1162 What is also extraordinary is that the usual practice was for directors to be sent copies of ASX announcements and yet there was no complaint from any of non-executive directors who gave evidence that they had not received their copy of the Final ASX Announcement. 1163 To feign a lack of recollection was in the interests of non-executive directors. By it they escaped the problem of explaining why, according to them, the document contained material so unequivocal and unqualified that they never would have approved it and yet they raised no complaint about its content. 1164 But the fact of the matter is that they did approve the Draft ASX Announcement and the receipt of a copy of the Final ASX Announcement would not have surprised them. 1165 I accept Ms Wheeler's evidence that copies of the Final ASX Announcement were sent to the non-executive directors. 1166 Susan Jane Rescorl Stevenson was the personal assistant to Mr Donald Cameron. On her personalised JHIL letterhead, listing her telephone, facsimile and email details, a facsimile was sent to Mr Brown and Mr Willcox that stated: "At the last meeting it was agreed that there would be a teleconference set up for Tuesday morning, Australian time, so that interested Directors could hear a report on the aftermath of the separation announcement. Accordingly, a call has been arranged as follows." 1167 There followed Australian time Tuesday 9 am with times in other countries together with a free call number for Australia and those countries and a pass code for the teleconference. 1168 Mr Brown said he had no recollection of the facsimile. He had a diary entry "JHI hook-up" at 9 am on 20 February 2001. He said he believed this was probably a follow-up hook-up for any members of the board who wanted to dial in to get a report back as to how the announcement of the Foundation had been received by various interested parties at the time. But he said he had no recollection of any arrangement to hold the teleconference being made at the 15 February 2001 Meeting, nor any recollection of participating in the teleconference. 1169 Mr Gillfillan said he had no recollection of a directors' hook-up to discuss the reaction to the announcement of the establishment of the Foundation. Had there been one that would have been an unusual event. 1170 Ms Hellicar also had a diary entry "JHIL teleconference" at 9 am on 20 February 2001. 1171 Ms Hellicar said she had absolutely no memory of an agreement being reached at the 15 February 2001 Meeting to hold a teleconference for interested directors to hear a report on the reaction to the separation announcement. 1172 An email in the same terms as the facsimile from Ms Stevenson was sent to Ms Hellicar. She maintained the email never came to her attention because she was at Maroochydore attending a forum. 1173 Telephone records of Ms Hellicar, admitted only against her, record her telephoning Ms Stevenson's telephone number just prior to 9 am on Tuesday 20 February 2001 and then calling the free call number three times at around 9 am on that day. When faced with the telephone records, Ms Hellicar was asked whether she adhered to her evidence that she was in Maroochydore in the morning of 20 February 2001. She said: "Well, I mean, the phone records would indicate not, but I am flabbergasted at that. I know I have been to several conferences, Maroochydore – at Coolum, so I can only assume I might have been confusing that, but it is odd and, yes, I've got, you know, no rational explanation for it other than that I must have been mistaken." 1174 This incident tells against Ms Hellicar's credit. It was not the only incident in her testimony that an adamant statement made by her turned out to be wrong. 1175 Mr Koffel said he did not recall discussion at the 15 February 2001 Meeting of a follow up meeting to hear a report on the aftermath of the separation announcement. He said it was unusual for a board to become involved in tactical information in that way, but it may have occurred. 1176 Mr Willcox said he did not recall receiving the facsimile from Ms Stevenson and he had no recollection of participating in a telephone conference on 20 February 2001. 1177 Mr Morley said he had no recollection of any discussion about a telephone hook-up at the 15 February 2001 Meeting. And he said he did not think he participated in any such telephone conference. 1178 A teleconference was arranged. The combination of Ms Stevenson's facsimile, the entries in the diaries of Mr Brown and Ms Hellicar and, as against her, the telephone records establish that. Ms Hellicar participated in the teleconference on 20 February 2001. The time she was on the telephone is consistent with that. 1179 As Mr Gillfillan and Mr Koffel said, it was an unusual event. One would have expected, therefore, that some of the non-executive directors would have a recollection of it. I do not accept the chorus of denial of recollection to be genuine. 1180 This was another opportunity on which one would have expected the non-executive directors to voice their disapproval of the Final ASX Announcement if their testimony that they would not have approved the Draft ASX Announcement were true. 1181 While I reject the chorus of non-recollection from the non-executive directors who gave evidence, my non-acceptance of their evidence does not establish the identity of any other person who participated in the teleconference. 1182 All that is established is that Ms Hellicar participated in the teleconference and there is no evidence that she took the opportunity to complain about the content of the Final ASX Announcement. If her evidence that she would not have approved the Draft ASX Announcement was true, one would have expected a complaint from her at the teleconference if she had not already complained upon receipt of the Final ASX Announcement. 1183 Again, the reason for her lack of complaint about the content of the Final ASX Announcement during the teleconference was because she had approved the Draft ASX Announcement and the terms of the Final ASX Announcement caused her no concern. 1184 I held that evidence of the teleconference did not establish what was discussed at the 15 February 2001 Meeting in relation to the Draft ASX Announcement (Australian Securities and Investments Commission v Macdonald (No 5) [2008] NSWSC 1169 at [12]; Australian Securities and Investments Commission v Macdonald (No 6) [2008] NSWSC 1175 at [10]). Having found, however, that the board of directors approved the Draft ASX Announcement, the failure of Ms Hellicar to complain about the content of the Final ASX Announcement during the teleconference supports my conclusion. 1185 As well as the evidence of Ms Wheeler that ASX announcements were distributed to each of the JHIL directors by facsimile from a pre-set distribution list, Mr Macdonald attached the 23 February 2001 ASX Announcement to an email sent to Mr Gillfillan, Ms Hellicar, Mr Koffel, Mr O'Brien and Mr Terry for their information, saying it was in response to recent and anticipated media articles. Mr Macdonald gave an instruction to Ms Stevenson to send a facsimile to Mr Willcox and to forward the document to Mr Brown's new email address. 1186 Mr Brown said he did not recall receiving the 23 February 2001 ASX Announcement. Mr Gillfillan said he could not recall seeing it. Ms Hellicar said she did not know whether she read it or not. Mr Koffel said he did not recall reading it. He said he might not have been given the press release by his assistant and even if he had, he may not have looked at it. He said it would not have had any immediacy to it. 1187 There was no evidence that any of the non-executive directors objected to the content of the 23 February 2001 ASX Announcement or took the opportunity to respond to Mr Macdonald with a complaint about the content of the Final ASX Announcement or the Press Conference Statements. 1188 If the non-executive directors considered the Draft ASX Announcement to be over-emphatic such that they would not have approved it, one would have expected them to have had the same attitude to the 23 February 2001 ASX Announcement and to have voiced their concern upon receipt of Mr Macdonald's email. 1189 Instead, again we have a chorus by most of the non-executive directors (the issue was not explored with Mr Willcox) saying they had no recollection of reading the email. 1190 I do not accept that not one of them read the attached 23 February 2001 ASX Announcement. 1191 The fact of the matter is that if they had read the 23 February 2001 ASX Announcement it would have given them no concern because, having approved the Draft ASX Announcement, they would have endorsed the content of the 23 February 2001 ASX Announcement or, at least, they would not have objected to it. 1192 The draft minutes of the 15 February 2001 Meeting were prepared by Allens before the event. In the expectation that it would be, the draft minutes contained the resolution that the Draft ASX Announcement was approved. 1193 At the JHIL board meeting on 3 April 2001 the draft minutes of the 15 February 2001 Meeting were approved by all the directors with the exception of Mr Willcox who was absent. None of them raised any concern with the resolution approving the Draft ASX Announcement. The draft minutes had been included in the April 2001 board packs sent to each of the defendants with the exception of JHIL and JHINV. The approved minutes were in identical form to the draft minutes with the exception that the mistaken reference to a meeting of 15 February 2000 had been corrected. 1194 Mr Brown said he reviewed the first couple of pages of the draft minutes but noted that the remaining six pages were in the nature of legal documentation and he only flicked through those pages to recognise that they were formal legal resolutions affecting the intent of what had been agreed. He said he did not notice the resolution approving the Draft ASX Announcement. Mr Brown accepted that the 15 February 2001 Meeting was one of the most important he had attended. 1195 Mr Gillfillan gave similar evidence. He said he believed that he did not study that portion of the draft minutes appearing below the heading "Creation of the Foundation" once he had ascertained that it dealt in the main with formalities in relation to the creation of the Foundation. He said he did not even review the bold headings on the fourth to eighth pages of the minutes which included the bold heading "ASX Announcement" on the seventh page. 1196 Ms Hellicar said she always wanted to make sure that minutes reflected the substantive decisions that had been taken. But she said her practice was only to skim read minutes recording formal preambles and resolutions required to implement decisions taken by the board and she only skim read that portion of the minutes below the heading "Creation of Foundation" as she believed it reflected a lawyer's drafting of the steps considered necessary and not a record of what actually transpired at the meeting. 1197 Mr Koffel said he did not read the draft minutes. He said it was his practice not to read minutes. He did not think an individual director had an obligation or responsibility for the minutes. He said he relied on the managing director and other directors to ensure the minutes were correct. 1198 Mr Willcox had no recollection of reviewing the draft minutes when he read the board papers for the April 2001 Meeting. His normal practice was to read minutes to assure him that the essence of major decisions had been recorded. He said he did not recall seeing anything in the minutes so badly misleading that he had cause to do anything about it. 1199 On the other hand, Mr Morley, who attended the 3 April 2001 board meeting said that he always believed that the minutes of the 15 February 2001 Meeting were correct. 1200 There was no suggestion from Mr Shafron, who was involved in the preparation of the draft minutes, or Mr Morley, that anyone suggested at the 3 April 2001 board meeting that the draft minutes were incorrect. Mr Morley said he did not raise any objection to the draft minutes and he did not recall anybody else suggesting that they were incorrect. 1201 Mr Robb, who had attended both meetings and was involved in the preparation of the minutes of the 15 February 2001 Meeting, did not suggest any amendment to the draft minutes sent to him by Mr Shafron on 30 March 2001. That document included the ASX announcement resolution. 1202 That none of the non-executive directors who gave evidence were aware of the resolution approving the Draft ASX Announcement in the minutes of the 15 February 2001 Meeting, meant that they did not have to explain why they did not seek an amendment to the minutes if their contention that they would not have approved the Draft ASX Announcement was true. 1203 On each occasion when one would have expected the non-executive directors to challenge statements if their contention was true, they have professed ignorance of the statements that should have caused them to complain. This was one such occasion. I do not accept that not one of the non-executive directors who gave evidence was aware of the recorded resolution in the draft minutes approving the Draft ASX Announcement. 1204 It was submitted that the minutes of the 15 February 2001 Meeting contained inaccuracies that rendered them not a reliable contemporaneous record of the matters that took place at the meeting. 1205 The simple answer is that I have found that the ASX announcement resolution accurately recorded what happened at the meeting. That there may have been inaccuracies with respect to other matters recorded in the minutes does not detract from this finding. 1206 Since some emphasis was placed on the inaccuracies, however, I set them out. 1207 First, the minutes reported a resolution in relation to the DOCI that identified an NPV of $65m whereas the figure in the slide presentation with respect to the Cashflow Model for the 15 February 2001 Meeting was an NPV of $72m. 1208 Mr Morley said when he returned to work on 16 February 2001, Mr Harman told him that he had made a change to the figures as the extraordinary loss to be entered in JHIL's books was required to be determined at a risk free discount rate which led to the $8m difference between $285m and $293m. 1209 It was submitted that this explained a like change in the $65m to $72m. I do not accept that submission. First, that difference is $7m. More importantly, the NPV of $72m had been displayed in the slide presentation at the 15 February 2001 Meeting and predated any discussion with Mr Harman after the conclusion of the meeting. 1210 Secondly, the minutes recorded Mr McGregor tabling a power of attorney that appointed Mr Macdonald, Mr Shafron, Guy Jarvi and Joanne Marchione as attorneys for the company. But Mr Jarvi was not appointed in the tabled power of attorney. The matter was rectified at the April 2001 board meeting. 1211 Thirdly, the figure of $65m instead of $72m was repeated on the third page of the minutes. 1212 Fourthly, the minutes recorded a substantial shareholder notice for Merrill Lynch dated 28 February 2001 whereas the notice was dated 29 December 2000. 1213 Fifthly, the minutes recorded a chronological sequence of events in accordance with the agenda whereas Mr Morley gave unchallenged evidence that items 6, 7 and 10 were deferred until after the discussion of Project Green, item 11 on the agenda. Material documents, item 5 on the agenda, were recorded in the minutes as happening after Sir Llewellyn Edwards retired from the meeting whereas that item was dealt with before he retired. 1214 Sixthly, item 8 on the agenda was the chief executive officer's report. The minutes recorded it being considered prior to Mr Baxter, Mr Harman, Mr Wilson, Mr Sweetman, Mr Cameron and Mr Robb joining the meeting. Mr Morley's unchallenged evidence was that item 8 was considered after they joined the meeting. 1215 Seventhly, in incorrect sequence was item 10 on the agenda, "Australia/Asia Restructure". It was deferred until after discussion on Project Green. 1216 Eighthly, Mr Morley said that item 7 on the agenda, "Finance", was deferred until after the discussion on Project Green. The minutes recorded it as being considered before Project Green. 1217 Ninthly, it was submitted that the minute recording approval of the Draft ASX Announcement was incorrect, as Mr Morley had said that his best recollection was that no Draft ASX Announcement was tabled at the meeting. That is not an inaccuracy. I have found that the minutes are accurate in this respect. 1218 Tenthly, the minutes recorded a decision to explore strategic options for the gypsum business whereas the board had decided to adopt a strategy to commence a process for the sale of the business. 1219 Eleventhly, the minutes did not record a consensus of the board for the continuation of preparation for restructuring. 1220 The rescheduling errors are to be expected when, as here, the minutes were drafted before the meeting. Some of the errors such as the date of the substantial shareholder notice are relatively immaterial. But, in any event, it does not follow that because there were inaccuracies with respect to some events, the minutes could not be regarded as accurately recording other events and, in particular, the resolution approving the Draft ASX Announcement. 1221 In September 2004 the supervisory board of JHINV received advice from its Dutch lawyers that the directors were required to disclose conflicts of interest in relation to matters the subject of investigation by the Special Commission. A draft of a declaration to be made by Mr Brown, Mr Gillfillan and Ms Hellicar was prepared by JHINV's solicitors. It was attached to an email Ms Hellicar sent to Mr Brown and Mr Gillfillan amongst others. It said: "Directors, subject to any corrections from John A, attached is my declaration which I will sign and provide to whomever john advises (john, do we need to send these to each other or table them with secretariat?). I thought you might find the other attachments useful in working out relevant dates of appointment. cheers meredith." 1222 The attached draft declaration stated that in her capacity as a supervisory director JHINV and as a director of JHIL she participated in certain decisions and acts of those companies, certain of which had been, or might become, subject to criticism, including during the Special Commission. 1223 Paragraph 6 of the draft declaration was in the following terms: "By way of example of the decisions described in paragraph 4, but without limiting the declaration made under paragraph 5, in my capacity as a director of JHIL, I participated in the deliberations leading to the decision taken by the Board of Directors of JHIL on 15 February 2001, and in the decision itself, to approve the terms of the press release made by JHIL to the Australian Stock Exchange Limited on that day announcing the establishment of the Foundation." 1224 Mr Brown signed the declaration after having read it carefully and believing it to be true at the time, he said. Mr Gillfillan said he did not recall signing the declaration but most likely he did. Ms Hellicar said, to the best of her recollection, she did not sign the declaration although its contents were disclosed at the meeting of the supervisory board of JHINV on 28 September 2004 as is recorded in the minutes. 1225 In accordance with my findings, the declarations stated the matter accurately. 1226 I had limited the use that ASIC could make of these documents to its case against Mr Brown, Mr Gillfillan and Ms Hellicar. ASIC submitted that Mr Brown's oral evidence in relation to his declaration was admissible against all defendants as a prior inconsistent statement to what was to come in relation to revised declarations in 2005, or as an admission. 1227 I reject those submissions. If the declaration was a prior inconsistent statement, it could only go to Mr Brown's credit. It could have no relevance to the cases ASIC mounted against the other defendants. If it was an admission its use was, like the document itself, confined to ASIC's case against him. 1228 Early in 2005, Ms Hellicar said that she was informed by Mr Butterfield, the recently appointed James Hardie group's general counsel, that the directors of JHINV were required under Dutch law to lodge further standing disclosure notices. There is mention of some discussion whether or not this was required in the minutes of the meeting of the JHINV supervisory board on 10 May 2005. 1229 Ms Hellicar said she then considered the possibility that she may have provided an earlier disclosure notice that was incorrect to the extent that it acknowledged that she had participated in a decision at the 15 February 2001 Meeting to approve the terms of a press release to be made by JHIL. She said she recalled that her state of mind at the time was that she had no recollection of participating in a resolution or agreement of directors at that meeting to approve the terms of a press release. 1230 Ms Hellicar approached Mr Brown and Mr Gillfillan about a potential inaccuracy in the minutes of the 15 February 2001 Meeting. Each considered a revised declaration a draft of which was circulated at the meeting of 16 May 2005. Solicitors settled the final form of the declarations and an accompanying letter. Each declaration contained a paragraph 7 the opening portion of which was as follows: "By way of example of the decisions described in paragraph 4, but without limiting the declaration made under paragraph 5: · in my capacity as a director of JHIL, I participated in the deliberations leading to the decisions taken by the Board of Directors of JHIL on 15 February 2001, and in those decisions themselves. However, in certain respects I and other directors present at that meeting have raised an issue concerning a potential inaccuracy of the minutes of that meeting as previously adopted by the Supervisory Board. We have raised our concerns in that regard with the company secretary by way of a separate letter to the Supervisory Board …." 1231 The letter to be signed by Mr Brown, Mr Gillfillan and Ms Hellicar contained the following: "In this respect, each of the undersigned directors has discussed an issue of potential inaccuracy of the minutes of the JHIL board meeting of 15 February 2001 as previously adopted by the JHIL board. That discussion occurred for the limited purpose of testing whether our memories were accurate, since while each of us recalls being in attendance at that meeting and having given the matter significant thought over the extended period of time since the occasion of our September 2004 Declarations, none of us could possibly recall, when we signed the September 2004 Declarations and we cannot now recall, our involvement as being as extensive as that described in the September 2004 Declarations. On reflection we currently have no positive recollection of the following matter recorded in the 15 February 2001 board minutes as having actually occurred…." 1232 While suggestions were made as to the reasons for these documents being brought into existence, no ulterior motive for them was established by ASIC. 1233 ASIC sought to rely upon evidence of subsequent conduct to prove anterior intentions of individual members of the board of directors of JHIL. Reference was made to Cross on Evidence, Australian ed, Butterworths at [1170] in the discussion of retrospectant evidence: "The argument for the reception of this kind of evidence is the converse of that which demonstrates the relevance of prospectant evidence: the subsequent occurrence of an act, state of mind or state of affairs justifies an inference that the act was done, or that the state of mind or affairs previously existed. Thus, a driver's excessive speed may be proved to support the conclusion that he was going too fast a short distance further back." 1234 Thus, for example, ASIC sought to use evidence that Mr Macdonald instigated steps to put JHIL to the Foundation as soon as gypsum proceeds had been secured and were shortly to be received as evidence against Ms Hellicar and her assertion that the proposed exercise of the Put Option was prompted by new circumstances that first arose in September 2002. 1235 That use of evidence does not fall within the principle. It allows a subsequent act of a person to establish the anterior intention of that person. Here ASIC seeks to prove the anterior intention of Ms Hellicar by subsequent acts of Mr Macdonald. 1236 In any event any doubt as to Ms Hellicar's assertion of events in September 2002 does not establish that she had an intention on 23 July 2001 that JHIL be put to Coy under the Put Option. 1237 Furthermore, it is the intention of the directors of JHIL collectively that is in point and not the individual view of one director. 1238 In cross-examination of Ms Hellicar with respect to the board papers for the January 2001 meeting, Ms Hellicar denied knowledge of certain portions of the papers stating: "I have an absolute recollection of what I didn't read in this paper". Categorical statements like this made in the course of Ms Hellicar's testimony I find hard to accept. An absolute recollection of one particular document some eight years after the event is not readily believable. 1239 Ms Hellicar said that she believed the earliest she saw the Final ASX Announcement was in the report of the Special Commission. I find it difficult to accept this evidence. The announcement of the formation of the Foundation was a highly significant event in the life of the James Hardie group. ASX announcements were automatically sent to directors. There were the Press Conference Statements, the 23 February 2001 ASX Announcement and the 21 March 2001 ASX Announcement that ought to have alerted Ms Hellicar to the need to look at the Final ASX Announcement, if she had not already done so. 1240 Ms Hellicar said she was shocked when shown in the course of her cross-examination the allegations made in the Special Commission in relation to Mr Macdonald's involvement in the Final ASX Announcement. It was contained in a submission of counsel assisting the Special Commission that she had not seen before. 1241 Ms Hellicar met with Mr Macdonald prior to the meeting of the board of JHINV on 24 May 2004. He told her what he was going to say at that board meeting. She received a copy of a memorandum he was to give to the directors. Item 6 was as follows: "That executives of JHIL misled investors, government and the broader community by falsely promoting the ability of the MRCF to meet future claimants' costs." Ms Hellicar placed an arrow next to that item. 1242 Ms Hellicar was one recipient of an email of 11 August 2004. The first paragraph was in the following terms: "The 52nd day of the Commission commenced with Mr Meagher SC, senior counsel for JHI NV and ABN 60, making submissions on the Commissioner's power to make findings in relation to alleged defences and any limitations on the evidence to which the Commission may have regard in considering alleged contraventions. Mr Meagher also made submissions in defence of Mr Macdonald in relation to the press release of 16 February 2001." 1243 At an information meeting on 15 September 2004, Ms Hellicar responded to the following question: "Given that the submissions by counsel assisting at the Jackson Inquiry raised issues of fraud, deceit, misleading and deceptive conduct, possible breaches of the Corporations Law, between both our – by both CEO, Peter Macdonald, and the Chief Financial Officer, Peter Shafron, why hasn't the board demanded that both those individuals at least stand down pending outcome of this inquiry?" 1244 Ms Hellicar knew well before her cross-examination, of the gravity of the allegations raised against Mr Macdonald in the Special Commission. I find that her shock with respect to the document put to her in cross-examination was feigned. 1245 Ms Hellicar said she was unaware of problems in raising finance due to the perception that JHIL's membership of the James Hardie group connected it to the possibility of Asbestos Claims until September 2002. But the material, including analysts' reports, set out earlier in these reasons makes it clear that the board was well aware of this problem well before September 2002. 1246 At the annual general meeting of JHINV in September 2004 Ms Hellicar said that at the time of the application for the restructure of the James Hardie group in this Court: "It was known we might review the need for the partly paids". Her explanation was that she had been briefed prior to making the presentation about the nature of the partly paid shares and the company's position on them. 1247 When pressed in cross-examination, Ms Hellicar maintained that between April 2001 and July 2001 she was not aware that the partly paid shares could be reviewed. Notwithstanding submissions to the contrary this evidence does not affect Ms Hellicar's credit. It is consistent with my findings. 1248 In one incident in particular I found Ms Hellicar's demeanour to be most unsatisfactory. She had been cross-examined and maintained her statement that she did not sign the September 2004 declaration. Shortly thereafter she said there was a newspaper article that suggested that she was seeking an indemnity from government. She said: "… and I was so incensed with that allegation, that I actually wrote to ASIC and Costello, the Minister, to say: "(a) I'm not party to this, I don't know what's going on and I don't want such protections if they are being sought. " 1249 This exchange then took place: "Q. What was the date of that letter – about May? A. I am not sure. Some time during - Q. It was in 2005, wasn't it? A. It would be in 2005. It will be on ASIC's records, I'm sure. Q. And it is - A. It was a letter I signed." 1250 There was laughter in Court and Ms Hellicar smiled broadly. The cross-examination continued: "Q. Is that comment intended to suggest that the serious declaration which you provided to a company of which you were a director was not something to be taken seriously? A. No, its meant to convey that I'm pretty sure that it would have been sent. Q. That was an offhand comment wasn't it - A. I am sorry. Q. - to convey to his Honour that you only take seriously things you sign rather than declarations you provide? A. No. Q. Without qualification to a board of which you are a member? A. I apologise if it was disrespectful. It was only meant to mean that I'm pretty sure it was sent because I remember - Q. You laugh off - A. I signed it. Q. You try and laugh off that declaration? A. I didn't laugh I didn't laugh. Q. You laughed - A. No." 1251 I have set out at some length some of the incidents in the testimony of Ms Hellicar because I have grave doubts about her evidence and that may have some relevance to the exoneration provisions that are invoked on her behalf. There was a dogmatism in her testimony that I do not accept. She was proved to be inaccurate on a number occasions. I found Ms Hellicar to be a most unsatisfactory witness. 1252 Attacks were made on the credit of other witnesses. For example, Mr Koffel said he did not attend the board meeting on 12 July 2001 because he was in Houston at a meeting of his company that occurred over two days and required his attendance. He was deeply involved in preparation as well. 1253 But a sound recording of the chairman's address to the annual general meeting on that day confirmed that Mr Koffel attended on the telephone for at least half an hour from the commencement of the address until he confirmed his attendance. 1254 Mr Koffel said he did not recall his attendance by telephone and he maintained that he would not have attended the directors' meeting that followed the annual general meeting. 1255 There were not nearly so many attacks on the credit of the other non-executive directors who gave evidence as there were in relation to Ms Hellicar. I do not catalogue them because, as I have said, I did not rely upon issues of credit in arriving at my conclusions on the matters in issue. 14 Curiosity 1256 In Australian Securities and Investments Commission v Macdonald (No 10) [2009] NSWSC 53, I disallowed the tender of some 87 financial market analysts' reports other than those relevant to JHINV's sale of its gypsum business on the basis that those reports ought to have been put to Mr Humphris in cross-examination in accordance with the principle in Browne v Dunn (1894) 6 R 67. 1257 JHINV successfully appealed. In James Hardie Industries NV v Australian Securities and Investments Commission [2009] NSWCA 18 the Court of Appeal held that the rule in Browne did not apply. Mr Humphris gave his opinions upon assumptions that included the analysts' reports provided to him and JHINV was entitled to seek to displace the market perception on which Mr Humphris had acted by tendering other analysts' reports. 1258 Following that decision I enquired whether objection to the balance of the analysts' reports sought to be tendered by JHINV was maintained in light of the decision of the Court of Appeal. It was not, and I admitted the balance of the analysts' reports. 1259 The curiosity is that so far as I can tell, JHINV did not refer to any of the additional reports in its submissions. 15 Observation 1260 The minutia of information tendered by ASIC was, no doubt, influenced by the statement in its press release of 15 February 2007 that its investigation involved about 348 billion documents. 1261 I rejected the notion that ASIC should tender all its documents subject to objection and required documents to be proved in the ordinary course. 1262 That no doubt reduced considerably the documents ASIC would otherwise have sought to tender. But the result was still a large volume of documentary material having little, other than an historical bearing, on the matters in issue. 1263 Reference was not made to all the documents in the 3,237 pages of final submissions with which I was confronted. 1264 I found it unnecessary to refer to the vast bulk of the documents in reaching my conclusions on the issues in question. 1265 The detail with which ASIC presented this case caused the defendants, in answering it, to descend to a like level of detail. Ultimately the community bears the enormous cost of this venture. 1266 It ought to be possible for ASIC to present cases such as this without descending to the level of detail that it did in this matter. 16 Exoneration provisions 1267 While s 1317S and s 1318 of the Corporations Act have been addressed in written submissions, I stand over consideration of those provisions to enable the submissions to be raised in the context of these reasons. 17 James Hardie (Civil Penalty Compensation Release) Act 2005 1268 I also stand over argument on the effect of the James Hardie (Civil Penalty Compensation Release) Act 2005. 18 Summary 1269 ASIC alleged that the Draft ASX Announcement was approved at the 15 February 2001 Meeting of the JHIL board of directors and that it contained a number of statements to the effect that the Foundation would have sufficient funds to meet all legitimate Asbestos Claims, that it was fully funded and provided certainty for people with legitimate Asbestos Claims. ASIC alleged that those statements were false or misleading and that the directors were in breach of Section 180(1) of the Corporations Law as carried over into the Corporations Act. 1270 I have found that ASIC has made out this case against Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel, Mr O'Brien, Mr Terry, Mr Willcox and Mr Macdonald. 1271 I have found that Mr Macdonald and Mr Shafron failed to advise the board of JHIL that the Draft ASX Announcement was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future Asbestos Claims and in that respect they were in breach of Section 180(1). 1272 I have found that by failing to advise the board of JHIL that the reviews of the Cashflow Model by PwC and Access Economics were limited to reporting on the logical soundness and technical correctness of it and they had not verified, and had been specifically instructed not to consider, the key assumptions adopted by the Cashflow Model, being fixed investment earnings rates, litigation and management costs and future claim costs, Mr Macdonald, Mr Shafron and Mr Morley breached Section 180(1). 1273 I have found that ASIC failed to make out its case that in failing to advise the JHIL board that the best estimate contained in the February 2001 Trowbridge Report and in the Trowbridge 50 year Estimate was too uncertain to be used as a basis to assess the adequacy of Coy and Jsekarb's funding; it had not taken into account superimposed inflation as a prudent estimate would; and it only had a 50% probability of being achieved; Mr Macdonald, Mr Shafron and Mr Morley were in breach of Section 180(1). 1274 ASIC alleged that upon the passing of the resolution of the JHIL board on 15 February 2001 to execute the deed of covenant and indemnity (DOCI), JHIL was bound by continuous disclosure obligations to disclose the information it had to the ASX under Listing Rule 3.1. 1275 I have found that ASIC has made out its case that on or about 15 February 2001 JHIL negligently failed to disclose the DOCI Information in contravention of Listing Rule 3.1 and Section 1001A(2) of the Corporations Law as carried over into the Corporations Act in that it did not obtain any legal advice as to whether it should disclose the DOCI Information and in that neither the board nor management of JHIL considered disclosure of the DOCI Information. 1276 I have found that ASIC has made out its claim that by failing to advise the chairman of the board of JHIL as to whether or not the DOCI Information was required to be disclosed to the ASX; by failing to seek and consider advice and satisfy himself in relation to whether JHIL was required to disclose the DOCI Information to the ASX; by failing to resolve or determine that JHIL would disclose the DOCI Information to the ASX; or by failing to raise with or propose to the chairman of the board of JHIL that they needed to consider and determine whether or not to disclose the DOCI Information to the ASX; Mr Macdonald was in breach of Section 180(1). 1277 I have found that ASIC has made out its claim that by failing to advise Mr Macdonald or the board of JHIL that it needed to consider whether JHIL was required to disclose the DOCI Information to the ASX; in failing to obtain advice for Mr Macdonald or the board or provide his own advice to the board as to whether they were required to disclose the DOCI Information to the ASX; or in failing to advise Mr Macdonald or the board to resolve or determine that JHIL would disclose the DOCI Information to the ASX; Mr Shafron was in breach of Section 180(1). 1278 ASIC alleged that Mr Morley failed to obtain information and advice recommended by solicitors retained to advise him and his co-director of Coy and Jsekarb in relation to their execution of the DOCI and that he failed to obtain advice as to the Put Option and when it might be exercised. 1279 I have found that ASIC has failed to establish that in failing to seek or obtain legal or other professional advice concerning the Put Option and in failing to make any inquiries, or sufficient inquiries, as to the circumstances in which the Put Option would, or might, be exercised, Mr Morley contravened Section 180(1). 1280 ASIC alleged that Mr Macdonald approved the release of the Final ASX Announcement. 1281 I have found that Mr Macdonald breached Section 180(1) in approving for release the Final ASX Announcement, or in failing to advise that the Final ASX Announcement not be released, or that it be amended before being released to remove the matters that were false or misleading. 1282 I have found that since the Final ASX Announcement was false or misleading, ASIC has made out its allegation that by issuing it to the ASX on 16 February 2001, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, contrary to Section 995(2) of the Corporations Law as carried over into the Corporations Act. 1283 Since the Final ASX Announcement was false in a material particular or was materially misleading, I have found that in making and disseminating it, JHIL contravened Section 999 of the Corporations Law as carried over into the Corporations Act. 1284 ASIC alleged that false or misleading statements as to the sufficiency of funding of the Foundation to meet all legitimate future Asbestos Claims were made at a press conference convened by Mr Macdonald on 16 February 2001. 1285 I have found that the Press Conference Statements included statements that were false or misleading and potentially harmful to JHIL and Mr Macdonald was thereby in breach of Section 180(1). 1286 I have found that ASIC has failed to make out a case that in making the Press Conference Statements, Mr Macdonald was in breach of Section 181(1) of the Corporations Law as carried over into the Corporations Act. 1287 I have found that in making the Press Conference Statements on 16 February 2001, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, contrary to Section 995(2). 1288 I have found that the natural effect of the Press Conference Statements was likely to induce persons to purchase JHIL shares and was likely to increase the market price of JHIL shares; that Mr Macdonald knew, or ought to have known, that the statements were false in a material particular or were materially misleading and JHIL thereby contravened Section 999. 1289 ASIC alleged that Mr Macdonald approved for release to the ASX an announcement of 23 February 2001. It was alleged that it conveyed, or was capable of conveying, that it was certain the funding would be sufficient to meet all legitimate present and future Asbestos Claims; Mr Macdonald believed this; and that the material available to JHIL provided a reasonable basis for that assertion. 1290 I have found that by approving the 23 February 2001 ASX Announcement, or in failing to advise that it not be released, or that it be amended before release to remove matters that were false or misleading, Mr Macdonald contravened Section 180(1). 1291 I have found that ASIC failed to make out its allegation that Mr Macdonald was in breach of Section 181(1) in approving the release of the 23 February 2001 ASX Announcement. 1292 I have found that by issuing the 23 February 2001 ASX Announcement, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, and was in contravention of Section 995(2). 1293 I have found that the natural and probable result of the publication of the 23 February 2001 ASX Announcement was to induce the reader to hold JHIL's shares thereby maintaining or stabilising their market price and that in disseminating the 23 February 2001 ASX Announcement, JHIL contravened Section 999. 1294 ASIC alleged that Mr Macdonald approved for release to the ASX a further announcement of 21 March 2001. In similar terms to the allegations with respect to the 23 February 2001 ASX Announcement, it was alleged that the announcement conveyed, or was capable of conveying, that the material available to JHIL provided a reasonable basis for the assertion that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims, and that was false or misleading. 1295 I have found that by approving the 21 March 2001 ASX Announcement, or in failing to advise that it not be released, or that it be amended before being released to remove matters that were false or misleading, Mr Macdonald contravened Section 180(1). 1296 I have found that ASIC has failed to make out a case against Mr Macdonald under Section 181(1) with respect to the 21 March 2001 ASX Announcement. 1297 I have found that by issuing the 21 March 2001 ASX Announcement, JHIL engaged in conduct that was misleading or deceptive, or was likely to mislead to deceive, contrary to Section 995(2). 1298 I have found that ASIC has failed to establish that in making and disseminating the 21 March 2001 ASX Announcement, JHIL contravened Section 999. 1299 ASIC alleged that at a board meeting of JHIL on 23 July 2001, Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox approved a draft of an information memorandum to be sent to members of JHIL as part of a members' scheme of arrangement. The Draft IM contained statements to the effect that the partly paid shares would enable JHIL to call upon JHINV to pay if it was required to meet any liabilities of JHIL. ASIC alleged that that was false or misleading. 1300 I have found that ASIC has failed to establish its case that, with respect to the Draft IM, Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox were in breach of Section 180(1) of the Corporations Act. 1301 ASIC alleged that a draft of a letter to be sent to the late Justice Santow's Associate contained a statement to the effect that JHIL would have, through existing reserves and access to funding in the form of the partly paid shares, the means to meet liabilities that it might incur in the future whether in relation to Asbestos Claims or otherwise. The letter was settled and sent to his Honour's Associate. It contained a statement with respect to the partly paid shares to similar effect. 1302 I have found that ASIC has failed to establish that Mr Macdonald's conduct with respect to the Draft IM, the Draft Court Letter and the Final Court Letter was in breach of Section 180(1). 1303 I have found that ASIC has failed to establish that Mr Shafron's conduct with respect to the Draft IM, the Draft Court Letter and the Final Court Letter was in breach of Section 180(1). 1304 I have found that ASIC has failed to establish that, in dispatching the Final IM to its shareholders, JHIL was in breach of Section 995(2) of the Corporations Act. 1305 I have found that ASIC has failed to establish its allegation that, in issuing the Final IM to its shareholders, JHIL was in breach of Section 999 of the Corporations Act. 1306 ASIC alleged that in June 2002, Mr Macdonald made representations with respect to JHINV in Edinburgh and in London and the slides for these UK presentations were lodged with the ASX. ASIC alleged that in the Edinburgh Representations, the London Representations and the UK Slides, the statements as to the Foundation being fully funded were false in a material particular or materially misleading. 1307 I have found that ASIC has made out its case that, with respect to these Roadshow Presentations, Mr Macdonald was in breach of Section 180(1). 1308 I have found that ASIC has failed to establish that Mr Macdonald was in breach of Section 181(1) with respect to the Roadshow Presentations. 1309 I have found with respect to the ASX Representations in the UK Slides that JHINV was in breach of Section 1041E of the Corporations Act. 1310 I have found that ASIC has failed to make out a breach by JHINV of Section 1041E of the Corporations Act with respect to the Edinburgh Representations and the London Representations. 1311 I have found that, in forwarding the UK Slides to the ASX, JHINV was in breach of Section 1041H of the Corporations Act. 1312 ASIC alleged that at a meeting of the board of directors of JHINV on 25 March 2003, it was resolved that JHINV execute a trust deed establishing the ABN 60 Foundation; that it approve a $1.5m capital reduction by JHIL by payment to it of $1.5m; that it request JHIL to issue 1,000 shares to the ABN 60 Foundation; that the cancellation by JHIL for no consideration of the one fully paid ordinary share held by JHINV was in its best interests; and that it enter into a deed of covenant indemnity and access (DOCIA). ASIC alleged that JHINV was obliged to disclose this information to the ASX under its continuous disclosure obligations. 1313 I have found that between 25 March 2003 and 30 June 2003 JHINV failed to notify the ASX of the ABN 60 Information in accordance with Listing Rule 3.1 and that it thereby contravened Section 674(2) of the Corporations Act. ********** 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.